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 811-2464
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MFS SERIES TRUST IX
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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)
James R. Bordewick, Jr.
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: April 30, 2004
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Date of reporting period: April 30, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) EMERGING
OPPORTUNITIES FUND
------------------------------
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) EMERGING OPPORTUNITIES FUND
The fund seeks long-term growth of capital.
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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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TABLE OF CONTENTS
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MFS PRIVACY POLICY
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MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 3
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PORTFOLIO OF INVESTMENTS 5
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FINANCIAL STATEMENTS 9
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NOTES TO FINANCIAL STATEMENTS 14
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 20
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FEDERAL TAX INFORMATION 21
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TRUSTEES AND OFFICERS 22
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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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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
The turnaround in global stock markets that began in the spring of 2003
continued for much of the year ended April 30, 2004. This rally was driven by
increasingly positive global economic numbers as the period progressed,
particularly with regard to business confidence and corporate earnings. By
late 2003, corporate capital spending, which had been weak for several years,
had also begun to accelerate. Other drivers of the equity rally, in our view,
were decisions made by most central banks worldwide to leave interest rates at
near-historic lows throughout the period.
Toward the end of the period, however, a combination of several factors, in
our view, started to dampen stock returns: A rate increase by the United
States Federal Reserve Board (the Fed) seemed more imminent than investors had
expected at the beginning of 2004. The March train bombings in Spain brought
geopolitical concerns back to the forefront of investors' minds. In addition,
oil prices that approached $40 per barrel in late April raised concerns that
high energy costs could become a significant drag on the global recovery.
CONTRIBUTORS TO PERFORMANCE
The portfolio generated strong absolute and relative returns (when compared
with its benchmark, the Russell Midcap Growth Index) from special business
products stocks and from holdings in the utilities & communications and
retailing sectors.
Among miscellaneous contributors to performance were EVCI Career Colleges,
Digitas, and Autobytel. The utilities & communication sector was paced by the
strong returns generated by SpectraSite, Crown Castle International, American
Tower Corp., and Millicom International. The portfolio also had positions in
Inmet Mining Corp., a basic materials firm, and in health care firms Hologic
and Cytyc Corp. that rounded out the list of top 10 contributors to relative
performance. Digitas, Autobytel, Inmet, and Hologic were sold from the
portfolio by the end of the period.
DETRACTORS FROM PERFORMANCE
The fund's cash position was a leading detractor from relative performance. As
with nearly all mutual funds, this fund holds some cash to buy new holdings and
to cover shareholder redemptions. In a period when equity markets rose, cash
hurt performance against our benchmark, which has no cash position.
Among equity holdings, stocks in the transportation and autos & housing sector
were the greatest detractors from performance relative to the benchmark. The
portfolio was also harmed by stock selection and by an overweight position in
transportation companies, as the sector underperformed the broader market (as
measured by the benchmark). The fund also had positions in several individual
companies, such as Westwood One and Weight Watchers International, that
generated negative returns during the period and that detracted from overall
performance. Weight Watchers was sold from the portfolio by the end of the
period.
Respectfully,
/s/ Eric Fischman
Eric Fischman
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market
and other conditions, and MFS disclaims any responsibility to update such
views. These views may not be relied upon as investment advice or an
indication of trading intent on behalf of any MFS Fund. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS Fund's current or future investments.
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
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PERFORMANCE SUMMARY THROUGH 4/30/04
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Currently, the fund offers Class A and Class I shares, which are available for
purchase at net asset value only by residents of the Commonwealth of
Massachusetts who are employees (or certain relatives of employees) of MFS and
its affiliates or members of the governing boards of the various funds
sponsored by MFS.
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 include the deduction of the
maximum sales charge and reflect the percentage change in the net asset value,
including the reinvestment of any dividends and capital gains distributions.
(See Notes to Performance Summary.)
CALL 1-800-343-2829 EXT. 35941 FOR THE MOST RECENT MONTH-END PERFORMANCE
RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE,
AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA
QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
MFS EMERGING OPPORTUNITIES FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations, May
2, 2000, through April 30, 2004. Index information is from May 1, 2000.)
MFS Emerging
Opportunities Fund -- Russell MidCap
Class A Growth Index
5/00 $ 9,425 $10,000
4/01 7,905 7,053
4/02 8,422 5,994
4/03 7,124 4,995
4/04 10,553 6,800
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share inception
class date 1-yr 3-yr Life*
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A 5/2/2000 48.15% 10.11% 2.87%
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I 6/1/2000 48.01% 10.18% 2.92%
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Comparative benchmarks
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Average annual
- --------------------
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Average mid cap core fund+ 33.08% 4.21% 2.96%
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Russell MidCap Growth Index# 36.14% -1.21% -9.19%
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Average annual
with sales charge
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Share
class 1-yr 3-yr Life*
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A 39.63% 7.96% 1.36%
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Class I shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
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A 48.15% 33.50% 11.97%
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I 48.01% 33.76% 12.19%
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* For the period from the commencement of the fund's investment operations,
May 2, 2000, through April 30, 2004. Index information is from May 1, 2000.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
THE RUSSELL MIDCAP GROWTH INDEX - measures the performance of U.S. mid-cap
growth stocks.
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
5.75% sales charge. Class I shares have no sales charges and are available
only to certain investors.
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.
Because Class I shares have lower expenses than those of Class A shares,
performance shown for Class I is lower than it would have been had this share
been offered for the entire period. Performance has not been adjusted to take
into account differences in class specific operating expenses (such as Rule
12b-1 fees). These results represent the percent change in net asset value.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance would be less favorable. Please see the prospectus and financial
statements for complete details.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Investing in small companies is riskier than investing in more-established
companies.
The portfolio utilizes short sales as an investment technique and will suffer
a loss if it sells a security short and the value of that security rises.
Investing in mid-sized companies is riskier than investing in more-established
companies.
When concentrating on one issuer, the portfolio is sensitive to changes in the
value of these securities.
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 - 4/30/04
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The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 92.4%
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ISSUER SHARES $ VALUE
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U.S. Stocks - 77.8%
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Apparel Manufacturers - 0.2%
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Coach, Inc.* 120 $5,112
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Banks & Credit Companies - 0.5%
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Investors Financial Services Corp. 300 $11,661
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Biotechnology - 4.2%
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CV Therapeutics, Inc.* 1,400 $20,174
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Encysive Pharmaceuticals, Inc.* 1,600 16,080
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Genelabs Technologies, Inc.* 5,600 15,400
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Keryx Biopharmaceuticals, Inc.* 1,100 17,094
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Kosan Biosciences, Inc.* 1,000 13,820
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Rigel Pharmaceuticals, Inc.* 600 12,726
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$95,294
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Broadcast & Cable TV - 11.2%
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Citadel Broadcasting Corp.* 800 $13,880
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EchoStar Communications Corp., "A"* 700 23,233
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Entercom Communications Corp., "A"* 300 13,680
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LIN TV Corp., "A"* 500 11,245
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LodgeNet Entertainment Corp.* 1,100 22,220
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NTL, Inc.* 1,711 97,133
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R.H. Donnelley Corp.* 1,200 54,348
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Westwood One, Inc.* 600 17,724
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$253,463
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Brokerage & Asset Managers - 0.8%
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Ameritrade Holding Corp.* 1,400 $17,136
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Business Services - 11.6%
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Alliance Data Systems Corp.* 800 $27,816
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Charles River Associates, Inc.* 800 25,816
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EVCI Career Colleges, Inc.* 6,100 74,664
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Getty Images, Inc.* 350 19,110
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Harris Interactive, Inc.* 5,700 41,553
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Labor Ready, Inc.* 1,500 18,960
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Manpower, Inc. 300 14,070
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Monster Worldwide, Inc.* 600 15,366
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Resources Connection, Inc.* 600 24,186
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$261,541
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Chemicals - 0.5%
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Lyondell Chemical Co. 730 $11,936
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Computer Software - 0.8%
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Network Associates, Inc.* 1,200 $18,816
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Consumer Goods & Services - 5.8%
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Career Education Corp.* 1,000 $64,000
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Corinthian Colleges, Inc.* 1,200 36,744
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Strayer Education, Inc. 100 12,497
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Sylvan Learning Systems, Inc.* 500 17,625
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$130,866
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Electronics - 2.0%
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Agere Systems, Inc., "B"* 7,000 $15,190
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American Superconductor Corp.* 1,360 17,177
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Integrated Circuit Systems, Inc.* 200 4,738
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PMC-Sierra, Inc.* 700 8,505
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$45,610
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Energy - Independent - 0.9%
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Newfield Exploration Co.* 400 $21,072
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Entertainment - 0.9%
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New Frontier Media, Inc.* 3,000 $19,200
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Food & Drug Stores - 0.7%
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PetMed Express, Inc.* 1,400 $14,924
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Gaming & Lodging - 3.3%
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International Game Technology 400 $15,096
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Royal Caribbean Cruises Ltd. 900 36,477
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WMS Industries, Inc.* 800 22,592
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$74,165
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Insurance - 1.0%
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Conseco, Inc.* 1,100 $21,780
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Internet - 1.5%
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eCollege.com* 1,200 $21,696
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GSI Commerce, Inc.* 1,300 12,610
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$34,306
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Machinery & Tools - 1.1%
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Encore Wire Corp.* 900 $24,606
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Medical & Health Technology & Services - 2.1%
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Curative Health Services, Inc.* 2,500 $29,000
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Fisher Scientific International, Inc.* 300 17,565
- ------------------------------------------------------------------------------------------------------------------------
$46,565
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Medical Equipment - 14.6%
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Aspect Medical Systems, Inc.* 2,900 $48,836
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Cardiac Science, Inc.* 4,000 12,000
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Conceptus, Inc.* 5,100 58,650
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Cytyc Corp.* 3,300 70,620
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DENTSPLY International, Inc. 300 14,538
- ------------------------------------------------------------------------------------------------------------------------
Invitrogen Corp.* 300 21,669
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Millipore Corp.* 500 26,215
- ------------------------------------------------------------------------------------------------------------------------
Thermo Electron Corp.* 900 26,280
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Thoratec Corp.* 1,700 23,137
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Waters Corp.* 600 25,890
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$327,835
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Oil Services - 2.1%
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BJ Services Co.* 700 $31,150
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Smith International, Inc.* 300 16,425
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$47,575
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Personal Computers & Peripherals - 0.2%
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ScanSoft, Inc.* 1,130 $5,492
- ------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.1%
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Medicis Pharmaceutical Corp. 600 $25,752
- ------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 2.7%
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Bowne & Co., Inc. 900 $15,237
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Meredith Corp. 400 20,376
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Playboy Enterprises, Inc.* 700 9,135
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TheStreet.com, Inc.* 3,900 15,522
- ------------------------------------------------------------------------------------------------------------------------
$60,270
- ------------------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.3%
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Pacific Sunwear of California, Inc.* 200 $4,294
- ------------------------------------------------------------------------------------------------------------------------
PETsMART, Inc. 670 18,559
- ------------------------------------------------------------------------------------------------------------------------
Ross Stores, Inc. 200 6,100
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$28,953
- ------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.5%
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Redback Networks, Inc.* 1,900 $10,431
- ------------------------------------------------------------------------------------------------------------------------
Wireless Communications - 6.2%
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American Tower Corp., "A"* 4,000 $49,800
- ------------------------------------------------------------------------------------------------------------------------
Andrew Corp.* 500 8,475
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Arch Wireless, Inc.* 100 3,417
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Crown Castle International Corp.* 3,300 46,036
- ------------------------------------------------------------------------------------------------------------------------
SBA Communications Corp.* 4,800 19,200
- ------------------------------------------------------------------------------------------------------------------------
SpectraSite, Inc.* 320 11,958
- ------------------------------------------------------------------------------------------------------------------------
$138,886
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Total U.S. Stocks $1,753,247
- ------------------------------------------------------------------------------------------------------------------------
Foreign Stocks - 14.6%
- ------------------------------------------------------------------------------------------------------------------------
Bahamas - 1.7%
- ------------------------------------------------------------------------------------------------------------------------
Steiner Leisure Ltd. (Consumer Goods & Services)* 1,900 $38,627
- ------------------------------------------------------------------------------------------------------------------------
Bermuda - 1.5%
- ------------------------------------------------------------------------------------------------------------------------
Central European Media Enterprises Ltd., "A" (Broadcast & Cable TV)* 1,400 $25,480
- ------------------------------------------------------------------------------------------------------------------------
Marvell Technology Group Ltd. (Electronics)* 200 7,746
- ------------------------------------------------------------------------------------------------------------------------
$33,226
- ------------------------------------------------------------------------------------------------------------------------
Brazil - 1.0%
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Embraer-Empresa Brasileira de Aeronautica S.A., ADR (Aerospace) 900 $23,220
- ------------------------------------------------------------------------------------------------------------------------
Canada - 4.3%
- ------------------------------------------------------------------------------------------------------------------------
Aber Diamond (Metals & Mining)* 100 $2,765
- ------------------------------------------------------------------------------------------------------------------------
Aber Diamond Corp. (Metals & Mining)* 100 2,765
- ------------------------------------------------------------------------------------------------------------------------
CoolBrands International, Inc. (Food & Non-Alcoholic Beverages) 2,700 44,409
- ------------------------------------------------------------------------------------------------------------------------
Intrawest Corp. (Gaming & Lodging) 900 13,752
- ------------------------------------------------------------------------------------------------------------------------
Neurochem, Inc. (Biotechnology)* 700 17,073
- ------------------------------------------------------------------------------------------------------------------------
Vasogen, Inc. (Biotechnology)* 2,800 15,540
- ------------------------------------------------------------------------------------------------------------------------
$96,304
- ------------------------------------------------------------------------------------------------------------------------
Germany - 1.3%
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Amadeus Fire AG (Business Services) 4,350 $28,862
- ------------------------------------------------------------------------------------------------------------------------
Ireland - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Ryanair Holdings PLC, ADR (Airlines)* 200 $6,664
- ------------------------------------------------------------------------------------------------------------------------
Luxembourg - 0.9%
- ------------------------------------------------------------------------------------------------------------------------
Millicom International Cellular S.A. (Wireless Communications)* 800 $20,104
- ------------------------------------------------------------------------------------------------------------------------
Mexico - 1.6%
- ------------------------------------------------------------------------------------------------------------------------
Grupo Elektra S.A. de C.V. (Specialty Stores) 4,700 $27,497
- ------------------------------------------------------------------------------------------------------------------------
Grupo Financiero Inbursa S.A. de C.V. (Banks & Credit Companies) 7,600 9,499
- ------------------------------------------------------------------------------------------------------------------------
$36,996
- ------------------------------------------------------------------------------------------------------------------------
Sweden - 1.3%
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Q-Med AB (Biotechnology) 1,000 $28,565
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United Kingdom - 0.7%
- ------------------------------------------------------------------------------------------------------------------------
Amdocs Ltd. (Computer Software)* 600 $15,930
- ------------------------------------------------------------------------------------------------------------------------
Total Foreign Stocks $328,498
- ------------------------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,780,864) $2,081,745
- ------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements - 7.1%
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ------------------------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/04, due 5/03/04, total to be received $161,032 (secured by
various U.S. Treasury and Federal Agency obligations in a jointly traded account), at
Cost $161 $161,000
- ------------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,941,864) $2,242,745
- ------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.5% 10,358
- ------------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $2,253,103
- ------------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
As of April 30, 2004, 2 securities representing $31,330 and 1.40% of net assets were fair valued in accordance with the
policies adopted by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $1,941,864) $2,242,745
- -----------------------------------------------------------------------------------------------------------------------------
Cash 745
- -----------------------------------------------------------------------------------------------------------------------------
Receivable for fund shares sold 65,419
- -----------------------------------------------------------------------------------------------------------------------------
Interest and dividends receivable 31
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $2,308,940
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $55,775
- -----------------------------------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------------------------------
Management fee 46
- -----------------------------------------------------------------------------------------------------------------------------
Reimbursement fee 16
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $55,837
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $2,253,103
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $2,175,669
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of assets and liabilities in
foreign currencies 300,881
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (223,447)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $2,253,103
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 216,284
- -----------------------------------------------------------------------------------------------------------------------------
Class A shares
Net assets $638,028
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding 61,346
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value per share $10.40
- -----------------------------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$10.40) $11.03
- -----------------------------------------------------------------------------------------------------------------------------
Class I shares
Net assets $1,615,075
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding 154,938
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.42
- -----------------------------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the price of Class A shares is reduced. A contingent deferred sales charge may be imposed on
redemptions of Class A shares.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
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.
YEAR ENDED 4/30/04
NET INVESTMENT INCOME (LOSS)
Income
- -----------------------------------------------------------------------------------------------------------------------------
Dividends $4,531
- -----------------------------------------------------------------------------------------------------------------------------
Interest 1,114
- -----------------------------------------------------------------------------------------------------------------------------
Foreign taxes withheld (92)
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $5,553
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Management fee $12,027
- -----------------------------------------------------------------------------------------------------------------------------
Shareholder servicing costs 2,193
- -----------------------------------------------------------------------------------------------------------------------------
Administrative fee 157
- -----------------------------------------------------------------------------------------------------------------------------
Custodian fee 4,062
- -----------------------------------------------------------------------------------------------------------------------------
Printing 10,796
- -----------------------------------------------------------------------------------------------------------------------------
Postage 115
- -----------------------------------------------------------------------------------------------------------------------------
Auditing fees 27,411
- -----------------------------------------------------------------------------------------------------------------------------
Legal fees 2,512
- -----------------------------------------------------------------------------------------------------------------------------
Dividend expense on securities sold 133
- -----------------------------------------------------------------------------------------------------------------------------
Professional services 5,201
- -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous 4,630
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $69,237
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (48)
- -----------------------------------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (53,020)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $16,169
- -----------------------------------------------------------------------------------------------------------------------------
Net investment loss $(10,616)
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis)
- -----------------------------------------------------------------------------------------------------------------------------
Investment transactions $292,869
- -----------------------------------------------------------------------------------------------------------------------------
Foreign currency transactions 79
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions $292,948
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- -----------------------------------------------------------------------------------------------------------------------------
Investments $235,982
- -----------------------------------------------------------------------------------------------------------------------------
Securities sold short 1,797
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on investments $237,779
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency $530,727
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $520,111
- -----------------------------------------------------------------------------------------------------------------------------
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.
FOR YEARS ENDED 4/30
2004 2003
INCREASE IN NET ASSETS
OPERATIONS
Net investment loss $(10,616) $(3,219)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions 292,948 (180,186)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain on investments 237,779 45,936
- ----------------------------------------------------------------------------------------- ---------- ---------
Increase (decrease) in net assets from operations $520,111 $(137,469)
- ----------------------------------------------------------------------------------------- ---------- ---------
Net increase in net assets from fund share transactions $792,210 $138,419
- ----------------------------------------------------------------------------------------- ---------- ---------
Total increase in net assets $1,312,321 $950
- ----------------------------------------------------------------------------------------- ---------- ---------
NET ASSETS
At beginning of period $940,782 $939,832
- -----------------------------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss of $0 and $0, respectively) $2,253,103 $940,782
- -----------------------------------------------------------------------------------------------------------------------------
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 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) held for the entire period. The information has been audited by the fund's
independent auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 4/30
PERIOD ENDED
CLASS A 2004 2003 2002 4/30/01*
Net asset value, beginning of period $7.02 $8.30 $7.79 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.06) $(0.03) $(0.03) $(0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 3.44 (1.25) 0.54 (1.51)
- -------------------------------------------------------------------- ------ ------- ----- -------
Total from investment operations $3.38 $(1.28) $0.51 $(1.54)
- -------------------------------------------------------------------- ------ ------- ----- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
In excess of net realized gain on investments and foreign
currency transactions $-- $-- $-- $(0.67)
- -------------------------------------------------------------------- ------ ------- ----- -------
Net asset value, end of period $10.40 $7.02 $8.30 $7.79
- -------------------------------------------------------------------- ------ ------- ----- -------
Total return (%)(+) 48.15 (15.42) 6.55 (16.13)++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses##^ 1.01 1.02 1.04 1.03+
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.63) (0.42) (0.36) (0.35)+
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 201 252 129 169
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $638 $454 $387 $503
- ----------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management fees, such that Other Expenses do not exceed 0.25%
annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year and
the fund paying MFS an expense reimbursement fee not greater than 0.25% of average daily net assets. To the extent that
the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed amounts paid
by MFS under the current agreement. This agreement will terminate on the earlier of September 1, 2004 or such date as all
expenses previously borne by MFS under the current agreement have been paid by the fund. The fund will not be required to
reimburse MFS for expenses borne under a previous agreement that expired on September 1, 2003. To the extent actual
expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.36) $(0.37) $(0.44) $(0.27)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 4.32 6.16 6.50 3.45+
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (3.94) (5.56) (5.82) (2.77)+
- ----------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, May 2, 2000, through April 30, 2001.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ Excluding dividend expense on securities sold short, the ratio of expenses to average net assets was 1.00% and 1.01% for
the years ended April 30, 2004, and April 30, 2003, respectively.
(+) 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
FOR YEARS ENDED 4/30
PERIOD ENDED
CLASS I 2004 2003 2002 4/30/01*
Net asset value, beginning of period $7.04 $8.29 $7.79 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.07) $(0.03) $(0.03) $(0.04)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 3.45 (1.22) 0.53 (1.50)
- -------------------------------------------------------------------- ------ ------- ----- -------
Total from investment operations $3.38 $(1.25) $0.50 $(1.54)
- -------------------------------------------------------------------- ------ ------- ----- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
In excess of net realized gain on investments and foreign
currency transactions $-- $-- $-- $(0.67)
- -------------------------------------------------------------------- ------ ------- ----- -------
Net asset value, end of period $10.42 $7.04 $8.29 $7.79
- -------------------------------------------------------------------- ------ ------- ----- -------
Total return (%) 48.01 (15.08) 6.42 (16.13)++
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses##^ 1.01 1.02 1.04 1.03+
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.68) (0.44) (0.38) (0.36)+
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 201 252 129 169
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,615 $487 $552 $795
- ----------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management fees, such that Other Expenses do not exceed 0.25%
annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year and
the fund paying MFS an expense reimbursement fee not greater than 0.25% of average daily net assets. To the extent that
the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed amounts paid
by MFS under the current agreement. This agreement will terminate on the earlier of September 1, 2004 or such date as all
expenses previously borne by MFS under the current agreement have been paid by the fund. The fund will not be required to
reimburse MFS for expenses borne under a previous agreement that expired on September 1, 2003. To the extent actual
expenses were over this limitation, the net investment loss per share and the ratios would have been:
Net investment loss $(0.38) $(0.38) $(0.46) $(0.30)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 4.32 6.16 6.50 3.45+
- ----------------------------------------------------------------------------------------------------------------------------
Net investment loss (3.99) (5.58) (5.84) (2.77)+
- ----------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class I shares, June 1, 2000, through April 30, 2001.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ Excluding dividend expense on securities sold short, the ratio of expenses to average net assets was 1.00% and 1.01% for the
years ended April 30, 2004, and April 30, 2003, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Emerging Opportunities Fund (the fund) is a diversified series of MFS
Series Trust IX (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 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination
is made that current market quotations are not readily available. Equity
securities in the fund's portfolio for which market quotations are available
are valued at the last sale or official closing price as reported by an
independent pricing service 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. Equity securities traded over the counter
are valued at the last sales price traded each day as reported by an
independent pricing service, or to the extent there are no sales reported,
such securities are valued on the basis of quotations obtained from brokers
and dealers. Equity securities for which it is determined that current market
quotations are not readily available will be fair valued under the direction
of the Board of Trustees. The fund may also fair value foreign equity
securities in cases where closing market quotations are not readily available
or are deemed not reflective of readily available market quotations. For
example, significant events (such as movement in the U.S. securities market,
or other regional and local developments) may occur between the time that
foreign markets close (where the security is principally traded) and the time
that the fund calculates its net asset value (generally, the close of the
NYSE) that may impact the value of securities traded in these foreign markets.
In these cases, the fund may utilize information from an external vendor or
other sources to adjust closing market quotations of foreign equity securities
to reflect what it believes to be the fair value of the securities as of the
fund's valuation time. Because the frequency of significant events is not
predictable, fair valuation of foreign equity securities may occur on a
frequent basis. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. 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.
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 - 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.
SHORT SALES - The fund may enter into short sales. A short sale transaction
involves selling a security which the fund does not own with the intent of
purchasing it later at a lower price. The fund will realize a gain if the
security price decreases and a loss if the security price increases between
the date of the short sale and the date on which the fund must replace the
borrowed security. Losses from short sales can exceed the proceeds of the
security sold; and they can also exceed the potential loss from an ordinary
buy and sell transaction. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of the premium, dividends, or
interest the fund may be required to pay in connection with a short sale.
Whenever the fund engages in short sales, its custodian segregates cash or
marketable securities in an amount that, when combined with the amount of
proceeds from the short sale deposited with the broker, at least equals the
current market value of the security sold short.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United States
of America. 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.
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, for the year ended April 30, 2004, 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.
The fund paid no distributions for the years ended April 30, 2003 and April
30, 2004.
During the year ended April 30, 2004, net investment loss decreased by
$10,616, net realized loss on investments and foreign currency transactions
increased by $79, and paid-in capital decreased by $10,537 due to differences
between book and tax accounting for currency transactions and net operating
losses. This change had no effect on the net assets or net asset value per
share.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(223,447)
----------------------------------------------
Unrealized appreciation 300,881
----------------------------------------------
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 April 30, 2010, $(49,067) and
April 30, 2011 $(174,380).
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.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with 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 0.75% of the fund's average daily net assets.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, and certain other fees and expenses, such
that Other Expenses do not exceed 0.25% annually. This arrangement is effected
by MFS bearing all of the fund's Other Expenses during the fund's fiscal year
and the fund paying MFS an expense reimbursement fee not greater than 0.25% of
average daily net assets for Class A, and Class I. To the extent that the
expense reimbursement fee exceeds the fund's actual expenses, the excess will
be applied to unreimbursed amounts paid by MFS under the current agreement.
This agreement will terminate on the earlier of September 1, 2004 or such date
as all expenses previously borne by MFS under the current agreement have been
paid by the fund. At April 30, 2004, aggregate unreimbursed expenses amounted
to $37,948. The fund will not be required to reimburse MFS the $53,189 for
expenses borne under a previous agreement that expired on September 1, 2003.
The fund pays compensation to its Independent Trustees ("Trustees") in the
form of both a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons, 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 retired Independent Trustees. The Trustees
are currently waiving their right to receive compensation from the fund.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to 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%
----------------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $157, equivalent to
0.0098% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges on sales of Class A shares for the year ended April
30, 2004.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.10% per annum of the fund's average daily
net assets attributable to Class A shares. Distribution and service fees under
the Class A distribution plan are currently not
being implemented.
Certain Class A shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within 12 months following the purchase.
MFD receives all contingent deferred sales charges. There were no contingent
sales charges imposed during the year ended April 30, 2004.
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as
shareholder servicing agent. The fee, which is calculated as a percentage of
the fund's average daily net assets is set periodically under the supervision
of the funds' Trustees. Prior to April 1, 2004, the fee was set at 0.11% of
the fund's average daily net assets. Effective April 1, 2004, the fee is set
at 0.10% of the fund's average net assets. For the year ended April 30, 2004,
the fund paid MFSC a fee of $1,746 for shareholder services which amounted to
0.11% of the fund's average net assets. Also included in shareholder servicing
costs are out-of-pocket expenses, paid to
MFSC, which amounted to $45 for the year ended April 30, 2004, as well as
other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$3,786,946 and $3,004,048, 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 $1,941,864
----------------------------------------------
Gross unrealized appreciation $378,053
----------------------------------------------
Gross unrealized depreciation (77,172)
----------------------------------------------
Net unrealized appreciation $300,881
----------------------------------------------
(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:
YEAR ENDED 4/30/04 YEAR ENDED 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 26,453 $249,955 26,674 $175,429
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (29,791) (274,823) (8,645) (56,454)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (3,338) $(24,868) 18,029 $118,975
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 104,826 $1,000,203 41,849 $279,220
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (19,026) (183,125) (39,312) (259,776)
- ------------------------------------------------------------------------------------------------------------
Net increase 85,800 $817,078 2,537 $19,444
- ------------------------------------------------------------------------------------------------------------
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the year ended April 30, 2004, was $8. The fund had
no significant borrowings during the year.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the
Securities and Exchange Commission ("SEC") regarding disclosure of brokerage
allocation practices in connection with fund sales. Under the terms of the
settlement, in which MFS neither admitted nor denied any wrongdoing, MFS
agreed to pay (one dollar) $1.00 in disgorgement and $50 million in penalty to
certain MFS funds, pursuant to a plan administered by an independent
distribution consultant. The agreement with the SEC is reflected in an order
of the SEC. The settlement order states that MFS failed to adequately disclose
to the Boards and Trustees and to shareholders of the MFS funds the specifics
of its preferred arrangements with certain brokerage firms selling MFS fund
shares. The settlement order states that MFS had in place policies designed to
obtain best execution of all fund trades. As part of the settlement, MFS has
retained an independent compliance consultant to review the completeness of
its disclosure to fund trustees and to fund shareholders of strategic
alliances between MFS or its affiliates and broker-dealers and other financial
advisers who support the sale of fund shares. The brokerage allocation
practices which were the subject of this proceeding were discontinued by MFS
in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false
and misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did
not limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine
to NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust).
In addition, under the terms of the February Settlements, MFS is in the
process of adopting certain governance changes and reviewing its policies
and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The
lawsuits variously have been commenced as class actions or individual actions
on behalf of investors who purchased, held or redeemed shares of the funds
during specified periods, as class actions on behalf of participants in
certain retirement plan accounts, or as derivative actions on behalf of the
MFS funds. The lawsuits generally allege that some or all of the defendants
(i) permitted or acquiesced in market timing and/or late trading in some of
the MFS funds, inadequately disclosed MFS' internal policies concerning market
timing and such matters, and received excessive compensation as fiduciaries to
the MFS funds, or (ii) permitted or acquiesced in the improper use of fund
assets by MFS to support the distribution of fund shares and inadequately
disclosed MFS' use of fund assets in this manner. The actions assert that some
or all of the defendants violated the federal securities laws, including the
Securities Act of 1933 and the Securities Exchange Act of 1934, the Investment
Company Act of 1940 and the Investment Advisers Act of 1940, the Employee
Retirement Income Security Act of 1974, as well as fiduciary duties and other
violations of common law. The lawsuits seek unspecified compensatory damages.
Insofar as any of the actions is appropriately brought derivatively on behalf
of any of the MFS funds, any recovery will inure to the benefit of the funds.
The defendants are reviewing the allegations of the multiple complaints and
will respond appropriately. Additional lawsuits based on similar allegations
may be filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS
has established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of fund sales. It is
not clear whether these amounts will be sufficient to compensate shareholders
for all of the damage they allegedly sustained, whether certain shareholders
or putative class members may have additional claims to compensation, or
whether the damages that may be awarded in any of the actions will exceed
these amounts. In the event the MFS funds incur any losses, costs or expenses
in connection with such lawsuits, the Boards of Trustees of the affected funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments,
will not result in increased fund redemptions, reduced sales of fund shares,
or other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To the Shareholders of MFS Emerging Opportunities Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Emerging Opportunities Fund (the Fund), including the portfolio of investments,
as of April 30, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of April 30, 2004, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Emerging Opportunities Fund at April 30, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for each of the
periods indicated therein, in conformity with U.S. generally accepted
accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
June 11, 2004
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004, if
applicable.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- --------------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- --------------------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The business address of each Trustee and officer is 500 Boylston Street,
Boston, Massachusetts 02116.
POSITION(s) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATIONS & OTHER DIRECTORSHIPS(2)
NAME, DATE OF BIRTH WITH FUND SINCE(1) DURING THE PAST FIVE YEARS
- ------------ -------- -------- -----------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services Company,
(born 12/14/59) February 2004 President, Chief Investment Officer and Director
(until February 2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services Company, Chairman
(born 08/08/46) (since February 2004); Harvard Law School
(education), John Olin Visiting Professor (since
July 2002); Secretary of Economic Affairs, The
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice Chairman
(June 2000 to December 2001); Fidelity Management &
Research Company (investment adviser), President
(March 1997 to July 2001); The Bank of New York
(financial services), Director; Bell Canada
Enterprises (telecommunications), Director; Telesat
(satellite communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services Company, Chairman
(born 06/02/55) February 2004 (until February 2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation (energy
(born 05/01/36) related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of Cardiac
(born 03/11/37) Surgery; Harvard Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining products and service
(born 05/30/42) provider), Vice Chairman/Director (since April
2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding equipment
manufacturer), Director; Southwest Gas Corporation
(natural gas distribution company), Director
William R. Gutow Trustee December 1993 Private investor and real estate consultant;
(born 09/27/41) Capitol Entertainment Management Company (video
franchise), Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc., Managing
(born 02/08/53) Director, Investment Banking Group (1997 to
February 2001); Borders Group, Inc. (book and music
retailer), Director; Federal Realty Investment
Trust (real estate investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University Graduate
(born 04/10/35) School of Business Administration, Class of 1961
Adjunct Professor in Entrepreneurship Emeritus; CBL
& Associates Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning
(born 09/23/38) specialists), President; Wellfleet Investments
(investor in health care companies), Managing
General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional products),
Chief Executive Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry consultant
(born 04/25/46)
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services Company, Senior
(born 03/06/59) and Assistant Clerk Vice President and Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 until Massachusetts Financial Services Company, Senior
(born 11/06/53) March 2004 Vice President, General Counsel and Secretary
(until March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services Company, Vice
(born 10/01/53) President (since April 2003); Brown Brothers
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President (prior
to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services Company, Vice
(born 09/18/63) President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services Company, Senior
(born 08/29/58) Vice President (since July 2002); The Bank of New
York, Senior Vice President (September 2000 to July
2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington Funds,
Chief Financial Officer (prior to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services Company, Vice
(born 11/13/57) President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services Company, Senior
(born 06/12/60) Vice President
- ----------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since appointment
unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "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 series/the fund. The address of MFS is 500 Boylston
Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not elected for
fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years thereafter to elect
Trustees. Each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier
death, resignation, retirement or removal.
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 109 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 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
Eric Fischman
A general description of the MFS Funds proxy voting policies and procedures 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
MFS(R) TAX MANAGED EQUITY FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116
INCA-ANN 6/04
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) RESEARCH
BOND 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) RESEARCH BOND FUND
The fund seeks to provide total return (high current income and long-term
growth of capital).
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
- ----------------------------------------------------
MANAGEMENT REVIEW 6
- ----------------------------------------------------
PERFORMANCE SUMMARY 10
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 14
- ----------------------------------------------------
FINANCIAL STATEMENTS 28
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 46
- ----------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM 59
- ----------------------------------------------------
TRUSTEES AND OFFICERS 60
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 64
- ----------------------------------------------------
FEDERAL TAX INFORMATION 65
- ----------------------------------------------------
CONTACT INFORMATION 66
- ----------------------------------------------------
ASSET ALLOCATION 67
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging environment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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
Over the one-year period ended April 30, 2004, long-term U.S. Treasury bond
yields rose modestly, from 3.84% to 4.50%. The path upward, however, was marked
by significant volatility in the overall bond market.
In early 2003 and into the first half of the period, we saw a confluence of
factors that were positive for bond prices and, therefore, negative for rates.
Geopolitical uncertainty, the hangover from corporate scandals in 2002, and a
weak U.S. economy were among the factors that pushed interest rates down to
four-decade lows by June of 2003.
In late June, however, the bond market reversed direction as fixed-income
investors, we believe, became concerned that the economic recovery was
accelerating faster than expected. Over the summer of 2003 and into early
September, bond prices declined as rates rose sharply.
In the fall and winter of 2003, however, bond prices revived as several factors
combined to drive rates down again. Economic reports indicated that inflation
was well contained while job growth remained weak. Although most other measures
indicated the U.S. economy was improving, we believe investors were concerned
that consumer spending might falter because laid-off workers were not finding
new jobs. The Federal Reserve Board (the Fed) appeared to sum up the situation
in its statements that interest rates could remain low for the foreseeable
future.
As the period came to a close in March and April of 2004, bonds reversed
direction again. Long-term rates climbed sharply as the United States finally
began to experience strong job growth, and the market began to anticipate that
a Fed rate increase was imminent. Just after the period ended, the Fed's press
release after its May 4 meeting contained the first indication in several years
that rates were indeed going up: "At this juncture, ... the [Federal Open
Market] Committee believes that policy accommodation can be removed at a pace
that is likely to be measured."
The accelerating U.S. recovery over the period was generally positive for
corporate bonds. Growth in GDP (gross domestic product), business profits, and
other measures pointed toward improving corporate fundamentals - business
factors such as earnings and cash flow growth.
In response, investors, we believe, moved away from the risk aversion or
"flight to quality" that had characterized the bond market in late 2002 and
early 2003. Riskier, lower-rated classes of bonds showed the best performance
over the period. With Treasury yields at four-decade lows, investors sought out
higher-yielding corporate and emerging market debt. This caused spreads -- the
differences between corporate or emerging market yields and the yields of
"AAA"-rated Treasuries -- to tighten (decrease) over the period. Emerging
market and high-yield corporate debt outperformed high-grade corporate debt,
which in turn outperformed Treasuries. Within categories, lower-rated bonds
generally outperformed higher-rated issues. While bonds across most asset
classes were hurt by rising rates in the final months of the period, lower-
rated debt was less affected than higher-rated issues and Treasuries. (The
principal value and interest on Treasury securities, however, are guaranteed by
the U.S. government if held to maturity.)
PORTFOLIO CONCENTRATION AS OF 4/30/04
QUALITY RATINGS
"AAA" 21.2%
"AA" 3.8%
"A" 8.9%
"BBB" 20.2%
"BB" 5.1%
"B" 2.0%
Other 1.3%
Govts Agencies 37.5%
The portfolio is actively managed, and current
holdings may be different.
Percentages based on assets on 4/30/04.
CONTRIBUTORS TO PERFORMANCE
In the area of credit quality, relative performance was helped by the fund's
overweighting in lower-quality debt relative to its benchmark, the Lehman
Brothers Government/Credit Index (the Lehman Index). During a period when
spreads were tightening, lower-rated bonds outperformed, and the fund's
overweighting in "BBB"-, "BB"-, and "B"-rated debt helped relative returns.
(Bonds rated "BB" or below by the major credit rating agencies are referred to
as below-investment-grade or "junk" bonds.)
Sector allocation also helped results. Relative to the Lehman Index, the fund
was overweighted in the industrials sector as bonds in that sector generally
benefited from the improving economy over the period. A number of the fund's
holdings in emerging market corporate debt also performed well and helped
relative returns.
Performance was also aided by the fact that a portion of our U.S. Treasury
holdings were in TIPS, or Treasury inflation-protection securities. Over the
period, these inflation-linked securities, which are issued by the U.S.
Treasury, outperformed comparable ordinary, or nominal, Treasuries. We believe
TIPS did well because the improving economy increased investor concerns about
rising interest rates and higher inflation.
DETRACTORS FROM PERFORMANCE
The fund's holdings in the banking industry hurt performance relative to our
benchmark. An overweighting in higher-quality banking company debt,
particularly in "A"-rated bonds, detracted from relative returns.
Respectfully,
/s/ Michael W. Roberge
Michael W. Roberge
Chief Fixed Income Officer
The committee of MFS fixed-income research analysts is responsible for the
day-to-day management of the fund under the general supervision of Mr. Roberge.
Note to investors: Effective as of period-end on April 30, 2004, the Lehman
Brothers Aggregate Bond Index replaced the Lehman Brothers Government/Credit
Index as the fund's benchmark. We believe the Lehman Brothers Aggregate Bond
Index more closely reflects the fund's investment universe.
The views expressed in this report are those of the Chief Fixed Income Officer
only through the end of the period of the report as stated on the cover and do
not necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. Past performance is no guarantee of
future results. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operatons,
January 4, 1999, through April 30, 2004. Index information is from January 1,
1999)
MFS Research Lehman Brothers Lehman Brothers
Bond Fund - Government/ Aggregate
Class A Credit Index Bond Index
1/99 $ 9,525 $10,000 $10,000
4/00 9,621 9,999 10,108
4/01 10,910 11,210 11,360
4/02 11,803 12,048 12,250
4/03 13,288 13,546 13,532
4/04 13,701 13,790 13,778
TOTAL RETURNS
- -----------------------
Average annual
without sales charge
- -----------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 1/4/99 3.11% 7.89% 7.60% 7.08%
- ------------------------------------------------------------------------------
B 12/29/00 2.24% 7.01% 7.02% 6.53%
- ------------------------------------------------------------------------------
C 12/29/00 2.24% 7.01% 7.03% 6.53%
- ------------------------------------------------------------------------------
I 1/4/99 3.27% 8.09% 7.76% 7.18%
- ------------------------------------------------------------------------------
R1 12/31/02 2.75% 7.72% 7.50% 6.98%
- ------------------------------------------------------------------------------
R2 10/31/03 2.90% 7.82% 7.56% 7.03%
- ------------------------------------------------------------------------------
529A 7/31/02 2.75% 7.65% 7.46% 6.94%
- ------------------------------------------------------------------------------
529B 7/31/02 1.89% 7.17% 7.17% 6.67%
- ------------------------------------------------------------------------------
529C 7/31/02 1.98% 7.17% 7.17% 6.67%
- ------------------------------------------------------------------------------
- -----------------------
Average annual
- -----------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average A-rated corporate debt fund+ 2.20% 6.13% 5.74% 5.19%
- ------------------------------------------------------------------------------
Lehman Brothers Government/Credit
Index# 1.80% 7.15% 6.84% 6.21%
- ------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index# 1.82% 6.65% 6.66% 6.19%
- ------------------------------------------------------------------------------
- -----------------------
Average annual
with sales charge
- -----------------------
Share class
- ------------------------------------------------------------------------------
A -1.79% 6.15% 6.56% 6.10%
- ------------------------------------------------------------------------------
B -1.66% 6.13% 6.72% 6.39%
- ------------------------------------------------------------------------------
C 1.27% 7.01% 7.03% 6.53%
- ------------------------------------------------------------------------------
529A -2.13% 5.92% 6.42% 5.97%
- ------------------------------------------------------------------------------
529B -2.01% 6.29% 6.87% 6.53%
- ------------------------------------------------------------------------------
529C 1.01% 7.17% 7.17% 6.67%
- ------------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- -----------------------
Cumulative without
sales charge
- -----------------------
Share class 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 3.11% 25.59% 44.26% 43.84%
- ------------------------------------------------------------------------------
B 2.24% 22.53% 40.40% 39.99%
- ------------------------------------------------------------------------------
C 2.24% 22.53% 40.43% 40.02%
- ------------------------------------------------------------------------------
I 3.27% 26.29% 45.32% 44.60%
- ------------------------------------------------------------------------------
R1 2.75% 25.01% 43.59% 43.18%
- ------------------------------------------------------------------------------
R2 2.90% 25.33% 43.97% 43.55%
- ------------------------------------------------------------------------------
529A 2.75% 24.76% 43.31% 42.89%
- ------------------------------------------------------------------------------
529B 1.89% 23.08% 41.38% 40.97%
- ------------------------------------------------------------------------------
529C 1.98% 23.07% 41.38% 40.96%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
January 4, 1999 through April 30, 2004. Index information is from
January 1, 1999.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
LEHMAN BROTHERS AGGREGATE BOND INDEX - a measure of the U.S. bond market.
LEHMAN BROTHERS GOVERNMENT/CREDIT INDEX - measures the performance of all debt
obligations of the U.S. Treasury and U.S. government agencies, and all
investment-grade domestic corporate debt.
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 R1 and R2
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 to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial share class to which it is blended.
Prior to January 1, 2001, the fund was available only to MFS employees and fund
Trustees, and had limited assets. Between February 1, 1999 and December 29,
2000, a significant portion of the fund's fees and expenses were waived or paid
for by the adviser. Had applicable expense subsidies or waivers not been in
effect, performance would have been lower. Through the date shown, average
annual returns without sales charges for Class A would have been 7.89%, 7.42%,
and 6.88%, respectively, for the 3 year, 5 year and life periods; for Class B,
7.01%, 6.84%, and 6.34%; for Class C, 7.01%, 6.85%, and 6.34%; for Class I,
8.09%, 7.64%, and 7.05%; for Class R1, 7.72%, 7.33%, and 6.79%; for Class R2,
7.82%, 7.38%, and 6.84%; for Class 529A, 7.65%, 7.28%, and 6.75%; for Class
529B, 7.17%, 6.99%, and 6.47%; and for Class 529C, 7.17%, 6.99%, and 6.47%.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, current 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.
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.
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 - 4/30/04
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 97.2%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
U.S. Bonds - 89.5%
- ----------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.1%
- ----------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $798 $813,960
- ----------------------------------------------------------------------------------------------
Aerospace - 0.9%
- ----------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 6.4%, 2011## $4,517 $4,813,306
- ----------------------------------------------------------------------------------------------
Boeing Capital Corp., 6.5%, 2012 2,168 2,355,935
- ----------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7%, 2006 279 300,468
- ----------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125%, 2011 577 648,763
- ----------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.75%, 2031 199 233,060
- ----------------------------------------------------------------------------------------------
$8,351,532
- ----------------------------------------------------------------------------------------------
Airlines - 0.5%
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.875%, 2018 $3,113 $3,075,893
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.545%, 2019 958 933,340
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.648%, 2019 440 426,018
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.256%, 2020 4 3,970
- ----------------------------------------------------------------------------------------------
$4,439,221
- ----------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.4%
- ----------------------------------------------------------------------------------------------
Miller Brewing Co., 5.5%, 2013## $3,776 $3,822,169
- ----------------------------------------------------------------------------------------------
Asset Backed & Securitized - 9.9%
- ----------------------------------------------------------------------------------------------
Aesop Funding II LLC, 2.78%, 2007## $3,494 $3,471,747
- ----------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 5.37%, 2008 687 704,742
- ----------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 3.67%, 2009 3,474 3,530,394
- ----------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.177%, 2005 714 716,873
- ----------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.02%, 2033 3,089 3,062,725
- ----------------------------------------------------------------------------------------------
Amresco Commercial Mortgage Funding I, 7%, 2029 558 606,629
- ----------------------------------------------------------------------------------------------
Argent Securities, Inc., 2.8%, 2033 1,552 1,552,803
- ----------------------------------------------------------------------------------------------
Asset Securitization Corp., 7.525%, 2029 1,077 910,141
- ----------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc.,
6.8%, 2008 191 200,835
- ----------------------------------------------------------------------------------------------
CNH Equipment Trust, 4.3%, 2008 158 159,294
- ----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 2.89%, 2009## 1,177 1,175,881
- ----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 3.5%, 2009## 303 305,048
- ----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 3.52%, 2009## 728 732,940
- ----------------------------------------------------------------------------------------------
CRIIMI MAE CMBS Corp., 6.701%, 2008## 10 10,598
- ----------------------------------------------------------------------------------------------
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033## 1,906 2,032,492
- ----------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 4.79%, 2009 519 535,200
- ----------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 3.18%, 2010 2,393 2,376,365
- ----------------------------------------------------------------------------------------------
Certificates Funding Corp., 6.716%, 2004## 153 153,339
- ----------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., 6.39%, 2030 1,596 1,742,742
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.8%, 2006 72 73,533
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 6.49%, 2008 1,915 2,091,670
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 6.04%, 2030 718 773,101
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 7.03%, 2031 3,008 3,372,946
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.78%, 2009 3,380 3,649,800
- ----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 0.9064%, 2005^^ 239 1,909
- ----------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 1,552 1,669,417
- ----------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,635 1,308,636
- ----------------------------------------------------------------------------------------------
Drive Auto Receivables Trust, 2.5%, 2009## 2,314 2,250,365
- ----------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 4.1743%, 2023^^ 10,558 1,957,451
- ----------------------------------------------------------------------------------------------
Falcon Franchise Loan LLC, 3.385%, 2023##^^ 717 101,735
- ----------------------------------------------------------------------------------------------
First Union National Bank Commercial Mortgage Trust,
7.39%, 2031 1,556 1,767,121
- ----------------------------------------------------------------------------------------------
First Union National Bank Commercial Mortgage Trust,
1.2186%, 2043##^^ 25,259 1,326,395
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Bank of America,
0.7503%, 2028^^ 30,429 734,412
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
6.65%, 2029 4,267 4,621,791
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
7.38%, 2029 2,593 2,823,991
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
7.5%, 2029 798 800,244
- ----------------------------------------------------------------------------------------------
Fortress CBO Investments I Ltd., 1.9%, 2038 2,194 2,193,657
- ----------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., 6.269%, 2035 2,042 2,216,590
- ----------------------------------------------------------------------------------------------
Goldman Sachs Mortgage Securities Corp., 6.06%, 2030 33 34,468
- ----------------------------------------------------------------------------------------------
Household Automotive Trust, 3.44%, 2009 1,197 1,207,954
- ----------------------------------------------------------------------------------------------
Hyundai Auto Receivables Trust, 2.8%, 2007## 798 804,124
- ----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.9%, 2006 352 354,507
- ----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.27%, 2011 1,994 2,008,783
- ----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, 6.78%, 2031 1,162 1,289,025
- ----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust,
0.7613%, 2035^^ 32,869 825,179
- ----------------------------------------------------------------------------------------------
Long Beach Auto Receivables Trust, 2.841%, 2010 3,221 3,228,046
- ----------------------------------------------------------------------------------------------
MFN Auto Receivables Trust, 5.07%, 2007## 10 10,106
- ----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 6.39%, 2030 778 834,103
- ----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 5.65%, 2030 10 9,852
- ----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.5322%, 2008 630 699,738
- ----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 6.86%, 2010 1,157 1,232,907
- ----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.3%, 2030## 3,362 3,619,951
- ----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.48%, 2030 2,076 2,260,812
- ----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 1.1837%, 2031^^ 22,207 853,451
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.663%, 2008 1,025 1,120,063
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 1.074%, 2031^^ 20,535 601,376
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.337%, 2031 2,322 2,519,859
- ----------------------------------------------------------------------------------------------
Multi-Family Capital Access One, Inc., 6.65%, 2024 1,774 1,962,711
- ----------------------------------------------------------------------------------------------
Nationslink Funding Corp., 0.8773%, 2023^^ 10,360 260,645
- ----------------------------------------------------------------------------------------------
Nationslink Funding Corp., 6.001%, 2030 117 121,816
- ----------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.18%, 2027 2,314 2,322,727
- ----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.99%, 2022## 1,111 1,099,934
- ----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.25%, 2032## 1,197 1,198,676
- ----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 3.39%, 2033 1,994 1,972,191
- ----------------------------------------------------------------------------------------------
TIAA Real Estate CDO Ltd., 7.17%, 2032## 1,340 1,442,115
- ----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 2.48%, 2008 981 980,558
- ----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 3.24%, 2009 1,259 1,273,793
- ----------------------------------------------------------------------------------------------
Vanderbilt Mortgage & Finance, Inc., 5.17%, 2014 106 107,137
- ----------------------------------------------------------------------------------------------
WFS Financial, Inc., 2.39%, 2007 247 247,983
- ----------------------------------------------------------------------------------------------
$94,220,142
- ----------------------------------------------------------------------------------------------
Automotive - 3.1%
- ----------------------------------------------------------------------------------------------
DaimlerChrysler N.A. Holdings Corp., 6.5%, 2013 $3,411 $3,518,341
- ----------------------------------------------------------------------------------------------
Dana Corp., 9%, 2011 2,840 3,351,200
- ----------------------------------------------------------------------------------------------
Ford Motor Co., 7.45%, 2031 2,214 2,158,325
- ----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.875%, 2010 3,958 4,348,330
- ----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7%, 2013 2,554 2,626,610
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.75%, 2006 3,127 3,311,196
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7%, 2012 319 335,702
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 8%, 2031 2,310 2,438,029
- ----------------------------------------------------------------------------------------------
General Motors Corp., 8.375%, 2033 4,312 4,663,501
- ----------------------------------------------------------------------------------------------
Lear Corp., 8.11%, 2009 2,716 3,120,005
- ----------------------------------------------------------------------------------------------
$29,871,239
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 4.5%
- ----------------------------------------------------------------------------------------------
Abbey National Capital Trust I, 8.963%, 2049 $1,584 $2,022,831
- ----------------------------------------------------------------------------------------------
Bank of America Corp., 7.4%, 2011 5,231 6,015,096
- ----------------------------------------------------------------------------------------------
Citigroup, Inc., 7.25%, 2010 3,225 3,683,392
- ----------------------------------------------------------------------------------------------
Citigroup, Inc., 5.625%, 2012 2,622 2,734,096
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston (USA), Inc., 6.125%, 2011 1,885 2,017,203
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston (USA), Inc., 5.125%, 2014 805 787,808
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.38%, 2035 3,180 3,465,941
- ----------------------------------------------------------------------------------------------
Natexis AMBS Co. LLC, 8.44%, 2049## 1,635 1,885,485
- ----------------------------------------------------------------------------------------------
Popular North America, Inc., 4.25%, 2008 1,994 2,010,967
- ----------------------------------------------------------------------------------------------
RBS Capital Trust II, 6.425%, 2049 3,191 3,150,308
- ----------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64%, 2049## 2,349 2,634,636
- ----------------------------------------------------------------------------------------------
UniCredito Italiano Capital Trust II, 9.2% to 2010,
4.53% to 2049## 1,766 2,156,268
- ----------------------------------------------------------------------------------------------
Wachovia Corp., 4.875%, 2014 3,000 2,898,951
- ----------------------------------------------------------------------------------------------
Wachovia Corp., 6.605%, 2025 2,393 2,572,257
- ----------------------------------------------------------------------------------------------
Wells Fargo & Co., 7.8%, 2010 199 210,580
- ----------------------------------------------------------------------------------------------
Wells Fargo & Co., 6.45%, 2011 4,052 4,468,971
- ----------------------------------------------------------------------------------------------
$42,714,790
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.6%
- ----------------------------------------------------------------------------------------------
CSC Holdings, Inc., 8.125%, 2009 $3,288 $3,509,940
- ----------------------------------------------------------------------------------------------
TCI Communication Financing III, 9.65%, 2027 20 23,631
- ----------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 1,464 1,868,953
- ----------------------------------------------------------------------------------------------
$5,402,524
- ----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.3%
- ----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.7%, 2012 $3,617 $3,729,160
- ----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.25%, 2007 1,596 1,820,355
- ----------------------------------------------------------------------------------------------
Morgan Stanley DW, Inc., 6.6%, 2012 2,957 3,254,785
- ----------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 5.3%, 2013 742 741,589
- ----------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 4.75%, 2014 2,500 2,335,725
- ----------------------------------------------------------------------------------------------
$11,881,614
- ----------------------------------------------------------------------------------------------
Building - 1.0%
- ----------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $1,072 $1,173,840
- ----------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.625%, 2010 3,684 4,144,500
- ----------------------------------------------------------------------------------------------
Atrium Cos., Inc., 10.5%, 2009## 1,980 2,081,475
- ----------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.875%, 2013 1,943 2,030,435
- ----------------------------------------------------------------------------------------------
$9,430,250
- ----------------------------------------------------------------------------------------------
Chemicals - 0.2%
- ----------------------------------------------------------------------------------------------
Dow Chemical Co., 5.75%, 2008 $775 $823,843
- ----------------------------------------------------------------------------------------------
Dow Chemical Co., 6.125%, 2011 821 879,802
- ----------------------------------------------------------------------------------------------
$1,703,645
- ----------------------------------------------------------------------------------------------
Conglomerates - 0.5%
- ----------------------------------------------------------------------------------------------
Tyco International Group S.A., 6.75%, 2011 $4,643 $5,007,183
- ----------------------------------------------------------------------------------------------
Consumer Cyclical - 0.5%
- ----------------------------------------------------------------------------------------------
Cendant Corp., 6.875%, 2006 $558 $604,641
- ----------------------------------------------------------------------------------------------
Cendant Corp., 6.25%, 2008 1,576 1,702,165
- ----------------------------------------------------------------------------------------------
Cendant Corp., 7.375%, 2013 1,874 2,119,576
- ----------------------------------------------------------------------------------------------
$4,426,382
- ----------------------------------------------------------------------------------------------
Defense Electronics - 0.1%
- ----------------------------------------------------------------------------------------------
Raytheon Co., 8.3%, 2010 $515 $607,797
- ----------------------------------------------------------------------------------------------
Energy - Independent - 1.0%
- ----------------------------------------------------------------------------------------------
Apache Corp., 7.375%, 2047 $37 $43,317
- ----------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875%, 2016## 3,000 3,045,000
- ----------------------------------------------------------------------------------------------
Devon Financing Corp. U.L.C., 6.875%, 2011 1,769 1,964,022
- ----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.625%, 2005 399 421,844
- ----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 4.375%, 2007 798 815,284
- ----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.25%, 2011 681 763,617
- ----------------------------------------------------------------------------------------------
Pioneer Natural Resources Co., 7.5%, 2012 1,759 2,019,193
- ----------------------------------------------------------------------------------------------
$9,072,277
- ----------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ----------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $3,232 $3,293,227
- ----------------------------------------------------------------------------------------------
Entertainment - 0.7%
- ----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 7.75%, 2024 $598 $684,395
- ----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 8.5%, 2025 120 145,079
- ----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 6.55%, 2033 2,273 2,308,352
- ----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 6.703%, 2034 399 399,735
- ----------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 399 474,552
- ----------------------------------------------------------------------------------------------
Walt Disney Co., 6.75%, 2006 1,073 1,145,344
- ----------------------------------------------------------------------------------------------
Walt Disney Co., 6.375%, 2012 1,380 1,494,253
- ----------------------------------------------------------------------------------------------
$6,651,710
- ----------------------------------------------------------------------------------------------
Financial Institutions - 0.6%
- ----------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 $2,381 $2,359,471
- ----------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 6.85%, 2004 399 401,455
- ----------------------------------------------------------------------------------------------
SLM Corp., 4%, 2009 2,062 2,048,729
- ----------------------------------------------------------------------------------------------
SLM Corp., 5.375%, 2013 1,276 1,293,787
- ----------------------------------------------------------------------------------------------
$6,103,442
- ----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.4%
- ----------------------------------------------------------------------------------------------
Coca-Cola HBC Finance B.V., 5.125%, 2013 $1,474 $1,466,869
- ----------------------------------------------------------------------------------------------
Kraft Foods, Inc., 6.25%, 2012 2,548 2,729,356
- ----------------------------------------------------------------------------------------------
$4,196,225
- ----------------------------------------------------------------------------------------------
Forest & Paper Products - 0.1%
- ----------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.85%, 2012 $984 $1,067,686
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 0.7%
- ----------------------------------------------------------------------------------------------
Ameristar Casinos, Inc., 10.75%, 2009 $1,560 $1,809,600
- ----------------------------------------------------------------------------------------------
Aztar Corp., 8.875%, 2007 798 823,935
- ----------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 7.125%, 2007 1,336 1,474,176
- ----------------------------------------------------------------------------------------------
Horseshoe Gaming Holding Corp., 8.625%, 2009 2,596 2,712,820
- ----------------------------------------------------------------------------------------------
$6,820,531
- ----------------------------------------------------------------------------------------------
Insurance - 0.9%
- ----------------------------------------------------------------------------------------------
ASIF Global Financing XIX, 4.9%, 2013## $4,444 $4,379,851
- ----------------------------------------------------------------------------------------------
MetLife, Inc., 6.5%, 2032 1,955 2,053,161
- ----------------------------------------------------------------------------------------------
Prudential Funding Corp., 6.6%, 2008## 1,815 1,986,657
- ----------------------------------------------------------------------------------------------
$8,419,669
- ----------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.7%
- ----------------------------------------------------------------------------------------------
Allstate Corp., 7.2%, 2009 $545 $626,766
- ----------------------------------------------------------------------------------------------
Fund American Cos., Inc., 5.875%, 2013 3,403 3,422,659
- ----------------------------------------------------------------------------------------------
Safeco Corp., 4.875%, 2010 1,994 2,041,348
- ----------------------------------------------------------------------------------------------
Safeco Corp., 7.25%, 2012 144 163,827
- ----------------------------------------------------------------------------------------------
$6,254,600
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 0.5%
- ----------------------------------------------------------------------------------------------
Joy Global, Inc., 8.75%, 2012 $1,266 $1,417,920
- ----------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 3,457 3,685,556
- ----------------------------------------------------------------------------------------------
$5,103,476
- ----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.6%
- ----------------------------------------------------------------------------------------------
HCA Healthcare Co., 7.125%, 2006 $215 $228,608
- ----------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 2,082 2,388,970
- ----------------------------------------------------------------------------------------------
HCA, Inc., 7.875%, 2011 1,989 2,195,953
- ----------------------------------------------------------------------------------------------
HCA, Inc., 6.95%, 2012 1,219 1,273,569
- ----------------------------------------------------------------------------------------------
$6,087,100
- ----------------------------------------------------------------------------------------------
Metals & Mining - 0.2%
- ----------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 $1,931 $2,328,819
- ----------------------------------------------------------------------------------------------
Mortgage Backed - 7.6%
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.085%, 2006 $402 $429,555
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.29%, 2006 151 161,370
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.355%, 2006 381 407,033
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.65%, 2008 1,109 1,144,510
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.92%, 2009 1,456 1,562,598
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2016 605 610,379
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2017 - 2034 22,732 22,712,899
- ----------------------------------------------------------------------------------------------
Fannie Mae, 4.5%, 2018 4,590 4,524,133
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.5%, 2030 - 2031 147 157,929
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2031 - 2032 4,592 4,781,362
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2033 9,366 9,586,125
- ----------------------------------------------------------------------------------------------
Fannie Mae TBA, 5.5%, 2034 5,500 5,486,250
- ----------------------------------------------------------------------------------------------
Freddie Mac, 5%, 2018 - 2022 8,325 8,485,652
- ----------------------------------------------------------------------------------------------
Freddie Mac, 6%, 2033 9,025 9,236,329
- ----------------------------------------------------------------------------------------------
Ginnie Mae, 6.5%, 2028 25 26,498
- ----------------------------------------------------------------------------------------------
Ginnie Mae, 6%, 2032 3,190 3,268,751
- ----------------------------------------------------------------------------------------------
$72,581,373
- ----------------------------------------------------------------------------------------------
Municipals - 1.8%
- ----------------------------------------------------------------------------------------------
Honolulu, HI, "B", 5%, 2014 $8,020 $8,618,051
- ----------------------------------------------------------------------------------------------
State of Connecticut, "B", 5%, 2014 7,850 8,471,956
- ----------------------------------------------------------------------------------------------
$17,090,007
- ----------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- ----------------------------------------------------------------------------------------------
AmeriGas Partners LP, 8.875%, 2011 $4 $4,390
- ----------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 4,475 5,046,677
- ----------------------------------------------------------------------------------------------
$5,051,067
- ----------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.5%
- ----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 6.75%, 2011 $399 $436,425
- ----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.4%, 2031 48 52,602
- ----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.75%, 2032 968 1,104,833
- ----------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.5%, 2012 2,548 2,742,496
- ----------------------------------------------------------------------------------------------
$4,336,356
- ----------------------------------------------------------------------------------------------
Oil Services - 0.4%
- ----------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $3,263 $3,334,629
- ----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.3%
- ----------------------------------------------------------------------------------------------
Jabil Circuit, Inc., 5.875%, 2010 $2,483 $2,578,886
- ----------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2%
- ----------------------------------------------------------------------------------------------
Wyeth, 6.5%, 2034 $1,994 $1,983,097
- ----------------------------------------------------------------------------------------------
Pollution Control - 0.6%
- ----------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 8.875%, 2008 $1,747 $1,939,170
- ----------------------------------------------------------------------------------------------
USA Waste Services, Inc., 7%, 2028 1,994 2,099,419
- ----------------------------------------------------------------------------------------------
Waste Management, Inc., 7%, 2004 319 325,183
- ----------------------------------------------------------------------------------------------
Waste Management, Inc., 7.1%, 2026 1,197 1,271,620
- ----------------------------------------------------------------------------------------------
$5,635,392
- ----------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- ----------------------------------------------------------------------------------------------
Belo Corp., 7.75%, 2027 $860 $960,883
- ----------------------------------------------------------------------------------------------
Belo Corp., 7.25%, 2027 279 295,590
- ----------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013## 1,755 1,921,725
- ----------------------------------------------------------------------------------------------
$3,178,198
- ----------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
- ----------------------------------------------------------------------------------------------
Union Pacific Corp., 5.84%, 2004 $128 $128,296
- ----------------------------------------------------------------------------------------------
Union Pacific Corp., 7.25%, 2008 1,580 1,763,326
- ----------------------------------------------------------------------------------------------
$1,891,622
- ----------------------------------------------------------------------------------------------
Real Estate - 1.1%
- ----------------------------------------------------------------------------------------------
Boston Properties, Inc., 5%, 2015 $2,345 $2,204,717
- ----------------------------------------------------------------------------------------------
EOP Operating LP, 6.8%, 2009 2,556 2,822,762
- ----------------------------------------------------------------------------------------------
Kimco Realty Corp., 6%, 2012 1,197 1,257,974
- ----------------------------------------------------------------------------------------------
Simon Property Group LP, 6.375%, 2007 1,955 2,138,225
- ----------------------------------------------------------------------------------------------
Vornado Realty Trust, 5.625%, 2007 1,307 1,395,373
- ----------------------------------------------------------------------------------------------
Vornado Realty Trust, 4.75%, 2010 798 783,964
- ----------------------------------------------------------------------------------------------
$10,603,015
- ----------------------------------------------------------------------------------------------
Restaurants - 0.3%
- ----------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $2,086 $2,542,917
- ----------------------------------------------------------------------------------------------
Retailers - 0.5%
- ----------------------------------------------------------------------------------------------
Dollar General Corp., 8.625%, 2010 $1,743 $1,982,663
- ----------------------------------------------------------------------------------------------
Gap, Inc., 10.55%, 2008 2,429 2,987,670
- ----------------------------------------------------------------------------------------------
J. Crew Operating Corp., 10.375%, 2007 210 210,263
- ----------------------------------------------------------------------------------------------
$5,180,596
- ----------------------------------------------------------------------------------------------
Supermarkets - 0.2%
- ----------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $1,855 $2,089,440
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.4%
- ----------------------------------------------------------------------------------------------
Citizens Communications Co., 9%, 2031 $2,689 $2,639,635
- ----------------------------------------------------------------------------------------------
Sprint Capital Corp., 7.125%, 2006 1,003 1,075,951
- ----------------------------------------------------------------------------------------------
Sprint Capital Corp., 6.875%, 2028 4,793 4,705,485
- ----------------------------------------------------------------------------------------------
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 806 858,694
- ----------------------------------------------------------------------------------------------
Verizon New York, Inc., 7.375%, 2032 3,580 3,858,209
- ----------------------------------------------------------------------------------------------
$13,137,974
- ----------------------------------------------------------------------------------------------
Tobacco - 0.3%
- ----------------------------------------------------------------------------------------------
Altria Group, Inc., 7%, 2013 $2,314 $2,463,241
- ----------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
- ----------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $625 $799,918
- ----------------------------------------------------------------------------------------------
U.S. Government Agencies - 10.8%
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2004 $16,432 $16,684,297
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2008 10,291 11,173,062
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.125%, 2012 6,622 7,211,252
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.125%, 2014 3,900 3,836,660
- ----------------------------------------------------------------------------------------------
Federal Home Loan Bank, 2.875%, 2006 10,878 10,912,831
- ----------------------------------------------------------------------------------------------
Freddie Mac, 5.5%, 2006 14,138 15,004,221
- ----------------------------------------------------------------------------------------------
Freddie Mac, 6%, 2011 11,648 12,644,230
- ----------------------------------------------------------------------------------------------
Freddie Mac, 4.875%, 2013 11,233 11,130,476
- ----------------------------------------------------------------------------------------------
Small Business Administration, 5.34%, 2021 517 529,987
- ----------------------------------------------------------------------------------------------
Small Business Administration, 6.34%, 2021 103 109,735
- ----------------------------------------------------------------------------------------------
Small Business Administration, 6.35%, 2021 74 79,362
- ----------------------------------------------------------------------------------------------
Small Business Administration, 6.44%, 2021 104 111,640
- ----------------------------------------------------------------------------------------------
Small Business Administration, 6.07%, 2022 355 373,325
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.35%, 2023 2,109 2,005,533
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.89%, 2023 2,720 2,674,317
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.98%, 2023 2,712 2,685,026
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 2,971 2,871,657
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.93%, 2024 2,699 2,658,023
- ----------------------------------------------------------------------------------------------
$102,695,634
- ----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 28.1%
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 4.25%, 2010 $7,229 $8,320,574
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.125%, 2019 19 25,055
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8%, 2021 16,934 22,307,903
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.25%, 2023 - 2030 19,678 22,038,357
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 3.875%, 2029 6,294 7,848,027
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2%, 2004 - 2006 31,903 31,835,889
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.75%, 2005 82,800 87,101,708
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 7%, 2006 55,362 60,723,035
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.5%, 2006 1,157 1,181,225
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.375%, 2007 8,962 9,663,505
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2.625%, 2008 8,282 8,066,535
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3%, 2012 5,981 6,464,341
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.875%, 2013 670 644,404
- ----------------------------------------------------------------------------------------------
$266,220,558
- ----------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.4%
- ----------------------------------------------------------------------------------------------
DPL, Inc., 6.875%, 2011 $3,644 $3,589,340
- ----------------------------------------------------------------------------------------------
DTE Energy Co., 7.05%, 2011 4,250 4,683,436
- ----------------------------------------------------------------------------------------------
Exelon Generation Co. LLC, 6.95%, 2011 4,544 5,062,443
- ----------------------------------------------------------------------------------------------
FirstEnergy Corp., 6.45%, 2011 4,489 4,726,015
- ----------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875%, 2012 1,182 1,221,804
- ----------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375%, 2004 432 438,760
- ----------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 2,585 2,701,325
- ----------------------------------------------------------------------------------------------
Pacific Gas & Electric Co., 6.05%, 2034 3,948 3,733,628
- ----------------------------------------------------------------------------------------------
Progress Energy, Inc., 7.1%, 2011 2,403 2,678,076
- ----------------------------------------------------------------------------------------------
Progress Energy, Inc., 7%, 2031 407 426,882
- ----------------------------------------------------------------------------------------------
Virginia Electric & Power Co., 4.1%, 2008 2,258 2,228,366
- ----------------------------------------------------------------------------------------------
$31,490,075
- ----------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
- ----------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 $770 $816,987
- ----------------------------------------------------------------------------------------------
Wireless Communications - 0.5%
- ----------------------------------------------------------------------------------------------
American Tower Escrow Corp., 0%, 2008 $3,500 $2,546,250
- ----------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.375%, 2009 1,360 1,470,500
- ----------------------------------------------------------------------------------------------
Rural Cellular Corp., 8.25%, 2012## 1,170 1,208,025
- ----------------------------------------------------------------------------------------------
$5,224,775
- ----------------------------------------------------------------------------------------------
Total U.S. Bonds $849,016,967
- ----------------------------------------------------------------------------------------------
Foreign Bonds - 7.7%
- ----------------------------------------------------------------------------------------------
Australia - 0%
- ----------------------------------------------------------------------------------------------
Burns, Philp & Co. Ltd., 9.75%, 2012 (Food & Non-
Alcoholic Beverages) $479 $505,345
- ----------------------------------------------------------------------------------------------
Canada - 0.5%
- ----------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 6.95%, 2008 (Forest & Paper
Products) $1,915 $1,973,237
- ----------------------------------------------------------------------------------------------
TELUS Corp., 8%, 2011 (Telecommunications - Wireline) 2,477 2,873,221
- ----------------------------------------------------------------------------------------------
$4,846,458
- ----------------------------------------------------------------------------------------------
Cayman Islands - 0.4%
- ----------------------------------------------------------------------------------------------
DBS Capital Funding Corp., 7.657%, 2049 (Banks & Credit
Companies)## $3,015 $3,410,068
- ----------------------------------------------------------------------------------------------
Chile - 0.4%
- ----------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013
(Utilities - Electric Power) $3,342 $3,585,832
- ----------------------------------------------------------------------------------------------
France - 0.5%
- ----------------------------------------------------------------------------------------------
Crown European Holdings S.A., 10.875%, 2013 (Containers) $1,743 $2,030,595
- ----------------------------------------------------------------------------------------------
France Telecom S.A., 8.75%, 2011 (Telecommunications -
Wireline) 1,986 2,347,845
- ----------------------------------------------------------------------------------------------
$4,378,440
- ----------------------------------------------------------------------------------------------
Germany - 0.7%
- ----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 5.25%, 2013
(Telecommunications - Wireline) $621 $616,430
- ----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.75%, 2030
(Telecommunications - Wireline) 4,879 6,060,128
- ----------------------------------------------------------------------------------------------
$6,676,558
- ----------------------------------------------------------------------------------------------
Japan - 0.7%
- ----------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 5.79%, 2014 (Banks & Credit
Companies)## $3,232 $3,204,916
- ----------------------------------------------------------------------------------------------
UFJ Finance Aruba AEC, 6.75%, 2013 (Banks & Credit
Companies) 3,281 3,464,447
- ----------------------------------------------------------------------------------------------
$6,669,363
- ----------------------------------------------------------------------------------------------
Kazakhstan - 0.3%
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks &
Credit Companies)## $1,548 $1,656,606
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks &
Credit Companies)+ 1,558 1,667,308
- ----------------------------------------------------------------------------------------------
$3,323,914
- ----------------------------------------------------------------------------------------------
Luxembourg - 0.2%
- ----------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.25%, 2013 (Telecommunications -
Wireline)## $2,275 $2,242,982
- ----------------------------------------------------------------------------------------------
Mexico - 1.5%
- ----------------------------------------------------------------------------------------------
BBVA Bancomer, 10.5%, 2011 (Banks & Credit Companies) $618 $689,070
- ----------------------------------------------------------------------------------------------
BBVA Bancomer, 10.5%, 2011 (Banks & Credit Companies)## 2,399 2,674,885
- ----------------------------------------------------------------------------------------------
Banco Mercantil S.A., 5.875%, 2014 (Banks & Credit
Companies)## 4,000 3,900,000
- ----------------------------------------------------------------------------------------------
Pemex Finance Ltd., 9.69%, 2009 (Emerging Market
Agencies) 144 168,480
- ----------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.5%, 2027 (Emerging Market
Agencies) 5,412 6,196,740
- ----------------------------------------------------------------------------------------------
TFM S.A. de C.V., 12.5%, 2012 (Transportation - Services) 408 454,920
- ----------------------------------------------------------------------------------------------
$14,084,095
- ----------------------------------------------------------------------------------------------
Russia - 0.9%
- ----------------------------------------------------------------------------------------------
Gaz Capital S.A., 8.625%, 2034 (Utilities - Gas)## $2,500 $2,425,000
- ----------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 (Utilities - Gas) 1,980 2,044,350
- ----------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 10.95%, 2004 (Wireless
Communications) 957 997,673
- ----------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 8.375%, 2010 (Wireless
Communications)## 2,963 2,859,295
- ----------------------------------------------------------------------------------------------
$8,326,318
- ----------------------------------------------------------------------------------------------
South Korea - 0.2%
- ----------------------------------------------------------------------------------------------
Woori Bank, 5.75%, 2014 (Banks & Credit Companies)## $2,350 $2,361,750
- ----------------------------------------------------------------------------------------------
United Kingdom - 1.4%
- ----------------------------------------------------------------------------------------------
Barclays Bank PLC, 6.86%, 2032 (Banks & Credit
Companies)## $1,596 $1,675,612
- ----------------------------------------------------------------------------------------------
Barclays Bank PLC, 8.55%, 2049 (Banks & Credit
Companies)## 902 1,090,389
- ----------------------------------------------------------------------------------------------
Cadbury Schweppes U.S. Finance, 5.125%, 2013 (Food & Non-
Alcoholic Beverages)## 3,904 3,853,709
- ----------------------------------------------------------------------------------------------
Orange PLC, 9%, 2009 (Wireless Communications) 80 84,017
- ----------------------------------------------------------------------------------------------
Permanent Financing PLC, 4.2%, 2007 (Asset Backed &
Securitized) 4,924 5,056,456
- ----------------------------------------------------------------------------------------------
United Biscuits Finance PLC, 10.75%, 2011 (Food & Non-
Alcoholic Beverages) GBP 798 1,514,919
- ----------------------------------------------------------------------------------------------
$13,275,102
- ----------------------------------------------------------------------------------------------
Total Foreign Bonds $73,686,225
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $924,934,667) $922,703,192
- ----------------------------------------------------------------------------------------------
Repurchase Agreements - 2.2%
- ----------------------------------------------------------------------------------------------
Goldman Sachs & Co., dated 4/30/04, due 5/03/04, total to
be received $20,785,801 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $20,784 $20,784,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $945,718,667) $943,487,192
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.6% 5,344,988
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $948,832,180
- ----------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
+ Restricted security.
^^ Interest only 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.
GBP = British Pound
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $945,718,667) $943,487,192
- --------------------------------------------------------------------------------------------------
Cash 4,055
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 1,017,096
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 2,487,449
- --------------------------------------------------------------------------------------------------
Interest receivable 14,561,854
- --------------------------------------------------------------------------------------------------
Receivable from investment adviser 262,096
- --------------------------------------------------------------------------------------------------
Total assets $961,819,742
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $3,678,493
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 1,396,105
- --------------------------------------------------------------------------------------------------
Payable for TBA purchase commitments 5,542,969
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,103,831
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 9,103
- --------------------------------------------------------------------------------------------------
Distribution and service fee 7,915
- --------------------------------------------------------------------------------------------------
Deferred income 4,253
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 244,893
- --------------------------------------------------------------------------------------------------
Total liabilities $12,987,562
- --------------------------------------------------------------------------------------------------
Net assets $948,832,180
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $957,286,850
- --------------------------------------------------------------------------------------------------
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (2,231,501)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net realized gain on
investments and foreign currency tranactions (3,117,594)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (3,105,575)
- --------------------------------------------------------------------------------------------------
Net assets $948,832,180
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 91,647,104
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $531,704,930
- --------------------------------------------------------------------------------------------------
Shares outstanding 51,374,039
- --------------------------------------------------------------------------------------------------
Net asset value per share $10.35
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$10.35) $10.87
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $90,726,086
- --------------------------------------------------------------------------------------------------
Shares outstanding 8,750,659
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.37
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $53,029,044
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,114,800
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.37
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $249,313,504
- --------------------------------------------------------------------------------------------------
Shares outstanding 24,082,697
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.35
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $23,477,331
- --------------------------------------------------------------------------------------------------
Shares outstanding 2,268,730
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.35
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $40,453
- --------------------------------------------------------------------------------------------------
Shares outstanding 3,908
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.35
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529A shares
Net assets $229,417
- --------------------------------------------------------------------------------------------------
Shares outstanding 22,214
- --------------------------------------------------------------------------------------------------
Net asset value per share $10.33
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$10.33) $10.85
- --------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $116,752
- --------------------------------------------------------------------------------------------------
Shares outstanding 11,266
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.36
- --------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $194,663
- --------------------------------------------------------------------------------------------------
Shares outstanding 18,791
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.36
- --------------------------------------------------------------------------------------------------
On sales of $100,000 or more, the price of Class A and Class 529A shares is reduced. A contingent
deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class 529B, and
Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------------
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 YEAR ENDED 4/30/04
NET INVESTMENT INCOME (LOSS)
Interest income $36,733,030
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $4,088,053
- --------------------------------------------------------------------------------------------------
Trustees' compensation 11,671
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,126,241
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,288,594
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 968,177
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 509,699
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 86,928
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 100
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 692
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 1,099
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,364
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 494
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 275
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 341
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 50
- --------------------------------------------------------------------------------------------------
Administrative fee 74,209
- --------------------------------------------------------------------------------------------------
Custodian fee 248,906
- --------------------------------------------------------------------------------------------------
Printing 94,451
- --------------------------------------------------------------------------------------------------
Postage 29,840
- --------------------------------------------------------------------------------------------------
Auditing fees 46,231
- --------------------------------------------------------------------------------------------------
Legal fees 7,808
- --------------------------------------------------------------------------------------------------
Miscellaneous 269,207
- --------------------------------------------------------------------------------------------------
Total expenses $8,854,430
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (13,965)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (2,224,529)
- --------------------------------------------------------------------------------------------------
Net expenses $6,615,936
- --------------------------------------------------------------------------------------------------
Net investment income $30,117,094
- --------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $13,715,632
- --------------------------------------------------------------------------------------------------
Foreign currency transactions 1,221
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $13,716,853
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $(22,944,253)
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (103)
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments and foreign currency
translation $(22,944,356)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign
currency $(9,227,503)
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $20,889,591
- --------------------------------------------------------------------------------------------------
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.
FOR YEARS ENDED 4/30 2004 2003
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $30,117,094 $13,057,836
- -------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions 13,716,853 5,746,810
- -------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation (22,944,356) 20,476,837
- -------------------------------------------------------- ------------- -------------
Increase in net assets from operations $20,889,591 $39,281,483
- -------------------------------------------------------- ------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------
Class A $(18,489,118) $(6,542,041)
- -------------------------------------------------------------------------------------------------
Class B (4,057,908) (3,180,566)
- -------------------------------------------------------------------------------------------------
Class C (2,131,387) (1,331,103)
- -------------------------------------------------------------------------------------------------
Class I (14,817,092) (5,101,606)
- -------------------------------------------------------------------------------------------------
Class R1 (816,377) (124,405)
- -------------------------------------------------------------------------------------------------
Class R2 (887) --
- -------------------------------------------------------------------------------------------------
Class 529A (9,463) (2,407)
- -------------------------------------------------------------------------------------------------
Class 529B (4,341) (632)
- -------------------------------------------------------------------------------------------------
Class 529C (5,369) (658)
- -------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions
- -------------------------------------------------------------------------------------------------
Class A (2,168,957) (100,998)
- -------------------------------------------------------------------------------------------------
Class B (558,156) (60,918)
- -------------------------------------------------------------------------------------------------
Class C (311,351) (24,979)
- -------------------------------------------------------------------------------------------------
Class I (2,143,919) (73,126)
- -------------------------------------------------------------------------------------------------
Class R1 (108,847) --
- -------------------------------------------------------------------------------------------------
Class R2 (238) --
- -------------------------------------------------------------------------------------------------
Class 529A (1,276) (46)
- -------------------------------------------------------------------------------------------------
Class 529B (713) (7)
- -------------------------------------------------------------------------------------------------
Class 529C (689) (14)
- -------------------------------------------------------- ------------- -------------
Total distributions declared to shareholders $(45,626,088) $(16,543,506)
- -------------------------------------------------------- ------------- -------------
Net increase in net assets from fund
share transactions $341,221,038 $492,906,320
- -------------------------------------------------------- ------------- -------------
Total increase in net assets $316,484,541 $515,644,297
- -------------------------------------------------------- ------------- -------------
Statement of Changes in Net Assets - continued
FOR YEARS ENDED 4/30 2004 2003
NET ASSETS
At beginning of period $632,347,639 $116,703,342
- -------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $3,105,575 and
$700,390, respectively) $948,832,180 $632,347,639
- -------------------------------------------------------------------------------------------------
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 past 5 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) held for the entire period. This information has been audited by the fund's
independent auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 4/30
CLASS A 2004 2003 2002 2001 2000
Net asset value - beginning of period $10.62 $9.97 $9.80 $9.27 $9.80
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.40 $0.45 $0.50 $0.58 $0.64
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency (0.07) 0.77 0.29 0.62+ (0.53)
- --------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations $0.33 $1.22 $0.79 $1.20 $0.11
- --------------------------------------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.54) $(0.56) $(0.53) $(0.64) $(0.64)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.03) --
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.06) (0.01) (0.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.03) -- --
- --------------------------------------------- ------- ------- ------- ------- -------
Total distributions declared to
shareholders $(0.60) $(0.57) $(0.62) $(0.67) $(0.64)
- --------------------------------------------- ------- ------- ------- ------- -------
Net asset value - end of period $10.35 $10.62 $9.97 $9.80 $9.27
- --------------------------------------------- ------- ------- ------- ------- -------
Total return (%)(+) 3.11 12.58 8.19 13.39 1.31
- ------------------------------------------------------------------------------------------------------------------------------
FOR YEARS ENDED 4/30
CLASS A (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.70 0.70 0.70 0.41 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.81 4.44 5.21 6.54 6.82
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 170 141 166 272 209
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $531,705 $221,872 $55,592 $5,447 $1,011
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective December 29, 2000, 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 0.20% of average
daily net assets. In addition, the investment adviser and the distributor contractually waived a portion of their fees for
the periods indicated. Prior to December 29, 2000 and effective February 1, 1999, the investment adviser had 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 addition, the investment adviser and the distributor contractually waived their fees for
the periods indicated. To the extent actual expenses were over these limitations and the waivers had not been in place,
the net investment income per share and the ratios would have been:
Net investment income $0.36 $0.40 $0.44 $0.15 $0.23
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.08 1.16 1.37 5.24 4.43
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.43 3.98 4.54 1.71 2.42
- ------------------------------------------------------------------------------------------------------------------------------
+ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because of the
timing of sales of fund shares and the amount of per share realized and unrealized gains and losses at such time.
# 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.
(S)(S) As required, effective May 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
April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains and
losses per share by $0.04, and to decrease the ratio of net investment income to average net assets by 0.43%. Per
share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in
presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEARS ENDED 4/30
CLASS B PERIOD ENDED
2004 2003 2002 4/30/01*
Net asset value - beginning of period $10.64 $9.98 $9.81 $9.77
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.31 $0.37 $0.43 $0.12
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.07) 0.77 0.28 0.10+++
- ----------------------------------------------- ------- ------- ------- -------
Total from investment operations $0.24 $1.14 $0.71 $0.22
- ----------------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.45) $(0.47) $(0.45) $(0.17)
- ------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.06) (0.01) (0.01) --
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.03) --
- ----------------------------------------------- ------- ------- ------- -------
Total distributions declared to shareholders $(0.51) $(0.48) $(0.54) $(0.18)
- ----------------------------------------------- ------- ------- ------- -------
Net asset value - end of period $10.37 $10.64 $9.98 $9.81
- ----------------------------------------------- ------- ------- ------- -------
Total return (%) 2.24 11.72 7.27 2.26++**
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.55 1.55 1.55 1.57+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.92 3.62 4.35 5.19+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 170 141 166 272
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $90,726 $98,653 $40,800 $5,454
- ------------------------------------------------------------------------------------------------------------------------
(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 0.20% of average daily net assets.
In addition, the investment adviser and the distributor contractually waived a portion of their fees for the periods
indicated. To the extent actual expenses were over these limitations and the waivers had not been in place, the net
investment income per share and the ratios would have been:
Net investment income $0.29 $0.34 $0.38 $0.01
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.73 1.81 2.02 6.30+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 2.74 3.36 3.88 0.46+
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class B shares, December 29, 2000, through April 30, 2001.
** For the year ended April 30, 2001 the total return was previously reported incorrectly as 5.89%.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because
of the timing of sales of fund shares and the amount of per share realized and unrealized gain and losses at such
time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective May 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 April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and
unrealized gains and losses per share by $0.04, and to decrease the ratio of net investment income to average net
assets by 0.43%. Per share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated
to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEARS ENDED 4/30
CLASS C PERIOD ENDED
2004 2003 2002 4/30/01*
Net asset value - beginning of period $10.64 $9.98 $9.81 $9.77
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.31 $0.37 $0.43 $0.13
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.07) 0.77 0.28 0.09+++
- ----------------------------------------------- ------- ------- ------- -------
Total from investment operations $0.24 $1.14 $0.71 $0.22
- ----------------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.45) $(0.47) $(0.45) $(0.17)
- ------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.06) (0.01) (0.01) --
- ------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.03) --
- ----------------------------------------------- ------- ------- ------- -------
Total distributions declared to shareholders $(0.51) $(0.48) $(0.54) $(0.18)
- ----------------------------------------------- ------- ------- ------- -------
Net asset value - end of period $10.37 $10.64 $9.98 $9.81
- ----------------------------------------------- ------- ------- ------- -------
Total return (%) 2.24 11.72 7.27 2.28++**
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.55 1.55 1.55 1.57+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.93 3.62 4.34 5.20+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 170 141 166 272
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $53,029 $41,768 $16,411 $4,274
- ------------------------------------------------------------------------------------------------------------------------
(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 0.20% of average daily net assets.
In addition, the investment adviser and the distributor contractually waived a portion of their fees for the periods
indicated. To the extent actual expenses were over these limitations and the waivers had not been in place, the net
investment income per share and the ratios would have been:
Net investment income $0.29 $0.34 $0.38 $0.01
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.73 1.81 2.02 6.30+
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 2.75 3.36 3.87 0.47+
- ------------------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class C shares, December 29, 2000, through April 30, 2001.
** For the year ended April 30, 2001 the total return was previously reported incorrectly as 5.90%.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because
of the timing of sales of fund shares and the amount of per share realized and unrealized gains and losses at
such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective May 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 April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and
unrealized gains and losses per share by $0.04, and to decrease the ratio of net investment income to average net
assets by 0.43%. Per share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated
to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEARS ENDED 4/30
CLASS I 2004 2003 2002 2001 2000
Net asset value - beginning of period $10.62 $9.96 $9.79 $9.26 $9.78
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.42 $0.45 $0.45 $0.66 $0.65
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.08) 0.80 0.35 0.55++ (0.53)
- --------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations $0.34 $1.25 $0.80 $1.21 $0.12
- --------------------------------------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.55) $(0.58) $(0.54) $(0.65) $(0.64)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.03) --
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and
foreign currency transactions (0.06) (0.01) (0.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- (0.03) -- --
- --------------------------------------------- ------- ------- ------- ------- -------
Total distributions declared to shareholders $(0.61) $(0.59) $(0.63) $(0.68) $(0.64)
- --------------------------------------------- ------- ------- ------- ------- -------
Net asset value - end of period $10.35 $10.62 $9.96 $9.79 $9.26
- --------------------------------------------- ------- ------- ------- ------- -------
Total return (%) 3.27 12.86 8.36 13.47 1.41
- ------------------------------------------------------------------------------------------------------------------------------
FOR YEARS ENDED 4/30
CLASS I (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.55 0.55 0.55 0.04 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.93 4.52 5.48 6.92 6.92
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 170 141 166 272 209
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $249,314 $259,920 $3,900 $0+ $0+
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective December 29, 2000, 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 0.20% of average daily net assets. In
addition, the investment adviser contractually waived a portion of their fees for the periods indicated. Prior to
December 29, 2000 and effective February 1, 1999, the investment adviser had contractually agreed, under a temporary
expense agreement, to pay all of the fund's operating expenses, exclusive of management and distribution fees. In
addition, the investment adviser and the distributor contractually waived their fees for the periods indicated. To the
extent actual expenses were over these limitations and the waivers had not been in place, the net investment income per
share and the ratios would have been:
Net investment income $0.40 $0.42 $0.41 $0.21 $0.27
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.73 0.81 1.02 4.77 4.08
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 3.75 4.26 5.01 2.19 2.87
- ------------------------------------------------------------------------------------------------------------------------------
+ Class I net assets were less than $500.
++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because of the
timing of sales of fund shares and the amount of per share realized and unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(S)(S) As required, effective May 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
April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains
and losses per share by $0.04, and to decrease the ratio of net investment income to average net assets by 0.45%. Per
share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in
presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS R1** 4/30/04 4/30/03*
Net asset value - beginning of period $10.62 $10.42
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.37 $0.14
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency (0.08) 0.24+++
- --------------------------------------------------------------- -------- -------
Total from investment operations $0.29 $0.38
- --------------------------------------------------------------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.50) $(0.18)
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions (0.06) --
- --------------------------------------------------------------- -------- -------
Total distributions declared to shareholders $(0.56) $(0.18)
- --------------------------------------------------------------- -------- -------
Net asset value - end of period $10.35 $10.62
- --------------------------------------------------------------- -------- -------
Total return (%) 2.75 3.43++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.05 1.05+
- -----------------------------------------------------------------------------------------------------
Net investment income 3.46 3.88+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 170 141
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $23,477 $9,880
- -----------------------------------------------------------------------------------------------------
(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 0.20% of average daily net assets. In addition, the investment adviser and the
distributor contractually waived a portion of their fees for the periods indicated. To the
extent actual expenses were over these limitations and the waivers had not been in place, the
net investment income per share and the ratios would have been:
Net investment income $0.35 $0.13
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.23 1.31+
- -----------------------------------------------------------------------------------------------------
Net investment income 3.28 3.62+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through April 30, 2003.
** Effective November 3, 2003, Class R shares have been renamed R1 shares.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
4/30/04*
CLASS R2
Net asset value - beginning of period $10.50
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.17
- ----------------------------------------------------------------------------
Net realized and unrealized loss on investments and
foreign currency (0.03)+++
- ---------------------------------------------------------------- ------
Total from investment operations $0.14
- ---------------------------------------------------------------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.23)
- ----------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions (0.06)
- ---------------------------------------------------------------- ------
Total distributions declared to shareholders $(0.29)
- ---------------------------------------------------------------- ------
Net asset value - end of period $10.35
- ---------------------------------------------------------------- ------
Total return (%) 1.34++
- ----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
ANDSUPPLEMENTAL DATA(S):
Expenses## 1.29+
- ----------------------------------------------------------------------------
Net investment income 3.24+
- ----------------------------------------------------------------------------
Portfolio turnover 170
- ----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $40
- ----------------------------------------------------------------------------
(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 0.45% of average
daily net assets. In addition, the investment adviser and the distributor
contractually waived a portion of their fees for the periods indicated. To
the extent actual expenses were over these limitations and the waivers had
not been in place, the net investment income per share and the ratios
would have been:
Net investment income $0.16
- ----------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.47+
- ----------------------------------------------------------------------------
Net investment income 3.06+
- ----------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through April 30, 2004.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and
losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529A 4/30/04 4/30/03*
Net asset value - beginning of period $10.61 $10.05
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.36 $0.29
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency (0.07) 0.68+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.29 $0.97
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.51) $(0.40)
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions (0.06) (0.01)
- ---------------------------------------------------------------- ------- -------
Total distributions declared to shareholders $(0.57) $(0.41)
- ---------------------------------------------------------------- ------- -------
Net asset value - end of period $10.33 $10.61
- ---------------------------------------------------------------- ------- -------
Total return (%) 2.75 10.56++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.05 1.05+
- -----------------------------------------------------------------------------------------------------
Net investment income 3.44 3.99+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 170 141
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $229 $157
- -----------------------------------------------------------------------------------------------------
(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 0.45% of average daily net assets. In addition, the investment adviser and the
distributor contractually waived a portion of their fees for the periods indicated. To the
extent actual expenses were over these limitations and the waivers had not been in place, the
net investment income per share and the ratios would have been:
Net investment income $0.33 $0.26
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.33 1.41+
- -----------------------------------------------------------------------------------------------------
Net investment income 3.16 3.63+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through April 30, 2003.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529B 4/30/04 4/30/03*
Net asset value - beginning of period $10.64 $10.07
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.29 $0.23
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency (0.09) 0.69+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.20 $0.92
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.42) $(0.34)
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions (0.06) (0.01)
- ---------------------------------------------------------------- ------- -------
Total distributions declared to shareholders $(0.48) $(0.35)
- ---------------------------------------------------------------- ------- -------
Net asset value - end of period $10.36 $10.64
- ---------------------------------------------------------------- ------- -------
Total return (%) 1.89 10.00++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.80 1.80+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.69 3.24+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 170 141
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $117 $41
- -----------------------------------------------------------------------------------------------------
(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 0.45% of average daily net assets. In addition, the investment adviser and the
distributor contractually waived a portion of their fees for the periods indicated. To the
extent actual expenses were over these limitations and the waivers had not been in place, the
net investment income per share and the ratios would have been:
Net investment income $0.27 $0.21
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.98 2.06+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.51 2.98+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through April 30, 2003.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529C 4/30/04 4/30/03*
Net asset value - beginning of period $10.63 $10.07
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.28 $0.22
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency (0.07) 0.69+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.21 $0.91
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.42) $(0.34)
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions (0.06) (0.01)
- ---------------------------------------------------------------- ------- -------
Total distributions declared to shareholders $(0.48) $(0.35)
- ---------------------------------------------------------------- ------- -------
Net asset value - end of period $10.36 $10.63
- ---------------------------------------------------------------- ------- -------
Total return (%) 1.98 9.89++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.80 1.80+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.70 3.23+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 170 141
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $195 $57
- -----------------------------------------------------------------------------------------------------
(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 0.45% of average daily net assets. In addition, the investment adviser and the
distributor contractually waived a portion of their fees for the periods indicated. To the
extent actual expenses were over these limitations and the waivers had not been in place, the
net investment income per share and the ratios would have been:
Net investment income $0.26 $0.20
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.98 2.06+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.52 2.97+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through April 30, 2003.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Research Bond Fund (the fund) is a non-diversified series of MFS Series
Trust IX (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 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes market value as determined by the Board of
Trustees. 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.
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 - 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.
DOLLAR ROLL TRANSACTIONS - The fund enters into dollar roll transactions, with
respect to mortgage backed securities issued by GNMA, FNMA, and FHLMC, in which
the fund sells mortgage backed securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon, and
maturity) securities at a later date at an agreed-upon price. The fund's total
return is enhanced through either a reduced purchase price on the buy, or
receipt of an income fee from the broker.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United Sates of
America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations. Some securities may be purchased on a "when-
issued" or "forward delivery" basis, which means that the securities will be
delivered to the fund at a future date, usually beyond customary settlement
time.
The fund may enter in "TBA" (to be announced) purchase commitments to purchase
securities for a fixed unit price at a future date. Although the unit price has
been established, the principal value has not been finalized. However, the
principal amount of the commitments will not fluctuate more than 0.01%. The
fund holds, and maintains until settlement date, cash or high-grade debt
obligations in an amount sufficient to meet the purchase price, or the fund may
enter into offsetting contracts for the forward sale of other securities it
owns. Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to
settlement date, which is in addition to the risk of decline in the value of
the fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the procedures
described under "Investment Valuations" above.
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, for the year ended April 30, 2004, 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, mortgage-backed securities, derivatives,
defaulted bonds, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended April 30, 2004
and April 30, 2003 was as follows:
4/30/04 4/30/03
Distributions declared from:
Ordinary income $44,773,396 $16,543,506
---------------------------------------------------------------
Long-term capital gain 852,692 --
---------------------------------------------------------------
$45,626,088 $16,543,506
---------------------------------------------------------------
During the year ended April 30, 2004, accumulated distributions in excess of
net investment income decreased by $7,809,663, accumulated net realized gain on
investments and foreign currency transactions decreased by $13,983,965, and
paid-in capital increased by $6,174,302 due to differences between book and tax
accounting for mortgage-backed securities, currency transactions, the offset of
net investment loss against short-term capital gains, amortization and
accretion on debt securities, and market discount. This change had no effect on
the net assets or net asset value per share.
At April 30, 2004, accumulated distributions in excess of net investment income
and accumulated distributions in excess of realized gain on investments and
foreign currency transactions under book accounting were different from tax
accounting due to temporary differences in accounting for amortization and
accretion on debt securities, market discount, and wash sales.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,383,026
----------------------------------------------------------
Undistributed long-term capital gain $1,328,797
----------------------------------------------------------
Unrealized depreciation$ (7,510,945)
----------------------------------------------------------
Other temporary differences $(3,655,548)
----------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribtuion 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 ADVISOR - 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 0.50% of
the fund's average daily net assets. The investment adviser has contractually
agreed to waive a portion of its fee, which is shown as a reduction of total
expenses in the Statement of Operations. Management fees incurred for the year
ended April 30, 2004 were 0.35% of average daily net assets on an annualized
basis.
The investment adviser has contractually agreed to pay the fund's operating
expenses exclusive of management, distribution and service and program manager
fees such that the fund's other expenses do not exceed 0.20% of average daily
net assets for Class A, Class B, Class C, Class I, and Class R1, and do not
exceed 0.45% of average daily net assets for Class R2, Class 529A, Class 529B,
and Class 529C. This is reflected as a reduction of expenses in the Statement
of Operations.
The fund pays compensation to the Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, 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).
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
----------------------------------------------------------
Effective April 1, 2004 the fund paid MFS an administration fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $74,209, equivalent to
0.0091% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS for
the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$170,746 and $398 for the year ended April 30, 2004, 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 R1, Class R2, 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.
The 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- -------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- -------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended
April 30, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $8,320 $126 $337 $29 $--
- -------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $85 $9 $37
- -------------------------------------------------------------------------------------------------------------
The Class A distribution fee and 0.10% of the Class A and Class 529A service fee are currently being waived on
a contractual basis.
Payment of the 0.15% per annum portion of the Class 529A distribution fee that is not currently being charged
will be implemented on such a date as the Trustees of the Trust may determine.
Fees incurred under the distribution plan during the year ended April 30, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Total Distribution Plan 0.15% 1.00% 1.00% 0.50% 0.50%
- -------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Total Distribution Plan 0.25% 1.00% 1.00%
- -------------------------------------------------------------------------------------------------------------
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
Class 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 year ended April 30, 2004, were
as follows:
CLASS A CLASS B CLASS 529B CLASS C CLASS 529C
Contingent Deferred Sales
Charges Imposed $2,745 $278,718 $-- $23,451 $--
- -------------------------------------------------------------------------------------------------------------
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 0.35% 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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as shareholder
servicing agent. The fee, which is calculated as a percentage of the fund's
average daily net assets, is set periodically under the supervision of the
fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of the fund's
average daily net assets. Effective April 1, 2004, the fee is set at 0.10% of
the fund's average daily net assets. For the year ended April 30, 2004, the
fund paid MFSC a fee of $817,417 for shareholder services which amounted to
0.10% of the fund's average daily net assets. Also included in shareholder
servicing costs are out-of-pocket expenses, paid to MFSC, which amounted to
$132,506 for the year ended April 30, 2004, as well as other expenses paid to
unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $1,125,082,136 $962,214,427
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) 535,499,101 366,483,612
- --------------------------------------------------------------------------------
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 $950,998,111
--------------------------------------------------------
Gross unrealized appreciation $5,979,866
--------------------------------------------------------
Gross unrealized depreciation (13,490,785)
--------------------------------------------------------
Net unrealized depreciation $(7,510,919)
--------------------------------------------------------
(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:
Year ended 4/30/04 Year ended 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 45,294,883 $479,065,399 21,301,327 $219,722,265
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,284,537 13,552,243 446,788 4,604,741
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (16,097,551) (169,835,207) (6,434,161) (66,305,242)
- ----------------------------------------------------------------------------------------------------------
Net increase 30,481,869 $322,782,435 15,313,954 $158,021,764
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,198,583 $33,962,381 6,795,714 $69,916,045
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 349,317 3,691,978 240,661 2,477,529
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (4,069,939) (42,923,225) (1,850,884) (19,066,192)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (522,039) $(5,268,866) 5,185,491 $53,327,382
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 3,035,195 $32,277,099 3,146,247 $32,327,164
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 140,414 1,483,458 84,884 873,622
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,986,929) (20,980,959) (949,327) (9,760,776)
- ----------------------------------------------------------------------------------------------------------
Net increase 1,188,680 $12,779,598 2,281,804 $23,440,010
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 20,441,586 $216,103,118 26,012,408 $268,160,960
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 826,441 8,716,934 143,945 1,493,016
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (21,660,724) (228,391,600) (2,072,534) (21,446,901)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (392,697) $(3,571,548) 24,083,819 $248,207,075
- ----------------------------------------------------------------------------------------------------------
Year ended 4/30/04 Period ended 4/30/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 2,921,428 $30,884,591 1,086,251 $11,292,420
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 81,624 860,463 8,058 84,526
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,664,650) (17,585,963) (163,981) (1,716,753)
- ----------------------------------------------------------------------------------------------------------
Net increase 1,338,402 $14,159,091 930,328 $9,660,193
- ----------------------------------------------------------------------------------------------------------
Period ended 4/30/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 3,815 $40,015
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 93 982
- ----------------------------------------------------------------------------------------------------------
Net increase 3,908 $40,997
- ----------------------------------------------------------------------------------------------------------
Year ended 4/30/04 Period ended 4/30/03***
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 9,152 $96,114 14,623 $151,778
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 979 10,311 187 1,945
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (2,705) (28,228) (22) (230)
- ----------------------------------------------------------------------------------------------------------
Net increase 7,426 $78,197 14,788 $153,493
- ----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 8,133 $86,564 3,862 $40,061
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 455 4,803 48 498
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,207) (12,826) (25) (259)
- ----------------------------------------------------------------------------------------------------------
Net increase 7,381 $78,541 3,885 $40,300
- ----------------------------------------------------------------------------------------------------------
Year ended 4/30/04 Period ended 4/30/03***
SHARES AMOUNT SHARES AMOUNT
CLASS 529C SHARES
Shares sold 13,176 $140,224 5,363 $55,810
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 532 5,616 48 504
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (308) (3,247) (20) (211)
- ----------------------------------------------------------------------------------------------------------
Net increase 13,400 $142,593 5,391 $56,103
- ----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through April 30, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through April 30, 2004.
*** For the period from the inception of Class 529A, 529B, and 529C shares, July 31, 2002, through
April 30, 2003.
(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 plus 0.50%. 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 calendar quarter. The committment fee
allocated to the fund for the year ended April 30, 2004 was $5,618 and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended April 30, 2004.
(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 written options, forward foreign currency exchange
contracts, 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.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
(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 April 30, 2004,
the fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 0.18% 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
Kazkommerts International B.V. 5/30/2003 1,558,000 $1,736,590 $1,667,308
- -------------------------------------------------------------------------------------------------------------
(9) REDEMPTION IN-KIND
On December 22, 2003, the fund paid redemption proceeds by a distribution in-
kind of portfolio securities that were valued at $190,274,214. The redeeming
shareholder received a pro rata share of each of the securities held by the
fund. The sale of such securities generated a realized loss of $6,182,636 for
the fund.
(10) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To The Trustees of MFS Series Trust IX and Shareholders of
MFS Research Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Research Bond Fund (a portfolio of MFS
Series Trust IX (the Trust)) as of April 30, 2004, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Research Bond Fund as of April 30, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
- ---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- -----------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- ------------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. Each Trustee and officer holds office until his or her successor is chosen and
qualified or until his or her earlier death, resignation, retirement or removal.
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 109 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 State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741 AUDITORS
Deloitte & Touche LLP
DISTRIBUTOR 200 Berkeley Street, Boston, MA 02116
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
CHIEF FIXED INCOME OFFICER
Michael W. Roberge
- -------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
The fund has designated $852,692 as a capital gain dividend for the year ended
April 30, 2004.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 fund's proxy voting policies and procedures is
available without charge, upon request, by calling 202-547-7071, extension
201, by visiting www.jmr-financial.com/MFS 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 55824
Boston, MA 02205-5824
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) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to 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 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.
[Graphic Omitted]
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
RBF-ANN-6/04 65M
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) RESEARCH BOND FUND J
----------------------------------
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) RESEARCH BOND FUND J
The fund seeks to provide total return (high current income and long-term
growth of capital).
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------
MFS PRIVACY POLICY
- ------------------------------------------------
LETTER FROM THE CEO 1
- ------------------------------------------------
MANAGEMENT REVIEW 3
- ------------------------------------------------
PERFORMANCE SUMMARY 5
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 7
- ------------------------------------------------
FINANCIAL STATEMENTS 17
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- ------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 27
- ------------------------------------------------
TAX INFORMATION 28
- ------------------------------------------------
TRUSTEES AND OFFICERS 29
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging environment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
Prior to December 22, 2003, the Research Bond Fund J ("the fund") was a "fund
of funds" and invested substantially all of its assets in the MFS Research Bond
Fund, an open-end investment company that has the same investment objective as
the fund. As of December 22, 2003, the fund received a transfer- in-kind of
securities relative of the position it held in the MFS Research Bond Fund.
Over the one-year period ended April 30, 2004, long-term U.S. Treasury bond
yields rose modestly, from 3.84% to 4.50%. The path upward, however, was marked
by significant volatility in the overall bond market.
In early 2003 and into the first half of the period, we saw a confluence of
factors that were positive for bond prices and, therefore, negative for rates.
Geopolitical uncertainty, the hangover from corporate scandals in 2002, and a
weak U.S. economy were among the factors that pushed interest rates down to
four-decade lows by June of 2003.
In late June, however, the bond market reversed direction as fixed-income
investors, we believe, became concerned that the economic recovery was
accelerating faster than expected. Over the summer of 2003 and into early
September, bond prices declined as rates rose sharply.
In the fall and winter of 2003, however, bond prices revived as several factors
combined to drive rates down again. Economic reports indicated that inflation
was well contained while job growth remained weak. Although most other measures
indicated the U.S. economy was improving, we believe investors were concerned
that consumer spending might falter because laid-off workers were not finding
new jobs. The Federal Reserve Board (the Fed) appeared to sum up the situation
in its statements that interest rates could remain low for the foreseeable
future.
As the period came to a close in March and April of 2004, bonds reversed
direction again. Long-term rates climbed sharply as the United States finally
began to experience strong job growth, and the market began to anticipate that
a Fed rate increase was imminent. Just after the period ended, the Fed's press
release after its May 4 meeting contained the first indication in several years
that rates were indeed going up: "At this juncture, ... the [Federal Open
Market] Committee believes that policy accommodation can be removed at a pace
that is likely to be measured."
The accelerating U.S. recovery over the period was generally positive for
corporate bonds. Growth in GDP (gross domestic product), business profits, and
other measures pointed toward improving corporate fundamentals -- business
factors such as earnings and cash flow growth.
In response, investors, we believe, moved away from the risk aversion or
"flight to quality" that had characterized the bond market in late 2002 and
early 2003. Riskier, lower-rated classes of bonds showed the best performance
over the period. With Treasury yields at four-decade lows, investors sought out
higher-yielding corporate and emerging market debt. This caused spreads -- the
differences between corporate or emerging market yields and the yields of
"AAA"-rated Treasuries -- to tighten (decrease) over the period. Emerging
market and high-yield corporate debt outperformed high-grade corporate debt,
which in turn outperformed Treasuries. Within categories, lower-rated bonds
generally outperformed higher-rated issues. While bonds across most asset
classes were hurt by rising rates in the final months of the period, lower-
rated debt was less affected than higher-rated issues and Treasuries. (The
principal value and interest on Treasury securities, however, are guaranteed by
the U.S. government if held to maturity.)
PORTFOLIO CONCENTRATION AS OF 4/30/04
QUALITY RATINGS
"AAA" 25.9%
"AA" 3.7%
"A" 9.5%
"BBB" 20.9%
"BB" 5.3%
"B" 1.9%
Other 0.4%
Govts & Agencies 32.4%
The portfolio is actively managed, and current holdings may be different.
Percentages based on assets on 4/30/04.
CONTRIBUTORS TO PERFORMANCE
In the area of credit quality, relative performance was helped by the fund's
overweighting in lower-quality debt relative to its benchmark, the Lehman
Brothers Government/Credit Index (the Lehman Index). During a period when
spreads were tightening, lower-rated bonds outperformed, and the fund's
overweighting in "BBB"-, "BB"-, and "B"-rated debt helped relative returns.
(Bonds rated "BB" or below by the major credit rating agencies are referred to
as below-investment-grade or "junk" bonds.)
Sector allocation also helped results. Relative to the Lehman Index, the fund
was overweighted in the industrials sector as bonds in that sector generally
benefited from the improving economy over the period. A number of the fund's
holdings in emerging market corporate debt also performed well and helped
relative returns.
Performance was also aided by the fact that a portion of our U.S. Treasury
holdings were in TIPS, or Treasury inflation-protection securities. Over the
period, these inflation-linked securities, which are issued by the U.S.
Treasury, outperformed comparable ordinary, or nominal, Treasuries. We believe
TIPS did well because the improving economy increased investor concerns about
rising interest rates and higher inflation.
DETRACTORS FROM PERFORMANCE
The fund's holdings in the banking industry hurt performance relative to our
benchmark. An overweighting in higher-quality banking company debt,
particularly in "A"-rated bonds, detracted from relative returns.
Respectfully,
/s/ Michael W. Roberge
Michael W. Roberge
Chief Fixed Income Officer
The committee of MFS fixed-income research analysts is responsible for the
day-to-day management of the fund under the general supervision of Mr.
Roberge.
Note to investors: Effective as of period-end on April 30, 2004, the Lehman
Brothers Aggregate Bond Index replaced the Lehman Brothers Government/Credit
Index as the fund's benchmark. We believe the Lehman Brothers Aggregate Bond
Index more closely reflects the fund's investment universe.
The views expressed in this report are those of the Chief Fixed Income Officer
only through the end of the period of the report as stated on the cover and do
not necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
Currently, the fund offers only Class B shares.
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include any applicable contingent deferred sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
October 17, 2002, through April 30, 2004. Index information is from November
1, 2002.)
Lehman Brothers Lehman Brothers
MFS Research Bond Government Aggregate
Fund J - Class B Credit/Index Bond Index
11/02 $10,000 $10,000 $10,000
4/03 10,808 10,552 10,431
4/04 10,634 10,741 10,621
TOTAL RETURNS
- -----------------------
Average annual
without sales charge
- -----------------------
Class
Share inception
class date 1-yr Life*
- ---------------------------------------------------------------------------
B 10/17/02 2.09% 6.62%
- ---------------------------------------------------------------------------
- -----------------------
Average Annual
- -----------------------
Comparative benchmarks
- ---------------------------------------------------------------------------
Average A-rated corporate
debt fund+ 2.20% 5.15%
- ---------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index# 1.82% 4.10%
- ---------------------------------------------------------------------------
Lehman Brothers Government/
Credit Index# 1.80% 4.88%
- ---------------------------------------------------------------------------
- -----------------------
Average annual
with sales charge
- -----------------------
- ---------------------------------------------------------------------------
B -1.80% 4.09%
- ---------------------------------------------------------------------------
- -----------------------
Cumulative without
sales charge
- -----------------------
Share
class 1-yr Life*
- ---------------------------------------------------------------------------
B 2.09% 10.34%
- ---------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
October 17, 2002 through April 30, 2004. Index information is from
November 1, 2002.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITIONS
LEHMAN BROTHERS AGGREGATE BOND INDEX - a measure of the U.S. bond market.
LEHMAN BROTHERS GOVERNMENT/CREDIT INDEX - measures the performance of all debt
obligations of the U.S. Treasury and U.S. government agencies, and all
investment-grade domestic corporate debt.
Note to Investors: Effective as of period-end on April 30, 2004, the Lehman
Brothers Aggregate Bond Index replaced the Lehman Brothers Government/Credit
Index as the fund's benchmark. We believe the Lehman Brothers Aggregate Bond
Index more closely reflects the fund's investment universe. We will continue
to provide returns for the Lehman Brothers Government/Credit Index for a
period of 1-year after the effective date of this benchmark change.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class B Share Performance Including Sales Charge takes into account the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%.
Prior to December 22, 2003, the Research Bond Fund J ("the fund") was a "fund
of funds" and invested substantially in the MFS Research Bond Fund, an open-
end investment company that has the same investment objective as the fund.
Performance results prior to December 22, 2003, reflect the fund's performance
as a "fund of funds".
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
KEY RISK CONSIDERATIONS
Investments in securities involves risks relating to interest rates, currency
exchange rates, market conditions and the economic and political conditions of
the countries where investments are made.
Investments in lower-rated securities may provide greater returns, but they are
also associated with greater than average risk.
As a nondiversified portfolio, the portfolio invests in a limited number of
companies and may have more risk because a change in one security's value may
have a more significant effect on the portfolio's net asset value. An
investment in the portfolio is not a complete investment program.
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 - 4/30/04
- ------------------------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Bonds - 98.2%
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ------------------------------------------------------------------------------------------------------------------------
U.S. Bonds - 90.0%
- ------------------------------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $100 $102,000
- ------------------------------------------------------------------------------------------------------------------------
Aerospace - 0.8%
- ------------------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 6.4%, 2011## $647 $689,442
- ------------------------------------------------------------------------------------------------------------------------
Boeing Capital Corp., 6.5%, 2012 350 380,340
- ------------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7%, 2006 71 76,463
- ------------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125%, 2011 146 164,158
- ------------------------------------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7.75%, 2031 51 59,729
- ------------------------------------------------------------------------------------------------------------------------
$1,370,132
- ------------------------------------------------------------------------------------------------------------------------
Airlines - 0.7%
- ------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.875%, 2018 $789 $779,595
- ------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.545%, 2019 243 236,830
- ------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.648%, 2019 112 107,947
- ------------------------------------------------------------------------------------------------------------------------
$1,124,372
- ------------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Miller Brewing Co., 5.5%, 2013## $776 $785,488
- ------------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 13.5%
- ------------------------------------------------------------------------------------------------------------------------
Aesop Funding II LLC, 2.78%, 2007## $806 $800,867
- ------------------------------------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 5.37%, 2008 174 178,308
- ------------------------------------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 3.67%, 2009 839 852,620
- ------------------------------------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.177%, 2005 181 181,728
- ------------------------------------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.02%, 2033 746 739,526
- ------------------------------------------------------------------------------------------------------------------------
Amresco Commercial Mortgage Funding I, 7%, 2029 142 154,375
- ------------------------------------------------------------------------------------------------------------------------
Argent Securities, Inc., 2.8%, 2033 393 393,203
- ------------------------------------------------------------------------------------------------------------------------
Asset Securitization Corp., 7.525%, 2029 246 207,630
- ------------------------------------------------------------------------------------------------------------------------
Bear Stearns Commercial Mortgage Securities, Inc., 6.8%, 2008 49 51,048
- ------------------------------------------------------------------------------------------------------------------------
CNH Equipment Trust, 4.3%, 2008 40 40,349
- ------------------------------------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 3.5%, 2009## 76 77,058
- ------------------------------------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 3.52%, 2009## 184 185,696
- ------------------------------------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 2.89%, 2009 298 297,654
- ------------------------------------------------------------------------------------------------------------------------
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033## 483 515,054
- ------------------------------------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 4.79%, 2009 131 135,089
- ------------------------------------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 3.18%, 2010 607 602,780
- ------------------------------------------------------------------------------------------------------------------------
Certificates Funding Corp., 6.716%, 2004## 38 38,335
- ------------------------------------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., 6.39%, 2030 404 441,145
- ------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.8%, 2030 18 18,758
- ------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 6.04%, 2030 182 195,967
- ------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 6.49%, 2031 485 529,744
- ------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 7.03%, 2031 732 820,810
- ------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.78%, 2009 610 658,692
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 393 422,733
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 415 332,162
- ------------------------------------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 0.9064%, 2005^^ 61 487
- ------------------------------------------------------------------------------------------------------------------------
Drive Auto Receivables Trust, 2.5%, 2009## 586 569,885
- ------------------------------------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 3.8551%, 2023^^ 2,676 496,054
- ------------------------------------------------------------------------------------------------------------------------
Falcon Franchise Loan LLC, 3.0746%, 2023##^^ 181 25,752
- ------------------------------------------------------------------------------------------------------------------------
First Union National Bank Commercial Mortgage Trust, 7.39%, 2031 394 447,459
- ------------------------------------------------------------------------------------------------------------------------
First Union National Bank Commercial Mortgage Trust, 1.2186%, 2043## 6,402 336,186
- ------------------------------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Bank of America, 0.7456%, 2028^^ 7,713 186,150
- ------------------------------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust, 6.65%, 2029 771 835,518
- ------------------------------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust, 7.38%, 2029 657 715,527
- ------------------------------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust, 7.5%, 2029 202 202,568
- ------------------------------------------------------------------------------------------------------------------------
Fortress CBO Investments I, Ltd., 1.9%, 2038 556 555,913
- ------------------------------------------------------------------------------------------------------------------------
GE Capital Commercial Mortgage Corp., 6.269%, 2035 518 562,289
- ------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Mortgage Securities Corp., 6.06%, 2030 8 8,617
- ------------------------------------------------------------------------------------------------------------------------
Household Automotive Trust, 3.44%, 2009 303 305,773
- ------------------------------------------------------------------------------------------------------------------------
Hyundai Auto Receivables Trust, 2.8%, 2007## 202 203,550
- ------------------------------------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.9%, 2006 89 89,737
- ------------------------------------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.27%, 2011 506 509,751
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, 6.78%, 2031 294 326,160
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, 0.7613%, 2035^^ 8,332 209,168
- ------------------------------------------------------------------------------------------------------------------------
Long Beach Auto Receivables Trust, 2.841%, 2010 632 633,383
- ------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 6.39%, 2030 197 211,139
- ------------------------------------------------------------------------------------------------------------------------
MFN Auto Receivables Trust, 5.07%, 2007## 3 2,526
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 6.86%, 2010 293 312,223
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.3%, 2030## 500 538,363
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.5322%, 2030 160 177,711
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.48%, 2030 507 552,135
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 1.1837%, 2031^^ 5,629 216,325
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.663%, 2030 260 284,114
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 1.074%, 2031^^ 5,206 152,448
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.337%, 2031 588 638,104
- ------------------------------------------------------------------------------------------------------------------------
Multi-Family Capital Access One, Inc., 6.65%, 2024 450 497,624
- ------------------------------------------------------------------------------------------------------------------------
Nationslink Funding Corp., 0.8773%, 2023^^ 2,626 66,060
- ------------------------------------------------------------------------------------------------------------------------
Nationslink Funding Corp., 6.001%, 2030 30 31,149
- ------------------------------------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.18%, 2027 586 588,210
- ------------------------------------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.99%, 2022## 282 279,191
- ------------------------------------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.25%, 2032## 303 303,424
- ------------------------------------------------------------------------------------------------------------------------
SLM Student Loan Trust, 3.39%, 2033 506 500,466
- ------------------------------------------------------------------------------------------------------------------------
TIAA Real Estate CDO, Ltd., 7.17%, 2032## 340 365,929
- ------------------------------------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 2.48%, 2008 249 248,888
- ------------------------------------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 3.24%, 2009 319 322,823
- ------------------------------------------------------------------------------------------------------------------------
Vanderbilt Mortgage & Finance, Inc., 5.17%, 2014 27 27,264
- ------------------------------------------------------------------------------------------------------------------------
WFS Financial, Inc., 2.39%, 2007 63 63,251
- ------------------------------------------------------------------------------------------------------------------------
$22,470,625
- ------------------------------------------------------------------------------------------------------------------------
Automotive - 3.4%
- ------------------------------------------------------------------------------------------------------------------------
DaimlerChrysler N.A. Holdings Corp., 6.5%, 2013 $638 $658,077
- ------------------------------------------------------------------------------------------------------------------------
Dana Corp., 9%, 2011 485 572,300
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Co., 7.45%, 2031 458 446,483
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.875%, 2010 650 714,102
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7%, 2013 394 405,201
- ------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.75%, 2006 792 838,653
- ------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7%, 2012 81 85,241
- ------------------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 8%, 2031 298 314,516
- ------------------------------------------------------------------------------------------------------------------------
General Motors Corp., 8.375%, 2033 848 917,126
- ------------------------------------------------------------------------------------------------------------------------
Lear Corp., 8.11%, 2009 624 716,820
- ------------------------------------------------------------------------------------------------------------------------
$5,668,519
- ------------------------------------------------------------------------------------------------------------------------
Banks & Credit Companies - 4.3%
- ------------------------------------------------------------------------------------------------------------------------
Abbey National Capital Trust I, 8.963%, 2049 $301 $384,389
- ------------------------------------------------------------------------------------------------------------------------
Bank of America Corp., 7.4%, 2011 937 1,077,451
- ------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 7.25%, 2010 668 762,948
- ------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc., 5.625%, 2012 465 484,880
- ------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.38%, 2035 770 839,237
- ------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 6.125%, 2011 478 511,524
- ------------------------------------------------------------------------------------------------------------------------
Natexis AMBS Co. LLC, 8.44%, 2049## 415 478,579
- ------------------------------------------------------------------------------------------------------------------------
Popular North America, Inc., 4.25%, 2008 356 359,029
- ------------------------------------------------------------------------------------------------------------------------
RBS Capital Trust II, 6.425%, 2049 559 551,872
- ------------------------------------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64%, 2049## 412 462,099
- ------------------------------------------------------------------------------------------------------------------------
UniCredito Italiano Capital Trust II, 9.2% to 2010, 4.53% to 2049## 358 437,114
- ------------------------------------------------------------------------------------------------------------------------
Wachovia Corp., 6.605%, 2025 487 523,481
- ------------------------------------------------------------------------------------------------------------------------
Wells Fargo & Co., 6.45%, 2011 294 324,254
- ------------------------------------------------------------------------------------------------------------------------
Wells Fargo Co., 7.8%, 2010 51 53,968
- ------------------------------------------------------------------------------------------------------------------------
$7,250,825
- ------------------------------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 8.125%, 2009 $707 $754,722
- ------------------------------------------------------------------------------------------------------------------------
TCI Communication Financing III, 9.65%, 2027 5 5,908
- ------------------------------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 256 326,811
- ------------------------------------------------------------------------------------------------------------------------
$1,087,441
- ------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.2%
- ------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.7%, 2012 $560 $577,365
- ------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.25%, 2007 404 460,791
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley DW, Inc., 6.6%, 2012 424 466,699
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 5.3%, 2013 188 187,896
- ------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 4.75%, 2014 410 383,059
- ------------------------------------------------------------------------------------------------------------------------
$2,075,810
- ------------------------------------------------------------------------------------------------------------------------
Building - 0.9%
- ------------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $398 $435,810
- ------------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.625%, 2010 391 439,875
- ------------------------------------------------------------------------------------------------------------------------
Atrium Cos., Inc., 10.5%, 2009## 340 357,425
- ------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.875%, 2013 292 305,140
- ------------------------------------------------------------------------------------------------------------------------
$1,538,250
- ------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Dow Chemical Co., 5.75%, 2008 $197 $209,416
- ------------------------------------------------------------------------------------------------------------------------
Dow Chemical Co., 6.125%, 2011 207 221,826
- ------------------------------------------------------------------------------------------------------------------------
$431,242
- ------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Cendant Corp., 6.875%, 2006 $142 $153,869
- ------------------------------------------------------------------------------------------------------------------------
Cendant Corp., 6.25%, 2008 300 324,016
- ------------------------------------------------------------------------------------------------------------------------
Cendant Corp., 7.375%, 2013 338 382,293
- ------------------------------------------------------------------------------------------------------------------------
$860,178
- ------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.0%
- ------------------------------------------------------------------------------------------------------------------------
Apache Corp., 7.375%, 2047 $10 $11,707
- ------------------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875%, 2016## 495 502,425
- ------------------------------------------------------------------------------------------------------------------------
Devon Financing Corp. U.L.C., 6.875%, 2011 215 238,702
- ------------------------------------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.625%, 2005 101 106,783
- ------------------------------------------------------------------------------------------------------------------------
Ocean Energy, Inc., 4.375%, 2007 202 206,375
- ------------------------------------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.25%, 2011 197 220,899
- ------------------------------------------------------------------------------------------------------------------------
Pioneer Natural Resources Co., 7.5%, 2012 346 397,181
- ------------------------------------------------------------------------------------------------------------------------
$1,684,072
- ------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $568 $578,760
- ------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
News Media Holdings, Inc., 6.703%, 2004 $101 $101,186
- ------------------------------------------------------------------------------------------------------------------------
News Media Holdings, Inc., 8.5%, 2025 30 36,270
- ------------------------------------------------------------------------------------------------------------------------
News Media Holdings, Inc., 6.55%, 2033 202 205,142
- ------------------------------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 101 120,125
- ------------------------------------------------------------------------------------------------------------------------
Walt Disney Co., 6.75%, 2006 155 165,450
- ------------------------------------------------------------------------------------------------------------------------
Walt Disney Co., 6.375%, 2012 278 301,016
- ------------------------------------------------------------------------------------------------------------------------
$929,189
- ------------------------------------------------------------------------------------------------------------------------
Financial Institutions - 0.8%
- ------------------------------------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 $403 $399,356
- ------------------------------------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 6.85%, 2004 101 101,621
- ------------------------------------------------------------------------------------------------------------------------
SLM Corp., 4%, 2009 523 519,634
- ------------------------------------------------------------------------------------------------------------------------
SLM Corp., 5.375%, 2013 324 328,517
- ------------------------------------------------------------------------------------------------------------------------
$1,349,128
- ------------------------------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Coca-Cola HBC Finance B.V., 5.125%, 2013 $250 $248,790
- ------------------------------------------------------------------------------------------------------------------------
Kraft Foods, Inc., 6.25%, 2012 546 584,862
- ------------------------------------------------------------------------------------------------------------------------
$833,652
- ------------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.85%, 2012 $250 $271,262
- ------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
- ------------------------------------------------------------------------------------------------------------------------
Ameristar Casinos, Inc., 10.75%, 2009 $250 $290,000
- ------------------------------------------------------------------------------------------------------------------------
Aztar Corp., 8.875%, 2007 202 208,565
- ------------------------------------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 7.125%, 2007 339 374,061
- ------------------------------------------------------------------------------------------------------------------------
Horseshoe Gaming Holding Corp., 8.625%, 2009 404 422,180
- ------------------------------------------------------------------------------------------------------------------------
$1,294,806
- ------------------------------------------------------------------------------------------------------------------------
Insurance - 1.2%
- ------------------------------------------------------------------------------------------------------------------------
ASIF Global Financing XIX, 4.9%, 2013## $1,127 $1,110,732
- ------------------------------------------------------------------------------------------------------------------------
MetLife, Inc., 6.5%, 2032 495 519,854
- ------------------------------------------------------------------------------------------------------------------------
Prudential Funding Corp., 6.6%, 2008## 310 339,319
- ------------------------------------------------------------------------------------------------------------------------
$1,969,905
- ------------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.7%
- ------------------------------------------------------------------------------------------------------------------------
Allstate Corp., 7.2%, 2009 $75 $86,252
- ------------------------------------------------------------------------------------------------------------------------
Fund American Cos., Inc., 5.875%, 2013 613 616,541
- ------------------------------------------------------------------------------------------------------------------------
Safeco Corp., 4.875%, 2010 381 390,047
- ------------------------------------------------------------------------------------------------------------------------
Safeco Corp., 7.25%, 2012 36 40,957
- ------------------------------------------------------------------------------------------------------------------------
$1,133,797
- ------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Joy Global, Inc., 8.75%, 2012 $207 $231,840
- ------------------------------------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 666 710,032
- ------------------------------------------------------------------------------------------------------------------------
$941,872
- ------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 $528 $605,848
- ------------------------------------------------------------------------------------------------------------------------
HCA, Inc., 7.875%, 2011 344 379,793
- ------------------------------------------------------------------------------------------------------------------------
$985,641
- ------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 $404 $487,231
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 7.3%
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 7.085%, 2006 $102 $108,670
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 7.29%, 2006 38 40,824
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 7.355%, 2006 96 102,984
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6.65%, 2008 281 289,713
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.92%, 2009 337 362,065
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2016 154 154,887
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2017 - 2034 2,656 2,656,033
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 4.5%, 2018 1,164 1,147,199
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 7.5%, 2031 37 39,597
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2031 - 2032 1,164 1,211,832
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2033 - 2033 2,306 2,359,526
- ------------------------------------------------------------------------------------------------------------------------
Freddie Mac, 5%, 2018 - 2022 2,110 2,150,538
- ------------------------------------------------------------------------------------------------------------------------
Freddie Mac, 6%, 2034 712 729,177
- ------------------------------------------------------------------------------------------------------------------------
Ginnie Mae, 6.5%, 2028 6 6,625
- ------------------------------------------------------------------------------------------------------------------------
Ginnie Mae, 6%, 2032 808 828,406
- ------------------------------------------------------------------------------------------------------------------------
$12,188,076
- ------------------------------------------------------------------------------------------------------------------------
Municipals - 2.0%
- ------------------------------------------------------------------------------------------------------------------------
Honolulu, HI, City and County, "B", 5%, 2014 $1,595 $1,713,939
- ------------------------------------------------------------------------------------------------------------------------
State of Connecticut, "B", 5%, 2014 1,565 1,688,995
- ------------------------------------------------------------------------------------------------------------------------
$3,402,934
- ------------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 8.875%, 2011 $1 $1,098
- ------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 727 819,874
- ------------------------------------------------------------------------------------------------------------------------
$820,972
- ------------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 6.75%, 2011 $101 $110,473
- ------------------------------------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.4%, 2031 12 13,151
- ------------------------------------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.75%, 2032 245 279,632
- ------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.5%, 2012 394 424,075
- ------------------------------------------------------------------------------------------------------------------------
$827,331
- ------------------------------------------------------------------------------------------------------------------------
Oil Services - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $555 $567,183
- ------------------------------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Jabil Circuit, Inc., 5.875%, 2010 $420 $436,219
- ------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Wyeth, 6.5%, 2034 $373 $370,960
- ------------------------------------------------------------------------------------------------------------------------
Pollution Control - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 8.875%, 2008 $283 $314,130
- ------------------------------------------------------------------------------------------------------------------------
USA Waste Services, Inc., 7%, 2028 306 322,178
- ------------------------------------------------------------------------------------------------------------------------
Waste Management, Inc., 7%, 2004 81 82,570
- ------------------------------------------------------------------------------------------------------------------------
Waste Management, Inc., 7.1%, 2026 203 215,655
- ------------------------------------------------------------------------------------------------------------------------
$934,533
- ------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Belo Corp., 7.75%, 2027 $218 $243,573
- ------------------------------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013## 303 331,785
- ------------------------------------------------------------------------------------------------------------------------
$575,358
- ------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 5.84%, 2004 $32 $32,074
- ------------------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 7.25%, 2008 275 306,908
- ------------------------------------------------------------------------------------------------------------------------
$338,982
- ------------------------------------------------------------------------------------------------------------------------
Real Estate - 1.2%
- ------------------------------------------------------------------------------------------------------------------------
Boston Properties, Inc., 5%, 2015 $445 $418,379
- ------------------------------------------------------------------------------------------------------------------------
EOP Operating LP, 6.8%, 2009 448 494,756
- ------------------------------------------------------------------------------------------------------------------------
Kimco Realty Corp., 6%, 2012 303 318,435
- ------------------------------------------------------------------------------------------------------------------------
Simon Property Group LP, 6.375%, 2007 345 377,334
- ------------------------------------------------------------------------------------------------------------------------
Vornado Realty Trust, 5.625%, 2007 320 341,637
- ------------------------------------------------------------------------------------------------------------------------
$1,950,541
- ------------------------------------------------------------------------------------------------------------------------
Restaurants - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $342 $416,912
- ------------------------------------------------------------------------------------------------------------------------
Retailers - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.625%, 2010 $362 $411,775
- ------------------------------------------------------------------------------------------------------------------------
Gap, Inc., 10.55%, 2008 426 523,980
- ------------------------------------------------------------------------------------------------------------------------
J. Crew Operating Corp., 10.375%, 2007 40 40,050
- ------------------------------------------------------------------------------------------------------------------------
$975,805
- ------------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $470 $529,400
- ------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.3%
- ------------------------------------------------------------------------------------------------------------------------
Citizens Communications Co., 9%, 2031 $399 $391,675
- ------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 7.125%, 2006 179 192,019
- ------------------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 6.875%, 2028 732 718,634
- ------------------------------------------------------------------------------------------------------------------------
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 204 217,337
- ------------------------------------------------------------------------------------------------------------------------
Verizon New York, Inc., 7.375%, 2032 537 578,731
- ------------------------------------------------------------------------------------------------------------------------
$2,098,396
- ------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Altria Group, Inc., 7%, 2013 $400 $425,798
- ------------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $83 $106,229
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 12.4%
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2004 $2,082 $2,113,967
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2008 2,609 2,832,623
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 6.125%, 2012 1,208 1,315,493
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.125%, 2014 880 865,708
- ------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 2.875%, 2006 2,757 2,765,828
- ------------------------------------------------------------------------------------------------------------------------
Freddie Mac, 5.5%, 2006 2,688 2,852,691
- ------------------------------------------------------------------------------------------------------------------------
Freddie Mac, 6%, 2011 2,172 2,357,767
- ------------------------------------------------------------------------------------------------------------------------
Freddie Mac, 4.875%, 2013 2,170 2,150,194
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 5.34%, 2021 131 134,712
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 6.34%, 2021 26 27,434
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 6.35%, 2021 19 19,841
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 6.44%, 2021 26 27,910
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 6.07%, 2022 90 94,501
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.35%, 2023 535 508,366
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.89%, 2023 690 678,411
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.98%, 2023 688 681,157
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 612 591,536
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.93%, 2024 656 646,040
- ------------------------------------------------------------------------------------------------------------------------
$20,664,179
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 23.0%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 4.25%, 2010 $1,832 $2,109,118
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.125%, 2019 5 6,593
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.25%, 2023 - 2030 5,057 5,655,219
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 3.875%, 2029 1,065 1,327,302
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2031 159 161,087
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2%, 2004 - 2006 3,641 3,653,858
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.5%, 2005 5,403 5,670,195
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.75%, 2005 7,270 7,647,698
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.5%, 2006 293 299,135
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.875%, 2006 1,592 1,734,285
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 7%, 2006 4,592 5,036,671
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.375%, 2007 2,271 2,449,135
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3%, 2012 1,516 1,638,469
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 4%, 2014 1,000 960,625
- ------------------------------------------------------------------------------------------------------------------------
$38,349,390
- ------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.6%
- ------------------------------------------------------------------------------------------------------------------------
DPL, Inc., 6.875%, 2011 $670 $659,950
- ------------------------------------------------------------------------------------------------------------------------
DTE Energy Co., 7.05%, 2011 751 827,591
- ------------------------------------------------------------------------------------------------------------------------
Exelon Generation Co. LLC, 6.95%, 2011 818 911,329
- ------------------------------------------------------------------------------------------------------------------------
FirstEnergy Corp., 6.45%, 2011 876 922,252
- ------------------------------------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 5.875%, 2012 300 310,102
- ------------------------------------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375%, 2004 109 110,706
- ------------------------------------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 525 548,625
- ------------------------------------------------------------------------------------------------------------------------
Pacific Gas & Electric Co., 6.05%, 2034 839 793,443
- ------------------------------------------------------------------------------------------------------------------------
Progress Energy, Inc., 7.1%, 2011 519 578,411
- ------------------------------------------------------------------------------------------------------------------------
Progress Energy, Inc., 7%, 2031 50 52,442
- ------------------------------------------------------------------------------------------------------------------------
Virginia Electric & Power Co., 4.1%, 2008 346 341,459
- ------------------------------------------------------------------------------------------------------------------------
$6,056,310
- ------------------------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 $100 $106,102
- ------------------------------------------------------------------------------------------------------------------------
Wireless Communications - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
American Tower Escrow Corp., 0%, 2008 $515 $374,663
- ------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.375%, 2009 245 264,906
- ------------------------------------------------------------------------------------------------------------------------
Rural Cellular Corp., 8.25%, 2012## 240 247,800
- ------------------------------------------------------------------------------------------------------------------------
$887,369
- ------------------------------------------------------------------------------------------------------------------------
Total U.S. Bonds $150,253,176
- ------------------------------------------------------------------------------------------------------------------------
Foreign Bonds - 8.2%
- ------------------------------------------------------------------------------------------------------------------------
Australia - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Burns Philp Capital Property Ltd., 9.75%, 2012 (Food & Non-Alcoholic Beverages) $121 $127,655
- ------------------------------------------------------------------------------------------------------------------------
Canada - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 6.95%, 2008 (Forest & Paper Products) $310 $319,427
- ------------------------------------------------------------------------------------------------------------------------
TELUS Corp., 8%, 2011 (Telecommunications - Wireline) 440 510,382
- ------------------------------------------------------------------------------------------------------------------------
$829,809
- ------------------------------------------------------------------------------------------------------------------------
Cayman Islands - 0.4%
- ------------------------------------------------------------------------------------------------------------------------
DBS Capital Funding Corp., 7.657%, 2049 (Banks & Credit Companies)## $614 $694,455
- ------------------------------------------------------------------------------------------------------------------------
Chile - 0.4%
- ------------------------------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013 (Utilities - Electric Power) $537 $576,180
- ------------------------------------------------------------------------------------------------------------------------
France - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 10.875%, 2013 (Containers) $292 $340,180
- ------------------------------------------------------------------------------------------------------------------------
France Telecom S.A., 8.75%, 2011 (Telecommunications - Wireline) 379 448,053
- ------------------------------------------------------------------------------------------------------------------------
$788,233
- ------------------------------------------------------------------------------------------------------------------------
Germany - 0.7%
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 5.25%, 2013 (Telecommunications -
Wireline) $158 $156,838
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.75%, 2030 (Telecommunications -
Wireline) 815 1,012,298
- ------------------------------------------------------------------------------------------------------------------------
$1,169,136
- ------------------------------------------------------------------------------------------------------------------------
Italy - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.25%, 2013 (Telecommunications - Wireline)## $397 $391,413
- ------------------------------------------------------------------------------------------------------------------------
Japan - 0.7%
- ------------------------------------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 5.79%, 2014 (Banks & Credit Companies)## $617 $611,830
- ------------------------------------------------------------------------------------------------------------------------
UFJ Finance Aruba AEC, 6.75%, 2013 (Banks & Credit Companies) 584 616,653
- ------------------------------------------------------------------------------------------------------------------------
$1,228,483
- ------------------------------------------------------------------------------------------------------------------------
Kazakhstan - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks & Credit Companies)## $392 $419,502
- ------------------------------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks & Credit Companies)+ 142 151,963
- ------------------------------------------------------------------------------------------------------------------------
$571,465
- ------------------------------------------------------------------------------------------------------------------------
Luxembourg - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Tyco International Group S.A., 6.75%, 2011 (Conglomerates) $864 $931,770
- ------------------------------------------------------------------------------------------------------------------------
Mexico - 1.5%
- ------------------------------------------------------------------------------------------------------------------------
BBVA Bancomer Capital Trust I, 10.5%, 2011 (Banks & Credit Companies)## $458 $510,670
- ------------------------------------------------------------------------------------------------------------------------
Banco Mercantil S.A., 5.875%, 2014 (Banks & Credit Companies)## 725 706,875
- ------------------------------------------------------------------------------------------------------------------------
Pemex Finance Ltd., 9.69%, 2009 (Emerging Market Agencies) 36 42,120
- ------------------------------------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.5%, 2027 (Emerging Market Agencies) 920 1,053,400
- ------------------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 12.5%, 2012 (Transportation - Services) 103 114,845
- ------------------------------------------------------------------------------------------------------------------------
$2,427,910
- ------------------------------------------------------------------------------------------------------------------------
Russia - 0.9%
- ------------------------------------------------------------------------------------------------------------------------
Gaz Capital S.A., 8.625%, 2034 (Utilities - Gas)## $325 $315,250
- ------------------------------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 (Utilities - Gas) 410 423,325
- ------------------------------------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 10.95%, 2004 (Wireless Communications) 243 253,328
- ------------------------------------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 8.375%, 2010 (Wireless Communications)## 497 479,605
- ------------------------------------------------------------------------------------------------------------------------
$1,471,508
- ------------------------------------------------------------------------------------------------------------------------
South Korea - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Woori Bank, 5.75%, 2014 (Banks & Credit Companies)## $380 $381,900
- ------------------------------------------------------------------------------------------------------------------------
United Kingdom - 1.2%
- ------------------------------------------------------------------------------------------------------------------------
Barclays Bank PLC, 6.86%, 2049 (Banks & Credit Companies)## $255 $267,720
- ------------------------------------------------------------------------------------------------------------------------
Barclays Bank PLC, 8.55%, 2049 (Banks & Credit Companies)## 154 186,164
- ------------------------------------------------------------------------------------------------------------------------
Cadbury Schweppes U.S. Finance, 5.125%, 2013 (Food & Non-Alcoholic Beverages)## 633 624,846
- ------------------------------------------------------------------------------------------------------------------------
Orange PLC, 9%, 2009 (Wireless Communications) 20 21,004
- ------------------------------------------------------------------------------------------------------------------------
Permanent Financing PLC, 4.2%, 2007 (Asset Backed & Securitized) 696 714,722
- ------------------------------------------------------------------------------------------------------------------------
United Biscuits Finance PLC, 10.75%, 2011 (Food & Non-Alcoholic Beverages) GBP 127 241,096
- ------------------------------------------------------------------------------------------------------------------------
$2,055,552
- ------------------------------------------------------------------------------------------------------------------------
Total Foreign Bonds $13,645,469
- ------------------------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $166,569,471) $163,898,645
- ------------------------------------------------------------------------------------------------------------------------
Portfolio of Investments - continued
Repurchase Agreements - 1.1%
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ------------------------------------------------------------------------------------------------------------------------
Goldman Sachs & Co., dated 04/30/04, due 05/03/04, total to be received $1,764,153
(secured by various U.S. Treasury and Federal Agency obligations in a jointly
traded account), at Cost $1,764 $1,764,000
- ------------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $168,333,471) $165,662,645
- ------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.7% 1,234,797
- ------------------------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $166,897,442
- ------------------------------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
^^ Interest only security.
+ 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.
GBP = British Pound
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $168,333,471) $165,662,645
- -----------------------------------------------------------------------------------------------------------------------------
Cash 183,524
- -----------------------------------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $12,144) 12,111
- -----------------------------------------------------------------------------------------------------------------------------
Receivable for investments sold 254,706
- -----------------------------------------------------------------------------------------------------------------------------
Receivable for fund shares sold 912,466
- -----------------------------------------------------------------------------------------------------------------------------
Interest receivable 2,471,540
- -----------------------------------------------------------------------------------------------------------------------------
Receivable from investment adviser 25,676
- -----------------------------------------------------------------------------------------------------------------------------
Total assets $169,522,668
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $568,766
- -----------------------------------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 5,789
- -----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased 362,369
- -----------------------------------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 1,643,436
- -----------------------------------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------------------------------
Management fee 1,608
- -----------------------------------------------------------------------------------------------------------------------------
Shareholder servicing costs 468
- -----------------------------------------------------------------------------------------------------------------------------
Distribution and service fee 4,595
- -----------------------------------------------------------------------------------------------------------------------------
Administrative fee 80
- -----------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 38,115
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities $2,625,226
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $166,897,442
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $166,807,410
- -----------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on investments and translation of assets and liabilities in
foreign currencies (2,676,656)
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain on investments and foreign currency
transactions 2,819,467
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (52,779)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets $166,897,442
- -----------------------------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 16,246,582
- -----------------------------------------------------------------------------------------------------------------------------
Class B shares
Net assets $166,897,442
- -----------------------------------------------------------------------------------------------------------------------------
Shares outstanding 16,246,582
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.27
- -----------------------------------------------------------------------------------------------------------------------------
A contingent deferred sales charge may be imposed on redemptions of Class B shares.
SEE NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
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 YEAR ENDED 4/30/04
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------------------------------
Dividend income from MFS Research Bond Fund $7,569,561
- -----------------------------------------------------------------------------------------------------------------------------
Interest 2,917,568
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income $10,487,129
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------------------------------
Management fee $943,456
- -----------------------------------------------------------------------------------------------------------------------------
Trustees' compensation 5,346
- -----------------------------------------------------------------------------------------------------------------------------
Shareholder servicing costs 70,710
- -----------------------------------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 1,882,155
- -----------------------------------------------------------------------------------------------------------------------------
Administrative fee 17,348
- -----------------------------------------------------------------------------------------------------------------------------
Printing 78,094
- -----------------------------------------------------------------------------------------------------------------------------
Custodian fee 39,617
- -----------------------------------------------------------------------------------------------------------------------------
Legal fees 30,879
- -----------------------------------------------------------------------------------------------------------------------------
Auditing fees 15,400
- -----------------------------------------------------------------------------------------------------------------------------
Postage 2
- -----------------------------------------------------------------------------------------------------------------------------
Miscellaneous 25,429
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses $3,108,436
- -----------------------------------------------------------------------------------------------------------------------------
Fees paid indirectly (3,296)
- -----------------------------------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (766,778)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses $2,338,362
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $8,148,767
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (identified cost basis)
- -----------------------------------------------------------------------------------------------------------------------------
Investment transactions $3,778,815
- -----------------------------------------------------------------------------------------------------------------------------
Foreign currency transactions 921
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions $3,779,736
- -----------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -----------------------------------------------------------------------------------------------------------------------------
Investments $(7,718,800)
- -----------------------------------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (5,830)
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized loss on investments and foreign currency translation $(7,724,630)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign currency $(3,944,894)
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $4,203,873
- -----------------------------------------------------------------------------------------------------------------------------
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.
YEAR PERIOD
ENDED ENDED
4/30/04 4/30/03*
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $8,148,767 $2,706,202
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 3,779,736 239,853
- -----------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency translation (7,724,630) 5,047,974
- -------------------------------------------------------------------------------- ------------ ----------
Increase in net assets from operations $4,203,873 $7,994,029
- -------------------------------------------------------------------------------- ------------ ----------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (Class B) $(8,502,007) $(2,967,959)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency transactions (Class B) (637,904) --
- -------------------------------------------------------------------------------- ------------ ----------
Total distributions declared to shareholders $(9,139,911) $(2,967,959)
- -------------------------------------------------------------------------------- ------------ ----------
Net increase (decrease) in net assets from fund share transactions $(2,946,209) $169,753,619
- -------------------------------------------------------------------------------- ------------ ----------
Total increase (decrease) in net assets $(7,882,247) $174,779,689
- -------------------------------------------------------------------------------- ------------ ----------
NET ASSETS
At beginning of period $174,779,689 $--
- -----------------------------------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in excess of net investment
income of $52,779 and $261,757, respectively) $166,897,442 $174,779,689
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, October 17, 2002 through April 30, 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 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) held for the entire period. The information has been audited by the fund's
independent auditors, whose report, together with the fund's financial statements, are included in this report.
CLASS B
YEAR ENDED PERIOD ENDED
4/30/04 4/30/03*
Net asset value, beginning of period $10.56 $10.00
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.46 $0.28
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency (0.24) 0.52
- --------------------------------------------------------------------------------------------- ------- -------
Total from investment operations $0.22 $0.80
- --------------------------------------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.48) $(0.24)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency transactions (0.03) --
- --------------------------------------------------------------------------------------------- ------- -------
Total distributions declared to shareholders $(0.51) $(0.24)
- --------------------------------------------------------------------------------------------- ------- -------
Net asset value, end of period $10.27 $10.56
- --------------------------------------------------------------------------------------------- ------- -------
Total return (%) 2.09 8.08++^
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 1.24 1.05+(1)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 4.33 4.48+
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 179 141(2)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $166,897 $174,780
- -----------------------------------------------------------------------------------------------------------------------------
(S) Effective December 22, 2003, 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 0.25% of average
daily net assets. Prior to December 22, 2003, 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 0.05% of average daily net assets. In addition, the investment adviser contractually waived a portion of its fees for
the periods indicated. To the extent actual expenses were over these limitations and the waivers had not been inplace, the
net investment income per share and the ratios would have been:
Net investment income $0.42 $0.23
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.65 1.75+(1)
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 3.92 3.78+
- -----------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, October 17, 2002, through April 30, 2003.
(1) Reflects direct fund expenses only.
(2) Portfolio turnover rate reflects that of the Portfolio in which the fund invests.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
^ For the period ended April 30, 2003, the total return was previously reported incorrectly as 7.66%.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Research Bond Fund J (the fund) is a non-diversified series of MFS Series
Trust IX (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. Prior to December 22, 2003, the fund
was a "fund of funds", and invested substantially all of its assets in the MFS
Research Bond Fund, an open-end investment company that has the same investment
objective as the fund.
(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 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Forward foreign currency contracts are
valued using spot rates and forward points as reported by an independent
pricing source. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. Investments in
the underlying fund are valued at the net asset value per share of each
underlying fund as of the close of the regular trading on the New York Stock
Exchange. Short-term obligations, which mature in 60 days or less, are valued
at amortized cost, which approximates market value. 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.
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 - 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.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. The fund's account transactions are currently
maintained on an omnibus account basis and are excluded from the redemption
fee. See the fund's prospectus for details.
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 accounting principles generally accepted in the United States
of America. 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.
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, for the year ended April 30, 2004, 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, mortgage-backed securities, derivatives,
capital losses, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended April 30, 2004
and April 30, 2003 was as follows:
4/30/04 4/30/03
Distributions declared from:
- --------------------------------------------------------------------------------
Ordinary income $9,012,330 $2,967,959
Long-term capital gain 127,581 --
- --------------------------------------------------------------------------------
Total distributions declared $9,139,911 $2,967,959
- --------------------------------------------------------------------------------
During the year ended April 30, 2004, accumulated distributions in excess of
net investment income decreased by $562,218, accumulated undistributed net
realized gain on investments and foreign currency transactions decreased by
$562,218 due to differences between book and tax accounting for mortgage-
backed securities, currency transactions, amortization and accretion on debt
securities and capital losses. This change had no effect on the net assets or
net asset value per share.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,560,187
--------------------------------------------------
Undistributed long-term capital gain 2,341,697
--------------------------------------------------
Unrealized depreciation (3,243,086)
--------------------------------------------------
Other temporary differences (568,766)
--------------------------------------------------
(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 0.50% of
the fund's average daily net assets. The investment adviser has contractually
agreed to waive a portion of its fee, which is shown as a reduction of total
expenses in the Statement of Operations. Management fees incurred for the year
ended April 30, 2004 were 0.12% of the average daily net assets on an
annualized basis.
The investment adviser has contractually agreed to pay the fund's operating
expenses exclusive of management and distribution and service fees such that
the fund's aggregate expenses do not exceed 0.25% of its average daily net
assets effective December 22, 2003. Prior to December 22, 2003 the fund
incurred 0.05% of its average daily net assets. This is reflected as a
reduction of expenses in the Statement of Operations.
The fund pays compensation to its Independent Trustees in the form of both a
retainer and attendance fees, and additional compensation to Board and
Committee chairpersons, 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).
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
----------------------------------------------
Effective April 1, 2004 the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $17,348, equivalent to
0.00922% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
DISTRIBUTOR - The Trustees have adopted a distribution plan for Class B shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD 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
Distribution Fee 0.75%
--------------------------------------
Service Fee 0.25%
--------------------------------------
Total Distribution Plan 1.00%
--------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the year ended April 30, 2004, amounted to:
CLASS B
Service Fee Retained by MFD $377,012
--------------------------------------
Fees incurred under the distribution plan during the year ended April 30, 2004,
were as follows:
CLASS B
Effective Annual Percentage Rates 1.00%
-----------------------------------------
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 year ended
April 30, 2004, were as follows:
CLASS B
Contingent Deferred Sales Charges Imposed $2,846,606
------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as shareholder
servicing agent. Effective December 22, 2003, the fund incurred a fee, which is
calculated as a percentage of the fund's average daily net assets is set
periodically under the supervision of the funds' Trustees. Prior to April 1,
2004, the fee was set at 0.11% of the fund's average daily net assets.
Effective April 1, 2004, the fee is set at 0.10% of the fund's average daily
net assets. For the year ended April 30, 2004, the fund paid MFSC a fee of
$70,658 for shareholder services which equated to 0.0375% of the fund's average
net assets. Also included in shareholder servicing costs are out-of- pocket
expenses, paid to MFSC, which amounted to $52 for the year ended April 30,
2004, as well as other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $149,182,013 $76,673,767
- ------------------------------------------------------------------------------------------------------
Investments (non-U.S. government securities) $178,877,274 $257,588,367
- ------------------------------------------------------------------------------------------------------
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 $168,905,690
----------------------------------------------------------
Gross unrealized appreciation $72,181
----------------------------------------------------------
Gross unrealized depreciation (3,315,226)
----------------------------------------------------------
Net unrealized depreciation $(3,243,045)
----------------------------------------------------------
(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:
Year ended 4/30/04 Period ended 4/30/03*
SHARES AMOUNT SHARES AMOUNT
CLASS B SHARES
Shares sold 6,638,512 $70,122,807 17,199,580 $176,428,815
- ---------------------------------------------------------------------------------------------------------------
Shares reacquired (6,946,970) (73,069,016) (644,540) (6,675,196)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) (308,458) $(2,946,209) 16,555,040 $169,753,619
- ---------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, October 17, 2002, through April 30, 2003.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the year ended April 30, 2004, was $952, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended April 30, 2004.
(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
PURCHASES
NET
CONTRACTS TO CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE DEPRECIATION
5/17/04 GBP 86,248 $158,567 $152,778 $(5,789)
------- ------- -----
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
commitments under
these contracts.
(8) RESTRICTED SECURITIES
The fund may invest not more 15% of its total assets in securities which are
subject to legal or contractual restrictions on resale. At April 30, 2004, the
fund owned the following restricted security, excluding securities issued under
Rule 144A, constituting 0.09% 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 this
security 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
Kazkomommerts International B.V., 10.125% 05/08/07 12/19/03 142,000 $160,105 $151,963
- -------------------------------------------------------------------------------------------------------------------------------
(9) TRANSFER IN-KIND
The fund was a "fund of funds" which invested substantially all of its assets
in the MFS Research Bond Fund, an open-end investment company that has the same
investment objective as the fund. As of December 22, 2003, the fund received a
transfer in-kind of securities reflective of the position it held in the MFS
Research Bond Fund.
(10) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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To the Trustees of MFS Series Trust IX and Shareholders of MFS Research Bond
Fund J:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Research Bond Fund J (a portfolio of MFS
Series Trust IX (the Trust)) as of April 30, 2004, and the related statement of
operations for the year then ended, the statement of changes in net assets, and
the financial highlights for each of the two years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Research Bond Fund J as of April 30, 2004, the results of its operations for
the year then ended, the changes in its net assets, and the financial
highlights for each of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
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FEDERAL TAX INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has designated $127,581 as a capital gain dividend for the year ended
April 30, 2004.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
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TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- --------------------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The business address of each Trustee and officer is 500 Boylston Street,
Boston, Massachusetts 02116.
POSITION(s) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATIONS & OTHER DIRECTORSHIPS(2)
NAME, DATE OF BIRTH WITH FUND SINCE(1) DURING THE PAST FIVE YEARS
- ------------------- ---------------- --------------- -----------------------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services Company,
(born 12/14/59) February 2004 President, Chief Investment Officer and Director
(until February 2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services Company, Chairman
(born 08/08/46) (since February 2004); Harvard Law School
(education), John Olin Visiting Professor (since
July 2002); Secretary of Economic Affairs, The
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice Chairman
(June 2000 to December 2001); Fidelity Management &
Research Company (investment adviser), President
(March 1997 to July 2001); The Bank of New York
(financial services), Director; Bell Canada
Enterprises (telecommunications), Director; Telesat
(satellite communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services Company, Chairman
(born 06/02/55) February 2004 (until February 2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation (energy
(born 05/01/36) related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of Cardiac
(born 03/11/37) Surgery; Harvard Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining products and service
(born 05/30/42) provider), Vice Chairman/Director (since April
2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding equipment
manufacturer), Director; Southwest Gas Corporation
(natural gas distribution company), Director
William R. Gutow Trustee December 1993 Private investor and real estate consultant;
(born 09/27/41) Capitol Entertainment Management Company (video
franchise), Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc., Managing
(born 02/08/53) Director, Investment Banking Group (1997 to
February 2001); Borders Group, Inc. (book and music
retailer), Director; Federal Realty Investment
Trust (real estate investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University Graduate
(born 04/10/35) School of Business Administration, Class of 1961
Adjunct Professor in Entrepreneurship Emeritus; CBL
& Associates Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning
(born 09/23/38) specialists), President; Wellfleet Investments
(investor in health care companies), Managing
General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional products),
Chief Executive Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry consultant
(born 04/25/46)
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services Company, Senior
(born 03/06/59) and Assistant Clerk Vice President and Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 until Massachusetts Financial Services Company, Senior
(born 11/06/53) March 2004 Vice President, General Counsel and Secretary
(until March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services Company, Vice
(born 10/01/53) President (since April 2003); Brown Brothers
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President (prior
to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services Company, Vice
(born 09/18/63) President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services Company, Senior
(born 08/29/58) Vice President (since July 2002); The Bank of New
York, Senior Vice President (September 2000 to July
2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington Funds,
Chief Financial Officer (prior to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services Company, Vice
(born 11/13/57) President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services Company, Senior
(born 06/12/60) Vice President
- ----------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since appointment
unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "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 series/the fund. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not elected for fixed
terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years thereafter to elect Trustees. Each
Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death,
resignation, retirement or removal.
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 109 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 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 02116-3741 200 Berkeley Street, Boston, MA 02116
CHIEF FIXED INCOME OFFICER
Michael W. Roberge
A general description of the MFS Funds proxy voting policies and procedures
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
MFS(R) RESEARCH BOND FUND J
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116
RBJ-ANN 6/04
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) MUNICIPAL
LIMITED MATURITY 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 LIMITED MATURITY FUND
The fund seeks as high a level of current income exempt from federal income
tax as is consistent with prudent investing, while seeking protection of
shareholders' capital.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
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MANAGEMENT REVIEW 6
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
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PORTFOLIO OF INVESTMENTS 12
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FINANCIAL STATEMENTS 32
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NOTES TO FINANCIAL STATEMENTS 39
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 50
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TRUSTEES AND OFFICERS 51
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 55
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FEDERAL TAX INFORMATION 56
- ----------------------------------------------------
CONTACT INFORMATION 57
- ----------------------------------------------------
ASSET ALLOCATION 58
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging environment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
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MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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
Yields in most sectors of the bond market increased over the one-year period
ended April 30, 2004. Yields for 10-year U.S. Treasury bonds, for example, rose
from 3.84% to 4.50%, or 66 basis points, over the period. (A basis point is
0.01% of yield.) Ten-year municipal bonds rose only 42 basis points,
outperforming Treasuries of comparable maturities. (The principal value and
interest on Treasury securities are guaranteed by the U.S. government if held
to maturity.) The upward path of interest rates, however, was marked by
significant volatility in the bond market over the period.
In early 2003 and into the first half of the period, we saw a confluence of
factors that were positive for bond prices and, therefore, negative for rates.
Geopolitical uncertainty, the hangover from corporate scandals in 2002, and a
weak U.S. economy were among the factors that pushed interest rates down to
four-decade lows by June of 2003.
In late June, however, the bond market reversed direction as fixed-income
investors became concerned that the economic recovery was accelerating faster
than expected. Over the summer of 2003 and into early September, bond prices
declined as rates rose sharply. But in the fall and winter of 2003, bond prices
revived as several factors combined to drive rates down. Economic reports
indicated that inflation was well contained while job growth remained weak.
Although most other measures indicated the U.S. economy was improving, we
believe investors were concerned that consumer spending might falter because
laid-off workers were not finding new jobs. The Federal Reserve Board (the Fed)
appeared to sum up the situation in its statements that interest rates could
remain low for the foreseeable future.
As the period came to a close in March and April of 2004, bonds reversed
direction again. Long-term rates climbed sharply as the United States finally
began to experience strong job growth, and the market began to anticipate that
a Fed rate increase was imminent. Just after the period ended, the Fed's press
release after its May 4 meeting contained the first indication in several years
that rates were indeed going up: "At this juncture, ... the [Federal Open
Market] Committee believes that policy accommodation can be removed at a pace
that is likely to be measured."
The accelerating U.S. recovery over the period was generally positive for lower
quality bonds. Growth in GDP (gross domestic product), business profits, and
other measures pointed toward improving corporate fundamentals - business
factors such as earnings and cash flow growth.
In response, investors moved away from the risk aversion or "flight to quality"
that had characterized the bond market in late 2002 and early 2003. Riskier,
lower-rated classes of bonds showed the best performance over the period, as
investors sought out higher-yielding debt. This caused spreads - the
differences between yields on "AAA"-rated municipals and riskier "BBB"- rated
issues - to tighten (decrease) over the period. Within categories, lower-rated
bonds generally outperformed higher-rated issues. While bonds across most asset
classes were hurt by rising rates in the final months of the period,
lower-rated debt was less affected than higher-rated issues.
PORTFOLIO CONCENTRATION 4/30/04
QUALITY RATINGS
"AAA" 65.3%
"AA" 12.0%
"A" 8.6%
"BBB" 13.1%
Other 1.0%
The portfolio is actively managed, and current
holdings may be different.
Percentages based on assets on 4/30/04.
PERFORMANCE RELATIVE TO THE FUND'S BENCHMARK
The fund has two benchmarks, the Lehman Brothers 3-year Municipal Bond Index
and the Lehman Brothers 5-year Municipal Bond Index. While the fund's holdings
encompass a range of maturities up to about 12 years, the fund is limited by
prospectus to an average maturity of no more than 5.00 years. Over the period,
the portfolio's average maturity was about 4.8 years.
The chief detractor from performance relative to both benchmarks was duration,
a measure of sensitivity to interest rate changes. The fund had a longer
duration (a greater sensitivity to interest rate changes) than both of its
benchmarks. For that reason, the fund was more adversely affected than its
benchmarks by the rising interest rate environment over the period.
In the area of credit quality, relative performance was helped by the fund's
overweighting in lower-quality debt, particularly in the health care sector,
relative to its benchmarks. During a period when spreads were tightening,
lower-rated bonds outperformed, and the fund's overweighting in "BBB"-rated
debt helped relative returns. (The Lehman indices are composed primarily of
higher-grade securities.)
Respectfully,
/s/ Michael L. Dawson /s/ Geoffrey L. Schechter
Michael L. Dawson Geoffrey L. Schechter
Portfolio Manager Portfolio Manager
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended 4/30/04)
MFS Municipal Lehman Brothers Lehman Brothers
Limited Maturity Municipal Bond Municipal Bond
Fund - Class A Five-Year Index Three-Year Index
4/94 $ 9,750 $10,000 $10,000
4/96 10,612 11,120 11,270
4/98 11,536 12,276 12,589
4/00 12,119 13,185 13,453
4/02 13,719 15,071 15,685
4/04 14,798 16,180 17,213
TOTAL RETURNS
- ----------------------
Average annual
without sales charge
- ----------------------
Class
Share class inception date 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 3/17/1992 1.35% 4.37% 4.15% 4.26%
- ------------------------------------------------------------------------------
B 9/7/1993 0.58% 3.59% 3.35% 3.45%
- ------------------------------------------------------------------------------
C 7/1/1994 0.49% 3.44% 3.27% 3.40%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
- ----------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average short/intermediate-term
municipal bond fund+ 1.62% 4.21% 3.87% 4.54%
- ------------------------------------------------------------------------------
Lehman Brothers Three-Year Municipal
Bond Index# 1.45% 4.43% 4.50% 4.93%
- ------------------------------------------------------------------------------
Lehman Brothers Five-Year Municipal
Bond Index# 1.72% 5.46% 5.13% 5.58%
- ------------------------------------------------------------------------------
- ----------------------
Average annual
with sales charge
- ----------------------
Share class
- ------------------------------------------------------------------------------
A -1.19% 3.50% 3.63% 4.00%
- ------------------------------------------------------------------------------
B -3.37% 2.65% 3.00% 3.45%
- ------------------------------------------------------------------------------
C -0.49% 3.44% 3.27% 3.40%
- ------------------------------------------------------------------------------
- ----------------------
Cumulative without
sales charge
- ----------------------
- ------------------------------------------------------------------------------
A 1.35% 13.70% 22.57% 51.77%
- ------------------------------------------------------------------------------
B 0.58% 11.16% 17.93% 40.44%
- ------------------------------------------------------------------------------
C 0.49% 10.69% 17.46% 39.69%
- ------------------------------------------------------------------------------
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
THE LEHMAN BROTHERS THREE-YEAR MUNICIPAL BOND INDEX - measures the performance
of the medium-term (2 to 4 years) municipal bond market.
THE LEHMAN BROTHERS FIVE-YEAR MUNICIPAL BOND INDEX - measures the performance
of the medium-term (4 to 6 years) 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
2.50% 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 B shares includes the
performance of the fund's Class B 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 to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
KEY RISK CONSIDERATIONS:
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.
Income earned on bonds issued by states of which you are not a resident, or
their political subdivisions, may be subject to taxation by the state in which
you reside.
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 - 4/30/04
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Municipal Bonds - 97.6%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
Airport & Port Revenue - 4.6%
- ----------------------------------------------------------------------------------------------
Chicago, IL (O'Hare International Airport), "A", AMBAC,
6%, 2005 $1,900 $1,959,179
- ----------------------------------------------------------------------------------------------
Chicago, IL (O'Hare International Airport), FSA, 5.25%, 2013 1,500 1,591,215
- ----------------------------------------------------------------------------------------------
Cleveland, OH, Airport Systems Rev., "A", FSA, 5.5%, 2008 250 270,935
- ----------------------------------------------------------------------------------------------
Dallas Fort Worth, TX, International Airport, "A", AMBAC,
6%, 2013 1,000 1,122,600
- ----------------------------------------------------------------------------------------------
Delaware River Port Authority Pennsylvania & New Jersey
(Refunding Port District Project), "A", FSA, 5.25%, 2009 550 603,944
- ----------------------------------------------------------------------------------------------
Denver, CO, City & County Airport Rev., "C", MBIA, 6%, 2006 1,000 1,094,740
- ----------------------------------------------------------------------------------------------
Long Beach, CA, "A", FGIC, 5%, 2015 1,000 1,029,770
- ----------------------------------------------------------------------------------------------
Massachusetts Port Authority Rev., "A", 5.25%, 2007 375 405,379
- ----------------------------------------------------------------------------------------------
Massachusetts Port Authority Rev., "A", 5.75%, 2010 175 195,893
- ----------------------------------------------------------------------------------------------
Massachusetts Port Authority Rev., "B", FSA, 4.35%, 2004 500 502,465
- ----------------------------------------------------------------------------------------------
Minneapolis & St. Paul, MN, Metropolitan Airport, "D",
FGIC, 5.25%, 2009 500 538,425
- ----------------------------------------------------------------------------------------------
Omaha, NE, Airport Authority Rev., FSA, 4%, 2006 500 516,940
- ----------------------------------------------------------------------------------------------
Port Seattle, WA, Rev., "B", FGIC, 5.5%, 2007 500 540,315
- ----------------------------------------------------------------------------------------------
Rhode Island Economic Development Corp. Airport Rev.,
"A", FGIC, 5%, 2012 750 786,923
- ----------------------------------------------------------------------------------------------
Richland Lexington, SC, Columbia Metropolitan Airport
Rev., "A", FSA, 5%, 2009 200 216,640
- ----------------------------------------------------------------------------------------------
Wayne Charter County, MI, Airport Rev., Refunding Detroit
Metropolitan, "D", FGIC, 5.25%, 2006 1,000 1,075,330
- ----------------------------------------------------------------------------------------------
$12,450,693
- ----------------------------------------------------------------------------------------------
Chemicals - 0.3%
- ----------------------------------------------------------------------------------------------
Brazos River, TX, Harbor Navigation District (Dow
Chemical Co.), "B-2", 4.75%, 2033 $330 $341,078
- ----------------------------------------------------------------------------------------------
Michigan Strategic Fund Limited Rev. (Dow Chemical Co.),
4.6%, 2014 350 368,330
- ----------------------------------------------------------------------------------------------
$709,408
- ----------------------------------------------------------------------------------------------
General Obligations - General Purpose - 14.4%
- ----------------------------------------------------------------------------------------------
Allen County, IN (Jail Building Corp.), 5.75%, 2009 $235 $264,352
- ----------------------------------------------------------------------------------------------
Broward County, FL, "B", 5%, 2008 500 540,120
- ----------------------------------------------------------------------------------------------
Central Falls, RI, ASST GTY, 5.5%, 2005 440 457,560
- ----------------------------------------------------------------------------------------------
Chicago, IL, Neighborhoods Alive, MBIA, 5%, 2008 1,250 1,348,038
- ----------------------------------------------------------------------------------------------
Columbus, OH, 5.25%, 2011 705 778,532
- ----------------------------------------------------------------------------------------------
Commonwealth of Massachusetts, "A", 5.75%, 2005 500 516,485
- ----------------------------------------------------------------------------------------------
Commonwealth of Massachusetts, "A", 6%, 2011 310 357,039
- ----------------------------------------------------------------------------------------------
Commonwealth of Puerto Rico, "C", 6%, 2013 800 887,120
- ----------------------------------------------------------------------------------------------
Dickson County, TN, FGIC, 4%, 2007 820 859,614
- ----------------------------------------------------------------------------------------------
Du Page County, IL (Ars Jail Project), 5%, 2009 870 943,167
- ----------------------------------------------------------------------------------------------
Gulf Shores, AL, "C", FSA, 5%, 2012 1,460 1,575,734
- ----------------------------------------------------------------------------------------------
Hawkins County, TN, AMBAC, 4.5%, 2008 425 452,583
- ----------------------------------------------------------------------------------------------
Henderson, NV, Parks & Recreation, "A", FGIC, 6%, 2006 340 368,842
- ----------------------------------------------------------------------------------------------
Huntsville, AL, "D", 5%, 2008 350 379,981
- ----------------------------------------------------------------------------------------------
King County, WA, "B", 4.75%, 2009 1,500 1,597,185
- ----------------------------------------------------------------------------------------------
Kingsport, TN, "A", FGIC, 4%, 2008 1,000 1,044,230
- ----------------------------------------------------------------------------------------------
Lansing, IL, "A", FSA, 4.25%, 2007 530 559,346
- ----------------------------------------------------------------------------------------------
Milwaukee County, WI, "A", 4.75%, 2007 1,000 1,070,610
- ----------------------------------------------------------------------------------------------
Mobile County, AL, MBIA, 5%, 2007 500 535,480
- ----------------------------------------------------------------------------------------------
New York, NY, "A", 5.25%, 2012 265 284,329
- ----------------------------------------------------------------------------------------------
New York, NY, "B", 5.75%, 2011 375 412,043
- ----------------------------------------------------------------------------------------------
New York, NY, "C", 5.25%, 2009 250 270,450
- ----------------------------------------------------------------------------------------------
New York, NY, "G", 5.5%, 2009 780 853,063
- ----------------------------------------------------------------------------------------------
New York, NY, "G", 5%, 2014 800 831,472
- ----------------------------------------------------------------------------------------------
New York, NY, "J", 5%, 2010 1,000 1,066,040
- ----------------------------------------------------------------------------------------------
New York, NY, "K", 5%, 2010 370 396,200
- ----------------------------------------------------------------------------------------------
Oakland, CA, "A", FGIC, 5%, 2010 820 893,431
- ----------------------------------------------------------------------------------------------
Pawtucket, RI, "A", AMBAC, 5%, 2009 1,000 1,087,600
- ----------------------------------------------------------------------------------------------
Philadelphia, PA, "A", XLCA, 5%, 2011 1,000 1,083,480
- ----------------------------------------------------------------------------------------------
Philadelphia, PA, FGIC, 5.25%, 2008 2,000 2,186,080
- ----------------------------------------------------------------------------------------------
Saraland, AL, MBIA, 4.5%, 2009 865 918,717
- ----------------------------------------------------------------------------------------------
St. Clair County, IL, FGIC, 5.625%, 2012 500 557,985
- ----------------------------------------------------------------------------------------------
State of California, 5%, 2011 - 2012 3,400 3,595,925
- ----------------------------------------------------------------------------------------------
State of California, FSA, 5.25%, 2010 2,000 2,193,200
- ----------------------------------------------------------------------------------------------
State of Hawaii, "CY", FSA, 5.25%, 2008 500 545,965
- ----------------------------------------------------------------------------------------------
State of Illinois, FGIC, 5%, 2005 500 513,815
- ----------------------------------------------------------------------------------------------
State of Washington, "B", FSA, 5%, 2008 500 539,760
- ----------------------------------------------------------------------------------------------
State of Washington, "R", 5.375%, 2007 750 819,698
- ----------------------------------------------------------------------------------------------
State of Washington, "R", MBIA, 4%, 2008 1,000 1,044,940
- ----------------------------------------------------------------------------------------------
State of Wisconsin, 5.125%, 2011 400 437,308
- ----------------------------------------------------------------------------------------------
State of Wisconsin, "C", FSA, 5%, 2010 1,000 1,089,880
- ----------------------------------------------------------------------------------------------
State of Wisconsin, MBIA, 5%, 2017 500 525,890
- ----------------------------------------------------------------------------------------------
Taylor, MI, Building Authority, AMBAC, 5.5%, 2010 500 556,905
- ----------------------------------------------------------------------------------------------
Titus County, TX, Hospital District, FGIC, 5%, 2013 510 546,088
- ----------------------------------------------------------------------------------------------
Weslaco, TX, MBIA, 3.25%, 2007 795 814,112
- ----------------------------------------------------------------------------------------------
$38,600,394
- ----------------------------------------------------------------------------------------------
General Obligations - Improvement - 4.6%
- ----------------------------------------------------------------------------------------------
Dallas, TX, 4%, 2015 $1,900 $1,832,854
- ----------------------------------------------------------------------------------------------
Jefferson County, KY, "B", FSA, 0%, 2004 1,000 996,590
- ----------------------------------------------------------------------------------------------
Jersey City, NJ (Refunding & General Improvement), "A",
AMBAC, 4%, 2007 500 523,365
- ----------------------------------------------------------------------------------------------
Kauai County, HI, "A", FGIC, 6.25%, 2010(++) 375 439,433
- ----------------------------------------------------------------------------------------------
Madison & St. Clair Counties, IL (School Building), FGIC,
4.25%, 2005 500 511,065
- ----------------------------------------------------------------------------------------------
Montgomery County, MD, Public Improvement, "A", 5.375%, 2005 500 513,715
- ----------------------------------------------------------------------------------------------
Montgomery, AL, AMBAC, 5%, 2011 1,000 1,083,930
- ----------------------------------------------------------------------------------------------
New Orleans, LA, Certificate Indebtedness, FSA, 5.5%, 2010 500 560,425
- ----------------------------------------------------------------------------------------------
North Slope Borough, AK, "A", MBIA, 0%, 2005 500 490,900
- ----------------------------------------------------------------------------------------------
Oak Ridge, TN, AMBAC, 5%, 2012 300 320,925
- ----------------------------------------------------------------------------------------------
Pittsburgh, PA, "A", AMBAC, 5%, 2009 $1,000 $1,083,600
- ----------------------------------------------------------------------------------------------
Springfield, MA, State Quality, MBIA, 5%, 2011 1,000 1,085,660
- ----------------------------------------------------------------------------------------------
State of Mississippi, 6.2%, 2008(++) 440 491,344
- ----------------------------------------------------------------------------------------------
State of Mississippi, "I", 5.5%, 2006(++) 250 271,778
- ----------------------------------------------------------------------------------------------
State of Ohio, Highway Capital Improvements, "E", 5.5%, 2008 1,450 1,603,715
- ----------------------------------------------------------------------------------------------
State of Tennessee, "A", FGIC, 5.25%, 2008 500 546,150
- ----------------------------------------------------------------------------------------------
$12,355,449
- ----------------------------------------------------------------------------------------------
General Obligations - Schools - 9.1%
- ----------------------------------------------------------------------------------------------
Birdville, TX, Independent School District, "A", PSF,
4.25%, 2008 $500 $526,905
- ----------------------------------------------------------------------------------------------
Bloomington, MN, Independent School District, "B", 5.25%, 2011 500 546,660
- ----------------------------------------------------------------------------------------------
Byron Center, MI, Public Schools, Q-SBLF, 5%, 2011 600 654,114
- ----------------------------------------------------------------------------------------------
Cincinnati, OH, City School District, FSA, 4.5%, 2006 500 526,600
- ----------------------------------------------------------------------------------------------
Clackamas County, OR, School District, 6%, 2011 315 363,781
- ----------------------------------------------------------------------------------------------
Cook County, IL, Community Consolidated School, FSA, 0%, 2008 500 431,040
- ----------------------------------------------------------------------------------------------
Cook County, IL, High School District Number 205, "D",
FSA, 0%, 2004 500 499,545
- ----------------------------------------------------------------------------------------------
Cook County, IL, School District Number 135, "A", MBIA,
3.25%, 2006 500 513,310
- ----------------------------------------------------------------------------------------------
Cypress Fairbanks, TX, Independent School District, PSF,
5%, 2008 500 540,270
- ----------------------------------------------------------------------------------------------
Deer Park, TX, Independent School District, PSF, 0%, 2009 1,000 845,190
- ----------------------------------------------------------------------------------------------
Detroit, MI, City School District (School Building & Site
Improvement), "B", FGIC, 5%, 2010 2,000 2,179,760
- ----------------------------------------------------------------------------------------------
Dodge, KS, Unified School District Number 443, FGIC,
4%, 2006 500 520,080
- ----------------------------------------------------------------------------------------------
Ferndale, MI, School District, 5.5%, 2013 1,115 1,227,738
- ----------------------------------------------------------------------------------------------
Ferndale, MI, School District, FGIC, 5%, 2015 850 900,286
- ----------------------------------------------------------------------------------------------
Hall County, GA, School District, FGIC, 4.5%, 2007 1,540 1,631,553
- ----------------------------------------------------------------------------------------------
Kaufman, TX, Independent School District, PSF, 0%, 2005 500 494,680
- ----------------------------------------------------------------------------------------------
Lake County, IL, Community School District, "B", FGIC,
0%, 2005 500 486,335
- ----------------------------------------------------------------------------------------------
Lancaster County, NE, School District (Lincoln Public
School), 4%, 2008 500 521,975
- ----------------------------------------------------------------------------------------------
Manistee, MI, Public Schools, FGIC, 5.15%, 2009(++) 100 110,234
- ----------------------------------------------------------------------------------------------
Maricopa County, AZ, School District Number 038, Madison
Elementary, FSA, 5%, 2013 1,000 1,084,320
- ----------------------------------------------------------------------------------------------
Mauston, WI, Joint School District, FGIC, 5.55%, 2005 500 519,245
- ----------------------------------------------------------------------------------------------
Mesquite, TX, Independent School District, PSF, 0%, 2004 685 682,685
- ----------------------------------------------------------------------------------------------
Michigan City, IN, School Building, FSA, 5%, 2006 250 262,818
- ----------------------------------------------------------------------------------------------
Midlothian, TX, Independent School District, "A", PSF,
4.4%, 2007 700 738,346
- ----------------------------------------------------------------------------------------------
New Albany, IN, Floyd County School Building (First
Mortgage), FGIC, 5.5%, 2007 250 270,708
- ----------------------------------------------------------------------------------------------
North Lawrence, IN (First Mortgage), FSA, 5%, 2008 500 539,690
- ----------------------------------------------------------------------------------------------
Norwin, PA, School District, FGIC, 6%, 2010(++) 250 287,533
- ----------------------------------------------------------------------------------------------
Oconto Falls, WI, Public School District, "B", FSA,
5.25%, 2007 500 539,210
- ----------------------------------------------------------------------------------------------
Plymouth Canton, MI, Community School, 5%, 2011 500 545,190
- ----------------------------------------------------------------------------------------------
Round Rock, TX, Independent School District, 6.5%, 2011 500 583,675
- ----------------------------------------------------------------------------------------------
Round Rock, TX, Independent School District, PSF,
5.375%, 2012 570 629,702
- ----------------------------------------------------------------------------------------------
State of Florida, Board of Education, Lottery Rev., "B",
5.5%, 2011 150 167,235
- ----------------------------------------------------------------------------------------------
State of Ohio, Common Schools, "D", 2.45%, 2024 1,000 997,100
- ----------------------------------------------------------------------------------------------
State of Ohio, Common Schools, Capital Facilities, "A",
5.25%, 2004 450 452,057
- ----------------------------------------------------------------------------------------------
State of South Carolina, "A", 5.75%, 2007 500 546,340
- ----------------------------------------------------------------------------------------------
Tuscaloosa, AL, 5%, 2007 465 497,025
- ----------------------------------------------------------------------------------------------
Unionville Chadds Ford, PA, School District, MBIA, 4%, 2004 490 491,014
- ----------------------------------------------------------------------------------------------
Vidor, TX, Independent School District, PSF, 5.875%, 2007 410 448,626
- ----------------------------------------------------------------------------------------------
Warren Township, IN (First Mortgage), FGIC, 4.5%, 2005 360 368,161
- ----------------------------------------------------------------------------------------------
Westerville, OH, City School District, MBIA, 5.5%, 2012 300 338,094
- ----------------------------------------------------------------------------------------------
$24,508,830
- ----------------------------------------------------------------------------------------------
Healthcare Revenue - Hospitals - 12.3%
- ----------------------------------------------------------------------------------------------
Akron Bath Copley, OH, Hospital District Rev. (Children's
Hospital), FSA, 4.125%, 2013 $1,870 $1,890,458
- ----------------------------------------------------------------------------------------------
Baxter County, AR, Hospital Rev. Refunding & Improvement,
"A", 4.7%, 2005 320 329,091
- ----------------------------------------------------------------------------------------------
Blair County, PA, Hospital Authority Rev. (Altoona
Hospital), AMBAC, 5.375%, 2006 460 491,777
- ----------------------------------------------------------------------------------------------
California Health Facilities Financing Authority Rev.
(Catholic Healthcare West), "I", 4.95%, 2014 3,000 3,019,980
- ----------------------------------------------------------------------------------------------
California Statewide Community (Kaiser Permanente), "D",
4.35%, 2036 600 622,728
- ----------------------------------------------------------------------------------------------
Colorado Health Facilities Authority Rev. (Catholic
Health Initiatives), "A", 5%, 2008 500 528,790
- ----------------------------------------------------------------------------------------------
Comal County, TX, Health Facilities Development,
Healthcare Systems (McKenna Memorial), "A",
3.625%, 2005 195 196,205
- ----------------------------------------------------------------------------------------------
Comal County, TX, Health Facilities Development,
Healthcare Systems (McKenna Memorial), "A", 4%, 2006 170 171,386
- ----------------------------------------------------------------------------------------------
DCH Health Care Authority, AL, Facilities Rev., 4%, 2008 500 516,415
- ----------------------------------------------------------------------------------------------
Delaware County, PA, Hospital Rev. (Crozer-Chester
Medical Center), 4.75%, 2005 500 515,430
- ----------------------------------------------------------------------------------------------
Denver, CO, Health & Hospital Rev., "A", 5.125%, 2006 200 210,542
- ----------------------------------------------------------------------------------------------
Erie County, OH, Hospital Facilities Rev. (Firelands
Regional Medical Center), "A", 4%, 2004 420 422,617
- ----------------------------------------------------------------------------------------------
Gainsville & Hall County, GA, Hospital Authority
(Northeast GA Health System), 3.5%, 2005 500 507,590
- ----------------------------------------------------------------------------------------------
Greenville, SC, Hospital Systems Facilities, "A", AMBAC,
5%, 2008 500 540,850
- ----------------------------------------------------------------------------------------------
Highlands County, FL, Health Facilities (Adventist
Health), 3.35%, 2032 500 508,820
- ----------------------------------------------------------------------------------------------
Hillsborough County, FL, Industrial Development Authority
Hospital Rev. (Tampa General Hospital), "A", 5%, 2007 500 529,305
- ----------------------------------------------------------------------------------------------
Huntsville, AL, Health Care Authority, "A", 5.25%, 2005 300 309,768
- ----------------------------------------------------------------------------------------------
Illinois Health Facilities Authority Rev. (Children's
Memorial Hospital), "A", AMBAC, 5.75%, 2011 250 286,375
- ----------------------------------------------------------------------------------------------
Illinois Health Facilities Authority Rev. (Condell
Medical Center), 4%, 2004 825 825,528
- ----------------------------------------------------------------------------------------------
Illinois Health Facilities Authority Rev. (Decatur
Memorial Hospital), 4%, 2004 415 419,038
- ----------------------------------------------------------------------------------------------
Illinois Health Facilities Authority Rev. (Sherman Health
Systems), AMBAC, 5.5%, 2007 440 480,520
- ----------------------------------------------------------------------------------------------
Indiana Health Facility Financing Authority Rev.
(Ascension Health), "F", 5.5%, 2008 500 546,860
- ----------------------------------------------------------------------------------------------
Indiana Health Facility Financing Authority Rev. (Holy
Cross Health Systems Corp.), MBIA, 5.375%, 2008 1,000 1,102,450
- ----------------------------------------------------------------------------------------------
Iowa Finance Authority Health Care Facilities (Genesis
Medical Center), 6%, 2010 210 234,121
- ----------------------------------------------------------------------------------------------
Kent Hospital Finance Authority Rev. (Spectrum Health),
"A", 5.25%, 2009 750 804,788
- ----------------------------------------------------------------------------------------------
Kentucky Economic Development Finance Authority (Norton
Healthcare, Inc.), "A", 6.125%, 2010 150 159,870
- ----------------------------------------------------------------------------------------------
Lakewood, OH, Hospital Improvement Rev. (Lakewood
Hospital Assn.), 5.5%, 2009 1,000 1,077,880
- ----------------------------------------------------------------------------------------------
Marion County, FL, Hospital District Rev. (Monroe
Regional), 4.75%, 2005 500 520,300
- ----------------------------------------------------------------------------------------------
Marshall County, AL, Health Care, "A", 4.5%, 2005 - 2006 465 476,050
- ----------------------------------------------------------------------------------------------
Martin County, FL, Health Facilities (Martin Memorial
Medical Center), "A", 5.25%, 2008 800 838,352
- ----------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency (MA Biomedical
Research Corp.), "C", 5.75%, 2006 260 276,929
- ----------------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities Authority
Rev. (Bay State Medical Center), "F", 5%, 2009 235 249,187
- ----------------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities Authority
Rev. (Berkshire Health), "E", 4.5%, 2005 260 267,023
- ----------------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities Authority
Rev. (Covenant Health), 5%, 2007 190 197,744
- ----------------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities Authority
Rev. (Jordan Hospital), "D", 4.8%, 2006 600 594,744
- ----------------------------------------------------------------------------------------------
Massachusetts Health & Educational Facilities Authority
Rev. (Partners Healthcare), "E", 5%, 2007 1,000 1,068,150
- ----------------------------------------------------------------------------------------------
Michigan Hospital Finance Authority Rev. (Crittenton
Hospital), "A", 5.5%, 2013 310 330,640
- ----------------------------------------------------------------------------------------------
Michigan Hospital Finance Authority Rev. (Genesys Health
System), 5.5%, 2007(++) 750 829,200
- ----------------------------------------------------------------------------------------------
Mississippi Hospital Equipment & Facilities (SW
Mississippi Medical), 5%, 2014 500 494,490
- ----------------------------------------------------------------------------------------------
Montgomery, AL, Special Care Facilities (Baptist Medical
Center), "C", FSA, 5.15%, 2005 250 261,525
- ----------------------------------------------------------------------------------------------
New Hampshire Health & Education Facilities (Catholic
Medical Center), 3.6%, 2006 250 251,853
- ----------------------------------------------------------------------------------------------
New Hampshire Health & Education Facilities (Catholic
Medical Center), "A", 3.25%, 2005 265 267,698
- ----------------------------------------------------------------------------------------------
New Hampshire Health & Education Facilities (Covenant
Health), 5%, 2014 1,030 1,051,764
- ----------------------------------------------------------------------------------------------
New Hampshire Health & Education Facilities (Exeter
Hospital), 4.6%, 2007 395 410,496
- ----------------------------------------------------------------------------------------------
Oklahoma State Development Finance Authority (Oklahoma
Hospital Assn.), AMBAC, 5.25%, 2004 250 250,720
- ----------------------------------------------------------------------------------------------
Oklahoma State Development Finance Authority (Unity
Health Center), 5%, 2013 875 892,544
- ----------------------------------------------------------------------------------------------
Philadelphia, PA, Hospital & High Education (Children's
Hospital), "E", MBIA, 5%, 2032 750 807,473
- ----------------------------------------------------------------------------------------------
Rhode Island Health & Education Building, Hospital
Financing (Lifespan Obligations Group), 5.75%, 2010 250 265,018
- ----------------------------------------------------------------------------------------------
Scranton-Lackawanna, PA, Health & Welfare (Community
Medical Center), MBIA, 5.25%, 2006 935 997,140
- ----------------------------------------------------------------------------------------------
South Carolina Jobs Economic Development Hospital
Facilities Rev. (Palmetto Health Alliance), "A", 4%, 2004 260 260,785
- ----------------------------------------------------------------------------------------------
South Carolina Jobs Economic Development Hospital
Facilities Rev. (Palmetto Health Alliance), "A", 4.25%, 2005 290 295,574
- ----------------------------------------------------------------------------------------------
South Dakota Health & Educational (Prairie Lakes Health
Care Systems), 3.1%, 2005 215 216,954
- ----------------------------------------------------------------------------------------------
Spartanburg County, SC, Health Service, "B", MBIA,
6%, 2007 675 743,472
- ----------------------------------------------------------------------------------------------
St. Cloud, MN (St. Cloud Hospital), FSA, 5.5%, 2005 260 277,131
- ----------------------------------------------------------------------------------------------
Steubenville, OH (Trinity Hospital), 5.7%, 2010 220 240,616
- ----------------------------------------------------------------------------------------------
Sullivan County, TN, Health Educational & Housing
Facilities Board Rev. (Wellmont Health Systems), 4%, 2005 500 510,405
- ----------------------------------------------------------------------------------------------
Tyler, TX, Health Facilities Development Corp. (Mother
Frances Hospital), 4.5%, 2006 500 515,100
- ----------------------------------------------------------------------------------------------
Tyler, TX, Health Facilities Development Corp. (Mother
Frances Hospital), 5%, 2007 500 522,810
- ----------------------------------------------------------------------------------------------
Waco, TX, Health Facilities Development Corp. (Ascension
Health), "A", 5.5%, 2009 250 275,363
- ----------------------------------------------------------------------------------------------
West Virginia Hospital Finance Authority (Charleston
Medical Center), 6.5%, 2005 20 21,144
- ----------------------------------------------------------------------------------------------
West Virginia Hospital Finance Authority (Charleston
Medical Center), 6.5%, 2005(++) 80 85,434
- ----------------------------------------------------------------------------------------------
Wisconsin Health & Higher Educational Facilities
Authority Rev. (Agnesian Healthcare, Inc.), 5%, 2006 65 68,150
- ----------------------------------------------------------------------------------------------
Wisconsin Health & Higher Educational Facilities
Authority Rev. (Wheaton Franciscan Services), 5%, 2007 260 274,940
- ----------------------------------------------------------------------------------------------
$33,156,100
- ----------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 0%
- ----------------------------------------------------------------------------------------------
Massachusetts Port Authority Rev. (U.S. Airways), MBIA,
5%, 2006 $50 $52,976
- ----------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 1.1%
- ----------------------------------------------------------------------------------------------
California Statewide Community Development Authority,
Solid Waste Facilities Rev. (Republic Services, Inc.),
"A", 4.95%, 2012 $250 $251,800
- ----------------------------------------------------------------------------------------------
Michigan Strategic Fund, Solid Waste Disposal Rev. (Waste
Management), 3%, 2013 1,500 1,478,595
- ----------------------------------------------------------------------------------------------
Michigan Strategic Fund (Waste Management, Inc.), 4.2%, 2027 400 401,880
- ----------------------------------------------------------------------------------------------
State of Ohio Solid Waste Rev. (Republic Services),
4.25%, 2033 1,000 949,950
- ----------------------------------------------------------------------------------------------
$3,082,225
- ----------------------------------------------------------------------------------------------
Industrial Revenue - Other - 0.8%
- ----------------------------------------------------------------------------------------------
Cartersville, GA, Development Authority Waste (Anheuser
Busch), 5.1%, 2012 $375 $401,003
- ----------------------------------------------------------------------------------------------
Corpus Christi, TX, Nueces County General Rev. (Union
Pacific Corp.), 5.35%, 2010 610 626,238
- ----------------------------------------------------------------------------------------------
Fort Bend County, TX, Industrial Development (Frito Lay,
Inc.), 3%, 2011 575 586,926
- ----------------------------------------------------------------------------------------------
Pennsylvania Economic Development Financing (Amtrak),
"A", 6%, 2006 100 104,115
- ----------------------------------------------------------------------------------------------
Utah County, UT, Environmental Improvement Rev. (USX
Corp.), 5.05%, 2017 300 322,401
- ----------------------------------------------------------------------------------------------
$2,040,683
- ----------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 1.1%
- ----------------------------------------------------------------------------------------------
Courtland, AL, Industrial Development Board Environmental
Improvement Rev. (International Paper Co.), "A", 5%, 2013 $750 $787,478
- ----------------------------------------------------------------------------------------------
Erie County, PA, Industrial Development Authority
(International Paper Co.), 5.3%, 2012 570 613,143
- ----------------------------------------------------------------------------------------------
Erie County, PA, Industrial Development Authority
(International Paper Co.), "A", 5.25%, 2010 250 271,175
- ----------------------------------------------------------------------------------------------
Ohio State Air Quality Development Authority Rev.
(Environmental Meadwestvaco), 2%, 2023 1,250 1,250,300
- ----------------------------------------------------------------------------------------------
$2,922,096
- ----------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 0.8%
- ----------------------------------------------------------------------------------------------
Arizona Tourism & Sports Authority, Tax Rev.
(Multipurpose Stadium), "A", MBIA, 5%, 2010 $1,000 $1,089,800
- ----------------------------------------------------------------------------------------------
George L. Smith II, GA, World Congress Center Authority
Rev. (Domed Stadium), MBIA, 6%, 2011 1,000 1,112,380
- ----------------------------------------------------------------------------------------------
$2,202,180
- ----------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 1.0%
- ----------------------------------------------------------------------------------------------
District of Columbia Tax, Manadrin Oriental, FSA, 0%, 2005 $600 $584,286
- ----------------------------------------------------------------------------------------------
Gallery Certificate Trust, PA, Parking Rev., FSA, 4.5%, 2013 600 604,188
- ----------------------------------------------------------------------------------------------
Illinois Development Finance Authority Rev. (Elgin
School), FSA, 0%, 2010 500 400,370
- ----------------------------------------------------------------------------------------------
State of Kentucky Property & Buildings Commerce Rev.
(Project Number 69), "A", FSA, 5.5%, 2011 500 561,105
- ----------------------------------------------------------------------------------------------
State of Kentucky Property & Buildings Commerce Rev.
(Project Number 74), 5.25%, 2005 500 514,580
- ----------------------------------------------------------------------------------------------
$2,664,529
- ----------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.3%
- ----------------------------------------------------------------------------------------------
Missouri Housing Development Commission, "II", 4.35%, 2007 $200 $206,540
- ----------------------------------------------------------------------------------------------
Philadelphia PA, Housing Authority, "A", FSA, 5%, 2008 500 544,920
- ----------------------------------------------------------------------------------------------
$751,460
- ----------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 1.0%
- ----------------------------------------------------------------------------------------------
Fayetteville, AR, Sales & Use, 3.2%, 2007 $90 $90,066
- ----------------------------------------------------------------------------------------------
Illinois Sales Tax Rev., First Series, 5%, 2007 1,000 1,076,540
- ----------------------------------------------------------------------------------------------
Monroe, LA, Sales & Use Tax Rev., FGIC, 5.75%, 2011 845 957,605
- ----------------------------------------------------------------------------------------------
Spokane, WA, Public Facilities District Hotel, "A", MBIA,
5.75%, 2012 425 474,989
- ----------------------------------------------------------------------------------------------
$2,599,200
- ----------------------------------------------------------------------------------------------
Single Family Housing - Local - 0%
- ----------------------------------------------------------------------------------------------
Chicago, IL, "C", GNMA, 5.4%, 2010 $10 $10,401
- ----------------------------------------------------------------------------------------------
San Bernardino County, CA, Single Family Mortgage Rev.,
GNMA, 7.375%, 2020 25 25,766
- ----------------------------------------------------------------------------------------------
$36,167
- ----------------------------------------------------------------------------------------------
Single Family Housing - State - 1.5%
- ----------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., 6.3%, 2012 $155 $161,138
- ----------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., 8.4%, 2021 60 62,093
- ----------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "B-3", 6.7%, 2016 65 67,633
- ----------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority, Single Family
Program Authority, "A-3", 7.25%, 2010 105 107,945
- ----------------------------------------------------------------------------------------------
Massachusetts Housing Finance Agency, "A", MBIA, 5.35%, 2010 230 238,142
- ----------------------------------------------------------------------------------------------
New Hampshire Housing Finance Authority, "F", 3.7%, 2010 620 613,248
- ----------------------------------------------------------------------------------------------
Ohio Housing Finance Agency, Single Family Mortgage Rev.,
Residential Mortgage Backed, "A-1", GNMA, 5.45%, 2006 200 207,168
- ----------------------------------------------------------------------------------------------
Oklahoma Housing Development Authority Rev. (Lease
Purchase Program), "A", 5.1%, 2005 200 207,702
- ----------------------------------------------------------------------------------------------
Oklahoma Housing Finance Agency Single Family Rev.,
Mortgage Homeownership, GNMA, 7.6%, 2015 185 198,370
- ----------------------------------------------------------------------------------------------
South Dakota Housing Development Authority, Homeownership
Mortgage, "A", 4.15%, 2007 300 304,041
- ----------------------------------------------------------------------------------------------
South Dakota Housing Development Authority, Homeownership
Mortgage, "D", 4.9%, 2008 610 639,683
- ----------------------------------------------------------------------------------------------
Wisconsin Housing & Economic Development Authority Rev.,
"A", AMBAC, 4.9%, 2005 160 165,650
- ----------------------------------------------------------------------------------------------
Wisconsin Housing & Economic Development Authority Rev.,
"A", MBIA, 3.2%, 2004 500 504,270
- ----------------------------------------------------------------------------------------------
Wyoming Community Development Authority, Housing Rev.,
"4", 5%, 2006 600 619,254
- ----------------------------------------------------------------------------------------------
$4,096,337
- ----------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.0%
- ----------------------------------------------------------------------------------------------
Central Wayne County, MI, Sanitation Rev., "VII", 4.75%, 2007 $500 $500,695
- ----------------------------------------------------------------------------------------------
Detroit, MI, Economic Development Corp., "A", AMBAC,
3.8%, 2005 375 384,255
- ----------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency, Resource
Recovery Rev. (Semass Systems), "B", MBIA, 5.625%, 2012 400 442,256
- ----------------------------------------------------------------------------------------------
Niagara County, NY, Industrial Development Agency, Solid
Waste Disposal Rev., "C", 5.625%, 2024 300 310,236
- ----------------------------------------------------------------------------------------------
Northeast Maryland Waste Disposal Authority Rev. (Ogden
Martin Systems), 5.9%, 2005 500 520,920
- ----------------------------------------------------------------------------------------------
Tacoma, WA, Solid Waste Utility Rev., AMBAC, 5%, 2010 400 435,424
- ----------------------------------------------------------------------------------------------
$2,593,786
- ----------------------------------------------------------------------------------------------
State & Local Appropriation - 9.9%
- ----------------------------------------------------------------------------------------------
Alabama Public School & College, "C", FSA, 4.5%, 2009 $1,000 $1,063,950
- ----------------------------------------------------------------------------------------------
Alaska Certificates of Participation (Alaska Psychiatric
Institute), AMBAC, 4%, 2006 500 521,575
- ----------------------------------------------------------------------------------------------
Arizona Certificates of Participation, "A", MBIA, 5%, 2006 500 529,710
- ----------------------------------------------------------------------------------------------
Arizona Certificates of Participation, "A", MBIA, 5.5%, 2010 670 748,665
- ----------------------------------------------------------------------------------------------
Columbia, SC, Certificates of Participation, Tourism
Development Fee Pledge, AMBAC, 5%, 2011 650 710,639
- ----------------------------------------------------------------------------------------------
Columbus, IN, Multi School Building, FSA, 5%, 2010 725 785,864
- ----------------------------------------------------------------------------------------------
District of Columbia, Certificates of Participation,
AMBAC, 5.25%, 2008 1,500 1,622,460
- ----------------------------------------------------------------------------------------------
Escambia County, FL, School Board, MBIA, 3.5%, 2005 500 508,390
- ----------------------------------------------------------------------------------------------
Hamilton County, IN, Public Building Corp., AMBAC,
3.5%, 2004 1,010 1,014,989
- ----------------------------------------------------------------------------------------------
Hampton, VA, Museum Rev., 5%, 2014 760 798,228
- ----------------------------------------------------------------------------------------------
Indiana Bond Bank Rev., "A", AMBAC, 5.3%, 2007 350 377,412
- ----------------------------------------------------------------------------------------------
Indianapolis, IN (Public Improvement Bond Bank), "A",
5.25%, 2006 275 291,016
- ----------------------------------------------------------------------------------------------
Macon County & Decatur, IL, FGIC, 6.5%, 2005 325 336,187
- ----------------------------------------------------------------------------------------------
Michigan Building Authority Rev., "II", FSA, 5%, 2011(++) 1,500 1,649,325
- ----------------------------------------------------------------------------------------------
Mishawaka, IN, School Building, AMBAC, 4.5%, 2007 320 338,195
- ----------------------------------------------------------------------------------------------
New Jersey Building Authority, 5.5%, 2006 1,000 1,074,560
- ----------------------------------------------------------------------------------------------
New Jersey Economic Development Authority, "A", MBIA, 5%, 2009 500 544,050
- ----------------------------------------------------------------------------------------------
New Jersey State Transit Corp. (Federal Transit
Administration Grants), "B", AMBAC, 5.5%, 2007 650 713,349
- ----------------------------------------------------------------------------------------------
New York Dormitory Authority Rev. (City University),
MBIA, 5.25%, 2011 1,270 1,404,569
- ----------------------------------------------------------------------------------------------
New York Dormitory Authority Rev., "A", MBIA, 5.25%, 2009 1,000 1,102,350
- ----------------------------------------------------------------------------------------------
New York Urban Development Corp. Rev., "A", 5.125%, 2015 675 705,962
- ----------------------------------------------------------------------------------------------
New York Urban Development Corp. Rev., Correctional
Capital, "A", AMBAC, 5.4%, 2006 1,000 1,059,110
- ----------------------------------------------------------------------------------------------
Ohio Building Authority (Adult Correctional Building),
"A", 5.75%, 2008 425 472,562
- ----------------------------------------------------------------------------------------------
Ohio Building Authority (Adult Correctional Building),
FSA, 5%, 2009 1,290 1,405,236
- ----------------------------------------------------------------------------------------------
Ohio Building Authority (State Facilities Administration
Building), "A", 5.375%, 2013 1,000 1,104,350
- ----------------------------------------------------------------------------------------------
Pennsylvania Industrial Development Authority, Economic
Development, AMBAC, 5.25%, 2011 1,900 2,102,597
- ----------------------------------------------------------------------------------------------
Phoenix, AZ (Civic Improvement Corp.), AMBAC, 5.5%, 2007 250 271,978
- ----------------------------------------------------------------------------------------------
Portage, IN, High School, First Mortgage, 2.15%, 2005 255 256,132
- ----------------------------------------------------------------------------------------------
Prescott Valley, AZ, Municipal Property Corp., FGIC,
3.25%, 2007 500 512,550
- ----------------------------------------------------------------------------------------------
State of Oregon, Department Administrative Services, "A",
5.5%, 2008 500 552,205
- ----------------------------------------------------------------------------------------------
State of Utah, Building Ownership Authority Lease Rev.,
"A", FSA, 0%, 2005 685 675,177
- ----------------------------------------------------------------------------------------------
Suffolk County, NY, Judicial Facilities (John P. Cohalan
Complex), AMBAC, 5.75%, 2011 160 179,334
- ----------------------------------------------------------------------------------------------
Texas Public Finance Authority Building Rev., Building
Rev., "B", AMBAC, 6.25%, 2006 1,000 1,074,380
- ----------------------------------------------------------------------------------------------
$26,507,056
- ----------------------------------------------------------------------------------------------
Student Loan Revenue - 0%
- ----------------------------------------------------------------------------------------------
Massachusetts Educational Financing Authority, "E",
AMBAC, 4.5%, 2009 $100 $103,052
- ----------------------------------------------------------------------------------------------
Tax - Other - 1.0%
- ----------------------------------------------------------------------------------------------
Chicago, IL, Motor Fuel Tax Rev., AMBAC, 6.125%, 2009 $500 $565,380
- ----------------------------------------------------------------------------------------------
Denver, CO, City & County Excise Tax, "A", FSA,
5.25%, 2008 250 275,090
- ----------------------------------------------------------------------------------------------
District of Columbia, Tax Increment (Galary Place), FSA,
4%, 2006 370 385,448
- ----------------------------------------------------------------------------------------------
State of Wisconsin, Petroleum, "A", 6%, 2004 500 503,780
- ----------------------------------------------------------------------------------------------
Virgin Islands Public Finance Authority, "C", 5.5%, 2005 1,000 1,041,440
- ----------------------------------------------------------------------------------------------
$2,771,138
- ----------------------------------------------------------------------------------------------
Tax Assessment - 1.5%
- ----------------------------------------------------------------------------------------------
Birmingham Jefferson, AL, Civic, "A", FSA, 5.25%, 2005 - 2007 $1,825 $1,934,199
- ----------------------------------------------------------------------------------------------
Chicago, IL, Tax Increment, Allocation Capital
Appreciation Central, "A", AMBAC, 0%, 2006 1,000 941,680
- ----------------------------------------------------------------------------------------------
Lewisville, TX, Combination Contract Rev., Special
Assessment (Castle Hills Number 3), 4.125%, 2031 500 521,335
- ----------------------------------------------------------------------------------------------
Omaha, NE, Special Obligations (Riverfront
Redevelopment), "A", 4.125%, 2008 285 298,515
- ----------------------------------------------------------------------------------------------
Washington, DC, Convention Center Authority, Dedicated
Tax Rev., AMBAC, 4.75%, 2005 345 359,990
- ----------------------------------------------------------------------------------------------
$4,055,719
- ----------------------------------------------------------------------------------------------
Tobacco - 2.1%
- ----------------------------------------------------------------------------------------------
District of Columbia Tobacco Settlement, Asset Backed
Bonds, 5.2%, 2008 $450 $451,211
- ----------------------------------------------------------------------------------------------
Golden State, CA, Tobacco Securitization, "A", 5%, 2021 500 497,785
- ----------------------------------------------------------------------------------------------
Golden State, CA, Tobacco Securitization, "B", 5.25%, 2016 2,335 2,370,912
- ----------------------------------------------------------------------------------------------
New Jersey Tobacco Settlement Financing Corp., 4.375%, 2019 250 244,908
- ----------------------------------------------------------------------------------------------
New York Tobacco Settlement Financing Corp., "A-1",
5.25%, 2012 1,000 1,042,600
- ----------------------------------------------------------------------------------------------
New York Tobacco Settlement Financing Corp., "B-1",
5.25%, 2013 1,000 1,045,650
- ----------------------------------------------------------------------------------------------
$5,653,066
- ----------------------------------------------------------------------------------------------
Toll Roads - 0.4%
- ----------------------------------------------------------------------------------------------
State of Texas Turnpike Authority, Central Turnpike
Systems Rev., 5%, 2007 $1,000 $1,075,620
- ----------------------------------------------------------------------------------------------
Transportation - Special Tax - 2.2%
- ----------------------------------------------------------------------------------------------
Arizona State Transportation Board Highway Rev., 5%, 2006 $550 $586,553
- ----------------------------------------------------------------------------------------------
Colorado Department of Transportation Rev., AMBAC,
6%, 2008 235 264,293
- ----------------------------------------------------------------------------------------------
Du Page County, IL, Transportation Rev., FSA, 5.5%, 2011 1,000 1,110,880
- ----------------------------------------------------------------------------------------------
New Mexico State Highway Commission, "A", 5.5%, 2006 430 462,061
- ----------------------------------------------------------------------------------------------
New York Thruway Authority, Highway & Bridge Trust Fund,
"A", FGIC, 5.25%, 2010 1,000 1,102,010
- ----------------------------------------------------------------------------------------------
New York Thruway Authority, Highway & Bridge Trust Fund,
"C", FGIC, 5.5%, 2006 1,200 1,280,220
- ----------------------------------------------------------------------------------------------
Oklahoma Turnpike Authority, Turnpike Rev., "A", FGIC,
5.5%, 2007 1,000 1,083,020
- ----------------------------------------------------------------------------------------------
$5,889,037
- ----------------------------------------------------------------------------------------------
Universities - Colleges - 5.0%
- ----------------------------------------------------------------------------------------------
Auburn University, AL, University Rev., AMBAC, 5%, 2006 $255 $269,969
- ----------------------------------------------------------------------------------------------
Clemson University, SC, University Rev., AMBAC, 5.5%, 2007 875 955,168
- ----------------------------------------------------------------------------------------------
District of Columbia Rev. (Gonzaga College High School),
FSA, 5%, 2012 500 537,095
- ----------------------------------------------------------------------------------------------
Illinois Educational Facilities Authority Rev. (Art
Institute Chicago), 3.35%, 2009 1,550 1,520,070
- ----------------------------------------------------------------------------------------------
Illinois Educational Facilities Authority Rev. (Augustana
College), "A", 4%, 2006 615 629,588
- ----------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency (Massachusetts
College of Pharmacy), "C", 5%, 2007 475 497,971
- ----------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency (Western New
England College), 4%, 2008 685 683,178
- ----------------------------------------------------------------------------------------------
Massachusetts Health & Educational (Massachusetts
Institute of Technology), "K", 5.25%, 2012 375 414,000
- ----------------------------------------------------------------------------------------------
Northern Arizona University Rev., FGIC, 4%, 2005 500 513,835
- ----------------------------------------------------------------------------------------------
Rhode Island Health & Educational Building (Johnson &
Wales), XLCA, 5%, 2010 2,265 2,459,586
- ----------------------------------------------------------------------------------------------
Southeast Missouri State University, MBIA, 5.625%, 2010 250 281,350
- ----------------------------------------------------------------------------------------------
Texas A & M University Rev., Financing Systems, 2.5%, 2006 750 759,060
- ----------------------------------------------------------------------------------------------
Texas Public Finance Authority Rev., Southern University
Financing Systems, MBIA, 5%, 2007 500 541,340
- ----------------------------------------------------------------------------------------------
Texas University Systems Financing Rev., FSA, 5%, 2008 565 610,816
- ----------------------------------------------------------------------------------------------
University of Arizona Rev. (Refunding Systems), FSA,
5%, 2006 570 605,009
- ----------------------------------------------------------------------------------------------
University of Arizona Rev. (Refunding Systems), FSA,
5.25%, 2010 1,000 1,105,230
- ----------------------------------------------------------------------------------------------
University of Arkansas Rev., Athletic Facility (Razorback
Stadium), FSA, 3.55%, 2021 500 519,840
- ----------------------------------------------------------------------------------------------
University of Texas, Permanent University Fund, "A",
5%, 2009 580 631,388
- ----------------------------------------------------------------------------------------------
$13,534,493
- ----------------------------------------------------------------------------------------------
Universities - Dormitories - 0.5%
- ----------------------------------------------------------------------------------------------
New York Dormitory Authority Rev., FGIC, 5.25%, 2029 $1,000 $1,083,130
- ----------------------------------------------------------------------------------------------
Private Colleges & University Authority (Mercer Housing
Corp.), "A", 6%, 2004 - 2005 120 122,290
- ----------------------------------------------------------------------------------------------
$1,205,420
- ----------------------------------------------------------------------------------------------
Universities - Secondary Schools - 0.1%
- ----------------------------------------------------------------------------------------------
New Hampshire Health & Education (Derryfield School),
6.5%, 2010 $150 $152,118
- ----------------------------------------------------------------------------------------------
Utilities - Investor Owned - 4.3%
- ----------------------------------------------------------------------------------------------
Brazos River Authority, TX (Centerpoint Energy), "A",
FGIC, 3.375%, 2012 $1,000 $959,180
- ----------------------------------------------------------------------------------------------
Brazos River Authority, TX (TXU Energy Co.), "D", 5.4%, 2029 780 819,913
- ----------------------------------------------------------------------------------------------
Chesapeake, VA, Industrial Development Authority Rev.
(Pollution Control), 5.25%, 2008 250 260,810
- ----------------------------------------------------------------------------------------------
Clark County, NV, Pollution Control Rev., 3.25%, 2031 500 488,875
- ----------------------------------------------------------------------------------------------
Hillsborough County, FL (Tampa Electric Co.), 4%, 2025 500 508,955
- ----------------------------------------------------------------------------------------------
Illinois Development Finance Authority (Peoples Gas),
"B", AMBAC, 3.05%, 2033 1,000 1,000,710
- ----------------------------------------------------------------------------------------------
Illinois Development Finance Authority, Pollution Control
Rev. (Commonwealth Edison Co.), "B", AMBAC,
4.4%, 2006 500 528,000
- ----------------------------------------------------------------------------------------------
Illinois Development Finance Authority, Pollution Control
Rev., AMBAC, 7.375%, 2006(++) 580 659,205
- ----------------------------------------------------------------------------------------------
Lawrenceburg, IN, Pollution Control Rev. (Indiana, MI,
Power Co.), "F", 2.625%, 2019 775 768,118
- ----------------------------------------------------------------------------------------------
Louisa, VA, Industrial Development Authority, Solid Waste
& Sewer Disposal (Electricity & Power Co.), "A",
2.3%, 2031 1,000 1,000,000
- ----------------------------------------------------------------------------------------------
Madison, WI, Industrial Development Rev. (Madison Gas &
Electric Co.), "B", 4.875%, 2027 420 439,803
- ----------------------------------------------------------------------------------------------
Matagorda County, TX, Pollution Control Rev., 2.35%, 2030 500 500,000
- ----------------------------------------------------------------------------------------------
Peninsula Ports Authority, VA, Coal Rev. (Dominion Term
Assoc.), 3.3%, 2033 775 773,993
- ----------------------------------------------------------------------------------------------
State of Missouri, Environmental Improvement & Energy
Authority, 3.9%, 2012 1,000 1,008,610
- ----------------------------------------------------------------------------------------------
State of Ohio, Air Quality Development Authority Rev.
(Ohio Edison), "A", 2.25%, 2033 1,250 1,241,213
- ----------------------------------------------------------------------------------------------
Wilsonville, AL, Industrial Development Pollution Control
Rev. (Southern Electric Gaston), "A", AMBAC, 4.2%, 2019 500 520,450
- ----------------------------------------------------------------------------------------------
$11,477,835
- ----------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 9.2%
- ----------------------------------------------------------------------------------------------
Alaska Municipal Bond Bank Authority Rev., "A", AMBAC,
5.75%, 2006 $325 $356,002
- ----------------------------------------------------------------------------------------------
American Public Energy Agency, NE (Public Gas Agency),
"C", AMBAC, 4.2%, 2010 395 413,249
- ----------------------------------------------------------------------------------------------
Carrollton & Henderson, KY, Kentucky Trust, "B", FSA,
4.2%, 2005 1,000 1,018,720
- ----------------------------------------------------------------------------------------------
Clallam County, WA, Public Utilities District, FSA, 5%, 2008 400 430,792
- ----------------------------------------------------------------------------------------------
Clark County, WA, Public Utilities District 1, AMBAC,
5.25%, 2008 1,380 1,498,156
- ----------------------------------------------------------------------------------------------
Cowlitz County, WA, Public Utilities Distribution
Systems, AMBAC, 5.25%, 2008 500 547,615
- ----------------------------------------------------------------------------------------------
Corpus Christi, TX, Utilities Systems Rev., FSA, 4%, 2007 480 502,560
- ----------------------------------------------------------------------------------------------
Dalton, GA, Utilities Rev., FSA, 6%, 2012 500 573,610
- ----------------------------------------------------------------------------------------------
Delaware Municipal Electric Corp., AMBAC, 5%, 2008 500 543,660
- ----------------------------------------------------------------------------------------------
Kissimmee, FL, Utility Authority Electric, AMBAC, 5%, 2011 500 545,530
- ----------------------------------------------------------------------------------------------
Long Island Power Authority, NY, Electric Systems Rev.,
"A", 5%, 2009 1,100 1,176,252
- ----------------------------------------------------------------------------------------------
Lower Colorado River Authority, TX, Rev., "A", MBIA,
5%, 2011 500 543,140
- ----------------------------------------------------------------------------------------------
Lower Colorado River Authority, TX, Rev., "F", FSA,
5.5%, 2008 600 660,306
- ----------------------------------------------------------------------------------------------
Massachusetts Development Finance Agency (Devens
Electrical Systems), 5.125%, 2011 210 219,032
- ----------------------------------------------------------------------------------------------
Michigan Public Power Agency Rev. (Belle River), "A",
MBIA, 5.25%, 2008 500 543,715
- ----------------------------------------------------------------------------------------------
Muscatine, IA, Electric Rev., "A", AMBAC, 5.5%, 2010 1,000 1,109,730
- ----------------------------------------------------------------------------------------------
Nebraska Public Power District Rev., "B", AMBAC, 4%, 2007 695 725,066
- ----------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency, "A", 5.5%, 2010 750 803,498
- ----------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency, "A", MBIA,
5.5%, 2013 500 536,345
- ----------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency, MBIA, 5.25%, 2007 500 538,305
- ----------------------------------------------------------------------------------------------
Oak Ridge, TN, Electric Systems Rev., AMBAC, 5%, 2012 1,000 1,084,370
- ----------------------------------------------------------------------------------------------
Philadelphia, PA, Gas Works Rev., FSA, 4%, 2006 1,000 1,040,650
- ----------------------------------------------------------------------------------------------
Salt River, AZ, Agricultural Improvement (Salt River),
"A", 5%, 2011 - 2012 1,100 1,195,588
- ----------------------------------------------------------------------------------------------
San Antonio, TX, Electric & Gas Rev., 5.8%, 2006 660 692,182
- ----------------------------------------------------------------------------------------------
Seattle, WA, Municipal Light & Power Rev., FSA, 5.25%, 2007 1,000 1,078,420
- ----------------------------------------------------------------------------------------------
Snohomish County, WA, Public Utility 1, "B", FSA, 5.25%, 2008 1,000 1,098,230
- ----------------------------------------------------------------------------------------------
South Carolina Public Service Authority, "A", FSA, 4.5%, 2008 500 531,650
- ----------------------------------------------------------------------------------------------
South Carolina Public Service Authority, "D", 5%, 2007 500 535,235
- ----------------------------------------------------------------------------------------------
Southern California Public Power Authority (San Juan),
"A", FSA, 5.375%, 2012 595 655,970
- ----------------------------------------------------------------------------------------------
State of California, Department Water Resources, Power
Supply Rev., "A", 5.5%, 2010 600 661,872
- ----------------------------------------------------------------------------------------------
State of California, Department Water Resources, Power
Supply Rev., "A", FSA, 5.25%, 2011 1,000 1,098,600
- ----------------------------------------------------------------------------------------------
Tacoma, WA, Electric Systems Rev., "A", FSA, 5.5%, 2011 500 554,195
- ----------------------------------------------------------------------------------------------
Tacoma, WA, Electric Systems Rev., AMBAC, 6%, 2006 1,125 1,200,555
- ----------------------------------------------------------------------------------------------
$24,712,800
- ----------------------------------------------------------------------------------------------
Utilities - Other - 0.6%
- ----------------------------------------------------------------------------------------------
Brownsville, TX, Utility Systems Rev., AMBAC, 6.25%, 2011 $1,000 $1,162,340
- ----------------------------------------------------------------------------------------------
Edmond, OK, Public Works Authority, Sales Tax & Utility
System Rev., AMBAC, 4.5%, 2008 500 534,310
- ----------------------------------------------------------------------------------------------
$1,696,650
- ----------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 6.9%
- ----------------------------------------------------------------------------------------------
Allentown, PA, Water Rev. Guaranteed, AMBAC, 5%, 2011 $925 $1,005,845
- ----------------------------------------------------------------------------------------------
Brevard County, FL, Utility Rev., FGIC, 5.25%, 2010 1,000 1,102,340
- ----------------------------------------------------------------------------------------------
Columbus, IN, Waterworks Rev., MBIA, 3.5%, 2005 500 508,750
- ----------------------------------------------------------------------------------------------
Fulton County, GA, Development Authority Rev., Cauley
Creek Water Facilities, "A", AMBAC, 4.4%, 2008 490 517,092
- ----------------------------------------------------------------------------------------------
Glendale, AZ, Water & Sewer Rev., AMBAC, 5%, 2014 975 1,045,541
- ----------------------------------------------------------------------------------------------
Harrison County, MS, Wastewater Treatment Facilities,
"A", FGIC, 5.5%, 2011 400 445,100
- ----------------------------------------------------------------------------------------------
King County, WA, Sewer Rev., FGIC, 5.25%, 2012 750 820,155
- ----------------------------------------------------------------------------------------------
Metropolitan Government of Nashville & Davidson County,
Water & Sewer Rev., FGIC, 6.5%, 2010 1,000 1,156,410
- ----------------------------------------------------------------------------------------------
Myrtle Beach, SC, Water & Sewer Rev., FGIC, 5%, 2008 1,150 1,246,704
- ----------------------------------------------------------------------------------------------
Nassau County, NY, Combined Sewer Districts, "G", MBIA,
5.35%, 2009 1,000 1,097,680
- ----------------------------------------------------------------------------------------------
Philadelphia, PA, Water & Wastewater, "93", MBIA,
5.5%, 2007 1,105 1,208,461
- ----------------------------------------------------------------------------------------------
Philadelphia, PA, Water & Wastewater, FSA, 5.625%, 2008 595 660,057
- ----------------------------------------------------------------------------------------------
Phoenix, AZ, Civic Improvement Corp., FGIC, 4.5%, 2007 500 532,185
- ----------------------------------------------------------------------------------------------
Phoenix, AZ, Civic Improvement Corp., FGIC, 5.25%, 2009 255 280,862
- ----------------------------------------------------------------------------------------------
Rock Hill, SC, Utility Systems Rev., "A", FSA, 5%, 2010 750 815,933
- ----------------------------------------------------------------------------------------------
Seattle, WA, Water Systems Rev., "B", 5%, 2008 475 515,114
- ----------------------------------------------------------------------------------------------
Sebring, FL, Water & Wastewater, FGIC, 5.25%, 2013 690 756,440
- ----------------------------------------------------------------------------------------------
Spartanburg, SC, Waterworks Rev., Junior Lien, FSA, 5%, 2007 500 539,660
- ----------------------------------------------------------------------------------------------
State of Kansas, Development Finance Authority Rev.,
Water Pollution Control Revolving Fund, 5%, 2008 500 543,410
- ----------------------------------------------------------------------------------------------
Tarrant Regional Water District, Texas Water, FSA, 4%, 2007 500 522,250
- ----------------------------------------------------------------------------------------------
Truckee Meadows, NV, Water Authority, "A", FSA, 5.5%, 2011 1,000 1,122,310
- ----------------------------------------------------------------------------------------------
Utah Water Finance Agency Rev., "A", AMBAC, 5%, 2012 500 539,940
- ----------------------------------------------------------------------------------------------
Wilkinsburg, PA, Joint Water, "B", FSA, 4.75%, 2010 1,260 1,354,324
- ----------------------------------------------------------------------------------------------
Wilsonville, OR, Water Systems Rev., MBIA, 5%, 2010 300 328,162
- ----------------------------------------------------------------------------------------------
$18,664,725
- ----------------------------------------------------------------------------------------------
Total Municipal Bonds (Identified Cost, $258,101,768) $262,321,242
- ----------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 1.1%
- ----------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development Authority Rev.
(Presbyterian University Hospital), "D", due 5/05/04 $100 $100,000
- ----------------------------------------------------------------------------------------------
Jackson County, MS, Pollution Control Rev. (Chevron USA,
Inc.), due 5/03/04 300 300,000
- ----------------------------------------------------------------------------------------------
Massachusetts Central Artery, "A", due 5/03/04 100 100,000
- ----------------------------------------------------------------------------------------------
Pinellas County, FL, Health Facilities Authority Rev.,
Pooled Hospital Loan Program, due 5/03/04 700 700,000
- ----------------------------------------------------------------------------------------------
State of California, Department of Water Resources, Power
Supply Rev., "C-2", due 5/05/04 1,500 1,500,000
- ----------------------------------------------------------------------------------------------
Uinta County, WY, Pollution Control Rev. (Chevron USA,
Inc.), due 5/03/04 200 200,000
- ----------------------------------------------------------------------------------------------
Total Floating Rate Demand Notes (Identified Cost,
$2,900,000) $2,900,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $261,001,768) $265,221,242
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.3% 3,599,223
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $268,820,465
- ----------------------------------------------------------------------------------------------
(++) Refunded bond.
The following abbreviations for insurers are used in the Portfolio of
Investments and are defined:
Insurers
AMBAC = AMBAC Indemnity Corp.
ASST GTY = Asset Guaranty Insurance Co.
FGIC = Financial Guaranty Insurance Co.
FSA = Financial Security Assurance Inc.
GNMA = Government National Mortgage Assn.
MBIA = Municipal Bond Investors Corp.
PSF = Permanent School Fund
Q-SBLF = Qualified School Board Loan Fund
XLCA = XL Capital Insurance Co.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $261,001,768) $265,221,242
- --------------------------------------------------------------------------------------------------
Cash 34,808
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 105,489
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,284,385
- --------------------------------------------------------------------------------------------------
Interest receivable 3,542,887
- --------------------------------------------------------------------------------------------------
Receivable from investment adviser 2,407
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on interest rate swap agreements 759,801
- --------------------------------------------------------------------------------------------------
Other assets 385
- --------------------------------------------------------------------------------------------------
Total assets $270,951,404
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $550,880
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 1,052,124
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 392,118
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 1,847
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 9,954
- --------------------------------------------------------------------------------------------------
Distribution and service fee 27,866
- --------------------------------------------------------------------------------------------------
Administrative fee 76
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 96,074
- --------------------------------------------------------------------------------------------------
Total liabilities $2,130,939
- --------------------------------------------------------------------------------------------------
Net assets $268,820,465
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $266,461,160
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments 4,979,275
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,159,043)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (460,927)
- --------------------------------------------------------------------------------------------------
Net assets $268,820,465
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 34,347,926
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $171,824,278
- --------------------------------------------------------------------------------------------------
Shares outstanding 21,949,174
- --------------------------------------------------------------------------------------------------
Net asset value per share $7.83
- --------------------------------------------------------------------------------------------------
Offering price per share (100/97.5X$7.83) $8.03
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $41,732,910
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,339,586
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.82
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $55,263,277
- --------------------------------------------------------------------------------------------------
Shares outstanding 7,059,166
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.83
- --------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A 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
- --------------------------------------------------------------------------------------------------
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 YEAR ENDED 4/30/04
NET INVESTMENT INCOME
Interest income $9,377,801
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $1,090,346
- --------------------------------------------------------------------------------------------------
Trustees' compensation 10,394
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 429,672
- --------------------------------------------------------------------------------------------------
Service fee (Class A) 259,921
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 394,012
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 572,375
- --------------------------------------------------------------------------------------------------
Administrative fee 25,382
- --------------------------------------------------------------------------------------------------
Custodian fee 95,363
- --------------------------------------------------------------------------------------------------
Printing 30,604
- --------------------------------------------------------------------------------------------------
Postage 5,153
- --------------------------------------------------------------------------------------------------
Auditing fees 36,921
- --------------------------------------------------------------------------------------------------
Legal fees 2,188
- --------------------------------------------------------------------------------------------------
Miscellaneous 108,611
- --------------------------------------------------------------------------------------------------
Total expenses $3,060,942
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (2,567)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (295,206)
- --------------------------------------------------------------------------------------------------
Net expenses $2,763,169
- --------------------------------------------------------------------------------------------------
Net investment income $6,614,632
- --------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $(147,815)
- --------------------------------------------------------------------------------------------------
Future contracts 68,603
- --------------------------------------------------------------------------------------------------
Swap transactions (1,009,000)
- --------------------------------------------------------------------------------------------------
Net realized loss on investments $(1,088,212)
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $(3,745,999)
- --------------------------------------------------------------------------------------------------
Futures contracts 116,115
- --------------------------------------------------------------------------------------------------
Swap transactions 759,801
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments $(2,870,083)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $(3,958,295)
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $2,656,337
- --------------------------------------------------------------------------------------------------
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.
FOR YEAR ENDED 4/30 2004 2003
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $6,614,632 $4,836,262
- -------------------------------------------------------------------------------------------------
Net realized loss on investments (1,088,212) (72,430)
- -------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments (2,870,083) 5,460,086
- ---------------------------------------------------------- ----------- ------------
Increase in net assets from operations $2,656,337 $10,223,918
- ---------------------------------------------------------- ----------- ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------
Class A $(4,731,919) $(3,777,760)
- -------------------------------------------------------------------------------------------------
Class B (831,599) (584,022)
- -------------------------------------------------------------------------------------------------
Class C (1,078,133) (711,199)
- ---------------------------------------------------------- ----------- ------------
Total distributions declared to shareholders $(6,641,651) $(5,072,981)
- ---------------------------------------------------------- ----------- ------------
Net increase in net assets from fund
share transactions $17,663,345 $128,277,751
- ---------------------------------------------------------- ----------- ------------
Total increase in net assets $13,678,031 $133,428,688
- ---------------------------------------------------------- ----------- ------------
NET ASSETS
At beginning of period $255,142,434 $121,713,746
- -------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $460,927 and $431,417,
respectively) $268,820,465 $255,142,434
- -------------------------------------------------------------------------------------------------
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 past 5 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) held for the entire period. This information has been audited by the fund's
independent auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEAR ENDED 4/30
CLASS A 2004 2003 2002 2001 2000
Net asset value, beginning of period $7.94 $7.69 $7.57 $7.35 $7.62
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.22 $0.23 $0.26 $0.31 $0.30
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.11) 0.26 0.14 0.22 (0.27)
- ---------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.11 $0.49 $0.40 $0.53 $0.03
- ---------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.22) $(0.24) $(0.26) $(0.31) $(0.30)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.02) (0.00)+ --
- ---------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.22) $(0.24) $(0.28) $(0.31) $(0.30)
- ---------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $7.83 $7.94 $7.69 $7.57 $7.35
- ---------------------------------------------- ------ ------ ------ ------ ------
Total return (%)(+) 1.35 6.43 5.41 7.39 0.38
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA(S):
Expenses## 0.71 0.74 0.85 0.88 0.88
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.73 2.90 3.45 4.14 3.99
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 18 12 15 27 60
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $171,824 $165,598 $87,222 $48,057 $42,277
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. In addition, for periods prior
to May 1, 2002, subject to reimbursement by the fund, the adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service
fees. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of average net
daily assets. To the extent the waiver had not been in place and actual expenses were over this limitation the investment
income per share and the ratios would have been:
Net investment income $0.21 $0.22 $0.25 $0.31 $0.30
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.82 0.84 1.00 0.96 0.91
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.62 2.80 3.30 4.06 3.96
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 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 April 30, 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 $0.01%. Per share ratios and supplemental data for periods prior
to May 1, 2001 have not been restated to reflect this change in presentation.
+ 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
FOR YEAR ENDED 4/30
CLASS B 2004 2003 2002 2001 2000
Net asset value, beginning of period $7.93 $7.68 $7.56 $7.34 $7.61
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.15 $0.16 $0.20 $0.25 $0.24
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.10) 0.27 0.15 0.22 (0.27)
- ---------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.05 $0.43 $0.35 $0.47 $(0.03)
- ---------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.16) $(0.18) $(0.20) $(0.25) $(0.24)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.03) (0.00)+ --
- ---------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.16) $(0.18) $(0.23) $(0.25) $(0.24)
- ---------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $7.82 $7.93 $7.68 $7.56 $7.34
- ---------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 0.58 5.61 4.65 6.55 (0.43)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA(S):
Expenses## 1.50 1.53 1.59 1.68 1.69
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 1.94 2.10 2.70 3.35 3.18
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 18 12 15 27 60
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $41,733 $38,360 $15,104 $7,397 $6,781
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. In addition, for periods prior
to May 1, 2002, subject to reimbursement by the fund, the adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service
fees. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of average net
daily assets. To the extent the waiver had not been in place and actual expenses were over this limitation the investment
income per share and the ratios would have been:
Net investment income $0.15 $0.16 $0.19 $0.25 $0.24
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.61 1.63 1.74 1.76 1.72
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.83 2.00 2.55 3.27 3.15
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective April 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 April 30, 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 $0.01%. Per share ratios, and supplemental data for periods prior
to May 1, 2001 have not been restated to reflect this change in presentation.
+ 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
FOR YEAR ENDED 4/30
CLASS C 2004 2003 2002 2001 2000
Net asset value, beginning of period $7.94 $7.69 $7.58 $7.35 $7.63
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.15 $0.16 $0.19 $0.24 $0.23
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.11) 0.26 0.14 0.24 (0.28)
- ---------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.04 $0.42 $0.33 $0.48 $(0.05)
- ---------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.15) $(0.17) $(0.19) $(0.25) $(0.23)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.03) (0.00)+ --
- ---------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.15) $(0.17) $(0.22) $(0.25) $(0.23)
- ---------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $7.83 $7.94 $7.69 $7.58 $7.35
- ---------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 0.49 5.52 4.38 6.62 (0.48)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA(S):
Expenses## 1.56 1.59 1.70 1.73 1.73
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 1.87 2.02 2.52 3.28 3.14
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 18 12 15 27 60
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $55,263 $51,184 $19,388 $4,820 $2,968
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. In addition, for periods prior
to May 1, 2002, subject to reimbursement by the fund, the adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service
fees. In consideration, the fund paid the investment adviser a reimbursement fee not greater than 0.40% of average net
daily assets. To the extent the waiver had not been in place and actual expenses were over this limitation the investment
income per share and the ratios would have been:
Net investment income $0.14 $0.15 $0.18 $0.24 $0.23
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.67 1.69 1.85 1.81 1.76
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 1.76 1.92 2.37 3.20 3.11
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 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 April 30, 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 $0.01%. Per share ratios, and supplemental data for periods prior
to May 1, 2001 have not been restated to reflect this change in presentation.
+ 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
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Municipal Limited Maturity Fund (the fund) is a diversified series of MFS
Series Trust IX (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.
Municipal securities backed by current or anticipated revenues from a specific
project or specific assets can be negatively affected by the discontinuance of
the taxation supporting the projects or assets or the inability to collect
revenues for the project or from the assets. If the Internal Revenue Service
determines an issuer of a municipal security has not complied with applicable
tax requirements, interest from the security could become taxable and the
security could decline in value.
INVESTMENT VALUATIONS - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Futures contracts are valued at the
settlement price as reported by an independent pricing service on the primary
exchange on which they are traded. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes market value as determined by the Board of
Trustees.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. The fund's investment in futures
contracts is designed to hedge against anticipated future changes in interest
rates or securities prices. Investments in interest rate futures for purposes
other than hedging may be made to modify the duration of the portfolio without
incurring the additional transaction costs involved in buying and selling the
underlying securities. Should interest rates or securities prices move
unexpectedly, the fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
SWAP AGREEMENTS - Each 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 may use swaps for both
hedging and non-hedging purposes. For hedging purposes, the fund may use swaps
to reduce its exposure to interest rate fluctuations. For non- hedging
purposes, the fund may use swaps to take a position on anticipated changes in
the underlying financial index.
INTEREST RATE SWAP AGREEMENTS - Interest rate swap agreements are agreements to
exchange cash flows periodically based on a notional principal amount, for
example the exchange of fixed rate interest payments for floating rate interest
payments which are based on a specific financial index or the exchange of two
distinct floating rate payments. The net receivable or payable associated with
these payments is accrued daily and is recorded as net interest income or
expense. For financial statement purposes, the net interest income or expense
periodically recognized for an interest rate swap is recorded in the same line
item as any unrealized and realized gains or losses recognized for that
instrument. The primary risk associated with interest rate swap agreements is
that unfavorable changes in the fluctuation of interest rates could adversely
impact the fund.
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 accounting principles generally accepted in the United States
of America. All premium and original issue discount is amortized or accreted
for tax reporting purposes as required by federal income tax regulations.
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, for the year ended April 30, 2004, 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 derivatives, capital losses, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended April 30, 2004
and April 30, 2003 was as follows:
4/30/04 4/30/03
Distributions declared from tax
exempt income $6,641,651 $5,072,981
------------------------------------------------------------
During the year ended April 30, 2004, accumulated distributions in excess of
net investment income increased by $2,491, accumulated net realized loss on
investments decreased by $34,561, and paid-in capital decreased by $32,070 due
to differences between book and tax accounting for capital losses and
amortization and accretion on debt securities. This change had no effect on
the net assets or net asset value per share.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed tax-exempt income $101,726
------------------------------------------------------------
Capital loss carryforward (1,380,248)
------------------------------------------------------------
Post-October capital loss deferral (781,690)
------------------------------------------------------------
Unrealized appreciation 4,982,086
------------------------------------------------------------
Other temporary differences (562,569)
------------------------------------------------------------
Post-October capital loss deferrals represent 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
April 30, 2005 $(42,827)
-----------------------------------------------------------
April 30, 2006 --
-----------------------------------------------------------
April 30, 2007 --
-----------------------------------------------------------
April 30, 2008 (383,520)
-----------------------------------------------------------
April 30, 2009 (516,819)
-----------------------------------------------------------
April 30, 2011 (159,222)
-----------------------------------------------------------
April 30, 2012 (277,860)
-----------------------------------------------------------
Total $(1,380,248)
-----------------------------------------------------------
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 due to differences in separate class expenses charged.
Class B and 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 0.40% of
the fund's average daily net assets. The investment adviser has contractually
agreed to waive a portion of its fee, which is shown as a reduction of total
expenses in the Statement of Operations. From May 1, 2003 to February 29, 2004,
MFS reduced the management fee to 0.30% of average daily net assets. As part of
the settlement agreement with the New York Attorney General concerning market
timing and related matters, MFS has agreed to reduce the fund's management fee
to 0.25% of average daily net assets for the period March 1, 2004 through
February 28, 2009. During this time period, the Board of Trustees will continue
to review the appropriateness of all advisory fees in accordance with their
oversight responsibilities. After February 28, 2009 the management fee will be
determined in accordance with then existing review policies approved by the
Board of Trustees overseeing the fund. Management fees incurred for the year
ended April 30, 2004 were 0.29% of average daily net assets on an annualized
basis.
The fund pays compensation to its Independent Trustees in the form of a
retainer, attendance fees and additional compensation to Board and Committee
chairpersons, 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 retired Independent Trustees. Included in
Trustees' compensation is a pension expense of $747 for retired Independent
Trustees for the year ended April 30, 2004.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as the investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
----------------------------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $25,382, equivalent to
0.0093% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$20,288 for the year ended April 30, 2004, as its portion of the sales charge
on sales of Class A shares of the fund respectively.
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 year ended April 30, amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $10,209 $-- $157
- -------------------------------------------------------------------------------
Payment of the 0.10% per annum Class A distribution fee will be implemented on
such a date as the Trustees of the Trust may determine. 0.15% of the Class A
service fee is currently being paid by the fund. Payment of the remaining
0.10% Class A service fee will become payable on such date as the Trustees of
the fund may determine. 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, the Class B service fee is currently 0.15% per annum and may be
increased to the maximum of 0.25% per annum on such date as the Trustees of
the fund may determine.
Fees incurred under the distribution plan during the year ended April 30,
2004, were as follows:
CLASS A CLASS B CLASS C
Effective Annual Percentage Rates 0.15% 0.93% 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 year ended April 30, 2004, were
as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $89,425 $103,752 $41,488
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as
shareholder servicing agent. The fee, which is calculated as a percentage of
the fund's average daily net assets is set periodically under the supervision
of the fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of
the fund's average daily net assets. Effective April 1, 2004, the fee is set
at 0.10% of the fund's average net assets. For the year ended April 30, 2004,
the fund paid MFSC a fee of $297,731 for shareholder services which equated to
0.11% of the fund's average net assets. Also included in shareholder servicing
costs are out-of-pocket expenses, paid to MFSC, which amounted to $38,497 for
the year ended April 30, 2004, as well as other expenses paid to unaffiliated
vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$73,055,395 and $ 46,345,415, 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 $260,998,956
----------------------------------------------------------
Gross unrealized appreciation $5,066,396
----------------------------------------------------------
Gross unrealized depreciation (844,110)
----------------------------------------------------------
Net unrealized appreciation $4,222,286
----------------------------------------------------------
(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:
Year ended 4/30/04 Year ended 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 13,636,596 $108,295,092 15,047,309 $118,304,622
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 395,601 3,145,637 331,908 2,604,477
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (12,939,790) (102,662,467) (5,859,266) (46,047,614)
- ----------------------------------------------------------------------------------------------------------
Net increase 1,092,407 $8,778,262 9,519,951 $74,861,485
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,831,931 $14,519,887 3,552,864 $27,869,717
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 50,440 400,440 31,329 245,874
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (1,380,882) (10,948,175) (712,266) (5,586,480)
- ----------------------------------------------------------------------------------------------------------
Net increase 501,489 $3,972,152 2,871,927 $22,529,111
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 3,298,584 $26,245,135 5,034,866 $39,570,129
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 60,549 481,372 41,458 325,583
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (2,746,117) (21,813,576) (1,149,959) (9,008,557)
- ----------------------------------------------------------------------------------------------------------
Net increase 613,016 $4,912,931 3,926,365 $30,887,155
- ----------------------------------------------------------------------------------------------------------
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the year ended April 30, 2004, was $1,338. The fund
had no significant borrowings during the year.
(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.
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 Swap Agreements
NOTIONAL PRINCIPAL CASH FLOWS
AMOUNT OF CASH FLOWS PAID RECEIVED UNREALIZED
EXPIRATION CONTRACT BY THE FUND BY THE FUND APPRECIATION
- ------------------------------------------------------------------------------------------------------
8/25/14 10,000,000 Fixed - 3.629% Floating - 7 Day
BMA Swap Index $273,516
- ------------------------------------------------------------------------------------------------------
6/16/11 12,500,000 Fixed - 2.940% Floating - 7 Day
BMA Swap Index 486,285
- ------------------------------------------------------------------------------------------------------
$759,801
- ------------------------------------------------------------------------------------------------------
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) CONCENTRATION OF CREDIT RISK
At April 30, 2004, 59.69% of securities in the portfolio of investments are
backed by letters of credit or bond insurance of various financial institutions
and financial guaranty assurance agencies. The percentage of investments
insured by or supported (backed) by a letter of credit from any one institution
or agency did not exceed 17.72% of total investments.
(9) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To The Trustees of MFS Series Trust IX and Shareholders of
MFS Municipal Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Municipal Limited Maturity Fund (a portfolio of MFS Series Trust IX (the
"Trust")) as of April 30, 2004, the related statements of operations, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
ended April 30, 2004. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Municipal Limited Maturity Fund as of April 30, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
- ---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- -----------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- ------------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. Each Trustee and officer holds office until his or her successor is chosen and
qualified or until his or her earlier death, resignation, retirement or removal.
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 109 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 State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741 JP Morgan Chase Bank
One Chase Manhattan Plaza
DISTRIBUTOR New York, NY 10081
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA AUDITORS
02116-3741 Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGERS
Michael L. Dawson
Geoffrey L. Schechter
- -------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
For federal income tax purposes, approximately 100% of the total dividends
paid by the fund from net investment income during the year ended March 31,
2004, is designated as an exempt-interest dividend.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 fund's proxy voting policies and procedures is
available without charge, upon request, by calling 202-547-7071, extension
201, by visiting www.jmr-financial.com/MFS 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 55824
Boston, MA 02205-5824
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) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MML-ANN-6/04 18M
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) INFLATION-ADJUSTED
BOND FUND
------------------------------
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) INFLATION-ADJUSTED BOND FUND
The fund seeks a total return that exceeds the rate of inflation over the long
term.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------
MFS PRIVACY POLICY
- ------------------------------------------------
MANAGEMENT REVIEW 1
- ------------------------------------------------
PERFORMANCE SUMMARY 2
- ------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ------------------------------------------------
FINANCIAL STATEMENTS 5
- ------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 10
- ------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 15
- ------------------------------------------------
FEDERAL TAX INFORMATION 16
- ------------------------------------------------
TRUSTEES AND OFFICERS 17
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
MFS Inflation-Adjusted Bond Fund began investment operations on September 30,
2003, and the reporting period covers the seven months ended April 30, 2004.
The fund invests primarily in inflation-adjusted debt securities issued by the
U.S. Treasury (also known as Treasury Inflation Protected Securities, or
TIPS). These securities performed relatively well during the period when
compared with other segments of the fixed-income market. The bond market in
general during the early months of the period was highlighted by a
continuation of low interest rates, high bond prices, and solid returns for
fixed-income investors. However, the market began to change rapidly toward the
end of the period, following a string of strong economic numbers and reports
in March and April of rapid improvement in the U.S. employment market.
Improving economic indicators and better employment numbers set the stage for
rising interest rates and declining prices for fixed-income securities. These
conditions were exacerbated late in the period by the expectation that the
U.S. Federal Reserve board would raise interest rates sometime in the near
future. Together, the improving economic and employment outlook and the
expectation of rising interest rates led to declining bond prices and lower
returns for bond investors late in the period, erasing many of the gains
earned in previous months.
PORTFOLIO POSITIONING
The portfolio invests primarily in inflation adjusted securities, which
comprise at least 80% of the portfolio's weighting, and can comprise as much
as 100% of the portfolio's weighting. Assets not invested in inflation-
adjusted securities are invested in nominal U.S. Treasuries or kept as cash.
PORTFOLIO PERFORMANCE
The portfolio was positioned short on duration early in the period, as we
anticipated that rates would soon rise off their near-historic lows. However,
rates remained low throughout late 2003 and into early 2004, which led to a
continuation of a rally that drove up the prices of U.S. Treasuries. This
proved to be the primary detractor from performance relative to our benchmark,
the Lehman Brothers U.S. TIPS Index.
Respectfully,
/s/ Mark Dow /s/ Erik Weisman
Mark Dow Erik Weisman
Portfolio Manager Portfolio Manager
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market
and other conditions, and MFS disclaims any responsibility to update such
views. These views may not be relied upon as investment advice or an
indication of trading intent on behalf of any MFS Fund. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
Currently, the fund offers Class A and Class I shares, which are available for
purchase at net asset value only by residents of the Commonwealth of
Massachusetts who are employees (or certain relatives of employees) of MFS and
its affiliates or members of the governing boards of the various funds
sponsored by MFS.
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 include the deduction of the
maximum sales charge and reflect the percentage change in the net asset value,
including the reinvestment of any dividends and capital gains distributions.
(See Notes to Performance Summary.)
CALL 1-800-343-2829 EXT. 35941 FOR THE MOST RECENT MONTH-END PERFORMANCE
RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
MFS INFLATION-ADJUSTED BOND FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
September 30, 2003, through April 30, 2004. Index information is from October
1, 2003.)
MFS Inflation-Adjusted Lehman Brothers
Bond Fund - Class A U.S. TIPS Index
9/03 $9,525 $10,000
4/04 9,556 10,167
TOTAL RETURNS
- -----------------------
Average annual
without sales charge
- -----------------------
Class
Share class inception date Life*
- --------------------------------------------------------------------------
A 9/30/2003 0.33%
- --------------------------------------------------------------------------
I 9/30/2003 0.33%
- --------------------------------------------------------------------------
- -----------------------
Average Annual
- -----------------------
Comparative benchmarks
- --------------------------------------------------------------------------
Average intermediate U.S. Treasury
fund+ 1.45%
- --------------------------------------------------------------------------
Lehman Brothers U.S.
TIPS Index# 1.67%
- --------------------------------------------------------------------------
- -----------------------
Average annual
with sales charge
- -----------------------
Share class Life*
- --------------------------------------------------------------------------
A -4.44%
- --------------------------------------------------------------------------
Class I shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- -----------------------
Cumulative without
sales charge
- -----------------------
- --------------------------------------------------------------------------
A 0.33%
- --------------------------------------------------------------------------
I 0.33%
- --------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
September 30, 2003, through April 30, 2004. Index information is from October
1, 2003.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
LEHMAN BROTHERS U.S. TIPS INDEX - measures inflation-protection securities
issued by the U.S. Treasury.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflect the deduction of the maximum
5.75% sales charge. Class I shares have no sales charges and are available only
to certain investors.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance would be less favorable. Please see the prospectus and financial
statements for complete details.
KEY RISK CONSIDERATIONS
When interest rates rise, the price of inflation-adjusted debt securities tend
to decrease. Interest payments on inflation-adjusted debt securities can be
unpredictable.
Investments in securities involve risks relating to interest rates, currency
exchange rates, market conditions and the economic and political conditions of
the countries where investments are made.
Because the portfolio may invest a substantial amount of its assets in a single
issuer, or small number of issuers, it may be more volatile than a portfolio
that is more diversified.
The portfolio may invest in derivative securities which may include futures and
options. These types of hedging instruments can increase price fluctuation.
The portfolio may invest in mortgage-backed securities, which during times of
fluctuating interest rates, may increase or decrease more than other fixed-
income securities.
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 - 4/30/04
- -------------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Bonds - 93.5%
- -------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Inflation Protected Obligations - 84.9%
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 4.25%, 2010 $167 $192,317
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 3.625%, 2028 398 475,352
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.875%, 2009 217 243,147
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.5%, 2011 163 181,113
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3%, 2012 152 164,518
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2%, 2014 57 57,022
- -------------------------------------------------------------------------------------------------------
$1,313,469
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 8.6%
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.125%, 2029 $121 $133,601
- -------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,472,212) $1,447,070
- -------------------------------------------------------------------------------------------------------
Repurchase Agreements - 5.8%
- -------------------------------------------------------------------------------------------------------
Goldman Sachs & Co., dated 4/30/04, due 5/03/04, total to
be received $89,008 (secured by U.S. Treasury & Federal
Agency obligations in a jointly traded account),
at Cost $89 $89,000
- -------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,561,212) $1,536,070
- -------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.7% 11,077
- -------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,547,147
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- ----------------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities composing
the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $1,561,212) $1,536,070
- ----------------------------------------------------------------------------------------------------------
Cash 4,906
- ----------------------------------------------------------------------------------------------------------
Receivable for fund shares sold 3
- ----------------------------------------------------------------------------------------------------------
Interest receivable 10,091
- ----------------------------------------------------------------------------------------------------------
Total assets $1,551,070
- ----------------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $3,902
- ----------------------------------------------------------------------------------------------------------
Payable to affiliates
- ----------------------------------------------------------------------------------------------------------
Management fee 15
- ----------------------------------------------------------------------------------------------------------
Reimbursement fee 6
- ----------------------------------------------------------------------------------------------------------
Total liabilities $3,923
- ----------------------------------------------------------------------------------------------------------
Net assets $1,547,147
- ----------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,571,714
- ----------------------------------------------------------------------------------------------------------
Unrealized depreciation on investments (25,142)
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (5,077)
- ----------------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 5,652
- ----------------------------------------------------------------------------------------------------------
Net assets $1,547,147
- ----------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 157,091
- ----------------------------------------------------------------------------------------------------------
Class A shares
Net assets $502,698
- ----------------------------------------------------------------------------------------------------------
Shares outstanding 51,046
- ----------------------------------------------------------------------------------------------------------
Net asset value per share $9.85
- ----------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$9.85) $10.34
- ----------------------------------------------------------------------------------------------------------
Class I shares
Net assets $1,044,449
- ----------------------------------------------------------------------------------------------------------
Shares outstanding 106,045
- ----------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.85
- ----------------------------------------------------------------------------------------------------------
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 shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------
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.
PERIOD ENDED 4/30/04*
NET INVESTMENT INCOME
Interest income $26,066
- ----------------------------------------------------------------------------------------------------------
Expenses
- ----------------------------------------------------------------------------------------------------------
Management fee $4,025
- ----------------------------------------------------------------------------------------------------------
Shareholder servicing costs 931
- ----------------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 1,022
- ----------------------------------------------------------------------------------------------------------
Administrative fee 79
- ----------------------------------------------------------------------------------------------------------
Custodian fee 752
- ----------------------------------------------------------------------------------------------------------
Printing 11,391
- ----------------------------------------------------------------------------------------------------------
Postage 217
- ----------------------------------------------------------------------------------------------------------
Auditing fees 14,500
- ----------------------------------------------------------------------------------------------------------
Legal fees 2,285
- ----------------------------------------------------------------------------------------------------------
Registration fees 2,557
- ----------------------------------------------------------------------------------------------------------
Miscellaneous 2,414
- ----------------------------------------------------------------------------------------------------------
Total expenses $40,173
- ----------------------------------------------------------------------------------------------------------
Fees paid indirectly (36)
- ----------------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (36,106)
- ----------------------------------------------------------------------------------------------------------
Net expenses $4,031
- ----------------------------------------------------------------------------------------------------------
Net investment income $22,035
- ----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (identified cost basis) on investment transactions $3,217
- ----------------------------------------------------------------------------------------------------------
Change in unrealized depreciation on investments $(25,142)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $(21,925)
- ----------------------------------------------------------------------------------------------------------
Increase in net assets from operations $110
- ----------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, September 30, 2003, through
April 30, 2004.
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.
PERIOD ENDED 4/30/04*
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $22,035
- ----------------------------------------------------------------------------------------------------------
Net realized gain on investments 3,217
- ----------------------------------------------------------------------------------------------------------
Net unrealized loss on investments (25,142)
- ----------------------------------------------------------------------------------------------------------
Increase in net assets from operations $110
- ----------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- ----------------------------------------------------------------------------------------------------------
Class A $(9,271)
- ----------------------------------------------------------------------------------------------------------
Class I (15,406)
- ----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(24,677)
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets from fund share transactions $1,571,714
- ----------------------------------------------------------------------------------------------------------
Total increase in net assets $1,547,147
- ----------------------------------------------------------------------------------------------------------
NET ASSETS
At beginning of period $--
- ----------------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed net investment income of $5,652) $1,547,147
- ----------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, September 30, 2003, through
April 30, 2004.
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) held for the entire period. This information
has been audited by the fund's independent registered public accountant, whose report, together with the fund's financial
statements, are included in this report.
CLASS A PERIOD ENDED
4/30/04*
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.16
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.13)
- ---------------------------------------------------------------------------------------------------------------- ------
Total from investment operations $0.03
- ---------------------------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.18)
- ---------------------------------------------------------------------------------------------------------------- ------
Net asset value, end of period $9.85
- ---------------------------------------------------------------------------------------------------------------- ------
Total return (%)(+) 0.33++
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 0.50+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.72+
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 141
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $503
- ------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management, distribution and service fees, such that Other Expenses do not
exceed 0.15% annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's
fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.15% of average daily net assets. To the
extent that the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed
amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of September 1, 2006 or such
date as all expenses previously borne by MFS under the current agreement have been paid by the fund. In addition, the
investment adviser and the distributor contractually waived a portion of their fees for certain of the periods indicated.
To the extent actual expenses were over this limitation, and the waivers had not been in place, the net investment loss per
share and the ratios would have been:
Net investment loss $(0.12)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 5.20+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.98)+
- ------------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, September 30, 2003, through April 30, 2004.
+ 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
PERIOD ENDED
CLASS I 4/30/04*
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.16
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.13)
- ---------------------------------------------------------------------------------------------------------------- ------
Total from investment operations $0.03
- ---------------------------------------------------------------------------------------------------------------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.18)
- ---------------------------------------------------------------------------------------------------------------- ------
Net asset value, end of period $9.85
- ---------------------------------------------------------------------------------------------------------------- ------
Total return (%) 0.33++
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 0.50+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 2.74+
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 141
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,044
- ------------------------------------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are defined
as the fund's operating expenses, exclusive of management fees, such that Other Expenses do not exceed 0.15% annually. This
arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying
MFS an expense reimbursement fee not greater than 0.15% of average daily net assets. To the extent that the expense
reimbursement fee exceeds the fund's actual expenses, the excess will be applied to unreimbursed amounts paid by MFS under
the current agreement. This agreement will terminate on the earlier of September 1, 2006 or such date as all expenses
previously borne by MFS under the current agreement have been paid by the fund. In addition, the investment adviser and the
distributor contractually waived a portion of their fees for certain of the periods indicated. To the extent actual
expenses were over this limitation, and the waivers had not been in place, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.10)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 4.86+
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.61)+
- ------------------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, September 30, 2003, through April 30, 2004.
+ 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
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Inflation-Adjusted Bond Fund (the fund) is a non-diversified series of MFS
Series Trust IX (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.
INVESTMENT VALUATIONS - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes market value as determined by 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.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United States
of America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations.
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, for the period ended April 30 2004, is shown as a
reduction of total expenses on the Statement of Operations.
INFLATION-ADJUSTED DEBT SECURITIES - The fund invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The fund may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the debt
security is typically equal to the inflation-adjusted principal amount, or the
security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
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 amortization and accretion on debt securities.
The tax character of distributions declared for the period ended April 30, 2004
was as follows:
4/30/04
Distributions declared from:
----------------------------------------------
Ordinary income $24,677
----------------------------------------------
During the period ended April 30, 2004, accumulated undistributed net
investment income increased by $8,294, and accumulated net realized loss on
investments increased by $8,294 due to differences between book and tax
accounting for amortization and accretion on debt securities. This change had
no effect on the net assets or net asset value per share.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $10,832
----------------------------------------------
Unrealized depreciation (31,497)
----------------------------------------------
Other temporary differences (3,902)
----------------------------------------------
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 and estimated 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.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with 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
0.50% of the fund's average daily net assets. The investment adviser has
contractually agreed to waive a portion of its fee, which is shown as a
reduction of total expenses in the Statement of Operations. Management fees
incurred for the period ended April 30, 2004 were 0.35% of average daily net
assets on an annualized basis.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service fees, such that
Other Expenses do not exceed 0.15% annually. This arrangement is effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and
the fund paying MFS an expense reimbursement fee not greater than 0.15% of
average daily net assets for Class A and Class I. To the extent that the
expense reimbursement fee exceeds the fund's actual expenses, the excess will
be applied to unreimbursed amounts paid by MFS under the current agreement.
This agreement will terminate on the earlier of September 1, 2006 or such date
as all expenses previously borne by MFS under the current agreement have been
paid by the fund. At April 30, 2004, aggregate unreimbursed expenses amounted
to $33,881.
The fund pays compensation to its Independent Trustees ("Trustees") in the
form of both a retainer, attendance fees, and additional compensation to Board
and Committee chairpersons, 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).
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
--------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
--------------------------------------
Next $2.5 billion 0.00832%
--------------------------------------
Next $2.5 billion 0.00032%
--------------------------------------
In excess of $7 billion 0.0000%
--------------------------------------
For the period ended April 30, 2004, the fund paid MFS $79, equivalent to
0.0098% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, did not receive any sales charges on sales of Class A
shares of the fund for the period ended April 30, 2004.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the fund's average daily net assets to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of each fund's average daily net assets attributable
to Class A shares. Distribution and service fees under the Class A distribution
plan are currently being waived.
Certain Class A shares are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following the purchase.
There were no contingent deferred sales charges imposed during the period ended
April 30, 2004.
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFS Service Center, Inc. (MFSC), a wholly owned subsidiary of MFS, for
its services as shareholder servicing agent. The fee, which is calculated as a
percentage of the fund's average daily net assets is set periodically under the
supervision of the funds' Trustees. Prior to April 1, 2004, the fee was set at
0.11% of the fund's average daily net assets. Effective April 1, 2004, the fee
is set at 0.10% of the fund's average daily net assets. For the period ended
April 30, 2004, the fund paid MFSC a fee of $870 for shareholder services which
equated to 0.108% of the fund's average net assets. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $12 for the period ended April 30, 2004, as well as other expenses
paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $3,186,580 $1,719,975
- --------------------------------------------------------------------------------
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 $1,567,567
----------------------------------------------
Gross unrealized depreciation $(31,497)
----------------------------------------------
Gross unrealized appreciation --
----------------------------------------------
Net unrealized depreciation $(31,497)
----------------------------------------------
(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:
Period ended 4/30/04*
SHARES AMOUNT
CLASS A SHARES
Shares sold 50,246 $502,500
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Shares issued to shareholders in reinvestment of
distributions 800 8,038
- -------------------------------------------------------------------------------
Net increase 51,046 $510,538
- -------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 109,499 $1,095,696
- -------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 1,268 12,775
- -------------------------------------------------------------------------------
Shares reacquired (4,722) (47,295)
- -------------------------------------------------------------------------------
Net increase 106,045 $1,061,176
- -------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
September 30, 2003 through April 30, 2004.
(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 plus 0.50%. 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 calendar quarter. There was no
commitment fee allocated to the fund for the period ended April 30, 2004. The
fund had no borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust IX and Shareholders of MFS Inflation-
Adjusted Bond Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Inflation-Adjusted Bond Fund (a portfolio of MFS Series Trust IX (the "Trust"))
as of April 30, 2004, and the related statements of operations, the statement
of changes in net assets, and the financial highlights from the commencement of
operations, September 30, 2003, through the period ended April 30, 2004. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Inflation-Adjusted Bond Fund as of April 30, 2004, the results of its
operations for the year then ended, the changes in its net assets, and the
financial highlights from the commencement of operations, September 30, 2003,
through the period ended April 30, 2004, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- --------------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- --------------------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The business address of each Trustee and officer is 500 Boylston Street,
Boston, Massachusetts 02116.
POSITION(s) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATIONS & OTHER DIRECTORSHIPS(2)
NAME, DATE OF BIRTH WITH FUND SINCE(1) DURING THE PAST FIVE YEARS
- ------------------- ---------------- --------------- ----------------------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services Company,
(born 12/14/59) February 2004 President, Chief Investment Officer and Director
(until February 2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services Company, Chairman
(born 08/08/46) (since February 2004); Harvard Law School
(education), John Olin Visiting Professor (since
July 2002); Secretary of Economic Affairs, The
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice Chairman
(June 2000 to December 2001); Fidelity Management &
Research Company (investment adviser), President
(March 1997 to July 2001); The Bank of New York
(financial services), Director; Bell Canada
Enterprises (telecommunications), Director; Telesat
(satellite communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services Company, Chairman
(born 06/02/55) February 2004 (until February 2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation (energy
(born 05/01/36) related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of Cardiac
(born 03/11/37) Surgery; Harvard Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining products and service
(born 05/30/42) provider), Vice Chairman/Director (since April
2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding equipment
manufacturer), Director; Southwest Gas Corporation
(natural gas distribution company), Director
William R. Gutow Trustee December 1993 Private investor and real estate consultant;
(born 09/27/41) Capitol Entertainment Management Company (video
franchise), Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc., Managing
(born 02/08/53) Director, Investment Banking Group (1997 to
February 2001); Borders Group, Inc. (book and music
retailer), Director; Federal Realty Investment
Trust (real estate investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University Graduate
(born 04/10/35) School of Business Administration, Class of 1961
Adjunct Professor in Entrepreneurship Emeritus; CBL
& Associates Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning
(born 09/23/38) specialists), President; Wellfleet Investments
(investor in health care companies), Managing
General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional products),
Chief Executive Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry consultant
(born 04/25/46)
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services Company, Senior
(born 03/06/59) and Assistant Clerk Vice President and Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 until Massachusetts Financial Services Company, Senior
(born 11/06/53) March 2004 Vice President, General Counsel and Secretary
(until March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services Company, Vice
(born 10/01/53) President (since April 2003); Brown Brothers
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President (prior
to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services Company, Vice
(born 09/18/63) President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services Company, Senior
(born 08/29/58) Vice President (since July 2002); The Bank of New
York, Senior Vice President (September 2000 to July
2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington Funds,
Chief Financial Officer (prior to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services Company, Vice
(born 11/13/57) President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services Company, Senior
(born 06/12/60) Vice President
- ----------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since appointment
unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "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 series/the fund. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not elected for fixed
terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years thereafter to elect Trustees. Each
Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death,
resignation, retirement or removal.
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 109 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 AUDITORS
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 200 Berkeley Street, Boston, MA
02116-3741 02116
PORTFOLIO MANAGERS
Mark Dow
Erik Weisman
A general description of the MFS Funds proxy voting policies and procedures 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
MFS(R) INFLATION-ADJUSTED BOND FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C)2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116 IAB-ANN 6/04
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) BOND 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) BOND FUND
The fund seeks as high a level of current income as is believed to be
consistent with prudent risk. Its secondary objective is to protect
shareholders' capital.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
- ----------------------------------------------------
MANAGEMENT REVIEW 6
- ----------------------------------------------------
PERFORMANCE SUMMARY 10
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 14
- ----------------------------------------------------
FINANCIAL STATEMENTS 26
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 40
- ----------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 53
- ----------------------------------------------------
TRUSTEES AND OFFICERS 54
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 58
- ----------------------------------------------------
FEDERAL TAX INFORMATION 59
- ----------------------------------------------------
CONTACT INFORMATION 60
- ----------------------------------------------------
ASSET ALLOCATION 61
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging environment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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
Over the one-year period ended April 30, 2004, long-term U.S. Treasury bond
yields rose modestly, from 3.84% to 4.50%. The path upward, however, was marked
by significant volatility in the overall bond market.
In early 2003 and into the first half of the period, we saw a confluence of
factors that were generally positive for bond prices. Geopolitical uncertainty,
the hangover from corporate scandals in 2002, and a weak U.S. economy were
among the factors that pushed interest rates down to four-decade lows by June
of 2003.
In late June, however, the bond market reversed direction as fixed-income
investors became concerned that an economic recovery was finally at hand. Over
the summer of 2003 and into early September, bond prices declined as rates rose
sharply.
In the fall and winter of 2003, however, bond prices revived as several factors
combined to drive rates down again. Economic reports indicated that inflation
was well contained while job growth remained weak. Although most other measures
indicated the U.S. economy was improving, we believe investors were concerned
that consumer spending might falter because laid-off workers were not finding
new jobs. The Federal Reserve Board (the Fed) appeared to sum up the situation
in its statements that interest rates could remain low for the foreseeable
future.
As the period came to a close in March and April of 2004, bonds reversed
direction again. Long-term rates climbed sharply as the United States finally
began to experience accelerating job growth, and the bond market began to
anticipate that a Fed rate increase was imminent. Just after the period ended,
the Fed's press release after its May 4 meeting contained the first indication
in several years that rates were indeed going up: "At this juncture, ... the
[Federal Open Market] Committee believes that policy accommodation can be
removed at a pace that is likely to be measured."
The accelerating U.S. recovery over the period was generally positive for
corporate bonds. Growth in GDP (gross domestic product), business profits, and
other measures pointed toward improving corporate fundamentals - business
factors such as earnings and cash flow growth.
In response, investors moved away from the risk aversion or "flight to quality"
that had characterized the bond market in late 2002 and early 2003. Riskier,
lower-rated classes of bonds showed the best performance over the period. With
Treasury yields at four-decade lows, investors sought out higher- yielding
corporate debt. This caused spreads - the differences between corporate yields
and Treasury yields - to tighten (decrease) over the period. High-yield
corporate debt outperformed high-grade corporate debt, which in turn
outperformed Treasuries. Within categories, lower-rated bonds generally
outperformed higher-rated issues. While bonds across most asset classes were
hurt by rising rates in the final months of the period, lower-rated debt was
less affected than higher-rated issues and Treasuries. (The principal value and
interest on Treasury securities, however, are guaranteed by the U.S. government
if held to maturity.)
PORTFOLIO CONCENTRATION 4/30/04
QUALITY RATINGS
"AAA" 11.3%
"AA" 5.1%
"A" 17.5%
"BBB" 40.2%
"BB" 10.2%
"B" 2.6%
Govts 13.1%
The portfolio is actively managed, and current
holdings may be different.
Percentages based on assets on 4/30/04.
CONTRIBUTORS TO PERFORMANCE
In the area of credit quality, relative performance was helped by the fund's
overweighting in lower-quality debt relative to its benchmark, the Lehman
Brothers Government/Credit Index (the Lehman Index). During a period when
spreads were tightening, lower-rated bonds outperformed, and the fund's
overweighting in "BBB"- and "BB"-rated debt securities helped relative returns.
One area of strength was our position in "BB"-rated securities. These
noninvestment-grade bonds are one level below investment-grade territory ("BBB"
is the lowest investment-grade rating) and are often referred to as "crossover"
bonds. Our research strives to uncover "BB"-rated bonds that we believe have a
strong probability of crossing over to an investment-grade rating. Such an
upgrade increases the number of potential buyers for a bond and thus generally
increases its price.
Specific industry and security selection was another key area of strength. Some
of the worst-performing segments of the market in 2002 were among the strongest
beneficiaries of the improving economy over the period. More specifically, the
fund's holdings in three areas - industrials, telecommunications, and utilities
- - did particularly well, relative to our benchmark. In the industrials area,
securities of U.S. auto company, Ford delivered strong performance as strong
sales and lower cost structures led to improved profitability. Our position in
conglomerate Tyco International also performed well as new management improved
the company's free cash flow.
In the telecommunications area, the key event of the period was the acquisition
of AT&T Wireless by Cingular, the wireless carrier that is a joint venture of
SBC Communications and Bell South. As of period-end, the acquisition had been
announced but not yet completed. In the bidding war that preceded the deal,
valuations were driven up across the wireless industry. For the period as a
whole, our positions in Sprint, AT&T Wireless, and Deutsche Telecom helped
relative returns.
The fund's utilities holdings, as a group, also performed well relative to the
Lehman Index. And in the cable industry, our Comcast position, composed of
former TCI Communications bonds, was a strong contributor to results.
DETRACTORS FROM PERFORMANCE
Although not all of the fund's investments performed as well as those described
above, this was a period in which the market environment was particularly
favorable for the asset class - corporate debt - in which we were overweighted.
That situation contrasted with the environment in some earlier periods, during
which our corporate holdings struggled under the weight of a sluggish economy.
In the telecommunications area, our position in Citizens Communications
detracted from relative performance. The firm provides wireline phone service
to rural areas and small- to medium-sized cities and towns. Although we believe
the company's operating results were generally in line with market expectations
over the period, Citizens bonds fell in value when it became apparent that the
company might be taken private in a leveraged buyout. A leveraged buyout is
usually bad for bond holders because a company's debt load increases
dramatically, and the value of existing debt often declines on concerns about
the firm's ability to carry a heavier debt load.
Respectfully,
/s/ William J. Adams
William J. Adams
Portfolio Manager
Note to investors: Effective November 30, 2003, the Lehman Brothers
Government/Credit Index became the sole benchmark of the fund. Previously, the
Lehman Brothers Government/Credit Index and the Lipper Corporate Debt Funds
BBB-Rated Index had both been benchmarks of the portfolio.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. Past performance is no guarantee of
future results. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended 4/30/04)
Lehman Brothers Lipper Corporate
MFS Bond Government/ Debt Funds
Fund - Class A Credit Index BBB-Rated Index
4/94 $ 9,525 $10,000 $10,000
4/96 11,156 11,617 11,690
4/98 13,541 13,801 14,114
4/00 13,765 14,808 14,567
4/02 16,142 17,842 16,983
4/04 19,065 20,421 19,715
TOTAL RETURNS
- -----------------------
Average annual
without sales charge
- -----------------------
Class
Share class inception date 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 5/8/1974 4.67% 7.91% 6.41% 7.19%
- ------------------------------------------------------------------------------
B 9/7/1993 3.94% 7.16% 5.67% 6.42%
- ------------------------------------------------------------------------------
C 1/3/1994 4.02% 7.19% 5.68% 6.44%
- ------------------------------------------------------------------------------
I 1/2/1997 5.06% 8.24% 6.73% 7.44%
- ------------------------------------------------------------------------------
R1 12/31/2002 4.46% 7.81% 6.35% 7.16%
- ------------------------------------------------------------------------------
R2 10/31/2003 4.07% 7.21% 5.70% 6.43%
- ------------------------------------------------------------------------------
529A 7/31/2002 4.44% 7.78% 6.33% 7.15%
- ------------------------------------------------------------------------------
529B 7/31/2002 3.68% 6.98% 5.56% 6.36%
- ------------------------------------------------------------------------------
529C 7/31/2002 3.68% 7.01% 5.57% 6.38%
- ------------------------------------------------------------------------------
- -----------------------
Average annual
- -----------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average Corporate Debt "BBB"-Rate
Fund+ 3.81% 6.74% 6.03% 7.04%
- ------------------------------------------------------------------------------
Lehman Brothers Government/Credit
Index# 1.80% 7.15% 6.84% 7.40%
- ------------------------------------------------------------------------------
Lipper Corporate Debt Funds BBB-
Rated Index 4.80% 7.10% 6.03% 7.02%
- ------------------------------------------------------------------------------
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
- -----------------------
Average annual
with sales charge
- -----------------------
Class
Share class inception date 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A -0.30% 6.17% 5.38% 6.67%
- ------------------------------------------------------------------------------
B -0.03% 6.28% 5.35% 6.42%
- ------------------------------------------------------------------------------
C 3.02% 7.19% 5.68% 6.44%
- ------------------------------------------------------------------------------
529A -0.52% 6.04% 5.30% 6.63%
- ------------------------------------------------------------------------------
529B -0.29% 6.10% 5.24% 6.36%
- ------------------------------------------------------------------------------
529C 2.69% 7.01% 5.57% 6.38%
- ------------------------------------------------------------------------------
- -----------------------
Cumulative without
sales charge
- -----------------------
Share class
- ------------------------------------------------------------------------------
A 4.67% 25.66% 36.41% 100.16%
- ------------------------------------------------------------------------------
B 3.94% 23.06% 31.76% 86.27%
- ------------------------------------------------------------------------------
C 4.02% 23.17% 31.79% 86.60%
- ------------------------------------------------------------------------------
I 5.06% 26.80% 38.48% 104.95%
- ------------------------------------------------------------------------------
R1 4.46% 25.32% 36.05% 99.63%
- ------------------------------------------------------------------------------
R2 4.07% 23.21% 31.92% 86.51%
- ------------------------------------------------------------------------------
529A 4.44% 25.20% 35.91% 99.43%
- ------------------------------------------------------------------------------
529B 3.68% 22.43% 31.09% 85.33%
- ------------------------------------------------------------------------------
529C 3.68% 22.54% 31.12% 85.65%
- ------------------------------------------------------------------------------
INDEX DEFINITIONS
LEHMAN BROTHERS GOVERNMENT/CREDIT INDEX - measures the performance of all debt
obligations of the U.S. Treasury and U.S. government agencies, and all
investment-grade domestic corporate debt.
LIPPER CORPORATE DEBT FUNDS BBB-RATED INDEX - measures the performance of
investment-grade bond funds.
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 R1 and R2
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 I, R1 and 529A shares includes the performance of the fund's
Class A shares for periods prior to their offering. Performance for R2 and 529B
shares includes the performance of the fund's Class B shares for the periods
prior to their offering. Performance for 529C shares includes the performance
of the fund's Class C shares for the 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 to which it is blended,
and lower performance for share classes with lower operating expenses than the
initial share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
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 - 4/30/04
- -----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 99.3%
- -----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------
U.S. Bonds - 85.7%
- -----------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.7%
- -----------------------------------------------------------------------------------------------
Chancellor Media Corp., 8%, 2008 $5,140 $5,883,141
- -----------------------------------------------------------------------------------------------
EchoStar DBS Corp., 9.125%, 2009 4,134 4,630,080
- -----------------------------------------------------------------------------------------------
$10,513,221
- -----------------------------------------------------------------------------------------------
Aerospace - 0.5%
- -----------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 6.4%, 2011## $7,006 $7,465,580
- -----------------------------------------------------------------------------------------------
Airlines - 1.0%
- -----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.648%, 2017 $1,097 $1,061,337
- -----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.256%, 2020 2,764 2,778,996
- -----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.545%, 2020 7,661 7,462,611
- -----------------------------------------------------------------------------------------------
Delta Air Lines, Inc., 7.379%, 2010 3,777 3,688,784
- -----------------------------------------------------------------------------------------------
Jet Equipment Trust, 11.44%, 2014## 3,500 17,500
- -----------------------------------------------------------------------------------------------
$15,009,228
- -----------------------------------------------------------------------------------------------
Asset Backed & Securitized - 10.0%
- -----------------------------------------------------------------------------------------------
Airplane Pass-Through Trust, 10.875%, 2019 $1,482 $7,408
- -----------------------------------------------------------------------------------------------
Amresco Commercial Mortgage Funding I, 7%, 2029 4,595 4,995,447
- -----------------------------------------------------------------------------------------------
Blackrock Capital Finance LP, 7.75%, 2026## 1,165 1,132,527
- -----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 3.52%, 2009## 2,605 2,624,672
- -----------------------------------------------------------------------------------------------
CRIIMI MAE Commercial Mortgage Trust, 7%, 2011## 4,668 4,977,792
- -----------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 2.47%, 2010 4,350 4,276,174
- -----------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., 6.6%, 2012 4,040 3,930,927
- -----------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, 6.65%, 2008 3,966 4,239,790
- -----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 1.1831%, 2008^^ 85,114 3,552,622
- -----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.44%, 2013 4,362 3,862,118
- -----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 6.04%, 2030 7,385 7,951,747
- -----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 7.03%, 2031 5,200 5,830,891
- -----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 7.8613%, 2032 1,390 1,576,790
- -----------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 6,525 7,018,652
- -----------------------------------------------------------------------------------------------
Drive Auto Receivables Trust, 2.5%, 2009## 4,240 4,123,400
- -----------------------------------------------------------------------------------------------
Drivetime Auto Owner Trust, 1.918%, 2008## 6,770 6,720,714
- -----------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 4.1743%, 2023 21,445 3,976,106
- -----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
7%, 2014 3,028 3,141,522
- -----------------------------------------------------------------------------------------------
Fortress CBO Investments I Ltd., 1.75%, 2038 4,095 4,098,839
- -----------------------------------------------------------------------------------------------
Fortress CBO Investments I, Ltd., 1.9%, 2038 4,325 4,324,324
- -----------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 4,140 3,724,507
- -----------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., 7.8984%, 2034## 3,065 3,238,514
- -----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.27%, 2011 4,670 4,704,622
- -----------------------------------------------------------------------------------------------
LB Commercial Conduit Mortgage Trust, 1.1603%, 2028^^ 57,599 1,867,608
- -----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust,
6.78%, 2031 3,960 4,393,182
- -----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 6.86%, 2010 6,477 6,901,933
- -----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.7384%, 2010 7,510 7,898,039
- -----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.3%, 2030## 5,033 5,419,160
- -----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 0.8165%, 2030##^^ 164,546 4,401,009
- -----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 6.48%, 2030 4,287 4,688,036
- -----------------------------------------------------------------------------------------------
Morgan Stanley DW Capital I, Inc., 5.72%, 2032 6,146 6,514,433
- -----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.01%, 2030 1,831 1,912,918
- -----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 1.074%, 2031^^ 75,021 2,197,055
- -----------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.49%, 2029 3,484 3,520,319
- -----------------------------------------------------------------------------------------------
TIAA Real Estate CDO, Ltd., 7.17%, 2032## 3,840 4,132,580
- -----------------------------------------------------------------------------------------------
$147,876,377
- -----------------------------------------------------------------------------------------------
Automotive - 6.1%
- -----------------------------------------------------------------------------------------------
DaimlerChrysler North America Holdings, 7.2%, 2009 $4,957 $5,451,411
- -----------------------------------------------------------------------------------------------
Dana Corp., 9%, 2011 3,235 3,817,300
- -----------------------------------------------------------------------------------------------
Dura Operating Corp., 8.625%, 2012 2,505 2,617,725
- -----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 6.875%, 2006 9,315 9,859,704
- -----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.875%, 2010 13,095 14,386,403
- -----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7%, 2013 6,957 7,154,788
- -----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.75%, 2006 10,837 11,475,353
- -----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.25%, 2011 3,427 3,683,878
- -----------------------------------------------------------------------------------------------
General Motors Corp., 8.375%, 2033 16,866 18,240,866
- -----------------------------------------------------------------------------------------------
Lear Corp., 7.96%, 2005 4,799 5,050,948
- -----------------------------------------------------------------------------------------------
Lear Corp., 8.11%, 2009 4,225 4,853,469
- -----------------------------------------------------------------------------------------------
TRW Automotive Acquisition Corp., 9.375%, 2013 3,418 3,913,610
- -----------------------------------------------------------------------------------------------
$90,505,455
- -----------------------------------------------------------------------------------------------
Banks & Credit Companies - 7.4%
- -----------------------------------------------------------------------------------------------
Abbey National Capital Trust I, 8.963%, 2049 $4,214 $5,381,447
- -----------------------------------------------------------------------------------------------
Bank of America Corp., 7.4%, 2011 8,135 9,354,388
- -----------------------------------------------------------------------------------------------
Citigroup, Inc., 7.25%, 2010 4,636 5,294,947
- -----------------------------------------------------------------------------------------------
Citigroup, Inc., 6.625%, 2032 8,144 8,545,296
- -----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 6.125%, 2011 8,660 9,267,360
- -----------------------------------------------------------------------------------------------
Natexis AMBS Co. LLC, 8.44%, 2049## 13,287 15,322,595
- -----------------------------------------------------------------------------------------------
Popular North America, Inc., 4.25%, 2008 7,630 7,694,924
- -----------------------------------------------------------------------------------------------
RBS Capital Trust II, 6.425%, 2049 6,325 6,244,344
- -----------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64%, 2049## 14,027 15,732,669
- -----------------------------------------------------------------------------------------------
UniCredito Italiano Capital Trust II, 9.2% to 2010,
9.2%, 2049## 8,744 10,676,337
- -----------------------------------------------------------------------------------------------
Wachovia Corp., 4.875%, 2014 7,753 7,491,856
- -----------------------------------------------------------------------------------------------
Wachovia Corp., 6.605%, 2025 7,936 8,530,478
- -----------------------------------------------------------------------------------------------
$109,536,641
- -----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.4%
- -----------------------------------------------------------------------------------------------
CSC Holdings, Inc., 7.875%, 2007 $5,024 $5,350,560
- -----------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.75%, 2010 5,981 6,845,069
- -----------------------------------------------------------------------------------------------
TCI Communication Financing III, 9.65%, 2027 16,336 19,301,572
- -----------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 3,539 4,517,912
- -----------------------------------------------------------------------------------------------
$36,015,113
- -----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.2%
- -----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.25%, 2007 $8,405 $9,586,516
- -----------------------------------------------------------------------------------------------
Morgan Stanley DW, Inc., 6.6%, 2012 7,094 7,808,401
- -----------------------------------------------------------------------------------------------
$17,394,917
- -----------------------------------------------------------------------------------------------
Building - 1.1%
- -----------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $6,465 $7,079,175
- -----------------------------------------------------------------------------------------------
Building Materials Corp. of America, 8%, 2008 4,685 4,673,288
- -----------------------------------------------------------------------------------------------
CRH North America, Inc., 6.95%, 2012 4,195 4,670,327
- -----------------------------------------------------------------------------------------------
$16,422,790
- -----------------------------------------------------------------------------------------------
Chemicals - 0.7%
- -----------------------------------------------------------------------------------------------
Dow Chemical Co., 5%, 2007 $4,002 $4,173,478
- -----------------------------------------------------------------------------------------------
Dow Chemical Co., 5.75%, 2008 3,106 3,301,749
- -----------------------------------------------------------------------------------------------
Dow Chemical Co., 6.125%, 2011 3,290 3,525,636
- -----------------------------------------------------------------------------------------------
$11,000,863
- -----------------------------------------------------------------------------------------------
Conglomerates - 1.0%
- -----------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.7%, 2007 $1,244 $1,426,283
- -----------------------------------------------------------------------------------------------
Tyco International Group S.A., 6.75%, 2011 12,224 13,182,814
- -----------------------------------------------------------------------------------------------
$14,609,097
- -----------------------------------------------------------------------------------------------
Consumer Cyclical - 0.6%
- -----------------------------------------------------------------------------------------------
Cendant Corp., 6.875%, 2006 $3,923 $4,250,908
- -----------------------------------------------------------------------------------------------
Cendant Corp., 6.25%, 2010 4,595 4,953,263
- -----------------------------------------------------------------------------------------------
$9,204,171
- -----------------------------------------------------------------------------------------------
Containers - 0.2%
- -----------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.25%, 2013 $3,230 $3,334,975
- -----------------------------------------------------------------------------------------------
Defense Electronics - 1.1%
- -----------------------------------------------------------------------------------------------
Litton Industries, Inc., 8%, 2009 $8,035 $9,348,040
- -----------------------------------------------------------------------------------------------
Raytheon Co., 8.3%, 2010 5,650 6,668,062
- -----------------------------------------------------------------------------------------------
$16,016,102
- -----------------------------------------------------------------------------------------------
Energy - Independent - 2.2%
- -----------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 8.125%, 2011## $4,115 $4,505,925
- -----------------------------------------------------------------------------------------------
Forest Oil Corp., 8%, 2008 4,920 5,387,400
- -----------------------------------------------------------------------------------------------
Occidental Petroleum Corp., 7.65%, 2006 4,555 4,945,755
- -----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.625%, 2005 3,772 3,987,962
- -----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.25%, 2011 7,186 8,057,784
- -----------------------------------------------------------------------------------------------
XTO Energy, Inc., 6.25%, 2013 5,574 5,938,947
- -----------------------------------------------------------------------------------------------
$32,823,773
- -----------------------------------------------------------------------------------------------
Energy - Integrated - 0.4%
- -----------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $5,041 $5,136,497
- -----------------------------------------------------------------------------------------------
Entertainment - 2.2%
- -----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 7.75%, 2024 $6,693 $7,659,964
- -----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 8.5%, 2025 5,388 6,514,065
- -----------------------------------------------------------------------------------------------
Time Warner, Inc., 9.125%, 2013 6,649 8,202,120
- -----------------------------------------------------------------------------------------------
Walt Disney Co., 6.75%, 2006 3,960 4,226,991
- -----------------------------------------------------------------------------------------------
Walt Disney Co., 6.375%, 2012 4,962 5,372,814
- -----------------------------------------------------------------------------------------------
$31,975,954
- -----------------------------------------------------------------------------------------------
Financial Institutions - 1.1%
- -----------------------------------------------------------------------------------------------
Capital One Bank, 8.25%, 2005 $2,953 $3,140,409
- -----------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 3,474 3,442,588
- -----------------------------------------------------------------------------------------------
Household Finance Corp., 6.75%, 2011 2,384 2,639,503
- -----------------------------------------------------------------------------------------------
SLM Corp., 4%, 2009 7,049 7,003,633
- -----------------------------------------------------------------------------------------------
$16,226,133
- -----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.5%
- -----------------------------------------------------------------------------------------------
Nabisco, Inc., 6.375%, 2035 $2,270 $2,335,530
- -----------------------------------------------------------------------------------------------
Tyson Foods, Inc., 8.25%, 2011 4,409 5,130,387
- -----------------------------------------------------------------------------------------------
$7,465,917
- -----------------------------------------------------------------------------------------------
Forest & Paper Products - 0.8%
- -----------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.8%, 2032 $12,139 $12,176,036
- -----------------------------------------------------------------------------------------------
Gaming & Lodging - 1.1%
- -----------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 7.125%, 2007 $6,189 $6,829,097
- -----------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.5%, 2010 4,102 4,625,005
- -----------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 8%, 2010 3,775 4,114,750
- -----------------------------------------------------------------------------------------------
$15,568,852
- -----------------------------------------------------------------------------------------------
Insurance - 0.4%
- -----------------------------------------------------------------------------------------------
Prudential Insurance Co., 7.65%, 2007## $4,623 $5,168,116
- -----------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.7%
- -----------------------------------------------------------------------------------------------
Fund American Cos., Inc., 5.875%, 2013 $3,670 $3,691,202
- -----------------------------------------------------------------------------------------------
Safeco Corp., 4.875%, 2010 4,145 4,243,423
- -----------------------------------------------------------------------------------------------
Safeco Corp., 7.25%, 2012 2,351 2,674,697
- -----------------------------------------------------------------------------------------------
$10,609,322
- -----------------------------------------------------------------------------------------------
Machinery & Tools - 0.9%
- -----------------------------------------------------------------------------------------------
Ingersoll Rand Co., 6.25%, 2006 $4,675 $4,989,805
- -----------------------------------------------------------------------------------------------
Joy Global, Inc., 8.75%, 2012 2,595 2,906,400
- -----------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 5,246 5,592,834
- -----------------------------------------------------------------------------------------------
$13,489,039
- -----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.9%
- -----------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 $5,802 $6,657,447
- -----------------------------------------------------------------------------------------------
HCA, Inc., 7.875%, 2011 5,897 6,510,577
- -----------------------------------------------------------------------------------------------
$13,168,024
- -----------------------------------------------------------------------------------------------
Metals & Mining - 0.4%
- -----------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 $5,009 $6,040,939
- -----------------------------------------------------------------------------------------------
Mortgage Backed - 6.8%
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2012 - 2033 $17,156 $17,817,766
- -----------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2017 - 2099 20,099 20,297,830
- -----------------------------------------------------------------------------------------------
Fannie Mae, 4.5%, 2018 16,858 16,614,888
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7.5%, 2030 - 2031 8,211 8,785,241
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2032 20,475 21,315,549
- -----------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2034 12,291 11,917,178
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 7.5%, 2023 - 2028 158 170,271
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 6.5%, 2028 4,095 4,281,228
- -----------------------------------------------------------------------------------------------
$101,199,951
- -----------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- -----------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $6,995 $7,888,604
- -----------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.7%
- -----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 7.4%, 2031 $6,187 $6,780,191
- -----------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.8%, 2008 3,345 3,669,823
- -----------------------------------------------------------------------------------------------
$10,450,014
- -----------------------------------------------------------------------------------------------
Oil Services - 0.9%
- -----------------------------------------------------------------------------------------------
Dresser, Inc., 9.375%, 2011 $4,215 $4,552,200
- -----------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 7,872 8,044,806
- -----------------------------------------------------------------------------------------------
$12,597,006
- -----------------------------------------------------------------------------------------------
Oils - 0.4%
- -----------------------------------------------------------------------------------------------
Valero Energy Corp., 7.5%, 2032 $5,791 $6,508,065
- -----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.3%
- -----------------------------------------------------------------------------------------------
Jabil Circuit, Inc., 5.875%, 2010 $4,121 $4,280,141
- -----------------------------------------------------------------------------------------------
Pharmaceuticals - 0.3%
- -----------------------------------------------------------------------------------------------
Wyeth, 6.5%, 2034 $4,213 $4,189,963
- -----------------------------------------------------------------------------------------------
Pollution Control - 1.2%
- -----------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875%, 2013 $6,400 $6,880,000
- -----------------------------------------------------------------------------------------------
Waste Management, Inc., 6.5%, 2008 4,515 4,921,598
- -----------------------------------------------------------------------------------------------
Waste Management, Inc., 7.1%, 2026 5,386 5,721,758
- -----------------------------------------------------------------------------------------------
$17,523,356
- -----------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- -----------------------------------------------------------------------------------------------
Belo Corp., 7.75%, 2027 $3,410 $3,810,013
- -----------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013## 4,235 4,637,325
- -----------------------------------------------------------------------------------------------
$8,447,338
- -----------------------------------------------------------------------------------------------
Railroads - 0.4%
- -----------------------------------------------------------------------------------------------
Union Pacific Corp., 6.39%, 2004 $5,585 $5,700,459
- -----------------------------------------------------------------------------------------------
Real Estate - 2.4%
- -----------------------------------------------------------------------------------------------
EOP Operating LP, 6.8%, 2009 $4,476 $4,943,147
- -----------------------------------------------------------------------------------------------
EOP Operating Ltd. Partnership, 6.625%, 2005 6,569 6,800,695
- -----------------------------------------------------------------------------------------------
EOP Operating Ltd. Partnership, 8.375%, 2006 4,920 5,403,528
- -----------------------------------------------------------------------------------------------
Simon Property Group LP, 6.375%, 2007 6,890 7,535,738
- -----------------------------------------------------------------------------------------------
Simon Property Group LP, 6.35%, 2012 4,283 4,586,827
- -----------------------------------------------------------------------------------------------
Vornado Realty Trust, 5.625%, 2007 6,252 6,674,729
- -----------------------------------------------------------------------------------------------
$35,944,664
- -----------------------------------------------------------------------------------------------
Restaurants - 0.5%
- -----------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $5,642 $6,877,824
- -----------------------------------------------------------------------------------------------
Retailers - 0.8%
- -----------------------------------------------------------------------------------------------
Dollar General Corp., 8.625%, 2010 $4,765 $5,420,188
- -----------------------------------------------------------------------------------------------
Gap, Inc., 10.55%, 2008 5,050 6,211,500
- -----------------------------------------------------------------------------------------------
$11,631,688
- -----------------------------------------------------------------------------------------------
Supermarkets - 0.4%
- -----------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $5,052 $5,690,487
- -----------------------------------------------------------------------------------------------
Supranational - 0.2%
- -----------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 6.875%, 2012 $2,747 $3,018,277
- -----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.6%
- -----------------------------------------------------------------------------------------------
Citizens Communications Co., 9%, 2031 $9,522 $9,347,195
- -----------------------------------------------------------------------------------------------
Sprint Capital Corp., 6.875%, 2028 12,539 12,310,050
- -----------------------------------------------------------------------------------------------
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 3,188 3,396,422
- -----------------------------------------------------------------------------------------------
Telecomunicaciones de Puerto Rico, Inc., 6.8%, 2009 1,746 1,908,790
- -----------------------------------------------------------------------------------------------
Verizon New York, Inc., 6.875%, 2012 8,135 8,897,754
- -----------------------------------------------------------------------------------------------
Verizon New York, Inc., 7.375%, 2032 3,020 3,254,690
- -----------------------------------------------------------------------------------------------
$39,114,901
- -----------------------------------------------------------------------------------------------
Tobacco - 0.9%
- -----------------------------------------------------------------------------------------------
Altria Group, Inc., 7%, 2013 $5,021 $5,344,829
- -----------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 7,722 7,741,305
- -----------------------------------------------------------------------------------------------
$13,086,134
- -----------------------------------------------------------------------------------------------
Transportation - Services - 0.5%
- -----------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $5,930 $7,589,623
- -----------------------------------------------------------------------------------------------
U.S. Government Agencies - 4.6%
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7.125%, 2005 $14,660 $15,301,771
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2008 20,365 22,110,525
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6.125%, 2012 12,046 13,117,901
- -----------------------------------------------------------------------------------------------
Fannie Mae, 5.25%, 2012 2,542 2,563,261
- -----------------------------------------------------------------------------------------------
Small Business Administration, 4.93%, 2024 8,418 8,290,195
- -----------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 6,641 6,418,942
- -----------------------------------------------------------------------------------------------
$67,802,595
- -----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 5.7%
- -----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 9.875%, 2015 $3,151 $4,581,012
- -----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2031 12,090 12,248,680
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.375%, 2007 10,358 11,168,715
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 4.375%, 2007 39,100 40,772,424
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3%, 2012 7,952 8,595,246
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 4%, 2014 7,520 7,223,900
- -----------------------------------------------------------------------------------------------
$84,589,977
- -----------------------------------------------------------------------------------------------
Utilities - Electric Power - 8.4%
- -----------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 $9,424 $10,733,248
- -----------------------------------------------------------------------------------------------
DPL, Inc., 6.875%, 2011 6,332 6,237,020
- -----------------------------------------------------------------------------------------------
DTE Energy Co., 7.05%, 2011 8,425 9,284,224
- -----------------------------------------------------------------------------------------------
Entergy Mississippi, Inc., 6.2%, 2004 1,307 1,307,000
- -----------------------------------------------------------------------------------------------
Exelon Generation Co. LLC, 6.95%, 2011 10,608 11,818,309
- -----------------------------------------------------------------------------------------------
FirstEnergy Corp., 6.45%, 2011 5,158 5,430,337
- -----------------------------------------------------------------------------------------------
Midland Funding II, 13.25%, 2006 925 1,045,250
- -----------------------------------------------------------------------------------------------
NiSource Finance Corp., 7.875%, 2010 4,553 5,300,125
- -----------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375%, 2004 4,074 4,137,746
- -----------------------------------------------------------------------------------------------
Northeast Utilities, 8.58%, 2006 2,587 2,765,143
- -----------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 6,048 6,320,160
- -----------------------------------------------------------------------------------------------
PSEG Power LLC, 7.75%, 2011 5,857 6,743,416
- -----------------------------------------------------------------------------------------------
PSEG Power LLC, 8.625%, 2031 3,724 4,622,348
- -----------------------------------------------------------------------------------------------
Pacific Gas & Electric Co., 6.05%, 2034 10,962 10,366,774
- -----------------------------------------------------------------------------------------------
Progress Energy, Inc., 7%, 2031 6,729 7,057,705
- -----------------------------------------------------------------------------------------------
System Energy Resources, 7.43%, 2011 2,881 2,958,804
- -----------------------------------------------------------------------------------------------
System Energy Resources, Inc., 5.129%, 2014## 4,319 4,266,092
- -----------------------------------------------------------------------------------------------
System Energy Resources, Inc., 8.09%, 2017 6,302 6,912,960
- -----------------------------------------------------------------------------------------------
TXU Corp., 6.375%, 2006 6,672 7,092,336
- -----------------------------------------------------------------------------------------------
Toledo Edison Co., 7.875%, 2004 8,709 8,833,269
- -----------------------------------------------------------------------------------------------
$123,232,266
- -----------------------------------------------------------------------------------------------
Utilities - Gas - 0.4%
- -----------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 $5,793 $6,146,500
- -----------------------------------------------------------------------------------------------
Wireless Communications - 0.6%
- -----------------------------------------------------------------------------------------------
American Tower Escrow Corp., 0%, 2008 $6,290 $4,575,975
- -----------------------------------------------------------------------------------------------
Nextel Communications, Inc., 9.375%, 2009 4,240 4,584,500
- -----------------------------------------------------------------------------------------------
$9,160,475
- -----------------------------------------------------------------------------------------------
Total U.S. Bonds $1,267,423,440
- -----------------------------------------------------------------------------------------------
Foreign Bonds - 13.6%
- -----------------------------------------------------------------------------------------------
Australia - 0.4%
- -----------------------------------------------------------------------------------------------
Burns Philp Capital Property Ltd., 9.75%, 2012 (Food &
Non-Alcoholic Beverages) $5,455 $5,755,025
- -----------------------------------------------------------------------------------------------
Brazil - 0.3%
- -----------------------------------------------------------------------------------------------
Brazilian Merchant Voucher Receivables Ltd.,
5.911%, 2011 (Asset Backed & Securitized)## $5,180 $4,998,700
- -----------------------------------------------------------------------------------------------
Bulgaria - 0.2%
- -----------------------------------------------------------------------------------------------
Republic of Bulgaria, 8.25%, 2015 (Emerging Market
Sovereign)## $2,807 $3,214,015
- -----------------------------------------------------------------------------------------------
Canada - 1.2%
- -----------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 6.95%, 2008 (Forest & Paper
Products) $4,281 $4,411,189
- -----------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 7.875%, 2009 (Forest & Paper
Products) 2,974 3,138,658
- -----------------------------------------------------------------------------------------------
Anderson Exploration Ltd., 6.75%, 2011 (Energy -
Independent) 2,572 2,782,346
- -----------------------------------------------------------------------------------------------
TELUS Corp., 8%, 2011 (Telecommunications - Wireline) 6,734 7,811,171
- -----------------------------------------------------------------------------------------------
$18,143,364
- -----------------------------------------------------------------------------------------------
Chile - 0.2%
- -----------------------------------------------------------------------------------------------
Corporacion Nacional del Cobre de Chile, 6.375%, 2012
(Metals & Mining)## $2,308 $2,465,537
- -----------------------------------------------------------------------------------------------
Denmark - 0.3%
- -----------------------------------------------------------------------------------------------
Kingdom of Denmark, 6%, 2009 (International Market
Sovereign) DKK 26,148 $4,680,994
- -----------------------------------------------------------------------------------------------
Finland - 0.3%
- -----------------------------------------------------------------------------------------------
Republic of Finland, 5.375%, 2013 (International Market
Sovereign) EUR 3,539 $4,628,185
- -----------------------------------------------------------------------------------------------
France - 0.4%
- -----------------------------------------------------------------------------------------------
Crown European Holdings S.A., 9.5%, 2011 (Containers) $4,995 $5,600,644
- -----------------------------------------------------------------------------------------------
Germany - 1.7%
- -----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.5%, 2010
(Telecommunications - Wireline) $8,439 $9,971,320
- -----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.75%, 2030
(Telecommunications - Wireline) 7,624 9,469,648
- -----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 9.4%, 2004
(International Market Agencies) 5,127 5,147,323
- -----------------------------------------------------------------------------------------------
$24,588,291
- -----------------------------------------------------------------------------------------------
Ireland - 0.3%
- -----------------------------------------------------------------------------------------------
Republic of Ireland, 5%, 2013 (International Market
Sovereign) EUR 3,615 $4,607,752
- -----------------------------------------------------------------------------------------------
Italy - 0.3%
- -----------------------------------------------------------------------------------------------
Telecom Italia S.p.A, 5.625%, 2007 (Telecommunications -
Wireline) EUR 3,282 $4,157,003
- -----------------------------------------------------------------------------------------------
Japan - 0.4%
- -----------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 5.79%, 2014 (Banks &
Credit Companies)## $5,310 $5,265,502
- -----------------------------------------------------------------------------------------------
Kazakhstan - 0.2%
- -----------------------------------------------------------------------------------------------
Turanalem Finance B.V., 8%, 2014 (Banks & Credit
Companies)## $3,142 $2,859,220
- -----------------------------------------------------------------------------------------------
Luxembourg - 0.6%
- -----------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.25%, 2013 (Telecommunications -
Wireline)## $8,377 $8,259,102
- -----------------------------------------------------------------------------------------------
Malaysia - 0.2%
- -----------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 7.875%, 2022 (Emerging Market
Agencies)## $2,800 $3,138,252
- -----------------------------------------------------------------------------------------------
Mexico - 1.9%
- -----------------------------------------------------------------------------------------------
BBVA Bancomer Capital Trust I, 10.5%, 2011 (Banks &
Credit Companies)## $6,664 $7,430,360
- -----------------------------------------------------------------------------------------------
Banco Mercantil S.A., 5.875%, 2014 (Banks & Credit
Companies)## 4,158 4,054,050
- -----------------------------------------------------------------------------------------------
Pemex Finance Ltd., 9.69%, 2009 (Emerging Market
Agencies) 3,502 4,097,340
- -----------------------------------------------------------------------------------------------
Pemex Finance Ltd., 10.61%, 2017 (Emerging Market
Agencies) 1,500 1,950,420
- -----------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625%, 2022
(Emerging Market Agencies) 1,783 1,907,810
- -----------------------------------------------------------------------------------------------
United Mexican States, 8%, 2022 (Emerging Market
Sovereign) 160 168,800
- -----------------------------------------------------------------------------------------------
United Mexican States, 7.5%, 2033 (Emerging Market
Sovereign) 9,371 9,277,290
- -----------------------------------------------------------------------------------------------
$28,886,070
- -----------------------------------------------------------------------------------------------
Netherlands - 0.3%
- -----------------------------------------------------------------------------------------------
Telefonica (Europe) B.V., 8.25%, 2030
(Telecommunications - Wireline) $4,130 $5,070,686
- -----------------------------------------------------------------------------------------------
Panama - 0.3%
- -----------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2029 (Emerging Market
Sovereign) $4,400 $4,840,000
- -----------------------------------------------------------------------------------------------
Russia - 0.7%
- -----------------------------------------------------------------------------------------------
Gaz Capital S.A., 8.625%, 2034 (Utilities - Gas)## $1,550 $1,503,500
- -----------------------------------------------------------------------------------------------
Gazprom, 9.625%, 2013 (Utilities - Gas)## 1,640 1,693,300
- -----------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 9.75%, 2008 (Wireless
Communications)## 3,758 3,898,925
- -----------------------------------------------------------------------------------------------
Russian Federation, 3%, 2011 (Emerging Market Sovereign) 1,260 967,050
- -----------------------------------------------------------------------------------------------
Salomon Brothers (SIBNEFT), 10.75%, 2009 (Energy -
Integrated) 2,122 2,247,198
- -----------------------------------------------------------------------------------------------
$10,309,973
- -----------------------------------------------------------------------------------------------
South Korea - 0.6%
- -----------------------------------------------------------------------------------------------
Export-Import Bank of Korea, 5.25%, 2014 (Emerging
Market Agencies)## $4,369 $4,257,590
- -----------------------------------------------------------------------------------------------
Woori Bank, 5.75%, 2014 (Banks & Credit Companies)## 4,280 4,301,400
- -----------------------------------------------------------------------------------------------
$8,558,990
- -----------------------------------------------------------------------------------------------
United Kingdom - 2.8%
- -----------------------------------------------------------------------------------------------
Barclays Bank PLC, 8.55%, 2049 (Banks & Credit
Companies)## $10,798 $13,053,238
- -----------------------------------------------------------------------------------------------
British Sky Broadcasting Group PLC, 8.2%, 2009
(Advertising & Broadcasting) 8,277 9,653,995
- -----------------------------------------------------------------------------------------------
Holmes Financing PLC, 1.8344%, 2040 (Asset Backed &
Securitized) 771 771,000
- -----------------------------------------------------------------------------------------------
Orange PLC, 9%, 2009 (Wireless Communications) 10,333 10,851,903
- -----------------------------------------------------------------------------------------------
SABMiller PLC, 6.625%, 2033 (Alcoholic Beverages)## 6,785 7,067,907
- -----------------------------------------------------------------------------------------------
$41,398,043
- -----------------------------------------------------------------------------------------------
Total Foreign Bonds $201,425,348
- -----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,424,602,429) $1,468,848,788
- -----------------------------------------------------------------------------------------------
Repurchase Agreements - 0.8%
- -----------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/04, due 5/03/04, total to be
received $11,963,037 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $11,962 $11,962,000
- -----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,436,564,429) $1,480,810,788
- -----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.1)% (1,790,053)
- -----------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,479,020,735
- -----------------------------------------------------------------------------------------------
^^ Interest only security.
## SEC Rule 144A restriction.
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.
DKK = Danish Krone EUR = Euro
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $1,436,564,429) $1,480,810,788
- --------------------------------------------------------------------------------------------------
Cash 49,344
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,694,658
- --------------------------------------------------------------------------------------------------
Receivable from investment adviser 11,823
- --------------------------------------------------------------------------------------------------
Interest receivable 23,207,824
- --------------------------------------------------------------------------------------------------
Total assets $1,505,774,437
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $6,405,584
- --------------------------------------------------------------------------------------------------
Payable for daily variation margin on open futures
contracts 59,515
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 4,319,000
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 15,351,659
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 12,206
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 219,489
- --------------------------------------------------------------------------------------------------
Distribution and service fee 20,891
- --------------------------------------------------------------------------------------------------
Administrative fee 712
- --------------------------------------------------------------------------------------------------
Program manager fee 4
- --------------------------------------------------------------------------------------------------
Administrative service fee 2
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 364,640
- --------------------------------------------------------------------------------------------------
Total liabilities $26,753,702
- --------------------------------------------------------------------------------------------------
Net assets $1,479,020,735
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,505,712,610
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 44,784,235
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (65,887,874)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (5,588,236)
- --------------------------------------------------------------------------------------------------
Net assets $1,479,020,735
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 114,559,752
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
- --------------------------------------------------------------------------------------------------
Class A shares
Net assets $956,959,705
- --------------------------------------------------------------------------------------------------
Shares outstanding 74,042,141
- --------------------------------------------------------------------------------------------------
Net asset value per share $12.92
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$12.92) $13.56
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $376,846,943
- --------------------------------------------------------------------------------------------------
Shares outstanding 29,252,340
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.88
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $91,337,693
- --------------------------------------------------------------------------------------------------
Shares outstanding 7,097,644
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.87
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $41,612,517
- --------------------------------------------------------------------------------------------------
Shares outstanding 3,218,251
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $12.93
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $11,353,118
- --------------------------------------------------------------------------------------------------
Shares outstanding 878,804
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $12.92
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $256,414
- --------------------------------------------------------------------------------------------------
Shares outstanding 19,845
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $12.92
- --------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $300,332
- --------------------------------------------------------------------------------------------------
Shares outstanding 23,216
- --------------------------------------------------------------------------------------------------
Net asset value per share $12.94
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$12.94) $13.58
- --------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $160,830
- --------------------------------------------------------------------------------------------------
Shares outstanding 12,494
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.87
- --------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $193,183
- --------------------------------------------------------------------------------------------------
Shares outstanding 15,017
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.86
- --------------------------------------------------------------------------------------------------
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, Class C, Class 529A, Class 529B, and
Class 592C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------------------
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 YEAR ENDED 4/30/04
NET INVESTMENT INCOME (LOSS)
Interest income $96,375,727
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $6,345,359
- --------------------------------------------------------------------------------------------------
Trustees' compensation 45,565
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 2,906,845
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 3,170,899
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 4,325,826
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 1,006,203
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 21,912
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 392
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 696
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 1,275
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 1,457
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 497
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 318
- --------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 363
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 196
- --------------------------------------------------------------------------------------------------
Administrative fee 154,377
- --------------------------------------------------------------------------------------------------
Custodian fee 406,793
- --------------------------------------------------------------------------------------------------
Printing 163,801
- --------------------------------------------------------------------------------------------------
Postage 166,895
- --------------------------------------------------------------------------------------------------
Auditing fees 44,256
- --------------------------------------------------------------------------------------------------
Legal fees 3,164
- --------------------------------------------------------------------------------------------------
Miscellaneous 265,675
- --------------------------------------------------------------------------------------------------
Total expenses $19,032,764
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (25,488)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (223,903)
- --------------------------------------------------------------------------------------------------
Net expenses $18,783,373
- --------------------------------------------------------------------------------------------------
Net investment income $77,592,354
- --------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions income $51,284,252
- --------------------------------------------------------------------------------------------------
Futures contracts (727,507)
- --------------------------------------------------------------------------------------------------
Foreign currency transactions 38,529
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $50,595,274
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $(58,135,226)
- --------------------------------------------------------------------------------------------------
Future contracts 541,301
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (16,584)
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments and foreign currency
translation $(57,610,509)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments and foreign
currency $(7,015,235)
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $70,577,119
- --------------------------------------------------------------------------------------------------
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.
FOR YEAR ENDED 4/30 2004 2003
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $77,592,354 $86,818,227
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 50,595,274 (2,572,516)
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation (57,610,509) 111,701,187
- ------------------------------------------------------- -------------- -------------
Increase in net assets from operations $70,577,119 $195,946,898
- ------------------------------------------------------- -------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- ---------------------------------------------------------------------------------------------------
Class A $(57,254,315) $(63,802,266)
- ---------------------------------------------------------------------------------------------------
Class B (20,406,079) (23,772,406)
- ---------------------------------------------------------------------------------------------------
Class C (4,746,881) (5,933,652)
- ---------------------------------------------------------------------------------------------------
Class I (2,615,309) (1,796,795)
- ---------------------------------------------------------------------------------------------------
Class R1 (230,038) (3,680)
- ---------------------------------------------------------------------------------------------------
Class R2 (3,891) --
- ---------------------------------------------------------------------------------------------------
Class 529A (10,208) (1,650)
- ---------------------------------------------------------------------------------------------------
Class 529B (5,706) (1,421)
- ---------------------------------------------------------------------------------------------------
Class 529C (6,514) (1,531)
- ------------------------------------------------------- -------------- -------------
Total distributions declared to shareholders $(85,278,941) $(95,313,401)
- ------------------------------------------------------- -------------- -------------
Net increase (decrease) in net assets from fund share
transactions $(261,171,626) $152,140,128
- ------------------------------------------------------- -------------- -------------
Total increase (decrease) in net assets $(275,873,448) $252,773,625
- ------------------------------------------------------- -------------- -------------
NET ASSETS
At beginning of period $1,754,894,183 $1,502,120,558
- ---------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions
in excess of net investment income of $5,588,236 and
$7,724,745, respectively) $1,479,020,735 $1,754,894,183
- ---------------------------------------------------------------------------------------------------
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 past 5 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) held for the entire period. This information has been audited by the fund's independent
auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEAR ENDED 4/30
CLASS A 2004 2003 2002 2001 2000
Net asset value, beginning of period $13.03 $12.27 $12.34 $12.02 $13.08
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income $0.65 $0.70 $0.76 $0.85 $0.87
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency (0.05) 0.82 0.01 0.34 (1.07)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.60 $1.52 $0.77 $1.19 $(0.20)
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.71) $(0.76) $(0.76) $(0.87) $(0.86)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.08) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.71) $(0.76) $(0.84) $(0.87) $(0.86)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $12.92 $13.03 $12.27 $12.34 $12.02
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%)(+) 4.67 12.84 6.39 10.22 (1.51)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.93 0.92 0.94 0.93 0.92
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.95 5.59 6.09 7.01 6.97
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112 206 289 290
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $956,960 $1,116,853 $975,849 $853,273 $738,936
- -------------------------------------------------------------------------------------------------------------------------------
(S) 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 $0.64 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.94+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.94+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
(+) 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.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(S)(S) As required, effective May 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 April
30, 2002 was to decrease net investment income per share by $0.01, increase net realized gains and losses per share by
$0.01, and decrease the ratio of net investment income to average net assets by 0.12%. Per share, ratios, and
supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEAR ENDED 4/30
CLASS B 2004 2003 2002 2001 2000
Net asset value, beginning of period $12.99 $12.23 $12.30 $11.98 $13.04
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income $0.55 $0.61 $0.67 $0.76 $0.78
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency (0.04) 0.82 0.01 0.34 (1.07)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.51 $1.43 $0.68 $1.10 $(0.29)
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.62) $(0.67) $(0.68) $(0.78) $(0.77)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.62) $(0.67) $(0.75) $(0.78) $(0.77)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $12.88 $12.99 $12.23 $12.30 $11.98
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 3.94 12.09 5.62 9.49 (2.21)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.63 1.62 1.64 1.63 1.62
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.25 4.89 5.40 6.31 6.27
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112 206 289 290
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $376,847 $474,882 $401,988 $335,629 $278,030
- -------------------------------------------------------------------------------------------------------------------------------
(S) 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 $0.55 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.64+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.24+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(S)(S) As required, effective May 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 April
30, 2002 was to decrease net investment income per share by $0.01, increase net realized gains and losses per share by
$0.01, and decrease the ratio of net investment income to average net assets by 0.12%. Per share, ratios, and
supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEAR ENDED 4/30
CLASS C 2004 2003 2002 2001 2000
Net asset value, beginning of period $12.97 $12.22 $12.29 $11.97 $13.03
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income $0.55 $0.61 $0.67 $0.76 $0.78
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency (0.04) 0.81 0.01 0.34 (1.07)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.51 $1.42 $0.68 $1.10 $(0.29)
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.61) $(0.67) $(0.68) $(0.78) $(0.77)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.07) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.61) $(0.67) $(0.75) $(0.78) $(0.77)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $12.87 $12.97 $12.22 $12.29 $11.97
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 4.02 12.02 5.71 9.42 (2.21)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.63 1.62 1.64 1.63 1.62
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.25 4.91 5.40 6.31 6.27
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112 206 289 290
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $91,338 $108,718 $107,212 $100,334 $77,687
- -------------------------------------------------------------------------------------------------------------------------------
(S) 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 $0.55 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.64+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.24+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(S)(S) As required, effective May 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 April
30, 2002 was to decrease net investment income per share by $0.01, increase net realized gains and losses per share by
$0.01, and decrease the ratio of net investment income to average net assets by 0.12%. Per share, ratios, and
supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEAR ENDED 4/30
CLASS I 2004 2003 2002 2001 2000
Net asset value, beginning of period $13.03 $12.27 $12.35 $12.03 $13.09
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income $0.69 $0.67 $0.79 $0.90 $0.91
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency (0.04) 0.89 0.01 0.32 (1.08)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.65 $1.56 $0.80 $1.22 $(0.17)
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.75) $(0.80) $(0.80) $(0.90) $(0.89)
- -------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.08) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to
shareholders $(0.75) $(0.80) $(0.88) $(0.90) $(0.89)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $12.93 $13.03 $12.27 $12.35 $12.03
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 5.06 13.17 6.64 10.55 (1.21)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.63 0.62 0.64 0.63 0.62
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.25 5.73 6.39 7.30 7.26
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112 206 289 290
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $41,613 $53,249 $17,071 $14,459 $6,873
- -------------------------------------------------------------------------------------------------------------------------------
(S) 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 $0.69 $ -- $ -- $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.64+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.24+ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(S)(S) As required, effective May 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 April
30, 2002 was to decrease net investment income per share by $0.01, increase net realized gains and losses per share by
$0.01, and decrease the ratio of net investment income to average net assets by 0.12%. Per share, ratios, and
supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS R1 4/30/04 4/30/03*
Net asset value, beginning of period $13.03 $12.65
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.64 $0.11
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency transactions (0.07) 0.51+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.57 $0.62
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.68) $(0.24)
- ---------------------------------------------------------------- ------- -------
Net asset value, end of period $12.92 $13.03
- ---------------------------------------------------------------- ------- -------
Total return (%) 4.46 4.77++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.12 1.12+
- ------------------------------------------------------------------------------------------------------
Net investment income 5.04 2.95+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $11,353 $872
- ------------------------------------------------------------------------------------------------------
(S) 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 $0.64 $ --
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.13+ --
- ------------------------------------------------------------------------------------------------------
Net investment income 5.03+ --
- ------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through April 30, 2003.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
4/30/04*
CLASS R2
Net asset value, beginning of period $12.98
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.31
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency transactions (0.05)
- ----------------------------------------------------------------------------
Total from investment operations $0.26
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.32)
- ----------------------------------------------------------------------------
Net asset value, end of period $12.92
- ----------------------------------------------------------------------------
Total return (%) 2.01++
- ------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.35+
- ------------------------------------------------------------------------------
Net investment income 4.84+
- ------------------------------------------------------------------------------
Portfolio turnover 73
- ------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $256
- ------------------------------------------------------------------------------
(S) 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 $0.31
- ------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.37+
- ------------------------------------------------------------------------------
Net investment income 4.83+
- ------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through April 30, 2004.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset
arrangements.
+ Annualized.
++ Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529A 4/30/04 4/30/03*
Net asset value, beginning of period $13.04 $12.14
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.61 $0.39
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency (0.04) 1.05+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.57 $1.44
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.67) $(0.54)
- ---------------------------------------------------------------- ------- -------
Net asset value, end of period $12.94 $13.04
- ---------------------------------------------------------------- ------- -------
Total return (%)(+) 4.44 12.94++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.22 1.22+
- ------------------------------------------------------------------------------------------------------
Net investment income 4.75 4.68+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $300 $140
- ------------------------------------------------------------------------------------------------------
(S) 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 $0.61 $ --
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.23+ --
- ------------------------------------------------------------------------------------------------------
Net investment income 4.74+ --
- ------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through April 30, 2003.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of the fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) 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
YEAR ENDED PERIOD ENDED
CLASS 529B 4/30/04 4/30/03*
Net asset value, beginning of period $12.98 $12.10
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.53 $0.39
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency (0.06) 0.97+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.47 $1.36
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.58) $(0.48)
- ---------------------------------------------------------------- ------- -------
Net asset value, end of period $12.87 $12.98
- ---------------------------------------------------------------- ------- -------
Total return (%) 3.68 12.26++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.88 1.87+
- ------------------------------------------------------------------------------------------------------
Net investment income 4.06 4.30+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $161 $81
- ------------------------------------------------------------------------------------------------------
(S) 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 $0.53 $ --
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.89+ --
- ------------------------------------------------------------------------------------------------------
Net investment income 4.05+ --
- ------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through April 30, 2003.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of the fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS 529C 4/30/04 4/30/03*
Net asset value, beginning of period $12.97 $12.09
- ------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income $0.52 $0.36
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments
and foreign currency (0.05) 1.00+++
- ---------------------------------------------------------------- ------- -------
Total from investment operations $0.47 $1.36
- ---------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.58) $(0.48)
- ---------------------------------------------------------------- ------- -------
Net asset value, end of period $12.86 $12.97
- ---------------------------------------------------------------- ------- -------
Total return (%) 3.68 12.27++
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.88 1.87+
- ------------------------------------------------------------------------------------------------------
Net investment income 4.07 4.26+
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 73 112
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $193 $100
- ------------------------------------------------------------------------------------------------------
(S) 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 $0.52 $ --
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.89+ --
- ------------------------------------------------------------------------------------------------------
Net investment income 4.06+ --
- ------------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through April 30, 2003.
+ Annualized.
++ Not annualized.
+++ The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of the fund shares and the amount of per share realized and
unrealized gains and losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Bond Fund (the fund) is a diversified series of MFS Series Trust IX (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 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Futures contracts are valued at the
settlement price as reported by an independent pricing service on the primary
exchange on which they are traded. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes market value as determined by the Board of
Trustees. 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.
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 - 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.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, 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.
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.
Investments in equity index contracts or contracts on related options for
purposes other than hedging, may be made when the fund has cash on hand and
wishes to participate in anticipated market appreciation while the cash is
being invested. Should securities prices move unexpectedly, the fund may not
achieve the anticipated benefits of the futures contracts and may realize a
loss.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
INDEXED SECURITIES - The fund may invest in indexed securities whose value may
be linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Indexed securities are fixed-income securities whose
proceeds at maturity (principal-indexed securities) or interest rates
(coupon-indexed securities) rise and fall according to the change in one or
more specified underlying instruments. Indexed securities may be more volatile
than the underlying instrument itself.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with accounting principles generally accepted in the United States
of America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations.
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, for the year ended April 30, 2004, 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, mortgage-backed securities, derivatives,
defaulted bonds, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended April 30, 2004
and April 30, 2003 was as follows:
4/30/04 4/30/03
Distributions declared from:
--------------------------------------------------------------
Ordinary income $85,278,941 $95,313,401
--------------------------------------------------------------
During the year ended April 30, 2004, accumulated distributions in excess of
net investment income decreased by $9,823,096, accumulated net realized loss
on investments and foreign currency transactions increased by $9,348,917, and
paid-in capital decreased by $474,179 due to differences between book and tax
accounting for mortgage-backed securities, currency transactions, market
discount and amortization and accretion on debt securities. This change had no
effect on the net assets or net asset value per share.
At April 30, 2004, accumulated distributions in excess of net investment
income and realized gain/loss on investments and foreign currency transactions
under book accounting were different from tax accounting due to temporary
differences in accounting for currency transactions, defaulted bonds, capital
losses, and amortization and accretion on debt securities.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(53,574,728)
----------------------------------------------------------
Unrealized appreciation 35,063,214
----------------------------------------------------------
Other temporary differences (8,180,361)
----------------------------------------------------------
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 April 30, 2011.
EXPIRATION DATE
April 30, 2008 $(8,664,202)
----------------------------------------------
April 30, 2009 (14,236,036)
----------------------------------------------
April 30, 2010 (4,472,574)
----------------------------------------------
April 30, 2011 (26,201,916)
----------------------------------------------
Total $(53,574,728)
----------------------------------------------
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 $1.1 billion of average net assets 0.39%
------------------------------------------------------
In excess of $1.1 billion 0.38%
------------------------------------------------------
The investment adviser has voluntarily agreed to waive a portion of its fee,
which is shown as a reduction of total expenses in the Statement of Operations.
Management fees incurred for the year ended April 30, 2004 were 0.37% of
average daily net assets on an annualized basis.
As part of the settlement agreement with the New York Attorney General
concerning market timing and related matters, MFS has agreed to reduce the
fund's management fee to 0.30% of average daily net assets for the period March
1, 2004 through February 28, 2009. During this time period, the Board of
Trustees will continue to review the appropriateness of all advisory fees in
accordance with their oversight responsibilities. After February 28, 2009 the
management fee will be determined in accordance with then existing review
policies approved by the Board of Trustees overseeing the fund.
The fund pays compensation to its Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons 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 retired Independent Trustees and an unfunded
retirement benefit deferral plan for certain current Independent Trustees.
Included in Trustees' compensation is a net increase of $2,668 as a result of
the change in the fund's unfunded retirement deferral plan for certain current
Independent Trustees and a pension expense of $6,968 for retired Independent
Trustees for the year ended April 30, 2004.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
------------------------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets :
First $2 billion 0.01120%
------------------------------------------------------
Next $2.5 billion 0.00832%
------------------------------------------------------
Next $2.5 billion 0.00032%
------------------------------------------------------
In excess of $7 billion 0.0000%
------------------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $154,377, equivalent to
0.00941% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS for
the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$190,819 and $970 for the year ended April 30, 2004, 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 R1, Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended April
30, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $108,385 $4,076 $4,253 $30 $51
- ----------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $106 $10 $40
- ----------------------------------------------------------------------------------------------------------------
Payment of the 0.05% and 0.15% per annum portion of Class A and Class 529A distribution fees, respectively, that
is not currently being charged will be implemented on such a date as the Trustees of the trust may determine.
Fees incurred under the distribution plan during the year ended April 30,
2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage
Rates 0.30% 1.00% 1.00% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual Percentage
Rates 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
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 year ended April 30, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales
Charges Imposed $132,310 $961,523 $14,264 $-- $--
- ------------------------------------------------------------------------------------------------------------------
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 0.35% 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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as
shareholder servicing agent. The fee, which is calculated as a percentage of
the fund's average daily net assets is set periodically under the supervision
of the funds' Trustees. Prior to April 1, 2004, the fee was set at 0.11% of
the fund's average daily net assets. Effective April 1, 2004, the fee is set
at 0.10% of the fund's average daily net assets. For the year ended April 30,
2004, the fund paid MFSC a fee of $1,792,514 for shareholder services which
equated to 0.1092% of the fund's average net assets. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $309,687 for the year ended April 30, 2004, as well as other
expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $447,383,016 $521,561,999
- ------------------------------------------------------------------------------
Investments (non-U.S. government
securities) $719,542,868 $874,124,039
- ------------------------------------------------------------------------------
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 $1,445,744,149
------------------------------------------------------------------
Gross unrealized appreciation $54,842,845
------------------------------------------------------------------
Gross unrealized depreciation (19,776,206)
------------------------------------------------------------------
Net unrealized appreciation $35,066,639
------------------------------------------------------------------
(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:
Year ended 4/30/04 Year ended 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 44,145,264 $579,236,294 53,583,571 $666,471,550
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 3,691,661 48,281,047 4,239,071 52,704,901
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (59,516,284) (777,521,898) (51,653,643) (643,384,521)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (11,679,359) $(150,004,557) 6,168,999 $75,791,930
- ------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 6,413,706 $83,975,447 15,036,570 $186,594,982
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 1,226,723 15,989,524 1,446,005 17,923,585
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (14,956,563) (194,659,053) (12,788,436) (158,630,861)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (7,316,134) $(94,694,082) 3,694,139 $45,887,706
- ------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,671,456 $21,841,715 3,181,711 $39,389,428
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 251,821 3,278,689 318,590 3,942,493
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (3,206,078) (41,722,392) (3,896,016) (48,242,113)
- ------------------------------------------------------------------------------------------------------------
Net decrease (1,282,801) $(16,601,988) (395,715) $(4,910,192)
- ------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 1,334,466 $17,536,860 3,850,486 $48,720,670
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 198,009 2,590,959 122,598 1,535,631
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (2,399,946) (31,269,543) (1,278,326) (16,051,738)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) (867,471) $(11,141,724) 2,694,758 $34,204,563
- ------------------------------------------------------------------------------------------------------------
CLASS R1 SHARES
Shares sold 1,239,494 $16,251,731 98,132 $1,255,845
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 13,132 172,442 30 383
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (440,730) (5,757,623) (31,254) (399,742)
- ------------------------------------------------------------------------------------------------------------
Net increase 811,896 $10,666,550 66,908 $856,486
- ------------------------------------------------------------------------------------------------------------
Year ended 4/30/04*
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 20,192 $265,757
- -------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 215 2,842
- -------------------------------------------------------------------------
Shares reacquired (562) (7,374)
- -------------------------------------------------------------------------
Net increase 19,845 $261,225
- -------------------------------------------------------------------------
Year ended 4/30/04 Year ended 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 12,316 $162,630 10,839 $137,466
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 726 9,514 83 1,059
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (577) (7,640) (171) (2,141)
- ------------------------------------------------------------------------------------------------------------
Net increase 12,465 $164,504 10,751 $136,384
- ------------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 6,963 $91,302 6,161 $76,789
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 414 5,399 87 1,100
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (1,105) (14,568) (26) (328)
- ------------------------------------------------------------------------------------------------------------
Net increase 6,272 $82,133 6,222 $77,561
- ------------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 11,101 $145,864 7,603 $94,769
- ------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 475 6,190 90 1,136
- ------------------------------------------------------------------------------------------------------------
Shares reacquired (4,235) (55,741) (17) (215)
- ------------------------------------------------------------------------------------------------------------
Net increase 7,341 $96,313 7,676 $95,690
- ------------------------------------------------------------------------------------------------------------
* Class R2 which commenced operations on October 31, 2003.
(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 $12,733 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 year.
(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 written options, forward foreign currency exchange
contracts, 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.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
U.S. Treasury Notes 5 Yr. June 2004 293 Short $541,301
- --------------------------------------------------------------------------------
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To The Trustees of MFS Series Trust IX and Shareholders of MFS Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Bond Fund (a portfolio of MFS Series Trust
IX (the Trust)) as of April 30, 2004, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Bond Fund as of April 30, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period the ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
- ---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- ------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- ------------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. Each Trustee and officer holds office until his or her successor is chosen and
qualified or until his or her earlier death, resignation, retirement or removal.
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 109 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 State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741 AUDITORS
Deloitte & Touche LLP
DISTRIBUTOR 200 Berkeley Street, Boston, MA 02116
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
William J. Adams
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
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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
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
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FEDERAL TAX INFORMATION
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
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CONTACT INFORMATION
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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 fund's proxy voting policies and procedures is
available without charge, upon request, by calling 202-547-7071, extension
201, by visiting www.jmr-financial.com/MFS 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 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
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General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
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Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
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Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
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WORLD WIDE WEB
Go to 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MFB-ANN-6/04 109M
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) LIMITED
MATURITY 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) LIMITED MATURITY FUND
The fund seeks as high a level of current income as is believed to be
consistent with prudent investing. It's secondary objective seeks to protect
shareholders' capital.
TABLE OF CONTENTS
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MFS PRIVACY POLICY
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LETTER FROM THE CEO 1
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MFS ORIGINAL RESEARCH(R) 5
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MANAGEMENT REVIEW 6
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PERFORMANCE SUMMARY 9
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PORTFOLIO OF INVESTMENTS 13
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FINANCIAL STATEMENTS 27
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NOTES TO FINANCIAL STATEMENTS 42
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 55
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TRUSTEES AND OFFICERS 56
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 60
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FEDERAL TAX INFORMATION 61
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CONTACT INFORMATION 62
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ASSET ALLOCATION 63
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging environment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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 MFS(R) DIFFERENCE
For 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
Over the one-year period ended April 30, 2004, 5-year U.S. Treasury bond yields
rose more than 80 basis points (a basis point is 0.01% of yield). The path
upward, however, was marked by significant volatility in the overall bond
market.
In early 2003 and into the first half of the period, we saw a confluence of
factors that were positive for bond prices and caused rates to decline.
Geopolitical uncertainty and a weak U.S. economy were among the factors that
pushed interest rates down to four-decade lows by June of 2003.
In late June, however, the bond market reversed direction as fixed-income
investors became concerned that the economic recovery was accelerating faster
than expected. Over the summer of 2003 and into early September, bond prices
declined as rates rose sharply.
In the fall and winter of 2003, however, bond prices revived as several factors
combined to drive rates down again. Economic reports indicated that inflation
was well contained while job growth remained weak. Although most other measures
indicated the U.S. economy was improving, we believe investors were concerned
that consumer spending might falter because laid-off workers were not finding
new jobs. The Federal Reserve Board (the Fed) appeared to sum up the situation
in its statements that interest rates could remain low for the foreseeable
future.
As the period came to a close in March and April of 2004, bonds reversed
direction again. Long-term rates climbed sharply as the United States finally
began to experience strong job growth, and the market began to anticipate that
a Fed rate increase was imminent. Just after the period ended, the Fed's press
release after its May 4 meeting contained the first indication in several years
that the federal funds rate was indeed going up: "At this juncture, ... the
[Federal Open Market] Committee believes that policy accommodation can be
removed at a pace that is likely to be measured."
The accelerating U.S. recovery over the period was generally positive for
corporate bonds. Growth in GDP (gross domestic product), business profits, and
other measures pointed toward improving corporate fundamentals - business
factors such as earnings and cash flow growth.
In response, we believe investors moved away from the risk aversion or "flight
to quality" that had characterized the bond market in late 2002 and early 2003.
Riskier, lower-rated bonds showed the best performance over the period. With
Treasury yields at four-decade lows, investors sought out higher-yielding
corporate and other debt. This caused spreads - the differences between
corporate yields and Treasury yields - to tighten (decrease) over the period.
High-grade corporate debt outperformed Treasuries. Within categories, lower-
rated bonds generally outperformed higher-rated issues. While bonds across most
asset classes were hurt by rising rates in the final months of the period,
lower-rated debt was less affected than higher-rated issues and Treasuries.
(The principal value and interest on Treasury securities, however, are
guaranteed by the U.S. government if held to maturity.)
DETRACTORS FROM PERFORMANCE
Mortgage-backed securities were a slight detractor because of pre-payments. As
mortgage rates fell for much of the period, prepayments - from homeowners
refinancing their mortgages at lower rates - increased. (Prepayments are bad
for holders of existing bonds because the proceeds from prepayments will be
reinvested at lower prevailing rates.)
CONTRIBUTORS TO PERFORMANCE
Our overweighting in corporate bonds contributed to fund performance because of
corporate bonds' yield advantage over similar maturity U.S. Treasury bonds and
because spreads tightened during the period. Our large weightings in banks and
finance companies, which performed well, were particularly helpful.
We also continued to hold the debt of automotive finance companies, which
rebounded during this time period.
Respectfully,
/s/ James J. Calmas
James J. Calmas
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
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PERFORMANCE SUMMARY THROUGH 4/30/04
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The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. Past performance is no guarantee of
future results. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended April 30, 2004.)
Lehman Brothers
MFS Limited Maturity One- to Three-Year
Fund - Class A Government/Credit Index
4/94 $ 9,750 $10,000
4/96 11,119 11,313
4/98 12,471 12,870
4/00 13,354 14,133
4/02 15,441 16,572
4/04 16,562 17,922
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share class inception date 1-yr 3-yr 5-yr 10-yr
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A 02/26/92 1.60% 4.22% 4.96% 5.44%
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B 09/07/93 0.95% 3.47% 4.16% 4.59%
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C 07/01/94 0.73% 3.34% 4.07% 4.53%
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I 01/02/97 1.89% 4.38% 5.13% 5.53%
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R1 12/31/02 1.34% 4.10% 4.89% 5.41%
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R2 10/31/03 0.95% 3.47% 4.16% 4.59%
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529A 07/31/02 1.28% 4.03% 4.85% 5.39%
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529B 07/31/02 0.68% 3.28% 4.05% 4.54%
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529C 07/31/02 0.52% 3.26% 4.03% 4.53%
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Average annual
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Comparative benchmarks
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Average short-term investment-grade
debt fund+ 1.27% 3.82% 4.73% 5.32%
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Lehman Brothers One- to Three-Year
Government/Credit Index# 1.65% 4.85% 5.60% 6.01%
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+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
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Average annual
with sales charge
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Share class
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A -0.94% 3.34% 4.43% 5.17%
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B -2.95% 2.55% 3.83% 4.59%
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C -0.24% 3.34% 4.07% 4.53%
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529A -1.25% 3.16% 4.32% 5.12%
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529B -3.21% 2.36% 3.71% 4.54%
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529C -0.45% 3.26% 4.03% 4.53%
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I, R1 and R2 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 1-yr 3-yr 5-yr 10-yr
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A 1.60% 13.19% 27.38% 69.87%
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B 0.95% 10.76% 22.61% 56.70%
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C 0.73% 10.34% 22.10% 55.71%
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I 1.89% 13.72% 28.40% 71.36%
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R1 1.34% 12.80% 26.95% 69.29%
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R2 0.95% 10.76% 22.61% 56.70%
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529A 1.28% 12.59% 26.71% 68.97%
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529B 0.68% 10.15% 21.93% 55.84%
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529C 0.52% 10.09% 21.86% 55.75%
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INDEX DEFINITION
LEHMAN BROTHERS ONE- TO THREE-YEAR GOVERNMENT/CREDIT INDEX - measures the
performance of the short term (1 to 3 years) government and investment-grade
corporate bond markets.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the reduction of the
maximum 2.50% 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 R1 and R2
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 I, R1 and 529A shares includes the performance of the fund's
Class A shares for periods prior to their offering. Performance for C, R2, 529B
and 529C shares includes the performance of the fund's Class B 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
to which it is blended, and lower performance for share classes with lower
operating expenses than the initial share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
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 - 4/30/04
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The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 98.1%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
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U.S. Bonds - 85.2%
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Advertising & Broadcasting - 0.4%
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Clear Channel Communications Co., 4.625%, 2008 $4,320 $4,406,586
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Aerospace - 0.9%
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Boeing Capital Corp., 5.75%, 2007 $5,130 $5,453,308
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Northrop Grumman Corp., 7%, 2006 3,385 3,645,459
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$9,098,767
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Airlines - 0.2%
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American Airlines, 3.857%, 2012 $1,407 $1,372,376
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Delta Air Lines, Inc., 7.379%, 2010 725 707,656
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$2,080,032
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Alcoholic Beverages - 0.7%
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Miller Brewing Co., 4.25%, 2008## $6,550 $6,572,532
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Asset Backed & Securitized - 20.8%
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AmeriCredit Automobile Receivables Trust, 5.37%, 2008 $2,399 $2,462,352
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Ameriquest Mortgage Securities, Inc., 3.02%, 2033 875 867,646
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Ameriquest Mortgage Securities, Inc., 3.027%, 2033 5,000 5,015,077
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Argent Securities, Inc., 2.8%, 2033 4,270 4,272,210
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Brazilian Diversified Payment Rights, 1.78%, 2008## 3,000 3,000,000
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Capital One Auto Finance Trust, 4.79%, 2009 4,017 4,142,384
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Capital One Auto Finance Trust, 2.47%, 2010 4,500 4,423,628
- -----------------------------------------------------------------------------------------------
Caterpillar Financial Asset Trust, 3.15%, 2008 4,091 4,128,174
- -----------------------------------------------------------------------------------------------
Certificates Funding Corp., 6.716%, 2004## 3,032 3,038,021
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Chase Commercial Mortgage Securities Corp., 7.37%, 2029 2,053 2,216,911
- -----------------------------------------------------------------------------------------------
Circuit City Credit Card Master Trust, 1.53%, 2011 2,530 2,543,836
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Citibank Credit Card Issuance Trust, 6.65%, 2008 3,375 3,607,991
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CNH Equipment Trust, 4.3%, 2008 720 727,059
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CNH Equipment Trust, 1.35%, 2016 2,601 2,604,104
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Commercial Mortgage Acceptance Corp., 5.8%, 2006 258 264,118
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Commercial Mortgage Asset Trust, 1.1471%, 2032## 35,021 1,926,844
- -----------------------------------------------------------------------------------------------
Continental Airlines Co., 1.57%, 2011 2,069 2,080,398
- -----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 2.89%, 2009 1,807 1,805,080
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CPS Auto Receivables Trust, 3.5%, 2009## 743 748,292
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CPS Auto Receivables Trust, 3.52%, 2009## 469 472,375
- -----------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.78%, 2040 2,240 2,418,803
- -----------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, 4.21%, 2005 84 83,746
- -----------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 4,840 5,206,173
- -----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 0.9064%, 2005^^ 28,200 225,281
- -----------------------------------------------------------------------------------------------
Drive Auto Receivables Trust, 2.77%, 2008## 3,149 3,105,701
- -----------------------------------------------------------------------------------------------
Drivetime Auto Owner Trust, 1.918%, 2008## 4,780 4,745,202
- -----------------------------------------------------------------------------------------------
First Auto Receivables Group Trust, 2.436%, 2007## 3,950 3,958,641
- -----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
6.65%, 2029 2,343 2,538,283
- -----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
7.38%, 2029 3,860 4,203,859
- -----------------------------------------------------------------------------------------------
Fleet Credit Card Master Trust, 1.32%, 2007 1,305 1,306,336
- -----------------------------------------------------------------------------------------------
Fortress CBO Investments I, Ltd., 1.9%, 2038 3,555 3,554,445
- -----------------------------------------------------------------------------------------------
Freddie Mac, 3.108%, 2035 3,588 3,589,944
- -----------------------------------------------------------------------------------------------
Goldman Sachs Mortgage Securities Corp., 6.06%, 2030 1,199 1,239,110
- -----------------------------------------------------------------------------------------------
Household Automotive Trust, 3.44%, 2009 4,400 4,440,266
- -----------------------------------------------------------------------------------------------
Household Home Equity Loan Trust, 1.55%, 2012 1,769 1,773,535
- -----------------------------------------------------------------------------------------------
Household Private Label Credit Card, 1.55%, 2008 3,250 3,247,278
- -----------------------------------------------------------------------------------------------
Hyundai Auto Receivables Trust, 2.8%, 2007## 6,900 6,952,949
- -----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.9%, 2006 2,168 2,185,684
- -----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 2.33%, 2007 2,355 2,365,797
- -----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.27%, 2011 500 503,707
- -----------------------------------------------------------------------------------------------
IMPAC CMB Trust, 1.42%, 2033 4,521 4,534,058
- -----------------------------------------------------------------------------------------------
Interstar Millennium Trust, 1.3113%, 2036 3,745 3,742,952
- -----------------------------------------------------------------------------------------------
J.P. Morgan Commercial Mortgage Finance Corp., 6.533%, 2030 1,139 1,188,372
- -----------------------------------------------------------------------------------------------
J.P. Morgan Commercial Mortgage Finance Corp., 6.613%, 2030 4,785 5,207,943
- -----------------------------------------------------------------------------------------------
J.P. Morgan Commercial Mortgage Finance Corp., 7.325%, 2031 990 1,043,777
- -----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust,
6.48%, 2008 3,600 3,917,324
- -----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust,
0.7613%, 2035^^ 79,049 1,984,530
- -----------------------------------------------------------------------------------------------
Long Beach Auto Receivables Trust, 2.841%, 2010 3,367 3,374,365
- -----------------------------------------------------------------------------------------------
Medallion Trust, 1.37%, 2031 538 538,403
- -----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 5.65%, 2030 712 724,512
- -----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 6.39%, 2030 3,615 3,877,849
- -----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 7.0426%, 2030 2,180 2,351,475
- -----------------------------------------------------------------------------------------------
MFN Auto Receivables Trust, 5.07%, 2007## 143 142,744
- -----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.01%, 2030 467 487,986
- -----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.48%, 2030 2,000 2,178,047
- -----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 1.1837%, 2031^^ 38,795 1,490,961
- -----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 1.074%, 2031^^ 36,122 1,057,871
- -----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.337%, 2031 4,885 5,301,253
- -----------------------------------------------------------------------------------------------
Nationslink Funding Corp., 0.8773%, 2023^^ 39,966 1,005,535
- -----------------------------------------------------------------------------------------------
Nationslink Funding Corp., 6.476%, 2030 2,350 2,571,208
- -----------------------------------------------------------------------------------------------
PSEG Transition Funding LLC, 5.74%, 2007 1,284 1,312,515
- -----------------------------------------------------------------------------------------------
Providian Gateway Master Trust, 1.4%, 2010## 4,250 4,263,281
- -----------------------------------------------------------------------------------------------
Providian Home Equity Loan Trust, 1.39%, 2025 145 144,927
- -----------------------------------------------------------------------------------------------
Putnam Structured Product Funding, 1.55%, 2008## 4,210 4,210,169
- -----------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.18%, 2027 4,600 4,617,349
- -----------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.49%, 2029 1,800 1,818,764
- -----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 1.695%, 2009 392 395,282
- -----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.25%, 2032## 4,000 4,005,600
- -----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 3.39%, 2033 4,270 4,223,297
- -----------------------------------------------------------------------------------------------
TIAA Real Estate CDO, Ltd., 7.17%, 2032## 3,795 4,084,793
- -----------------------------------------------------------------------------------------------
Thornburg Mortgage Securities Trust, 1.44%, 2033 4,113 4,111,837
- -----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 2.48%, 2008 670 669,698
- -----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 1.46%, 2009 2,450 2,453,004
- -----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 3.24%, 2009 4,494 4,547,851
- -----------------------------------------------------------------------------------------------
Vanderbilt Mortgage & Finance, Inc., 5.17%, 2014 607 610,565
- -----------------------------------------------------------------------------------------------
WFS Financial, Inc., 2.39%, 2007 4,910 4,929,547
- -----------------------------------------------------------------------------------------------
Washington Mutual, Inc., 3.112%, 2033 2,869 2,868,816
- -----------------------------------------------------------------------------------------------
Washington Mutual, Inc., 3.177%, 2033 2,750 2,749,923
- -----------------------------------------------------------------------------------------------
Washington Mutual, Inc., 3.567%, 2033 2,029 2,029,437
- -----------------------------------------------------------------------------------------------
$208,759,060
- -----------------------------------------------------------------------------------------------
Automotive - 3.6%
- -----------------------------------------------------------------------------------------------
DaimlerChrysler N.A. Holdings Corp., 7.4%, 2005 $5,300 $5,502,121
- -----------------------------------------------------------------------------------------------
DaimlerChrysler N.A. Holdings Corp., 6.4%, 2006 2,050 2,181,116
- -----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 6.875%, 2006 9,605 10,166,662
- -----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.36%, 2004 3,641 3,674,468
- -----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 4.5%, 2006 2,350 2,400,913
- -----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.125%, 2006 6,200 6,542,953
- -----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.75%, 2006 2,650 2,806,098
- -----------------------------------------------------------------------------------------------
Lear Corp., 7.96%, 2005 2,450 2,578,625
- -----------------------------------------------------------------------------------------------
$35,852,956
- -----------------------------------------------------------------------------------------------
Banks & Credit Companies - 6.0%
- -----------------------------------------------------------------------------------------------
Bayerische Landesbank, 1.14%, 2005 $6,590 $6,593,335
- -----------------------------------------------------------------------------------------------
Bayerische Landesbank, 3.2%, 2009 8,000 7,694,376
- -----------------------------------------------------------------------------------------------
Commercial Credit Co., 7.875%, 2004 3,189 3,229,988
- -----------------------------------------------------------------------------------------------
Commercial Credit Co., 6.25%, 2008 2,500 2,712,493
- -----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 5.875%, 2006 5,425 5,780,245
- -----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 4.625%, 2008 1,250 1,286,751
- -----------------------------------------------------------------------------------------------
Natexis AMBS Co. LLC, 8.44%, 2049## 4,324 4,986,445
- -----------------------------------------------------------------------------------------------
NationsBank Corp., 6.5%, 2006 600 641,788
- -----------------------------------------------------------------------------------------------
NationsBank Corp., 7.5%, 2006 3,920 4,313,223
- -----------------------------------------------------------------------------------------------
NCNB Texas National, 9.5%, 2004 1,500 1,508,826
- -----------------------------------------------------------------------------------------------
Popular North America, Inc., 6.125%, 2006 4,210 4,505,420
- -----------------------------------------------------------------------------------------------
Popular North America, Inc., 3.875%, 2008 3,000 2,964,870
- -----------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64%, 2049## 7,167 8,038,500
- -----------------------------------------------------------------------------------------------
Wachovia Corp., 6.3%, 2028 2,770 2,983,099
- -----------------------------------------------------------------------------------------------
Wells Fargo Co., 7.8%, 2010 2,573 2,722,731
- -----------------------------------------------------------------------------------------------
$59,962,090
- -----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.2%
- -----------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., 8.375%, 2007 $4,818 $5,461,902
- -----------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.5%, 2004 4,933 5,012,125
- -----------------------------------------------------------------------------------------------
Cox Communications, Inc., 3.875%, 2008 1,500 1,472,255
- -----------------------------------------------------------------------------------------------
$11,946,282
- -----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.1%
- -----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 7.625%, 2005 $4,035 $4,302,726
- -----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 11.625%, 2005 3,420 3,740,156
- -----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 4%, 2008 2,425 2,447,936
- -----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 2.47%, 2006 2,920 2,925,913
- -----------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 5.8%, 2007 5,385 5,752,063
- -----------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc., 5.875%, 2006 1,300 1,384,364
- -----------------------------------------------------------------------------------------------
$20,553,158
- -----------------------------------------------------------------------------------------------
Building - 0.4%
- -----------------------------------------------------------------------------------------------
Masco Corp., 6.75%, 2006 $3,475 $3,726,604
- -----------------------------------------------------------------------------------------------
Chemicals - 0.9%
- -----------------------------------------------------------------------------------------------
Chevron Phillips Chemical Co. LLC, 5.375%, 2007 $4,605 $4,846,210
- -----------------------------------------------------------------------------------------------
Dow Chemical Co., 5.25%, 2004 2,250 2,252,133
- -----------------------------------------------------------------------------------------------
Dow Chemical Co., 5%, 2007 1,660 1,731,128
- -----------------------------------------------------------------------------------------------
$8,829,471
- -----------------------------------------------------------------------------------------------
Conglomerates - 1.5%
- -----------------------------------------------------------------------------------------------
General Electric Capital Corp., 5%, 2007 $8,239 $8,639,234
- -----------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.5%, 2008 3,125 3,097,319
- -----------------------------------------------------------------------------------------------
Tyco International Group S.A., 5.8%, 2006 3,321 3,484,154
- -----------------------------------------------------------------------------------------------
$15,220,707
- -----------------------------------------------------------------------------------------------
Consumer Cyclical - 0.4%
- -----------------------------------------------------------------------------------------------
Cendant Corp., 6.875%, 2006 $2,700 $2,925,682
- -----------------------------------------------------------------------------------------------
Cendant Corp., 6.25%, 2008 750 810,041
- -----------------------------------------------------------------------------------------------
$3,735,723
- -----------------------------------------------------------------------------------------------
Containers - 0.3%
- -----------------------------------------------------------------------------------------------
Tenneco Packaging Corp., 7.2%, 2005 $2,640 $2,835,146
- -----------------------------------------------------------------------------------------------
Energy - Independent - 0.4%
- -----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.625%, 2005 $2,600 $2,748,860
- -----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 4.375%, 2007 1,155 1,180,016
- -----------------------------------------------------------------------------------------------
$3,928,876
- -----------------------------------------------------------------------------------------------
Energy - Integrated - 0.9%
- -----------------------------------------------------------------------------------------------
Amerada Hess Corp., 5.9%, 2006 $5,250 $5,521,373
- -----------------------------------------------------------------------------------------------
Conoco Funding Co., 5.45%, 2006 3,240 3,446,236
- -----------------------------------------------------------------------------------------------
$8,967,609
- -----------------------------------------------------------------------------------------------
Entertainment - 2.5%
- -----------------------------------------------------------------------------------------------
Liberty Media Corp., 2.61%, 2006 $4,500 $4,578,678
- -----------------------------------------------------------------------------------------------
News America Holdings, Inc., 6.625%, 2008 4,524 4,937,118
- -----------------------------------------------------------------------------------------------
Time Warner, Inc., 7.975%, 2004 3,970 4,039,590
- -----------------------------------------------------------------------------------------------
Time Warner, Inc., 5.625%, 2005 4,945 5,124,449
- -----------------------------------------------------------------------------------------------
Viacom, Inc., 7.75%, 2005 2,560 2,717,473
- -----------------------------------------------------------------------------------------------
Walt Disney Co., 6.75%, 2006 3,880 4,141,597
- -----------------------------------------------------------------------------------------------
$25,538,905
- -----------------------------------------------------------------------------------------------
Financial Institutions - 2.5%
- -----------------------------------------------------------------------------------------------
Capital One Bank, 8.25%, 2005 $1,800 $1,914,235
- -----------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 2,291 2,270,285
- -----------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 6.85%, 2004 1,213 1,220,464
- -----------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 5.5%, 2006 - 2007 3,810 4,010,646
- -----------------------------------------------------------------------------------------------
Household Finance Corp., 8%, 2005 3,700 3,917,878
- -----------------------------------------------------------------------------------------------
Household Finance Corp., 4.625%, 2008 1,580 1,624,893
- -----------------------------------------------------------------------------------------------
Household Finance Corp., 4.125%, 2008 7,700 7,696,704
- -----------------------------------------------------------------------------------------------
SLM Corp., 4%, 2009 2,275 2,260,358
- -----------------------------------------------------------------------------------------------
$24,915,463
- -----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.4%
- -----------------------------------------------------------------------------------------------
General Mills, Inc., 5.125%, 2007 $3,375 $3,541,080
- -----------------------------------------------------------------------------------------------
Kellogg Co., 6%, 2006 2,430 2,579,601
- -----------------------------------------------------------------------------------------------
PepsiAmericas, Inc., 3.875%, 2007 3,750 3,800,355
- -----------------------------------------------------------------------------------------------
Tyson Foods, Inc., 6.625%, 2004 3,211 3,261,859
- -----------------------------------------------------------------------------------------------
Whitman Corp., 6%, 2004 925 925,000
- -----------------------------------------------------------------------------------------------
$14,107,895
- -----------------------------------------------------------------------------------------------
Forest & Paper Products - 0.9%
- -----------------------------------------------------------------------------------------------
Westvaco Corp., 6.85%, 2004 $3,600 $3,686,425
- -----------------------------------------------------------------------------------------------
Weyerhaeuser Co., 5.5%, 2005 5,440 5,605,675
- -----------------------------------------------------------------------------------------------
$9,292,100
- -----------------------------------------------------------------------------------------------
Industrial - 0.3%
- -----------------------------------------------------------------------------------------------
Steelcase, Inc., 6.375%, 2006 $3,090 $3,238,209
- -----------------------------------------------------------------------------------------------
Insurance - 2.1%
- -----------------------------------------------------------------------------------------------
AIG SunAmerica, Inc, 7.6%, 2005## $400 $424,445
- -----------------------------------------------------------------------------------------------
AIG SunAmerica, Inc., 5.85%, 2006## 2,615 2,758,054
- -----------------------------------------------------------------------------------------------
AIG SunAmerica, Inc., 5.1%, 2007## 2,305 2,418,475
- -----------------------------------------------------------------------------------------------
ASIF Global Financing XVIII, 3.85%, 2007## 2,500 2,526,628
- -----------------------------------------------------------------------------------------------
John Hancock Global Funding II, 3.5%, 2009## 4,530 4,418,992
- -----------------------------------------------------------------------------------------------
MetLife, Inc., 3.911%, 2005 2,125 2,162,213
- -----------------------------------------------------------------------------------------------
Prudential Financial, Inc., 3.75%, 2008 2,700 2,683,179
- -----------------------------------------------------------------------------------------------
Prudential Insurance Co., 7.65%, 2007## 3,380 3,778,549
- -----------------------------------------------------------------------------------------------
$21,170,535
- -----------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.0%
- -----------------------------------------------------------------------------------------------
Allstate Corp., 5.375%, 2006 $3,080 $3,267,627
- -----------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc., 4.7%, 2007 1,750 1,811,219
- -----------------------------------------------------------------------------------------------
Safeco Corp., 4.2%, 2008 5,040 5,143,234
- -----------------------------------------------------------------------------------------------
$10,222,080
- -----------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- -----------------------------------------------------------------------------------------------
Ingersoll Rand Co., 6.25%, 2006 $4,225 $4,509,503
- -----------------------------------------------------------------------------------------------
Medical Equipment - 0.4%
- -----------------------------------------------------------------------------------------------
Baxter International, Inc., 5.25%, 2007 $4,100 $4,307,833
- -----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.5%
- -----------------------------------------------------------------------------------------------
HCA Healthcare Co., 7.125%, 2006 $4,565 $4,853,942
- -----------------------------------------------------------------------------------------------
Mortgage Backed - 8.2%
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7.085%, 2006 $1,728 $1,845,344
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7.29%, 2006 694 739,759
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7.355%, 2006 1,513 1,618,322
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6.65%, 2008 2,317 2,390,371
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7%, 2015 697 744,649
- -----------------------------------------------------------------------------------------------
Fannie Mae, 7.5%, 2015 420 450,456
- -----------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2016 - 2050 17,140 17,558,745
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2017 6,521 6,805,124
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2017 2,330 2,468,191
- -----------------------------------------------------------------------------------------------
Fannie Mae, 4.5%, 2018 5,223 5,147,189
- -----------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2018 10,338 10,410,463
- -----------------------------------------------------------------------------------------------
Freddie Mac, 5.5%, 2017 12,677 12,903,579
- -----------------------------------------------------------------------------------------------
Freddie Mac, 6%, 2017 2,095 2,188,418
- -----------------------------------------------------------------------------------------------
Freddie Mac, 5%, 2018 - 2022 12,848 13,175,087
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 8.5%, 2004 - 2009 523 571,573
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 7.5%, 2007 - 2011 1,034 1,111,269
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 7%, 2009 - 2010 9 9,487
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 12.5%, 2011 88 100,306
- -----------------------------------------------------------------------------------------------
Ginnie Mae, 5.204%, 2014 1,352 1,396,151
- -----------------------------------------------------------------------------------------------
$81,634,483
- -----------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.5%
- -----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners, 5.35%, 2007 $4,380 $4,616,178
- -----------------------------------------------------------------------------------------------
Oil Services - 0.4%
- -----------------------------------------------------------------------------------------------
Halliburton Co., 2.65%, 2005 $3,900 $3,945,178
- -----------------------------------------------------------------------------------------------
Oils - 0.3%
- -----------------------------------------------------------------------------------------------
Valero Energy Corp., 6.125%, 2007 $2,365 $2,541,152
- -----------------------------------------------------------------------------------------------
Pharmaceuticals - 0.7%
- -----------------------------------------------------------------------------------------------
Wyeth, 4.375%, 2008 $6,650 $6,712,277
- -----------------------------------------------------------------------------------------------
Pollution Control - 0.4%
- -----------------------------------------------------------------------------------------------
Waste Management, Inc., 7%, 2004 - 2006 $3,800 $3,993,666
- -----------------------------------------------------------------------------------------------
Printing & Publishing - 0.4%
- -----------------------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 6.125%, 2006 $3,713 $3,998,782
- -----------------------------------------------------------------------------------------------
Railroads - 0.1%
- -----------------------------------------------------------------------------------------------
Union Pacific Corp., 5.84%, 2004 $800 $801,850
- -----------------------------------------------------------------------------------------------
Real Estate - 2.1%
- -----------------------------------------------------------------------------------------------
EOP Operating LP, 7.75%, 2007 $3,445 $3,899,606
- -----------------------------------------------------------------------------------------------
EOP Operating LP, 6.8%, 2009 2,298 2,537,835
- -----------------------------------------------------------------------------------------------
Highwoods Properties, Inc., 7.19%, 2004## 1,130 1,133,799
- -----------------------------------------------------------------------------------------------
Kimco Realty Corp., 6.73%, 2005 855 899,736
- -----------------------------------------------------------------------------------------------
Kimco Realty Corp., 7.5%, 2006 2,900 3,217,773
- -----------------------------------------------------------------------------------------------
Rouse Co., 3.625%, 2009 1,535 1,471,058
- -----------------------------------------------------------------------------------------------
Simon Debartolo Group LP, 6.75%, 2004 2,823 2,850,945
- -----------------------------------------------------------------------------------------------
Vornado Realty Trust, 5.625%, 2007 4,800 5,124,552
- -----------------------------------------------------------------------------------------------
$21,135,304
- -----------------------------------------------------------------------------------------------
Restaurants - 0.2%
- -----------------------------------------------------------------------------------------------
Golden Funding Corp., 1.6313%, 2005## $2,500 $2,512,490
- -----------------------------------------------------------------------------------------------
Supermarkets - 0.3%
- -----------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $3,110 $3,503,051
- -----------------------------------------------------------------------------------------------
Supranational - 0.6%
- -----------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 6.75%, 2005 $1,644 $1,706,005
- -----------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 8.875%, 2005 865 922,886
- -----------------------------------------------------------------------------------------------
International Bank for Reconstruction & Development,
4.77%, 2005 3,750 3,844,200
- -----------------------------------------------------------------------------------------------
$6,473,091
- -----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.4%
- -----------------------------------------------------------------------------------------------
Citizens Communications Co., 8.5%, 2006 $3,256 $3,508,470
- -----------------------------------------------------------------------------------------------
Sprint Capital Corp., 6%, 2007 5,625 5,979,234
- -----------------------------------------------------------------------------------------------
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 4,020 4,282,816
- -----------------------------------------------------------------------------------------------
$13,770,520
- -----------------------------------------------------------------------------------------------
Tobacco - 0.3%
- -----------------------------------------------------------------------------------------------
Altria Group, Inc., 5.625%, 2008 $2,850 $2,925,576
- -----------------------------------------------------------------------------------------------
U.S. Government Agencies - 5.8%
- -----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2004 $13,650 $13,859,582
- -----------------------------------------------------------------------------------------------
Federal Home Loan Bank, 2.25%, 2006 13,305 13,239,978
- -----------------------------------------------------------------------------------------------
Freddie Mac, 7%, 2005 8,260 8,764,265
- -----------------------------------------------------------------------------------------------
Freddie Mac, 5.25%, 2006 8,500 8,912,879
- -----------------------------------------------------------------------------------------------
Freddie Mac, 4.875%, 2007 4,100 4,307,997
- -----------------------------------------------------------------------------------------------
SLM Corp., 5.25%, 2006 6,500 6,840,197
- -----------------------------------------------------------------------------------------------
U.S. Department of Veteran Affairs, 6%, 2021 2,479 2,542,361
- -----------------------------------------------------------------------------------------------
$58,467,259
- -----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 1.8%
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2.375%, 2006 $2,750 $2,741,943
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.875%, 2006 4,000 4,357,500
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2.25%, 2007 1,625 1,603,037
- -----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.25%, 2007### 8,900 8,973,701
- -----------------------------------------------------------------------------------------------
$17,676,181
- -----------------------------------------------------------------------------------------------
Utilities - Electric Power - 7.4%
- -----------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 6.35%, 2007 $5,531 $5,943,513
- -----------------------------------------------------------------------------------------------
Dominion Resources, Inc., 2.8%, 2005 4,000 4,028,124
- -----------------------------------------------------------------------------------------------
DTE Energy Co., 6%, 2004 4,507 4,521,247
- -----------------------------------------------------------------------------------------------
DTE Energy Co., 6.45%, 2006 3,250 3,452,657
- -----------------------------------------------------------------------------------------------
Entergy Mississippi, Inc., 6.2%, 2004 1,603 1,603,000
- -----------------------------------------------------------------------------------------------
FirstEnergy Corp., 5.5%, 2006 3,285 3,427,694
- -----------------------------------------------------------------------------------------------
FPL Group Capital, Inc., 3.25%, 2006 4,320 4,366,855
- -----------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 4.625%, 2007 4,140 4,231,535
- -----------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 3.5%, 2008 1,076 1,048,968
- -----------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375%, 2004 5,173 5,253,942
- -----------------------------------------------------------------------------------------------
Nisource Finance Corp., 7.625%, 2005 1,147 1,232,037
- -----------------------------------------------------------------------------------------------
Oncor Electric Delivery Co., 5%, 2007 3,826 4,007,153
- -----------------------------------------------------------------------------------------------
Pacific Gas & Electric Co., 3.6%, 2009 2,585 2,507,491
- -----------------------------------------------------------------------------------------------
Progress Energy, Inc., 6.05%, 2007 4,010 4,271,544
- -----------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 1,283 1,340,735
- -----------------------------------------------------------------------------------------------
PSEG Power LLC, 6.875%, 2006 3,225 3,462,428
- -----------------------------------------------------------------------------------------------
Toledo Edison Co., 7.875%, 2004 2,800 2,839,953
- -----------------------------------------------------------------------------------------------
TXU Energy Co. LLC, 6.125%, 2008 2,641 2,817,012
- -----------------------------------------------------------------------------------------------
Virginia Electric & Power Co., 5.375%, 2007 1,250 1,315,415
- -----------------------------------------------------------------------------------------------
Virginia Electric & Power Co., 4.1%, 2008 4,100 4,046,192
- -----------------------------------------------------------------------------------------------
Wisconsin Energy Corp., 5.875%, 2006 7,694 8,137,174
- -----------------------------------------------------------------------------------------------
$73,854,669
- -----------------------------------------------------------------------------------------------
Utilities - Gas - 0.9%
- -----------------------------------------------------------------------------------------------
Keyspan Corp., 6.15%, 2006 $3,700 $3,946,220
- -----------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 4,569 4,847,810
- -----------------------------------------------------------------------------------------------
$8,794,030
- -----------------------------------------------------------------------------------------------
Wireless Communications - 0.7%
- -----------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.35%, 2006 $2,162 $2,339,431
- -----------------------------------------------------------------------------------------------
Verizon Wireless Capital LLC, 5.375%, 2006 4,462 4,708,374
- -----------------------------------------------------------------------------------------------
$7,047,805
- -----------------------------------------------------------------------------------------------
Total U.S. Bonds $853,035,606
- -----------------------------------------------------------------------------------------------
Foreign Bonds - 12.9%
- -----------------------------------------------------------------------------------------------
Australia - 0.3%
- -----------------------------------------------------------------------------------------------
Superannuation Members Home Loans Global Trust, 1.36%,
2029 (Asset Backed & Securitized) $3,033 $3,033,359
- -----------------------------------------------------------------------------------------------
Austria - 0%
- -----------------------------------------------------------------------------------------------
Oesterreichische Kontrollbank AG, 5.5%, 2006 (Government
Agencies - Other) $220 $231,257
- -----------------------------------------------------------------------------------------------
Brazil - 0.2%
- -----------------------------------------------------------------------------------------------
Brazilian Merchant Voucher Receivables Ltd.,
5.911%, 2011 (Asset Backed & Securitized)## $2,050 $1,978,250
- -----------------------------------------------------------------------------------------------
Canada - 2.5%
- -----------------------------------------------------------------------------------------------
Province of British Columbia, 4.625%, 2006 (Government
Agencies - Other) $1,500 $1,562,400
- -----------------------------------------------------------------------------------------------
Province of Manitoba, 4.25%, 2006 (Government Agencies -
Other) 5,020 5,177,748
- -----------------------------------------------------------------------------------------------
Province of New Brunswick, 3.5%, 2007 (Government
Agencies - Other) 4,820 4,860,107
- -----------------------------------------------------------------------------------------------
Province of Ontario, 7%, 2005 (Government Agencies -
Other) 800 850,586
- -----------------------------------------------------------------------------------------------
Province of Ontario, 6%, 2006 (Government Agencies -
Other) 7,350 7,782,231
- -----------------------------------------------------------------------------------------------
TELUS Corp., 7.5%, 2007 (Telecommunications - Wireline) 4,275 4,724,055
- -----------------------------------------------------------------------------------------------
$24,957,127
- -----------------------------------------------------------------------------------------------
Chile - 0.2%
- -----------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 7.75%, 2008
(Utilities - Electric Power) $2,325 $2,490,210
- -----------------------------------------------------------------------------------------------
El Salvador - 0.3%
- -----------------------------------------------------------------------------------------------
Republic of El Salvador, 9.5%, 2006 (Sovereign) $2,600 $2,873,000
- -----------------------------------------------------------------------------------------------
France - 0.6%
- -----------------------------------------------------------------------------------------------
France Telecom S.A., 8.2%, 2006 (Telecommunications -
Wireline) $5,141 $5,591,583
- -----------------------------------------------------------------------------------------------
Germany - 2.3%
- -----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.25%, 2005
(Telecommunications - Wireline) $4,315 $4,593,166
- -----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 9.4%, 2004 (Government
Agencies - Other) 2,600 2,610,306
- -----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 2.5%, 2005 (Government
Agencies - Other) 7,200 7,253,359
- -----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 4.25%, 2005 (Government
Agencies - Other) 225 230,166
- -----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 4.75%, 2007 (Government
Agencies - Other) 2,000 2,100,572
- -----------------------------------------------------------------------------------------------
Kreditanstalt fur Wiederaufbau, 2.375%, 2006 (Government
Agencies - Other) 4,580 4,560,668
- -----------------------------------------------------------------------------------------------
Landesbank Baden-Wurttemberg, 5.125%, 2007 (Government
Agencies - Other) 1,000 1,048,041
- -----------------------------------------------------------------------------------------------
Landwirtschaftliche Rentenbank, 4.5%, 2006 (Government
Agencies - Other) 1,000 1,038,928
- -----------------------------------------------------------------------------------------------
$23,435,206
- -----------------------------------------------------------------------------------------------
Ireland - 1.1%
- -----------------------------------------------------------------------------------------------
Chalet Finance PLC, 1.36%, 2013 (Asset Backed &
Securitized) $4,800 $4,802,499
- -----------------------------------------------------------------------------------------------
Depfa ACS Bank, 3.625%, 2008 (Banks & Credit Companies) 6,100 6,039,488
- -----------------------------------------------------------------------------------------------
$10,841,987
- -----------------------------------------------------------------------------------------------
Kazakhstan - 0.3%
- -----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks &
Credit Companies)## $2,725 $2,916,183
- -----------------------------------------------------------------------------------------------
Luxembourg - 0.4%
- -----------------------------------------------------------------------------------------------
Telecom Italia Capital, 4%, 2008 (Telecommunications -
Wireline)## $4,100 $4,064,129
- -----------------------------------------------------------------------------------------------
Mexico - 0.3%
- -----------------------------------------------------------------------------------------------
BBVA Bancomer Capital Trust I, 10.5%, 2011 (Banks &
Credit Companies)## $2,443 $2,723,945
- -----------------------------------------------------------------------------------------------
New Zealand - 0.2%
- -----------------------------------------------------------------------------------------------
Government of New Zealand, 10.625%, 2005 (Government
Agencies - Other) $2,146 $2,414,265
- -----------------------------------------------------------------------------------------------
Panama - 0.3%
- -----------------------------------------------------------------------------------------------
Carnival Corp., 3.75%, 2007 (Gaming & Lodging)## $2,600 $2,592,065
- -----------------------------------------------------------------------------------------------
South Korea - 0.2%
- -----------------------------------------------------------------------------------------------
Export Import Bank Korea, 4.125%, 2009 (Government
Agencies - Other)## $2,300 $2,264,511
- -----------------------------------------------------------------------------------------------
Sweden - 0.2%
- -----------------------------------------------------------------------------------------------
Spintab AB, 7.5%, 2049 (Banks & Credit Companies) $1,125 $1,228,512
- -----------------------------------------------------------------------------------------------
Spintab AB, 7.5%, 2049 (Banks & Credit Companies)## 1,150 1,255,813
- -----------------------------------------------------------------------------------------------
$2,484,325
- -----------------------------------------------------------------------------------------------
United Kingdom - 3.5%
- -----------------------------------------------------------------------------------------------
Abbey First National, 8.2%, 2004 (Banks & Credit
Companies) $4,205 $4,330,380
- -----------------------------------------------------------------------------------------------
British Telecom PLC, 7.875%, 2005 (Telecommunications -
Wireline) 2,350 2,543,444
- -----------------------------------------------------------------------------------------------
Cadbury Schweppes PLC, 3.875%, 2008 (Food & Non-
Alcoholic Beverages)## 8,080 7,994,323
- -----------------------------------------------------------------------------------------------
Holmes Financing PLC, 1.33%, 2015 (Asset Backed &
Securitized) 250 250,064
- -----------------------------------------------------------------------------------------------
Holmes Financing PLC, 1.8344%, 2040 (Asset Backed &
Securitized) 2,600 2,600,000
- -----------------------------------------------------------------------------------------------
National Westminster Bancorp, 7.75%, 2049 (Banks &
Credit Companies) 1,110 1,243,831
- -----------------------------------------------------------------------------------------------
Permanent Financing PLC, 4.2%, 2007 (Asset Backed &
Securitized) 5,900 6,058,710
- -----------------------------------------------------------------------------------------------
RMAC, 1.46%, 2035 (Asset Backed & Securitized)## 3,500 3,511,200
- -----------------------------------------------------------------------------------------------
RMAC, 1.3233%, 2036 (Asset Backed & Securitized)## 1,260 1,260,591
- -----------------------------------------------------------------------------------------------
Royal Bank of Scotland, 8.817%, 2049 (Banks & Credit
Companies) 4,540 4,805,513
- -----------------------------------------------------------------------------------------------
$34,598,056
- -----------------------------------------------------------------------------------------------
Total Foreign Bonds $129,489,458
- -----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $974,724,728) $982,525,064
- -----------------------------------------------------------------------------------------------
Repurchase Agreements - 1.2%
- -----------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/04, due 5/03/04, total to be
received $11,963,037 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account) $438 $438,000
- -----------------------------------------------------------------------------------------------
Morgan Stanley, dated 4/30/04, due 5/03/04, total to be
received $1,018,030 (secured by U.S. Treasury and
Federal Agency obligations in a jointly traded account) 11,009 11,009,000
- -----------------------------------------------------------------------------------------------
Total Repurchase Agreements, at Cost $11,447,000
- -----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $986,171,728) $993,972,064
- -----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.7% 7,503,416
- -----------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,001,475,480
- -----------------------------------------------------------------------------------------------
^^ Interest only security.
## SEC Rule 144A restriction.
### Security segregated as collateral for an open futures contract.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- ---------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $986,171,728) $993,972,064
- ---------------------------------------------------------------------------------------------------
Cash 1,237,471
- ---------------------------------------------------------------------------------------------------
Receivable for fund shares sold 3,459,150
- ---------------------------------------------------------------------------------------------------
Interest receivable 11,047,582
- ---------------------------------------------------------------------------------------------------
Receivable from investment adviser 13,707
- ---------------------------------------------------------------------------------------------------
Other assets 2,283
- ---------------------------------------------------------------------------------------------------
Total assets $1,009,732,257
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $3,307,601
- ---------------------------------------------------------------------------------------------------
Payable for daily variation margin on open futures
contracts 136,703
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased 1,116,797
- ---------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 3,198,867
- ---------------------------------------------------------------------------------------------------
Payable to affiliates
- ---------------------------------------------------------------------------------------------------
Management fee 6,876
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 63,607
- ---------------------------------------------------------------------------------------------------
Distribution and service fee 132,356
- ---------------------------------------------------------------------------------------------------
Administrative fee 283
- ---------------------------------------------------------------------------------------------------
Program manager fee 28
- ---------------------------------------------------------------------------------------------------
Administrative service fee 1
- ---------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 293,658
- ---------------------------------------------------------------------------------------------------
Total liabilities $8,256,777
- ---------------------------------------------------------------------------------------------------
Net assets $1,001,475,480
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,044,350,126
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 8,823,506
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (49,083,931)
- ---------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (2,614,221)
- ---------------------------------------------------------------------------------------------------
Net assets $1,001,475,480
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 150,077,370
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $509,115,350
- ---------------------------------------------------------------------------------------------------
Shares outstanding 76,192,298
- ---------------------------------------------------------------------------------------------------
Net asset value per share $6.68
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/97.50X$6.68) $6.85
- ---------------------------------------------------------------------------------------------------
Class B shares
Net assets $198,356,227
- ---------------------------------------------------------------------------------------------------
Shares outstanding 29,804,495
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.66
- ---------------------------------------------------------------------------------------------------
Class C shares
Net assets $209,163,001
- ---------------------------------------------------------------------------------------------------
Shares outstanding 31,335,632
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.67
- ---------------------------------------------------------------------------------------------------
Class I shares
Net assets $80,205,991
- ---------------------------------------------------------------------------------------------------
Shares outstanding 12,050,344
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $6.66
- ---------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $736,022
- ---------------------------------------------------------------------------------------------------
Shares outstanding 110,106
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $6.68
- ---------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $97,565
- ---------------------------------------------------------------------------------------------------
Shares outstanding 14,604
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $6.68
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class 529A shares
Net assets $1,651,300
- ---------------------------------------------------------------------------------------------------
Shares outstanding 247,215
- ---------------------------------------------------------------------------------------------------
Net asset value per share $6.68
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/97.50X6.68) $6.85
- ---------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $718,375
- ---------------------------------------------------------------------------------------------------
Shares outstanding 108,094
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.65
- ---------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $1,431,649
- ---------------------------------------------------------------------------------------------------
Shares outstanding 214,582
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.67
- ---------------------------------------------------------------------------------------------------
On sales of $50,000 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 B, Class C, Class
529A, Class 529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------------------------------
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 YEAR ENDED 4/30/04
NET INVESTMENT INCOME
Interest income $41,718,002
- ---------------------------------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------------------------------
Management fee $4,113,830
- ---------------------------------------------------------------------------------------------------
Trustees' compensation 23,073
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 1,753,207
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 778,086
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 2,126,841
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 2,230,846
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 2,288
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 204
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 4,613
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 6,359
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 10,648
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 3,295
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 1,635
- ---------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 2,662
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 102
- ---------------------------------------------------------------------------------------------------
Administrative fee 94,644
- ---------------------------------------------------------------------------------------------------
Custodian fee 315,199
- ---------------------------------------------------------------------------------------------------
Printing 95,780
- ---------------------------------------------------------------------------------------------------
Postage 45,971
- ---------------------------------------------------------------------------------------------------
Auditing fees 33,891
- ---------------------------------------------------------------------------------------------------
Legal fees 8,850
- ---------------------------------------------------------------------------------------------------
Miscellaneous 346,918
- ---------------------------------------------------------------------------------------------------
Total expenses $11,998,942
- ---------------------------------------------------------------------------------------------------
Fees paid indirectly (17,762)
- ---------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (683,106)
- ---------------------------------------------------------------------------------------------------
Net expenses $11,298,074
- ---------------------------------------------------------------------------------------------------
Net investment income $30,419,928
- ---------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- ---------------------------------------------------------------------------------------------------
Investment transactions $1,630,598
- ---------------------------------------------------------------------------------------------------
Futures contracts (3,491,813)
- ---------------------------------------------------------------------------------------------------
Net realized loss on investments $(1,861,215)
- ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- ---------------------------------------------------------------------------------------------------
Investments $(16,619,791)
- ---------------------------------------------------------------------------------------------------
Futures contracts 1,491,327
- ---------------------------------------------------------------------------------------------------
Net unrealized loss on investments $(15,128,464)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $(16,989,679)
- ---------------------------------------------------------------------------------------------------
Increase in net assets from operations $13,430,249
- ---------------------------------------------------------------------------------------------------
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.
FOR YEARS ENDED 4/30 2004 2003
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $30,419,928 $26,181,092
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (1,861,215) (7,884,383)
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments (15,128,464) 19,229,286
- ---------------------------------------------------------- ------------ ------------
Increase in net assets from operations $13,430,249 $37,525,995
- ---------------------------------------------------------- ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- --------------------------------------------------------------------------------------------------
Class A $(22,761,105) $(19,905,095)
- --------------------------------------------------------------------------------------------------
Class B (8,199,397) (8,092,921)
- --------------------------------------------------------------------------------------------------
Class C (7,885,955) (5,499,319)
- --------------------------------------------------------------------------------------------------
Class I (2,584,152) (505,449)
- --------------------------------------------------------------------------------------------------
Class R1 (19,030) (1,179)
- --------------------------------------------------------------------------------------------------
Class R2 (1,579) --
- --------------------------------------------------------------------------------------------------
Class 529A (53,813) (13,104)
- --------------------------------------------------------------------------------------------------
Class 529B (21,870) (8,027)
- --------------------------------------------------------------------------------------------------
Class 529C (35,399) (8,225)
- ---------------------------------------------------------- ------------ ------------
Total distributions declared to shareholders $(41,562,300) $(34,033,319)
- ---------------------------------------------------------- ------------ ------------
Net increase in net assets from fund
share transactions $59,913,467 $478,044,178
- ---------------------------------------------------------- ------------ ------------
Total increase in net assets $31,781,416 $481,536,854
- ---------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $969,694,064 $488,157,210
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $2,614,221 and
accumulated undistributed net investment income of
$1,221,805) $1,001,475,480 $969,694,064
- --------------------------------------------------------------------------------------------------
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 past 5 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 on an investment in the fund (assuming
reinvestment of all distributions) held for the entire period. This information has been audited by the fund's independent
auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 4/30
CLASS A 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.87 $6.84 $6.86 $6.66 $6.87
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.22 $0.27 $0.34 $0.42 $0.40
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.11) 0.10 0.03 0.20 (0.22)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.11 $0.37 $0.37 $0.62 $0.18
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.30) $(0.34) $(0.34) $(0.42) $(0.39)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.00)+++ --
- --------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.30) $(0.34) $(0.39) $(0.42) $(0.39)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $6.68 $6.87 $6.84 $6.86 $6.66
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%)(+) 1.60 5.58 5.52 9.57 2.71
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 0.75 0.75 0.80 0.82 0.86
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.31 3.92 5.02 6.20 5.87
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 43 53 53 58 74
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $509,115 $490,000 $293,435 $209,687 $115,752
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. To the extent actual expenses
were over this limitation and the waiver had not been in place, the net investment income per share and the ratios would
have been:
Net investment income(S)(S) $0.22 $0.26 $0.34 $0.42 --
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.82 0.80 0.85 0.85 --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.24 3.87 4.97 6.17 --
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 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
April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains
and losses per share by $0.04, and decrease the ratio of net investment income to average net assets by 0.57%. Per
share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in
presentation.
+++ 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
FOR YEARS ENDED 4/30
CLASS B 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.84 $6.81 $6.83 $6.64 $6.85
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.17 $0.21 $0.29 $0.37 $0.34
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.11) 0.11 0.03 0.19 (0.21)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.06 $0.32 $0.32 $0.56 $0.13
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.24) $(0.29) $(0.29) $(0.37) $(0.34)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.00)+++ --
- --------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.24) $(0.29) $(0.34) $(0.37) $(0.34)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $6.66 $6.84 $6.81 $6.83 $6.64
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 0.95 4.76 4.73 8.61 1.91
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 1.54 1.54 1.58 1.59 1.65
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.53 3.14 4.25 5.41 5.09
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 43 53 53 58 74
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $198,356 $244,736 $120,535 $77,012 $45,214
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. To the extent actual expenses
were over this limitation and the waiver had not been in place, the net investment income per share and the ratios would
have been:
Net investment income(S)(S) $0.17 $0.21 $0.29 $0.37 $--
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.61 1.59 1.63 1.63 --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.46 3.09 4.20 5.37 --
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 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
April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains
and losses per share by $0.04, and decrease the ratio of net investment income to average net assets by 0.57%. Per
share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in
presentation.
+++ 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
FOR YEARS ENDED 4/30
CLASS C 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.86 $6.83 $6.85 $6.66 $6.86
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.17 $0.20 $0.28 $0.36 $0.34
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.12) 0.11 0.03 0.19 (0.21)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.05 $0.31 $0.31 $0.55 $0.13
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.24) $(0.28) $(0.28) $(0.36) $(0.33)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.00)+++ --
- --------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.24) $(0.28) $(0.33) $(0.36) $(0.33)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $6.67 $6.86 $6.83 $6.85 $6.66
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 0.73 4.68 4.64 8.50 1.99
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 1.60 1.60 1.65 1.67 1.71
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.45 3.01 4.12 5.33 5.03
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 43 53 53 58 74
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $209,163 $203,529 $72,888 $26,233 $22,825
- --------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. To the extent actual expenses
were over this limitation and the waiver had not been in place, the net investment income per share and the ratios would
have been:
Net investment income(S)(S) $0.16 $0.20 $0.27 $0.36 $--
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.67 1.65 1.70 1.70 --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.38 2.96 4.07 5.30 --
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 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
April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains
and losses per share by $0.04, and decrease the ratio of net investment income to average net assets by 0.57%. Per
share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in
presentation.
+++ 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
FOR YEARS ENDED 4/30
CLASS I 2004 2003 2002 2001 2000
Net asset value, beginning of period $6.84 $6.82 $6.84 $6.65 $6.85
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.23 $0.25 $0.35 $0.42 $0.42
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.10) 0.12 0.03 0.20 (0.22)
- --------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $0.13 $0.37 $0.38 $0.62 $0.20
- --------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.31) $(0.35) $(0.35) $(0.43) $(0.40)
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.05) (0.00)+++ --
- --------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.31) $(0.35) $(0.40) $(0.43) $(0.40)
- --------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $6.66 $6.84 $6.82 $6.84 $6.65
- --------------------------------------------- ------ ------ ------ ------ ------
Total return (%) 1.89 5.59 5.70 9.60 3.02
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 0.59 0.60 0.65 0.67 0.71
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.45 3.81 5.17 6.32 6.00
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 43 53 53 58 74
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $80,206 $29,075 $1,299 $888 $684
- ------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. To the extent actual expenses
were over this limitation and the waiver had not been in place, the net investment income per share and the ratios would
have been:
Net investment income(S)(S) $0.23 $0.24 $0.35 $0.42 $--
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.66 0.65 0.70 0.70 --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.38 3.76 5.12 6.29 --
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 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
April 30, 2002 was to decrease net investment income per share by $0.04, increase net realized and unrealized gains
and losses per share by $0.04, and decrease the ratio of net investment income to average net assets by 0.57%. Per
share, ratios, and supplemental data for periods prior to May 1, 2001 have not been restated to reflect this change in
presentation.
+++ 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
YEAR ENDED PERIOD ENDED
CLASS R1 4/30/04 4/30/03*
Net asset value, beginning of period $6.87 $6.86
- -------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.21 $0.08
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.12) 0.03
- ----------------------------------------------------------------- ------ ------
Total from investment operations $0.09 $0.11
- ----------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.28) $(0.10)
- ----------------------------------------------------------------- ------ ------
Net asset value, end of period $6.68 $6.87
- ----------------------------------------------------------------- ------ ------
Total return (%) 1.34 1.65++
- -------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.00 1.00+
- -------------------------------------------------------------------------------------------------------
Net investment income 3.06 3.33+
- -------------------------------------------------------------------------------------------------------
Portfolio turnover 43 53
- -------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $736 $85
- -------------------------------------------------------------------------------------------------------
(S) The investment adviser and the distributor contractually waived a portion of its fee for the periods
indicated. To the extent actual expenses were over this limitation and the waiver had not been in
place, the net investment income per share and the ratios would have been:
Net investment income $0.20 $0.07
- -------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS:
Expenses## 1.17 1.15+
- -------------------------------------------------------------------------------------------------------
Net investment income 2.89 3.18+
- -------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1, December 31, 2002, through April 30, 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
PERIOD ENDED
4/30/04*
CLASS R2
Net asset value, beginning of period $6.77
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.09
- ------------------------------------------------------------------------------
Net realized and unrealized gain on investments (0.05)
- ----------------------------------------------------------------------------
Total from investment operations $0.04
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.13)
- ----------------------------------------------------------------------------
Net asset value, end of period $6.68
- ----------------------------------------------------------------------------
Total return (%) 0.58++
- ------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.21+
- ------------------------------------------------------------------------------
Net investment income 2.70+
- ------------------------------------------------------------------------------
Portfolio turnover 43
- ------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $98
- ------------------------------------------------------------------------------
(S) The investment adviser and the distributor contractually waived a portion
of its fee for the period indicated. To the extent actual expenses were
over this limitation and the waiver had not been in place, the net
investment income per share and the ratios would have been:
Net investment income $0.09
- ------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS:
Expenses## 1.38+
- ------------------------------------------------------------------------------
Net investment income 2.53+
- ------------------------------------------------------------------------------
* For the period from the inception of Class R2, October 31, 2003, through
April 30, 2004.
+ 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
YEAR ENDED PERIOD ENDED
CLASS 529A 4/30/04 4/30/03*
Net asset value, beginning of period $6.87 $6.80
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.20 $0.15
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.11) 0.16
- ----------------------------------------------------------------- ------ ------
Total from investment operations $0.09 $0.31
- ----------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.28) $(0.24)
- ----------------------------------------------------------------- ------ ------
Net asset value, end of period $6.68 $6.87
- ----------------------------------------------------------------- ------ ------
Total return (%)(+) 1.28 4.27++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.10 1.10+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.97 3.23+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 43 53
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,651 $1,011
- -----------------------------------------------------------------------------------------------------
(S) The investment adviser and the distributor contractually waived a portion of its fee for the
periods indicated. To the extent actual expenses were over this limitation and the waiver had not
been in place, the net investment income per share and the ratios would have been:
Net investment income $0.19 $0.15
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS:
Expenses## 1.27 1.25+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.80 3.08+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529A shares, July 31, 2002, through April 30, 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
YEAR ENDED PERIOD ENDED
CLASS 529B 4/30/04 4/30/03*
Net asset value, beginning of period $6.83 $6.77
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.15 $0.13
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.10) 0.13
- ----------------------------------------------------------------- ------ ------
Total from investment operations $0.05 $0.26
- ----------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.23) $(0.20)
- ----------------------------------------------------------------- ------ ------
Net asset value, end of period $6.65 $6.83
- ----------------------------------------------------------------- ------ ------
Total return (%) 0.68 3.60++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.82 1.85+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.24 2.63+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 43 53
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $718 $524
- -----------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. To the
extent actual expenses were over this limitation and the waiver had not been in place, the net
investment income per share and the ratios would have been:
Net investment income $0.15 $0.13
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS:
Expenses## 1.89 1.90+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.17 2.58+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529B shares, July 31, 2002, through April 30, 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
YEAR ENDED PERIOD ENDED
CLASS 529C 4/30/04 4/30/03*
Net asset value, beginning of period $6.86 $6.79
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.15 $0.12
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.11) 0.15
- ----------------------------------------------------------------- ------ ------
Total from investment operations $0.04 $0.27
- ----------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.23) $(0.20)
- ----------------------------------------------------------------- ------ ------
Net asset value, end of period $6.67 $6.86
- ----------------------------------------------------------------- ------ ------
Total return (%) 0.52 3.70++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA(S):
Expenses## 1.85 1.85+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.22 2.51+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 43 53
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,432 $734
- -----------------------------------------------------------------------------------------------------
(S) The investment adviser contractually waived a portion of its fee for the periods indicated. To the
extent actual expenses were over this limitation and the waiver had not been in place, the net
investment income per share and the ratios would have been:
Net investment income $0.15 $0.12
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS:
Expenses## 1.92 1.90+
- -----------------------------------------------------------------------------------------------------
Net investment income 2.15 2.46+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of Class 529C shares, July 31, 2002, through April 30, 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
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Limited Maturity Fund (the fund) is a diversified series of MFS Series
Trust IX (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 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Futures contracts are valued at the
settlement price as reported by an independent pricing service on the primary
exchange on which they are traded. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes market value as determined by the Board of
Trustees. 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.
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.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, 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. Investments in currency futures for purposes other than
hedging may be made to change the fund's relative position in one or more
currencies without buying and selling portfolio assets. Should interest rates
or securities prices move unexpectedly, the fund may not achieve the
anticipated benefits of the futures contracts and may realize a loss.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United States
of America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations. 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. Some securities may be
purchased on a "when-issued" or "forward delivery" basis, which means that the
securities will be delivered to the fund at a future date, usually beyond
customary settlement time.
The fund may enter in "TBA" (to be announced) purchase commitments to purchase
securities for a fixed unit price at a future date. Although the unit price has
been established, the principal value has not been finalized. However, the
principal amount of the commitments will not fluctuate more than 0.01%. The
fund holds, and maintains until settlement date, cash or high-grade debt
obligations in an amount sufficient to meet the purchase price, or the fund may
enter into offsetting contracts for the forward sale of other securities it
owns. Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to
settlement date, which is in addition to the risk of decline in the value of
the fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the procedures
described under "Investment Valuations" above.
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, for the year ended April 30, 2004 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, mortgage-backed securities, derivatives, capital losses, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended April 30, 2004
and April 30, 2003 was as follows:
4/30/04 4/30/03
Distributions declared from ordinary
income $41,562,300 $34,033,319
- ------------------------------------------------------------------------------
During the year ended April 30, 2004, accumulated distributions in excess of
net investment income decreased by $9,749,956 and accumulated net realized loss
on investments increased by $9,749,956 due to differences between book and tax
accounting for amortization and accretion on debt securities. This change had
no effect on the net assets or net asset value per share.
As of April 30, 2004, the components of accumulated losses on a tax basis were
as follows:
Undistributed ordinary income $712,331
------------------------------------------------------------------
Capital loss carryforward (32,571,657)
------------------------------------------------------------------
Post-October capital loss deferral (3,854,927)
------------------------------------------------------------------
Unrealized depreciation (3,833,841)
------------------------------------------------------------------
Other temporary differences (3,326,552)
------------------------------------------------------------------
Post-October capital loss deferrals represent 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
April 30, 2005 $(2,906,238)*
------------------------------------------------------------------
April 30, 2006 (1,767,089)*
------------------------------------------------------------------
April 30, 2007 (4,524,994)*
------------------------------------------------------------------
April 30, 2008 (4,772,473)*
------------------------------------------------------------------
April 30, 2009 (2,874,797)
------------------------------------------------------------------
April 30, 2011 (8,907,285)
------------------------------------------------------------------
April 30, 2012 (6,818,781)
------------------------------------------------------------------
Total $(32,571,657)
------------------------------------------------------------------
* Includes amounts associated with the May 19, 2000 acquisition of MFS
Intermediate Income Fund. The total capital loss carryforward related to the
acquisition was $5,976,273.
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 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 an annual rate of 0.40% of
the fund's average daily net assets. The investment adviser has contractually
agreed to waive a portion of its fee, which is shown as a reduction of total
expenses in the Statement of Operations. From May 1, 2003 to February 29, 2004,
MFS reduced the management fee to 0.35% of average daily net assets. As part of
the settlement agreement with the New York Attorney General concerning market
timing and related matters, MFS has agreed to reduce the fund's management fee
to 0.25% of average daily net assets for the period March 1, 2004 through
February 28, 2009. During this time period, the Board of Trustees will continue
to review the appropriateness of all advisory fees in accordance with their
oversight responsibilities. After February 28, 2009 the management fee will be
determined in accordance with then existing review policies approved by the
Board of Trustees overseeing the fund. Management fees incurred for the year
ended April 30, 2004 were 0.33% 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 retired Trustees. Included in
Trustees' compensation is a pension expense of $2,135 for retired trustees for
the year ended April 30, 2004.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
----------------------------------------------------------
Effective April 1, 2004 the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $94,644, equivalent to
0.0092% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS for
the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$105,590 and $2,488 for the year ended April 30, 2004 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 R1, Class R2, 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- ------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.25% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.50% 1.00% 1.00%
- ------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended April
30th, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $20,398 $421 $626 $28 $50
- ------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained by MFD $27 $13 $35
- ------------------------------------------------------------------------------------------------------------------
Payment of the 0.10% per annum Class A distribution fee will be implemented on such a date as the Trustees of
the Trust may determine. A portion of the Class A service fee is being paid by the fund. The remaining 0.10% per
annum of Class A service fee not currently being charged will be implemented on such date as the Trustees of the
Trust may determine.
A portion of the Class R1 and Class R2 distribution fee (0.10%) is currently being waived.
A portion of the Class 529A distribution fee (0.10%) is being paid by the fund. Payment of the remaining 0.15%
per annum portion of the Class 529A distribution fee that is not currently being charged will be implemented on
such a date as the Trustees of the Trust may determine. A portion of the Class 529A service fee (0.10%) is
currently being waived.
Except in the case of the 0.25% per annum Class B and Class 529B service fees paid upon sale of Class B and
Class 529B shares in the first year, the Class B and Class 529B service fee is 0.15% per annum and may be
increased to 0.25% per annum on such date as the Trustees of the Trust may determine.
Fees incurred under the distribution plan during the year ended April 30, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage Rates 0.15% 0.94% 1.00% 0.40% 0.40%
- ------------------------------------------------------------------------------------------------------------------
CLASS 529A CLASS 529B CLASS 529C
Effective Annual Percentage Rates 0.25% 0.97% 1.00%
- ------------------------------------------------------------------------------------------------------------------
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 year ended April 30, 2004 were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred Sales Charges
Imposed $74,007 $743,020 $394,157 $77 $50
- ------------------------------------------------------------------------------------------------------------------
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 0.35% 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 - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as
shareholder servicing agent. The fee, which is calculated as a percentage of
the fund's average daily net assets is set periodically under the supervision
of the fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of
the fund's average daily net assets. Effective April 1, 2004, the fee is set
at 0.10% of the fund's average net assets. For the year ended April 30, 2004,
the fund paid MFSC a fee of $1,123,781 for shareholder services which equated
to 0.11% of the fund's average net assets. Also included in shareholder
servicing costs are out-of-pocket expenses, paid to MFSC, which amounted to
$226,475 for the year ended April 30, 2004, as well as other expenses paid to
unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $167,748,001 $229,704,441
- ------------------------------------------------------------------------------
Investments (non-U.S. government securities) $323,553,981 $198,849,379
- ------------------------------------------------------------------------------
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 $997,805,905
-----------------------------------------------------------
Gross unrealized depreciation $(12,301,515)
-----------------------------------------------------------
Gross unrealized appreciation 8,467,674
-----------------------------------------------------------
Net unrealized depreciation $(3,833,841)
-----------------------------------------------------------
(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:
Year ended 4/30/04 Year ended 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 42,451,131 $288,709,511 50,528,040 $345,478,580
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 2,308,221 15,696,402 1,945,280 13,307,478
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (39,936,851) (271,131,160) (23,998,763) (164,006,416)
- ----------------------------------------------------------------------------------------------------------
Net increase 4,822,501 $33,274,753 28,474,557 $194,779,642
- ----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 9,396,698 $63,731,101 26,906,225 $183,263,812
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 897,317 6,080,697 834,359 5,685,818
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (16,278,034) (110,175,309) (9,644,667) (65,630,804)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) (5,984,019) $(40,363,511) 18,095,917 $123,318,826
- ----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 16,758,004 $114,093,178 25,915,682 $177,058,161
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 600,758 4,080,691 387,484 2,648,594
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (15,698,160) (106,449,141) (7,294,777) (49,774,026)
- ----------------------------------------------------------------------------------------------------------
Net increase 1,660,602 $11,724,728 19,008,389 $129,932,729
- ----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 7,633,707 $51,767,185 4,086,620 $27,842,713
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 354,608 2,398,624 58,886 401,769
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (188,852) (1,276,577) (85,133) (579,262)
- ----------------------------------------------------------------------------------------------------------
Net increase 7,799,463 $52,889,232 4,060,373 $27,665,220
- ----------------------------------------------------------------------------------------------------------
Year ended 4/30/04 Period ended 4/30/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 166,965 $1,139,515 12,271 $84,049
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 2,468 16,742 126 866
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (71,724) (489,394) -- --
- ----------------------------------------------------------------------------------------------------------
Net increase 97,709 $666,863 12,397 $84,915
- ----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1, December 31, 2002, through April 30, 2003.
Period ended 4/30/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 14,416 $97,594
- ------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 188 1,270
- ------------------------------------------------------------------------
Net increase 14,604 $98,864
- ------------------------------------------------------------------------
Year ended 4/30/04 Period ended 4/30/03***
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 200,329 $1,360,457 146,500 $1,004,256
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 7,517 51,103 1,356 9,301
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (107,861) (730,823) (626) (4,289)
- ----------------------------------------------------------------------------------------------------------
Net increase 99,985 $680,737 147,230 $1,009,268
- ----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 43,344 $293,303 81,851 $557,176
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 3,180 21,495 948 6,460
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (15,203) (102,617) (6,026) (41,019)
- ----------------------------------------------------------------------------------------------------------
Net increase 31,321 $212,181 76,773 $522,617
- ----------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 147,748 $1,002,626 106,109 $725,171
- ----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 4,962 33,674 885 6,054
- ----------------------------------------------------------------------------------------------------------
Shares reacquired (45,083) (306,680) (39) (264)
- ----------------------------------------------------------------------------------------------------------
Net increase 107,627 $729,620 106,955 $730,961
- ----------------------------------------------------------------------------------------------------------
** For the period from the inception of Class R2, October 31, 2003, through April 30, 2004.
*** For the period from the inception of Class 529A, 529B, and 529C, July 31, 2002, through April 30, 2003.
(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 plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the fund for the year ended April 30, 2004 was $6,511 and is
included in miscellaneous expense. The fund had no significant borrowings
during the year.
(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 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.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
U.S. Treasury 5-Year Notes June 2004 673 Short $1,023,170
- -------------------------------------------------------------------------------------------------------------
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust IX and Shareholders of
MFS Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Limited Maturity Fund (a portfolio of MFS
Series Trust IX (the "Trust")) as of April 30, 2004, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
present fairly, in all material respects, the financial position of the MFS
Limited Maturity Fund as of April 30, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
- ---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- ------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- ------------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. Each Trustee and officer holds office until his or her successor is chosen and
qualified or until his or her earlier death, resignation, retirement or removal.
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 109 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 State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741 JP Morgan Chase Bank
One Chase Manhattan Plaza
DISTRIBUTOR New York, NY 10081
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA AUDITORS
02116-3741 Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGER
James J. Calmas
- -------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 fund's proxy voting policies and procedures is
available without charge, upon request, by calling 202-547-7071, extension 201,
by visiting www.jmr-financial.com/MFS 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 55824
Boston, MA 02205-5824
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) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MQL-ANN-6/04 74M
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/04
MFS(R) INTERMEDIATE
INVESTMENT GRADE
BOND 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) INTERMEDIATE INVESTMENT GRADE BOND FUND
The fund seeks to provide as high a level of current income as the investment
adviser believes is consistent with prudent investment risk. The fund's
secondary objective is to protect shareholders' capital.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
- ----------------------------------------------------
MANAGEMENT REVIEW 6
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 13
- ----------------------------------------------------
FINANCIAL STATEMENTS 30
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 42
- ----------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 54
- ----------------------------------------------------
TRUSTEES AND OFFICERS 55
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 59
- ----------------------------------------------------
FEDERAL TAX INFORMATION 60
- ----------------------------------------------------
CONTACT INFORMATION 61
- ----------------------------------------------------
ASSET ALLOCATION 62
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging environment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 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
Over the one-year period ended April 30, 2004, 5-year U.S. Treasury bond yields
rose more than 80 basis points (a basis point is 0.01% of yield). The path
upward, however, was marked by significant volatility in the overall bond
market.
In early 2003 and into the first half of the period, we saw a confluence of
factors that were positive for bond prices and caused rates to decline.
Geopolitical uncertainty and a weak U.S. economy were among the factors that
pushed interest rates down to four-decade lows by June of 2003.
In late June, however, the bond market reversed direction as fixed-income
investors became concerned that the economic recovery was accelerating faster
than expected. Over the summer of 2003 and into early September, bond prices
declined as rates rose sharply.
In the fall and winter of 2003, however, bond prices revived as several factors
combined to drive rates down again. Economic reports indicated that inflation
was well contained while job growth remained weak. Although most other measures
indicated the U.S. economy was improving, we believe investors were concerned
that consumer spending might falter because laid-off workers were not finding
new jobs. The Federal Reserve Board (the Fed) appeared to sum up the situation
in its statements that interest rates could remain low for the foreseeable
future.
As the period came to a close in March and April of 2004, bonds reversed
direction again. Long-term rates climbed sharply as the United States finally
began to experience strong job growth, and the market began to anticipate that
a Fed rate increase was imminent. Just after the period ended, the Fed's press
release after its May 4 meeting contained the first indication in several years
that the federal funds rate was indeed going up: "At this juncture, ... the
[Federal Open Market] Committee believes that policy accommodation can be
removed at a pace that is likely to be measured."
The accelerating U.S. recovery over the period was generally positive for
corporate bonds. Growth in GDP (gross domestic product), business profits, and
other measures pointed toward improving corporate fundamentals - business
factors such as earnings and cash flow growth.
In response, we believe investors moved away from the risk aversion or "flight
to quality" that had characterized the bond market in late 2002 and early 2003.
Riskier, lower-rated bonds showed the best performance over the period. With
Treasury yields at four-decade lows, investors sought out higher-yielding
corporate and other debt. This caused spreads - the differences between
corporate yields and Treasury yields - to tighten (decrease) over the period.
High-grade corporate debt outperformed Treasuries. Within categories, lower-
rated bonds generally outperformed higher-rated issues. While bonds across most
asset classes were hurt by rising rates in the final months of the period,
lower-rated debt was less affected than higher-rated issues and Treasuries.
(The principal value and interest on Treasury securities, however, are
guaranteed by the U.S. government if held to maturity.)
CONTRIBUTORS TO PERFORMANCE
Our overweighting in corporate bonds contributed to fund performance because of
corporate bonds' yield advantage over similar maturity U.S. Treasury bonds and
because spreads tightened during the period. Our large weightings in banks and
finance companies, which performed well, were particularly helpful.
We also continued to hold the debt of automotive finance companies, which
rebounded during this time period.
DETRACTORS FROM PERFORMANCE
Mortgage-backed securities were a slight detractor because of pre-payments. As
mortgage rates fell for much of the period, prepayments - from homeowners
refinancing their mortgages at lower rates - increased. (Prepayments are bad
for holders of existing bonds because the proceeds from prepayments will be
reinvested at lower prevailing rates.)
Respectfully,
/s/ James J. Calmas
James J. Calmas
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. Past performance is no guarantee of
future results. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operatons,
December 31, 1998, through April 30, 2004. Index information is from January 1,
1999.)
MFS Intermediate Lehman Brothers Lehman Brothers
Investment Grade Intermediate Inermediate Government/
Bond Fund - Class A Credit Index Credit Index
1/99 $ 9,525 $10,000 $10,000
4/99 9,567 10,040 10,012
4/00 9,722 10,082 10,166
4/01 10,950 11,377 11,399
4/02 11,767 12,182 12,217
4/03 13,014 13,740 13,532
4/04 13,309 14,199 13,806
TOTAL RETURNS
- -----------------------
Average annual
without sales charge
- -----------------------
Class
Share class inception date 1-yr 3-yr 5-yr Life*
- ------------------------------------------------------------------------------
A 12/31/1998 2.27% 6.72% 6.83% 6.48%
- ------------------------------------------------------------------------------
B 03/01/2002 1.41% 6.07% 6.44% 6.11%
- ------------------------------------------------------------------------------
C 03/01/2002 1.51% 6.10% 6.45% 6.13%
- ------------------------------------------------------------------------------
I 12/31/1998 2.52% 6.87% 6.92% 6.54%
- ------------------------------------------------------------------------------
R1 12/31/2002 1.92% 6.56% 6.73% 6.39%
- ------------------------------------------------------------------------------
R2 10/31/2003 1.97% 6.61% 6.76% 6.42%
- ------------------------------------------------------------------------------
- -----------------------
Average annual
- -----------------------
Comparative benchmarks
- ------------------------------------------------------------------------------
Average intermediate investment
grade debt fund+ 1.91% 5.89% 5.86% 5.43%
- ------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Credit Index# 2.03% 6.60% 6.64% 6.23%
- ------------------------------------------------------------------------------
Lehman Brothers Intermediate Credit
Index# 3.34% 7.67% 7.18% 6.79%
- ------------------------------------------------------------------------------
- -----------------------
Average annual
with sales charge
- -----------------------
Share class
- ------------------------------------------------------------------------------
A -2.58% 5.00% 5.79% 5.51%
- ------------------------------------------------------------------------------
B -2.50% 5.17% 6.12% 5.97%
- ------------------------------------------------------------------------------
C 0.53% 6.10% 6.45% 6.13%
- ------------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- -----------------------
Cumulative without
sales charge
- -----------------------
- ------------------------------------------------------------------------------
A 2.27% 21.55% 39.12% 39.73%
- ------------------------------------------------------------------------------
B 1.41% 19.34% 36.60% 37.19%
- ------------------------------------------------------------------------------
C 1.51% 19.43% 36.70% 37.30%
- ------------------------------------------------------------------------------
I 2.52% 22.07% 39.72% 40.19%
- ------------------------------------------------------------------------------
R1 1.92% 20.98% 38.48% 39.08%
- ------------------------------------------------------------------------------
R2 1.97% 21.18% 38.71% 39.31%
- ------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
December 31, 199 8, through April 30, 2004. Index information is from January
1, 1999.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT INDEX - measures the
performance of the investment-grade bond market and includes bonds with
maturities up to 10 years.
THE LEHMAN BROTHERS INTERMEDIATE CREDIT INDEX - measures the performance of
the U.S. intermediate-term, investment-grade 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. Class R1 and R2 shares have no sales
charges and are available only to certain retirement plans.
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 to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial share class to which it is blended.
Prior to March 1, 2002, the fund was available only to MFS employees and had
limited assets. Between February 1, 1999 and March 1, 2002, a significant
portion of the fund's fees and expenses were waived or paid for by the adviser.
Had applicable expense subsidies or waivers not been in effect, performance
would have been lower. Through the date shown, average annual returns without
sales charges for Class A would have been 6.50%, 6.43% and 6.07%, respectively,
for the 3 year, 5 year and life periods; for Class B, 5.85%, 6.04% and 5.71%;
for Class C, 5.88%, 6.06% and 5.72%; for Class I, 6.70%, 6.61% and 6.23%; for
Class R1, 6.33%, 6.33% and 5.98%; and for Class R2, 6.39%, 6.36% and 6.01%.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
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.
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 - 4/30/04
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 98.5%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
U.S. Bonds - 86.1%
- ----------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.5%
- ----------------------------------------------------------------------------------------------
Clear Channel Communications Co., 4.625%, 2008 $1,030 $1,050,644
- ----------------------------------------------------------------------------------------------
Aerospace - 0.9%
- ----------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 6.4%, 2011## $1,010 $1,076,254
- ----------------------------------------------------------------------------------------------
Boeing Capital Corp., 5.75%, 2007 690 733,486
- ----------------------------------------------------------------------------------------------
Northrop Grumman Corp., 7%, 2006 280 301,545
- ----------------------------------------------------------------------------------------------
$2,111,285
- ----------------------------------------------------------------------------------------------
Airlines - 0.2%
- ----------------------------------------------------------------------------------------------
American Airlines, 3.857%, 2010 $391 $381,216
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.545%, 2019 72 69,898
- ----------------------------------------------------------------------------------------------
$451,114
- ----------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.7%
- ----------------------------------------------------------------------------------------------
Miller Brewing Co., 4.25%, 2008## $1,700 $1,705,848
- ----------------------------------------------------------------------------------------------
Asset Backed & Securitized - 16.8%
- ----------------------------------------------------------------------------------------------
Aesop Funding II LLC, 2.78%, 2007## $1,200 $1,192,357
- ----------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 5.37%, 2008 562 577,379
- ----------------------------------------------------------------------------------------------
AmeriCredit Automobile Receivables Trust, 3.67%, 2009 2,000 2,032,466
- ----------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.177%, 2005 850 853,420
- ----------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.02%, 2033 1,000 991,596
- ----------------------------------------------------------------------------------------------
Ameriquest Mortgage Securities, Inc., 3.027%, 2033 750 752,262
- ----------------------------------------------------------------------------------------------
Argent Securities, Inc., 2.8%, 2033 1,500 1,500,776
- ----------------------------------------------------------------------------------------------
Brazilian Diversified Payment Rights, 1.78%, 2008## 500 500,000
- ----------------------------------------------------------------------------------------------
CNH Equipment Trust, 1.35%, 2006 12 11,828
- ----------------------------------------------------------------------------------------------
CNH Equipment Trust, 4.3%, 2008 5 4,767
- ----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 3.52%, 2009## 130 131,234
- ----------------------------------------------------------------------------------------------
CPS Auto Receivables Trust, 2.89%, 2009 221 221,030
- ----------------------------------------------------------------------------------------------
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033## 150 159,955
- ----------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 4.79%, 2009 295 304,208
- ----------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 2.47%, 2010 600 589,817
- ----------------------------------------------------------------------------------------------
Capital One Auto Finance Trust, 3.18%, 2010 1,000 993,048
- ----------------------------------------------------------------------------------------------
Caterpillar Financial Asset Trust, 3.15%, 2008 176 177,382
- ----------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., 7.37%, 2029 240 259,707
- ----------------------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust, 6.65%, 2008 500 534,517
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.8%, 2006 195 200,090
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 6.04%, 2030 30 32,302
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 7.03%, 2031 1,070 1,199,818
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Asset Trust, 1.1471%, 2020^^## 5,671 312,040
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.78%, 2009 520 561,508
- ----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 0.9064%, 2005^^ 100 799
- ----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 7.95%, 2010 1,000 1,143,750
- ----------------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust, 4.21%, 2005 0(+) 202
- ----------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 825 887,416
- ----------------------------------------------------------------------------------------------
Drive Auto Receivables Trust, 2.77%, 2008## 400 394,500
- ----------------------------------------------------------------------------------------------
Drivetime Auto Owner Trust, 1.918%, 2008## 700 694,904
- ----------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 3.8551%, 2023^^ 1,155 214,124
- ----------------------------------------------------------------------------------------------
First Auto Receivables Group Trust, 2.436%, 2007## 650 651,422
- ----------------------------------------------------------------------------------------------
First Union National Bank Commercial Mortgage Trust,
1.2186%, 2043^^## 8,541 448,520
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
6.65%, 2029 1,465 1,586,427
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
7.38%, 2029 500 544,541
- ----------------------------------------------------------------------------------------------
Fortress CBO Investments I, Ltd., 1.9%, 2004 535 534,916
- ----------------------------------------------------------------------------------------------
Freddie Mac, 3.108%, 2023 750 750,406
- ----------------------------------------------------------------------------------------------
Goldman Sachs Mortgage Securities Corp., 6.06%, 2030 3 3,447
- ----------------------------------------------------------------------------------------------
Household Automotive Trust, 3.44%, 2009 400 403,661
- ----------------------------------------------------------------------------------------------
Household Home Equity Loan Trust, 1.55%, 2012 73 73,598
- ----------------------------------------------------------------------------------------------
Hyundai Auto Receivables Trust, 2.8%, 2007## 350 352,686
- ----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.9%, 2006 101 102,176
- ----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 2.33%, 2007 1,290 1,295,915
- ----------------------------------------------------------------------------------------------
IKON Receivables Funding LLC, 3.27%, 2011 135 136,001
- ----------------------------------------------------------------------------------------------
J.P. Morgan Commercial Mortgage Finance Corp.,
6.613%, 2030 630 685,685
- ----------------------------------------------------------------------------------------------
J.P. Morgan Commercial Mortgage Finance Corp.,
7.325%, 2031 13 13,825
- ----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, 6.48%, 2008 1,000 1,088,146
- ----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust,
0.7613%, 2023^^ 7,685 192,938
- ----------------------------------------------------------------------------------------------
Lehman Brothers Commercial Conduit Mortgage Trust, 6.78%, 2031 70 77,657
- ----------------------------------------------------------------------------------------------
Long Beach Auto Receivables Trust, 2.841%, 2010 796 797,741
- ----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 6.39%, 2030 487 522,621
- ----------------------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors, Inc., 7.0426%, 2030 170 183,372
- ----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.01%, 2030 3 3,580
- ----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 6.48%, 2030 500 544,512
- ----------------------------------------------------------------------------------------------
Morgan Stanley Dean Witter Capital, 1.1837%, 2031^^ 4,580 176,005
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.663%, 2008 275 300,505
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 1.074%, 2031^^ 2,510 73,509
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 6.337%, 2031 600 651,126
- ----------------------------------------------------------------------------------------------
Multi-Family Capital Access One, Inc., 6.65%, 2024 761 842,004
- ----------------------------------------------------------------------------------------------
Nationslink Funding Corp., 6.476%, 2030 500 547,066
- ----------------------------------------------------------------------------------------------
PSEG Transition Funding LLC, 5.74%, 2007 6 5,799
- ----------------------------------------------------------------------------------------------
Putnam Structured Product Funding, 1.55%, 2008## 686 686,441
- ----------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.18%, 2027 1,500 1,505,657
- ----------------------------------------------------------------------------------------------
Residential Asset Mortgage, Inc., 3.49%, 2029 300 303,127
- ----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.99%, 2022## 1,000 990,040
- ----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 2.25%, 2032## 500 500,700
- ----------------------------------------------------------------------------------------------
SLM Student Loan Trust, 3.39%, 2033 650 642,891
- ----------------------------------------------------------------------------------------------
TIAA Real Estate CDO, Ltd., 7.17%, 2032## 581 625,157
- ----------------------------------------------------------------------------------------------
Thornburg Mortgage Securities Trust, 1.44%, 2043 337 337,036
- ----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 2.48%, 2008 1,000 999,549
- ----------------------------------------------------------------------------------------------
Triad Auto Receivables Trust, 3.24%, 2009 520 526,231
- ----------------------------------------------------------------------------------------------
Vanderbilt Mortgage & Finance, Inc., 5.17%, 2014 4 3,840
- ----------------------------------------------------------------------------------------------
WFS Financial, Inc., 2.39%, 2007 400 401,592
- ----------------------------------------------------------------------------------------------
Washington Mutual, Inc., 3.112%, 2033 383 382,509
- ----------------------------------------------------------------------------------------------
Washington Mutual, Inc., 3.177%, 2033 450 449,987
- ----------------------------------------------------------------------------------------------
Washington Mutual, Inc., 3.567%, 2033 235 235,297
- ----------------------------------------------------------------------------------------------
$39,609,063
- ----------------------------------------------------------------------------------------------
Automotive - 3.1%
- ----------------------------------------------------------------------------------------------
DaimlerChrysler N.A. Holdings Corp., 7.4%, 2005 $600 $622,882
- ----------------------------------------------------------------------------------------------
DaimlerChrysler N.A. Holdings Corp., 6.4%, 2006 750 797,969
- ----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 6.875%, 2006 1,568 1,659,690
- ----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.25%, 2011 125 132,639
- ----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7%, 2013 750 771,323
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.625%, 2004 5 5,036
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 4.5%, 2006 800 817,332
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.125%, 2006 810 854,805
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.75%, 2006 350 370,617
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7.25%, 2011 433 465,456
- ----------------------------------------------------------------------------------------------
General Motors Corp., 7.2%, 2011 293 311,562
- ----------------------------------------------------------------------------------------------
Lear Corp., 7.96%, 2005 450 473,625
- ----------------------------------------------------------------------------------------------
$7,282,936
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 5.5%
- ----------------------------------------------------------------------------------------------
Bank of America Corp., 7.4%, 2011 $1,250 $1,437,368
- ----------------------------------------------------------------------------------------------
Bayerische Landesbank, 1.14%, 2005 275 275,139
- ----------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, 6.375%, 2005 400 424,174
- ----------------------------------------------------------------------------------------------
Citigroup, Inc., 7.25%, 2010 275 314,088
- ----------------------------------------------------------------------------------------------
Commercial Credit Co., 6.25%, 2008 750 813,748
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 5.875%, 2006 535 570,033
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 4.625%, 2008 43 44,264
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 6.125%, 2011 160 171,221
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston USA, Inc., 6.5%, 2012 1,000 1,092,269
- ----------------------------------------------------------------------------------------------
NCNB Texas National, 9.5%, 2004 75 75,441
- ----------------------------------------------------------------------------------------------
Natexis AMBS Co. LLC, 8.44% to 2008, 4.59% to 2049## 950 1,095,542
- ----------------------------------------------------------------------------------------------
NationsBank Corp., 6.5%, 2006 200 213,929
- ----------------------------------------------------------------------------------------------
NationsBank Corp., 7.5%, 2006 125 137,539
- ----------------------------------------------------------------------------------------------
Popular North America, Inc., 6.125%, 2006 605 647,453
- ----------------------------------------------------------------------------------------------
Popular North America, Inc., 3.875%, 2008 750 741,218
- ----------------------------------------------------------------------------------------------
Socgen Real Estate LLC, 7.64% to 2007, 3.942% to 2049## 1,444 1,619,589
- ----------------------------------------------------------------------------------------------
UniCredito Italiano Capital Trust II, 9.2% to 2010,
4.53% to 2049## 717 875,450
- ----------------------------------------------------------------------------------------------
Wachovia Bank NA, 7.8%, 2010 250 295,703
- ----------------------------------------------------------------------------------------------
Wachovia Corp., 4.875%, 2014 1,150 1,111,265
- ----------------------------------------------------------------------------------------------
Wachovia Corp., 6.3%, 2028 700 753,852
- ----------------------------------------------------------------------------------------------
Wells Fargo & Co., 6.45%, 2011 200 220,581
- ----------------------------------------------------------------------------------------------
$12,929,866
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.3%
- ----------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., 8.375%, 2007 $350 $396,776
- ----------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., 5.85%, 2010 1,000 1,050,071
- ----------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., 6.75%, 2011 4 4,384
- ----------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.5%, 2004 422 428,769
- ----------------------------------------------------------------------------------------------
Cox Communications, Inc., 3.875%, 2008 500 490,752
- ----------------------------------------------------------------------------------------------
Cox Communications, Inc., 7.125%, 2012 503 557,032
- ----------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 150 191,491
- ----------------------------------------------------------------------------------------------
$3,119,275
- ----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.2%
- ----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 7.625%, 2005 $275 $293,247
- ----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.7%, 2012 1,650 1,701,165
- ----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 11.625%, 2005 400 437,445
- ----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 8.25%, 2007 120 136,869
- ----------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 4%, 2008 250 252,365
- ----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 2.47%, 2006 400 400,810
- ----------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 5.8%, 2007 675 721,011
- ----------------------------------------------------------------------------------------------
Morgan Stanley Group, Inc., 4.75%, 2014 1,000 934,290
- ----------------------------------------------------------------------------------------------
Salomon Smith Barney Holdings, Inc., 5.875%, 2006 300 319,469
- ----------------------------------------------------------------------------------------------
$5,196,671
- ----------------------------------------------------------------------------------------------
Building - 0.6%
- ----------------------------------------------------------------------------------------------
CRH North America, Inc., 6.95%, 2012 $1,250 $1,391,635
- ----------------------------------------------------------------------------------------------
Masco Corp., 6.75%, 2006 100 107,240
- ----------------------------------------------------------------------------------------------
$1,498,875
- ----------------------------------------------------------------------------------------------
Chemicals - 0.5%
- ----------------------------------------------------------------------------------------------
Chevron Phillips Chemical Co. LLC, 5.375%, 2007 $500 $526,190
- ----------------------------------------------------------------------------------------------
Dow Chemical Co., 5%, 2007 181 188,755
- ----------------------------------------------------------------------------------------------
Dow Chemical Co., 5.75%, 2008 350 372,058
- ----------------------------------------------------------------------------------------------
$1,087,003
- ----------------------------------------------------------------------------------------------
Conglomerates - 1.1%
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., 7.5%, 2005 $15 $15,858
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., 5%, 2007 1,044 1,094,715
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., 8.7%, 2007 133 152,488
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., 3.5%, 2008 450 446,014
- ----------------------------------------------------------------------------------------------
Tyco International Group S.A., 5.8%, 2006 533 559,185
- ----------------------------------------------------------------------------------------------
Tyco International Group S.A., 6.75%, 2011 200 215,687
- ----------------------------------------------------------------------------------------------
$2,483,947
- ----------------------------------------------------------------------------------------------
Consumer Cyclical - 0.4%
- ----------------------------------------------------------------------------------------------
Cendant Corp., 6.875%, 2006 $155 $167,956
- ----------------------------------------------------------------------------------------------
Cendant Corp., 6.25%, 2010 790 851,595
- ----------------------------------------------------------------------------------------------
$1,019,551
- ----------------------------------------------------------------------------------------------
Containers - 0%
- ----------------------------------------------------------------------------------------------
Tenneco Packaging Corp., 7.2%, 2005 $80 $85,914
- ----------------------------------------------------------------------------------------------
Defense Electronics - 0%
- ----------------------------------------------------------------------------------------------
Raytheon Co., 6.15%, 2008 $20 $21,529
- ----------------------------------------------------------------------------------------------
Energy - Independent - 0.1%
- ----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.625%, 2005 $275 $290,745
- ----------------------------------------------------------------------------------------------
Ocean Energy, Inc., 4.375%, 2007 45 45,975
- ----------------------------------------------------------------------------------------------
$336,720
- ----------------------------------------------------------------------------------------------
Energy - Integrated - 0.5%
- ----------------------------------------------------------------------------------------------
Amerada Hess Corp., 5.9%, 2006 $925 $972,813
- ----------------------------------------------------------------------------------------------
Conoco Funding Co., 5.45%, 2006 210 223,367
- ----------------------------------------------------------------------------------------------
$1,196,180
- ----------------------------------------------------------------------------------------------
Entertainment - 1.8%
- ----------------------------------------------------------------------------------------------
Liberty Media Corp., 2.61%, 2006 $1,150 $1,170,107
- ----------------------------------------------------------------------------------------------
News Media Holdings, Inc., 4.75%, 2010 1,000 999,908
- ----------------------------------------------------------------------------------------------
Time Warner, Inc., 7.975%, 2004 228 231,997
- ----------------------------------------------------------------------------------------------
Time Warner, Inc., 5.625%, 2005 1,129 1,169,970
- ----------------------------------------------------------------------------------------------
Time Warner, Inc., 6.875%, 2012 100 109,326
- ----------------------------------------------------------------------------------------------
Viacom, Inc., 7.75%, 2005 105 111,459
- ----------------------------------------------------------------------------------------------
Walt Disney Co., 6.75%, 2006 490 523,037
- ----------------------------------------------------------------------------------------------
$4,315,804
- ----------------------------------------------------------------------------------------------
Financial Institutions - 2.1%
- ----------------------------------------------------------------------------------------------
Capital One Bank, 8.25%, 2005 $400 $425,386
- ----------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 384 380,528
- ----------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 6.85%, 2004 78 78,480
- ----------------------------------------------------------------------------------------------
Countrywide Home Loans, Inc., 5.5%, 2006 - 2007 1,090 1,147,506
- ----------------------------------------------------------------------------------------------
Household Finance Corp., 8%, 2005 120 127,066
- ----------------------------------------------------------------------------------------------
Household Finance Corp., 4.125%, 2008 1,500 1,499,358
- ----------------------------------------------------------------------------------------------
Household Finance Corp., 4.625%, 2008 350 359,945
- ----------------------------------------------------------------------------------------------
Household Finance Corp., 6.75%, 2011 20 22,143
- ----------------------------------------------------------------------------------------------
Household Finance Corp., 7%, 2012 170 190,465
- ----------------------------------------------------------------------------------------------
SLM Corp., 4%, 2009 368 365,632
- ----------------------------------------------------------------------------------------------
SLM Corp., 5.375%, 2013 400 405,576
- ----------------------------------------------------------------------------------------------
$5,002,085
- ----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.3%
- ----------------------------------------------------------------------------------------------
Coca-Cola HBC Finance B.V., 5.125%, 2013 $550 $547,339
- ----------------------------------------------------------------------------------------------
General Mills, Inc., 6%, 2012 750 795,209
- ----------------------------------------------------------------------------------------------
Kellogg Co., 6%, 2006 205 217,621
- ----------------------------------------------------------------------------------------------
PepsiAmericas, Inc., 3.875%, 2007 400 405,371
- ----------------------------------------------------------------------------------------------
Tyson Foods, Inc., 6.625%, 2004 205 208,247
- ----------------------------------------------------------------------------------------------
Tyson Foods, Inc., 8.25%, 2011 560 651,626
- ----------------------------------------------------------------------------------------------
Whitman Corp., 6%, 2004 200 200,000
- ----------------------------------------------------------------------------------------------
$3,025,413
- ----------------------------------------------------------------------------------------------
Forest & Paper Products - 0.6%
- ----------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.85%, 2012 $345 $374,341
- ----------------------------------------------------------------------------------------------
Weyerhaeuser Co., 5.5%, 2005 810 834,669
- ----------------------------------------------------------------------------------------------
Weyerhaeuser Co., 6.75%, 2012 80 87,700
- ----------------------------------------------------------------------------------------------
$1,296,710
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 0%
- ----------------------------------------------------------------------------------------------
Harrah's Operating Co., Inc., 7.125%, 2007 $85 $93,791
- ----------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.5%, 2010 3 3,383
- ----------------------------------------------------------------------------------------------
$97,174
- ----------------------------------------------------------------------------------------------
Industrial - 0.3%
- ----------------------------------------------------------------------------------------------
Steelcase, Inc., 6.375%, 2006 $700 $733,575
- ----------------------------------------------------------------------------------------------
Insurance - 1.8%
- ----------------------------------------------------------------------------------------------
AIG SunAmerica, Inc., 5.85%, 2006## $260 $274,223
- ----------------------------------------------------------------------------------------------
AIG SunAmerica, Inc., 5.1%, 2007## 375 393,461
- ----------------------------------------------------------------------------------------------
ASIF Global Financing XVIII, 3.85%, 2007## 1,000 1,010,651
- ----------------------------------------------------------------------------------------------
John Hancock Global Funding II, 3.5%, 2009## 1,250 1,219,369
- ----------------------------------------------------------------------------------------------
MetLife, Inc., 3.911%, 2005 300 305,254
- ----------------------------------------------------------------------------------------------
MetLife, Inc., 5.375%, 2012 300 304,577
- ----------------------------------------------------------------------------------------------
Prudential Financial, Inc., 3.75%, 2008 400 397,508
- ----------------------------------------------------------------------------------------------
Prudential Insurance Co., 7.65%, 2007## 335 374,501
- ----------------------------------------------------------------------------------------------
$4,279,544
- ----------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.2%
- ----------------------------------------------------------------------------------------------
Allstate Corp., 7.2%, 2009 $225 $258,757
- ----------------------------------------------------------------------------------------------
Fund American Cos., Inc., 5.875%, 2013 997 1,002,760
- ----------------------------------------------------------------------------------------------
Hartford Financial Services Group, Inc., 4.7%, 2007 150 155,247
- ----------------------------------------------------------------------------------------------
Safeco Corp., 4.2%, 2008 930 949,049
- ----------------------------------------------------------------------------------------------
Safeco Corp., 4.875%, 2010 300 307,124
- ----------------------------------------------------------------------------------------------
Safeco Corp., 7.25%, 2012 85 96,703
- ----------------------------------------------------------------------------------------------
$2,769,640
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- ----------------------------------------------------------------------------------------------
Ingersoll Rand Co., 6.25%, 2006 $460 $490,975
- ----------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 410 437,107
- ----------------------------------------------------------------------------------------------
$928,082
- ----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.5%
- ----------------------------------------------------------------------------------------------
HCA Healthcare Co., 7.125%, 2006 $360 $382,786
- ----------------------------------------------------------------------------------------------
HCA, Inc., 8.75%, 2010 640 734,362
- ----------------------------------------------------------------------------------------------
$1,117,148
- ----------------------------------------------------------------------------------------------
Medical Equipment - 0.3%
- ----------------------------------------------------------------------------------------------
Baxter International, Inc., 5.25%, 2007 $650 $682,949
- ----------------------------------------------------------------------------------------------
Metals & Mining - 0.2%
- ----------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 $395 $476,377
- ----------------------------------------------------------------------------------------------
Mortgage Backed - 8.3%
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.085%, 2006 $115 $123,023
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.29%, 2006 45 48,141
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.65%, 2008 185 191,230
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.92%, 2009 1,308 1,404,132
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.722%, 2009 71 75,674
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7%, 2015 3 3,687
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.5%, 2015 2 2,043
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2016 - 2050 2,563 2,618,760
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6%, 2017 290 303,175
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2017 200 211,559
- ----------------------------------------------------------------------------------------------
Fannie Mae, 4.5%, 2018 1,187 1,169,816
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2018 2,337 2,353,670
- ----------------------------------------------------------------------------------------------
Freddie Mac, 6%, 2017 181 189,149
- ----------------------------------------------------------------------------------------------
Freddie Mac, 5.5%, 2017 - 2033 1,998 2,014,913
- ----------------------------------------------------------------------------------------------
Freddie Mac, 5%, 2018 - 2034 5,012 4,997,407
- ----------------------------------------------------------------------------------------------
Freddie Mac, 4.5%, 2019 2,982 2,941,527
- ----------------------------------------------------------------------------------------------
Ginnie Mae, 5.204%, 2014 117 120,839
- ----------------------------------------------------------------------------------------------
Ginnie Mae, 6%, 2033 769 788,366
- ----------------------------------------------------------------------------------------------
$19,557,111
- ----------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.3%
- ----------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $750 $845,812
- ----------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.6%
- ----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 8%, 2005 $15 $15,715
- ----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 5.35%, 2007 120 126,471
- ----------------------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP, 6.75%, 2011 110 120,318
- ----------------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.8%, 2008 1,000 1,097,107
- ----------------------------------------------------------------------------------------------
$1,359,611
- ----------------------------------------------------------------------------------------------
Oil Services - 0.4%
- ----------------------------------------------------------------------------------------------
Halliburton Co., 2.65%, 2005 $300 $303,475
- ----------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 700 715,366
- ----------------------------------------------------------------------------------------------
$1,018,841
- ----------------------------------------------------------------------------------------------
Oils - 0.3%
- ----------------------------------------------------------------------------------------------
Valero Energy Corp., 6.125%, 2007 $635 $682,297
- ----------------------------------------------------------------------------------------------
Valero Energy Corp., 6.875%, 2012 15 16,587
- ----------------------------------------------------------------------------------------------
$698,884
- ----------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.2%
- ----------------------------------------------------------------------------------------------
Jabil Circuit, Inc., 5.875%, 2010 $500 $519,309
- ----------------------------------------------------------------------------------------------
Pharmaceuticals - 1.4%
- ----------------------------------------------------------------------------------------------
Schering-Plough Corp., 5.3%, 2013 $1,750 $1,747,197
- ----------------------------------------------------------------------------------------------
Wyeth, 4.375%, 2008 650 656,087
- ----------------------------------------------------------------------------------------------
Wyeth, 5.5%, 2014 1,000 996,837
- ----------------------------------------------------------------------------------------------
$3,400,121
- ----------------------------------------------------------------------------------------------
Pollution Control - 0.4%
- ----------------------------------------------------------------------------------------------
Waste Management, Inc., 7%, 2004 - 2006 $555 $571,927
- ----------------------------------------------------------------------------------------------
Waste Management, Inc., 7.375%, 2010 57 64,800
- ----------------------------------------------------------------------------------------------
Waste Management, Inc., 6.375%, 2012 250 268,420
- ----------------------------------------------------------------------------------------------
$905,147
- ----------------------------------------------------------------------------------------------
Printing & Publishing - 0.2%
- ----------------------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 6.125%, 2006 $365 $393,093
- ----------------------------------------------------------------------------------------------
Real Estate - 1.7%
- ----------------------------------------------------------------------------------------------
EOP Operating LP, 7.75%, 2007 $655 $741,434
- ----------------------------------------------------------------------------------------------
EOP Operating LP, 6.8%, 2009 885 977,365
- ----------------------------------------------------------------------------------------------
Highwoods Properties, Inc., 7.19%, 2004## 200 200,672
- ----------------------------------------------------------------------------------------------
Kimco Realty Corp., 7.5%, 2006 300 332,873
- ----------------------------------------------------------------------------------------------
Kimco Realty Corp., 6%, 2012 250 262,735
- ----------------------------------------------------------------------------------------------
Rouse Co., 3.625%, 2009 373 357,462
- ----------------------------------------------------------------------------------------------
Simon Debartolo Group LP, 6.75%, 2004 120 121,188
- ----------------------------------------------------------------------------------------------
Simon Property Group LP, 6.375%, 2007 125 136,715
- ----------------------------------------------------------------------------------------------
Vornado Realty Trust, 5.625%, 2007 730 779,359
- ----------------------------------------------------------------------------------------------
$3,909,803
- ----------------------------------------------------------------------------------------------
Restaurants - 0.4%
- ----------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $750 $914,280
- ----------------------------------------------------------------------------------------------
Supermarkets - 0.4%
- ----------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $815 $918,002
- ----------------------------------------------------------------------------------------------
Supranational - 0.5%
- ----------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 6.75%, 2005 $120 $124,526
- ----------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 6.875%, 2012 200 219,751
- ----------------------------------------------------------------------------------------------
International Bank for Reconstruction & Development,
4.77%, 2005 750 768,840
- ----------------------------------------------------------------------------------------------
$1,113,117
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.5%
- ----------------------------------------------------------------------------------------------
Citizens Communications Co., 8.5%, 2006 $793 $854,489
- ----------------------------------------------------------------------------------------------
Sprint Capital Corp., 6%, 2007 1,300 1,381,868
- ----------------------------------------------------------------------------------------------
Sprint Capital Corp., 7.625%, 2011 1,000 1,127,680
- ----------------------------------------------------------------------------------------------
Telecomunicaciones de Puerto Rico, Inc., 6.65%, 2006 530 564,650
- ----------------------------------------------------------------------------------------------
Verizon New York, Inc., 6.875%, 2012 1,875 2,050,804
- ----------------------------------------------------------------------------------------------
$5,979,491
- ----------------------------------------------------------------------------------------------
Tobacco - 0.3%
- ----------------------------------------------------------------------------------------------
Altria Group, Inc., 7%, 2013 $568 $604,633
- ----------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 125 125,313
- ----------------------------------------------------------------------------------------------
$729,946
- ----------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
- ----------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $100 $127,987
- ----------------------------------------------------------------------------------------------
U.S. Government Agencies - 6.6%
- ----------------------------------------------------------------------------------------------
AID to Israel, 6.6%, 2008 $15 $16,105
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2004 250 253,839
- ----------------------------------------------------------------------------------------------
Fannie Mae, 7.25%, 2010 2,425 2,794,696
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5.25%, 2012 1,000 1,008,364
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.125%, 2012 315 343,030
- ----------------------------------------------------------------------------------------------
Federal Home Loan Bank, 2.25%, 2006 1,700 1,691,692
- ----------------------------------------------------------------------------------------------
Freddie Mac, 7%, 2005 325 344,841
- ----------------------------------------------------------------------------------------------
Freddie Mac, 4.875%, 2007 3,000 3,152,193
- ----------------------------------------------------------------------------------------------
Freddie Mac, 6.875%, 2010 3,750 4,261,545
- ----------------------------------------------------------------------------------------------
SLM Corp., 5.25%, 2006 325 342,010
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.93%, 2024 1,000 984,818
- ----------------------------------------------------------------------------------------------
U.S. Department of Veteran Affairs, 6%, 2021 225 231,124
- ----------------------------------------------------------------------------------------------
$15,424,257
- ----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.4%
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.5%, 2006 - 2010 $5,250 $5,913,645
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2.25%, 2007 375 369,932
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3%, 2007 2,100 2,094,832
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 4.375%, 2007 500 521,387
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.125%, 2007### 4,195 4,602,536
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2.625%, 2008 110 107,138
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 5.5%, 2008 5,000 5,408,775
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 5%, 2011 2,450 2,575,945
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 4%, 2014 625 600,391
- ----------------------------------------------------------------------------------------------
$22,194,581
- ----------------------------------------------------------------------------------------------
Utilities - Electric Power - 6.8%
- ----------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 $225 $256,259
- ----------------------------------------------------------------------------------------------
Constellation Energy Group, Inc., 6.35%, 2007 1,100 1,182,040
- ----------------------------------------------------------------------------------------------
DTE Energy Co., 6%, 2004 188 188,594
- ----------------------------------------------------------------------------------------------
DTE Energy Co., 6.45%, 2006 750 796,767
- ----------------------------------------------------------------------------------------------
DTE Energy Co., 7.05%, 2011 750 826,489
- ----------------------------------------------------------------------------------------------
Dominion Resources, Inc., 2.8%, 2005 400 402,812
- ----------------------------------------------------------------------------------------------
Entergy Mississippi, Inc., 6.2%, 2004 10 10,000
- ----------------------------------------------------------------------------------------------
Exelon Generation Co. LLC, 6.95%, 2011 1,225 1,364,765
- ----------------------------------------------------------------------------------------------
FPL Group Capital, Inc., 3.25%, 2006 500 505,423
- ----------------------------------------------------------------------------------------------
FirstEnergy Corp., 5.5%, 2006 600 626,063
- ----------------------------------------------------------------------------------------------
FirstEnergy Corp., 6.45%, 2011 540 568,511
- ----------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 4.625%, 2007 310 316,854
- ----------------------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., 3.5%, 2008 119 116,010
- ----------------------------------------------------------------------------------------------
Niagara Mohawk Power Corp., 5.375%, 2004 696 706,890
- ----------------------------------------------------------------------------------------------
Nisource Finance Corp., 7.625%, 2005 180 193,345
- ----------------------------------------------------------------------------------------------
Oncor Electric Delivery Co., 5%, 2007 325 340,388
- ----------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 189 197,505
- ----------------------------------------------------------------------------------------------
PSEG Power LLC, 6.875%, 2006 430 461,657
- ----------------------------------------------------------------------------------------------
PSEG Power LLC, 7.75%, 2011 450 518,104
- ----------------------------------------------------------------------------------------------
Pacific Gas & Electric Co., 3.6%, 2009 607 588,800
- ----------------------------------------------------------------------------------------------
Progress Energy, Inc., 6.05%, 2007 610 649,786
- ----------------------------------------------------------------------------------------------
System Energy Resources, Inc., 5.129%, 2014## 1,047 1,034,174
- ----------------------------------------------------------------------------------------------
TXU Energy Co. LLC, 6.125%, 2008 375 399,992
- ----------------------------------------------------------------------------------------------
Virginia Electric & Power Co., 5.375%, 2007 363 381,997
- ----------------------------------------------------------------------------------------------
Virginia Electric & Power Co., 4.1%, 2008 1,226 1,209,910
- ----------------------------------------------------------------------------------------------
Wisconsin Energy Corp., 5.875%, 2006 1,967 2,080,299
- ----------------------------------------------------------------------------------------------
$15,923,434
- ----------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
- ----------------------------------------------------------------------------------------------
Keyspan Corp., 6.15%, 2006 $175 $186,646
- ----------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 241 255,706
- ----------------------------------------------------------------------------------------------
$442,352
- ----------------------------------------------------------------------------------------------
Wireless Communications - 0.2%
- ----------------------------------------------------------------------------------------------
AT&T Wireless Services, Inc., 7.35%, 2006 $236 $255,368
- ----------------------------------------------------------------------------------------------
Verizon Wireless Capital LLC, 5.375%, 2006 183 193,105
- ----------------------------------------------------------------------------------------------
$448,473
- ----------------------------------------------------------------------------------------------
Total U.S. Bonds $202,734,574
- ----------------------------------------------------------------------------------------------
Foreign Bonds - 12.4%
- ----------------------------------------------------------------------------------------------
Australia - 0.1%
- ----------------------------------------------------------------------------------------------
Superannuation Members Home Loans Global Trust,
1.36%, 2029 (Asset Backed & Securitized) $309 $309,526
- ----------------------------------------------------------------------------------------------
Brazil - 0.1%
- ----------------------------------------------------------------------------------------------
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011
(Asset Backed & Securitized)## $310 $299,150
- ----------------------------------------------------------------------------------------------
Canada - 1.7%
- ----------------------------------------------------------------------------------------------
Anderson Exploration Ltd., 6.75%, 2011 (Energy -
Independent) $200 $216,357
- ----------------------------------------------------------------------------------------------
Hydro-Quebec, 6.3%, 2011 (International Market Sovereign) 265 292,354
- ----------------------------------------------------------------------------------------------
Province of Manitoba, 4.25%, 2006 (International Market
Sovereign) 475 489,926
- ----------------------------------------------------------------------------------------------
Province of New Brunswick, 3.5%, 2007 (International
Market Sovereign) 500 504,161
- ----------------------------------------------------------------------------------------------
Province of Ontario, 7%, 2005 (International Market
Sovereign) 80 85,059
- ----------------------------------------------------------------------------------------------
Province of Ontario, 6%, 2006 (International Market
Sovereign) 1,200 1,270,568
- ----------------------------------------------------------------------------------------------
TELUS Corp., 7.5%, 2007 (Telecommunications - Wireline) 850 939,286
- ----------------------------------------------------------------------------------------------
TELUS Corp., 8%, 2011 (Telecommunications - Wireline) 225 260,991
- ----------------------------------------------------------------------------------------------
$4,058,702
- ----------------------------------------------------------------------------------------------
Cayman Islands - 0.3%
- ----------------------------------------------------------------------------------------------
DBS Capital Funding Corp., 7.657% to 2011,
4.38% to 2049 (Banks & Credit Companies)## $635 $718,207
- ----------------------------------------------------------------------------------------------
Chile - 0.6%
- ----------------------------------------------------------------------------------------------
Corporacion Nacional del Cobre de Chile, 6.375%, 2012
(Metals & Mining)## $250 $267,064
- ----------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013
(Utilities - Electric Power) 750 804,720
- ----------------------------------------------------------------------------------------------
HQI Transelec Chile S.A., 7.875%, 2011 (Utilities -
Electric Power) 300 340,653
- ----------------------------------------------------------------------------------------------
$1,412,437
- ----------------------------------------------------------------------------------------------
El Salvador - 0.3%
- ----------------------------------------------------------------------------------------------
Republic of El Salvador, 9.5%, 2006 (Emerging Market
Sovereign)+ $550 $607,750
- ----------------------------------------------------------------------------------------------
France - 0.6%
- ----------------------------------------------------------------------------------------------
France Telecom S.A., 8.2%, 2006 (Telecommunications -
Wireline) $905 $984,319
- ----------------------------------------------------------------------------------------------
France Telecom S.A., 8.75%, 2011 (Telecommunications -
Wireline) 300 354,659
- ----------------------------------------------------------------------------------------------
$1,338,978
- ----------------------------------------------------------------------------------------------
Germany - 1.2%
- ----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.25%, 2005
(Telecommunications - Wireline) $665 $707,869
- ----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 5.25%, 2013
(Telecommunications - Wireline) 200 198,529
- ----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 9.4%, 2004
(International Market Agencies) 205 205,813
- ----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 2.5%, 2005
(International Market Agencies) 800 805,929
- ----------------------------------------------------------------------------------------------
KFW International Finance, Inc., 4.25%, 2005
(International Market Agencies) 25 25,574
- ----------------------------------------------------------------------------------------------
Kreditanstalt fur Wiederaufbau, 2.375%, 2006
(International Market Agencies) 670 667,172
- ----------------------------------------------------------------------------------------------
Landesbank Baden-Wurttemberg, 5.125%, 2007 (International
Market Agencies) 300 314,412
- ----------------------------------------------------------------------------------------------
$2,925,298
- ----------------------------------------------------------------------------------------------
Ireland - 0.5%
- ----------------------------------------------------------------------------------------------
Depfa ACS Bank, 3.625%, 2008 (Banks & Credit Companies) $1,250 $1,237,600
- ----------------------------------------------------------------------------------------------
Israel - 0.4%
- ----------------------------------------------------------------------------------------------
State of Israel, 5.125%, 2014 (International Market
Sovereign) $1,000 $953,438
- ----------------------------------------------------------------------------------------------
Japan - 0.5%
- ----------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 5.79%, 2014 (Banks & Credit
Companies)## $784 $777,430
- ----------------------------------------------------------------------------------------------
UFJ Finance Aruba AEC, 6.75%, 2013 (Banks & Credit
Companies) 480 506,838
- ----------------------------------------------------------------------------------------------
$1,284,268
- ----------------------------------------------------------------------------------------------
Kazakhstan - 0.3%
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks &
Credit Companies)## $550 $588,587
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 8.5%, 2013 (Banks &
Credit Companies)## 150 144,750
- ----------------------------------------------------------------------------------------------
$733,337
- ----------------------------------------------------------------------------------------------
Luxembourg - 0.4%
- ----------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.25%, 2013 (Telecommunications -
Wireline)## $1,000 $985,926
- ----------------------------------------------------------------------------------------------
Mexico - 0.6%
- ----------------------------------------------------------------------------------------------
BBVA Bancomer Capital Trust I, 10.5%, 2011 (Banks &
Credit Companies)## $165 $183,975
- ----------------------------------------------------------------------------------------------
Banco Mercantil S.A., 5.875%, 2014 (Banks & Credit
Companies)## 750 731,250
- ----------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 7.375%, 2014
(Emerging Market Agencies) 375 391,875
- ----------------------------------------------------------------------------------------------
$1,307,100
- ----------------------------------------------------------------------------------------------
Panama - 0.2%
- ----------------------------------------------------------------------------------------------
Carnival Corp., 3.75%, 2007 (Gaming & Lodging)## $500 $498,474
- ----------------------------------------------------------------------------------------------
South Africa - 0.4%
- ----------------------------------------------------------------------------------------------
Republic of South Africa, 9.125%, 2009 (International
Market Sovereign) $750 $885,000
- ----------------------------------------------------------------------------------------------
South Korea - 0.7%
- ----------------------------------------------------------------------------------------------
Export-Import Bank of Korea, 5.25%, 2014 (Emerging Market
Agencies)## $800 $779,600
- ----------------------------------------------------------------------------------------------
Woori Bank, 5.75%, 2014 (Banks & Credit Companies)## 750 753,750
- ----------------------------------------------------------------------------------------------
$1,533,350
- ----------------------------------------------------------------------------------------------
Sweden - 0.1%
- ----------------------------------------------------------------------------------------------
Spintab AB, 7.5% to 2006, 3.78% to 2049 (Banks & Credit
Companies) $175 $191,102
- ----------------------------------------------------------------------------------------------
Spintab AB, 7.5% to 2006, 3.78% to 2049 (Banks & Credit
Companies)## 150 163,802
- ----------------------------------------------------------------------------------------------
$354,904
- ----------------------------------------------------------------------------------------------
Tunisia - 0.3%
- ----------------------------------------------------------------------------------------------
Banque Centrale de Tunisie, 7.375%, 2012 (Emerging Market
Sovereign) $590 $647,525
- ----------------------------------------------------------------------------------------------
United Kingdom - 3.1%
- ----------------------------------------------------------------------------------------------
Abbey First National, 8.2%, 2004 (Banks & Credit
Companies) $425 $437,672
- ----------------------------------------------------------------------------------------------
Barclays Bank PLC, 8.55% to 2011, 4.18% to 2049 (Banks &
Credit Companies)## 1,170 1,414,363
- ----------------------------------------------------------------------------------------------
British Telecom PLC, 7.875%, 2005 (Telecommunications -
Wireline) 250 270,583
- ----------------------------------------------------------------------------------------------
Cadbury Schweppes PLC, 3.875%, 2008 (Food & Non-Alcoholic
Beverages)## 1,200 1,187,276
- ----------------------------------------------------------------------------------------------
Cadbury Schweppes U.S. Finance, 5.125%, 2013 (Food & Non-
Alcoholic Beverages)## 300 296,135
- ----------------------------------------------------------------------------------------------
Holmes Financing PLC, 1.8344%, 2040 (Asset Backed &
Securitized) 470 470,000
- ----------------------------------------------------------------------------------------------
National Westminster Bancorp, 7.75% to 2007,
2.83% to 2049 (Banks & Credit Companies) 550 616,298
- ----------------------------------------------------------------------------------------------
Permanent Financing PLC, 4.2%, 2005 (Asset Backed &
Securitized) 750 770,175
- ----------------------------------------------------------------------------------------------
RMAC, 1.3233%, 2036 (Asset Backed & Securitized)## 420 420,197
- ----------------------------------------------------------------------------------------------
Royal Bank of Scotland, 8.817%, 2049 (Banks & Credit
Companies) 1,310 1,386,613
- ----------------------------------------------------------------------------------------------
$7,269,312
- ----------------------------------------------------------------------------------------------
Total Foreign Bonds $29,360,282
- ----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $232,723,542) $232,094,856
- ----------------------------------------------------------------------------------------------
Repurchase Agreements - 1.1%
- ----------------------------------------------------------------------------------------------
Goldman Sachs & Co., dated 4/30/04, due 5/03/04, total to
be received $2,566,222 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $2,566 $2,566,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $235,289,542) $234,660,856
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.4% 835,007
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $235,495,863
- ----------------------------------------------------------------------------------------------
^^ Interest only security.
## SEC Rule 144A restriction.
### Security segregated as collateral for open futures contracts.
+ Restricted security.
(+) Principal amount was less than 500.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $235,289,542) $234,660,856
- --------------------------------------------------------------------------------------------------
Cash 226,274
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 410,789
- --------------------------------------------------------------------------------------------------
Interest receivable 2,578,457
- --------------------------------------------------------------------------------------------------
Receivable from investment adviser 132
- --------------------------------------------------------------------------------------------------
Total assets $237,876,508
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $853,797
- --------------------------------------------------------------------------------------------------
Payable for daily variation margin on open futures
contracts 5,484
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 1,250,054
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 266,983
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 1,947
- --------------------------------------------------------------------------------------------------
Reimbursement fee 1,613
- --------------------------------------------------------------------------------------------------
Distribution and service fee 767
- --------------------------------------------------------------------------------------------------
Total liabilities $2,380,645
- --------------------------------------------------------------------------------------------------
Net assets $235,495,863
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $238,440,295
- --------------------------------------------------------------------------------------------------
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (619,506)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net realized gain on
investments (2,009,307)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (315,619)
- --------------------------------------------------------------------------------------------------
Net assets $235,495,863
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 23,113,918
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
Net assets $49,064,518
- --------------------------------------------------------------------------------------------------
Shares outstanding 4,814,093
- --------------------------------------------------------------------------------------------------
Net asset value per share $10.19
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$10.19) $10.70
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $13,926,637
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,366,232
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.19
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $6,552,910
- --------------------------------------------------------------------------------------------------
Shares outstanding 642,640
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.20
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $165,586,386
- --------------------------------------------------------------------------------------------------
Shares outstanding 16,255,087
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.19
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $325,088
- --------------------------------------------------------------------------------------------------
Shares outstanding 31,910
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.19
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $40,324
- --------------------------------------------------------------------------------------------------
Shares outstanding 3,956
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.19
- --------------------------------------------------------------------------------------------------
On sales of $100,000 or more, the 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
- --------------------------------------------------------------------------------------------------
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 YEAR ENDED 4/30/04
NET INVESTMENT INCOME
Interest income $6,821,402
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $850,517
- --------------------------------------------------------------------------------------------------
Trustees' compensation 3,567
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 241,082
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 150,952
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 150,583
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 59,639
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 1,046
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 100
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 50
- --------------------------------------------------------------------------------------------------
Administrative fee 16,078
- --------------------------------------------------------------------------------------------------
Custodian fee 65,049
- --------------------------------------------------------------------------------------------------
Printing 53,232
- --------------------------------------------------------------------------------------------------
Postage 3,370
- --------------------------------------------------------------------------------------------------
Auditing fees 37,456
- --------------------------------------------------------------------------------------------------
Legal fees 3,448
- --------------------------------------------------------------------------------------------------
Registration fees 91,018
- --------------------------------------------------------------------------------------------------
Miscellaneous 19,158
- --------------------------------------------------------------------------------------------------
Total expenses $1,746,345
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (2,807)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (465,636)
- --------------------------------------------------------------------------------------------------
Net expenses $1,277,902
- --------------------------------------------------------------------------------------------------
Net investment income $5,543,500
- --------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $312,748
- --------------------------------------------------------------------------------------------------
Futures contracts 9,028
- --------------------------------------------------------------------------------------------------
Net realized gain on investments $321,776
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $(3,062,839)
- --------------------------------------------------------------------------------------------------
Futures contracts 9,180
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments $(3,053,659)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $(2,731,883)
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $2,811,617
- --------------------------------------------------------------------------------------------------
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.
FOR YEAR ENDED 4/30 2004 2003
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $5,543,500 $1,518,421
- -------------------------------------------------------------------------------------------------
Net realized gain on investments 321,776 332,653
- -------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments (3,053,659) 2,406,857
- --------------------------------------------------------- ------------ ------------
Increase in net assets from operations $2,811,617 $4,257,931
- --------------------------------------------------------- ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -------------------------------------------------------------------------------------------------
Class A $(1,917,393) $(1,019,402)
- -------------------------------------------------------------------------------------------------
Class B (540,232) (307,813)
- -------------------------------------------------------------------------------------------------
Class C (213,088) (90,332)
- -------------------------------------------------------------------------------------------------
Class I (4,839,760) (745,297)
- -------------------------------------------------------------------------------------------------
Class R1 (8,517) (618)
- -------------------------------------------------------------------------------------------------
Class R2 (765) --
- -------------------------------------------------------------------------------------------------
From net realized gain on investments
- -------------------------------------------------------------------------------------------------
Class A (61,449) (34,938)
- -------------------------------------------------------------------------------------------------
Class B (20,255) (12,353)
- -------------------------------------------------------------------------------------------------
Class C (8,983) (3,560)
- -------------------------------------------------------------------------------------------------
Class I (156,604) (19,465)
- -------------------------------------------------------------------------------------------------
Class R1 (412) --
- -------------------------------------------------------------------------------------------------
Class R2 (56) --
- --------------------------------------------------------- ------------ ------------
Total distributions declared to shareholders $(7,767,514) $(2,233,778)
- --------------------------------------------------------- ------------ ------------
Net increase in net assets from fund
share transactions $136,947,741 $98,861,950
- --------------------------------------------------------- ------------ ------------
Total increase in net assets $131,991,844 $100,886,103
- --------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $103,504,019 $2,617,916
- -------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $315,619 and $74,625,
respectively) $235,495,863 $103,504,019
- -------------------------------------------------------------------------------------------------
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 past 5 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) held for the entire period. This information has been audited by the fund's
independent auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEAR ENDED 4/30
CLASS A 2004 2003 2002 2001 2000
Net asset value, beginning of period $10.43 $9.92 $9.85 $9.38 $9.88
- ------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.34 $0.35 $0.49 $0.67 $0.64
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.11) 0.68 0.23 0.48 (0.49)
- --------------------------------------------- ------- ------- ------- ------- -------
Total from investment operations $0.23 $1.03 $0.72 $1.15 $0.15
- --------------------------------------------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.46) $(0.51) $(0.59) $(0.68) $(0.65)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (0.01) (0.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.06) -- --
- --------------------------------------------- ------- ------- ------- ------- -------
Total distributions declared to
shareholders $(0.47) $(0.52) $(0.65) $(0.68) $(0.65)
- --------------------------------------------- ------- ------- ------- ------- -------
Net asset value, end of period $10.19 $10.43 $9.92 $9.85 $9.38
- --------------------------------------------- ------- ------- ------- ------- -------
Total return (%)(+) 2.27 10.59 7.47 12.63 1.62
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
FOR YEAR ENDED 4/30
CLASS A (CONTINUED) 2004 2003 2002 2001 2000
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 0.74 0.75 0.41 0.03 0.04
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.26 3.48 5.62 7.02 6.69
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 40 79 75 133 147
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $49,065 $36,151 $1,391 $235 $1,022
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective March 1, 2002, MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management, distribution and service, and
certain other fees and expenses, such that Other Expenses do not exceed 0.25% annually. This arrangement is effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense
reimbursement fee not greater than 0.25% of average daily net assets. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to unreimbursed amounts paid by MFS under the current
agreement. This agreement will terminate on the earlier of September 1, 2004 or such date as all expenses previously borne
by MFS under the current agreement have been paid by the fund. Prior to March 1, 2002, the investment advisor
contractually agreed under a temporary expense agreement to pay all of the fund's operating expenses, exclusive of
management, distribution and service, and certain other fees and expenses. In addition, the investment advisor and
distributor contractually waived a portion of their fees for certain of the periods indicated. To the extent actual
expenses were over these limitations and the waivers had not been in place, the net investment income (loss) per share and
the ratios would have been:
Net investment income (loss) $0.30 $0.28 $(0.29) $0.28 $0.25
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.16 1.41 9.37 4.13 4.10
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.84 2.82 (3.34) 2.92 2.63
- ------------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premiums on debt securities. The effect of this change for the year ended
April 30, 2002, was to decrease net investment income per share by $0.05, increase net realized and unrealized gains
and losses per share by $0.05, and to decrease the ratio of net investment income to average net assets by 0.52%. Per
share ratios, and supplemental data for periods prior to May 1, 2001, have not been restated to reflect this change.
# 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
FOR YEAR ENDED 4/30 PERIOD
ENDED
CLASS B 2004 2003 4/30/02*
Net asset value, beginning of period $10.43 $9.92 $10.03
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.25 $0.27 $0.07
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.10) 0.67 (0.10)
- ----------------------------------------------------------------- ------- ------- -------
Total from investment operations $0.15 $0.94 $(0.03)
- ----------------------------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.38) $(0.42) $(0.07)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (0.01) (0.01) --
- --------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.01)
- ----------------------------------------------------------------- ------- ------- -------
Total distributions declared to shareholders $(0.39) $(0.43) $(0.08)
- ----------------------------------------------------------------- ------- ------- -------
Net asset value, end of period $10.19 $10.43 $9.92
- ----------------------------------------------------------------- ------- ------- -------
Total return (%) 1.41 9.66 0.13++###
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 1.59 1.60 1.61+
- --------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.40 2.63 4.49+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 40 79 75
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $13,927 $15,603 $234
- --------------------------------------------------------------------------------------------------------------------
(S) Effective March 1, 2002, MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's
"Other Expenses", which are defined as the fund's operating expenses, exclusive of management, distribution and
service, and certain other fees and expenses, such that Other Expenses do not exceed 0.25% annually. This
arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the
fund paying MFS an expense reimbursement fee not greater than 0.25% of average daily net assets. To the extent
that the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to
unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of
September 1, 2004 or such date as all expenses previously borne by MFS under the current agreement have been
paid by the fund. In addition, the investment advisor contractually waived a portion of its fees for certain of
the periods indicated. To the extent actual expenses were over these limitations and the waivers had not been in
place, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.23 $0.22 $(0.07)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.81 2.06 10.47+
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.18 2.17 (4.37)+
- --------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premiums on debt securities. The effect of this change
for the period ended April 30, 2002, was to decrease net investment income per share by $0.01, increase net
realized and unrealized gains and losses per share by $0.01, and to decrease the ratio of net investment
income to average net assets by 0.52%.
* For the period from the inception of Class B shares, March 1, 2002, through April 30, 2002.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### For the year ended April 30, 2002 the total return was previously reported incorrectly as (0.27)%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEAR ENDED 4/30 PERIOD
ENDED
CLASS C 2004 2003 4/30/02*
Net asset value, beginning of period $10.43 $9.92 $10.03
- --------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.25 $0.26 $0.07
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.09) 0.68 (0.10)
- ----------------------------------------------------------------- ------- ------- -------
Total from investment operations $0.16 $0.94 $(0.03)
- ----------------------------------------------------------------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.38) $(0.42) $(0.07)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (0.01) (0.01) --
- --------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.01)
- ----------------------------------------------------------------- ------- ------- -------
Total distributions declared to shareholders $(0.39) $(0.43) $(0.08)
- ----------------------------------------------------------------- ------- ------- -------
Net asset value, end of period $10.20 $10.43 $9.92
- ----------------------------------------------------------------- ------- ------- -------
Total return (%) 1.51 9.63 0.13++###
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 1.59 1.60 1.61+
- --------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 2.40 2.60 4.35+
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 40 79 75
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $6,553 $4,671 $13
- --------------------------------------------------------------------------------------------------------------------
(S) Effective March 1, 2002, MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's
"Other Expenses", which are defined as the fund's operating expenses, exclusive of management, distribution and
service, and certain other fees and expenses, such that Other Expenses do not exceed 0.25% annually. This
arrangement is effected by MFS bearing all of the fund's Other Expenses during the fund's fiscal year and the
fund paying MFS an expense reimbursement fee not greater than 0.25% of average daily net assets. To the extent
that the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to
unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of
September 1, 2004 or such date as all expenses previously borne by MFS under the current agreement have been
paid by the fund. In addition, the investment advisor contractually waived a portion of its fees for certain of
the periods indicated. To the extent actual expenses were over these limitations and the waivers had not been in
place, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.23 $0.21 $(0.07)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.81 2.06 10.47+
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 2.18 2.14 (4.51)+
- --------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began amortizing premiums on debt securities. The effect of this change
for the period ended April 30, 2002, was to decrease net investment income per share by $0.01, increase net
realized and unrealized gains and losses per share by $0.01, and to decrease the ratio of net investment
income to average net assets by 0.51%.
* For the period from the inception of Class C shares, March 1, 2002, through April 30, 2002.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### For the year eneded April 30, 2002 the total return was previously reported incorrectly as (0.27)%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
FOR YEAR ENDED 4/30
CLASS I 2004 2003 2002 2001 2000
Net asset value, beginning of period $10.42 $9.92 $9.84 $9.38 $9.87
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.35 $0.34 $0.59 $0.68 $0.65
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.09) 0.69 0.14 0.46 (0.49)
- ------------------------------------------------ ------- ------- ------- ------- -------
Total from investment operations $0.26 $1.03 $0.73 $1.14 $0.16
- ------------------------------------------------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.48) $(0.52) $(0.59) $(0.68) $(0.65)
- -----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (0.01) (0.01) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.06) -- --
- ------------------------------------------------ ------- ------- ------- ------- -------
Total distributions declared to shareholders $(0.49) $(0.53) $(0.65) $(0.68) $(0.65)
- ------------------------------------------------ ------- ------- ------- ------- -------
Net asset value, end of period $10.19 $10.42 $9.92 $9.84 $9.38
- ------------------------------------------------ ------- ------- ------- ------- -------
Total return (%) 2.52 10.65 7.60 12.52 1.72
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA(S):
Expenses## 0.59 0.60 0.13 0.03 0.04
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 3.42 3.58 5.90 6.96 6.80
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 40 79 75 133 147
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $165,586 $47,031 $980 $915 $0+++
- -----------------------------------------------------------------------------------------------------------------------------
(S) Effective March 1, 2002, MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management, and certain other fees and
expenses, such that Other Expenses do not exceed 0.25% annually. This arrangement is effected by MFS bearing all of the
fund's Other Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than
0.25% of average daily net assets. To the extent that the expense reimbursement fee exceeds the fund's actual expenses,
the excess will be applied to unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate
on the earlier of September 1, 2004 or such date as all expenses previously borne by MFS under the current agreement have
been paid by the fund. Prior to March 1, 2002, the investment advisor contractually agreed under a temporary expense
agreement to pay all of the fund's operating expenses, exclusive of management, and certain other fees and expenses. In
addition, the investment advisor contractually waived a portion of their fees for certain of the periods indicated. To the
extent actual expenses were over these limitations and the waivers had not been in place, the net investment income (loss)
per share and the ratios would have been:
Net investment income (loss) $0.33 $0.30 $(0.30) $0.28 $0.30
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.81 1.06 8.99 4.13 3.75
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 3.20 3.12 (2.96) 2.86 3.09
- -----------------------------------------------------------------------------------------------------------------------------
(S)(S) As required, effective May 1, 2001, the fund has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premiums on debt securities. The effect of this change for the year ended
April 30, 2002, was to decrease net investment income per share by $0.05, increase net realized and unrealized gains
and losses per share by $0.05, and to decrease the ratio of net investment income to average net assets by 0.52%. Per
share ratios, and supplemental data for periods prior to May 1, 2001, have not been restated to reflect this change.
+++ 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
Financial Highlights - continued
YEAR ENDED PERIOD ENDED
CLASS R1** 4/30/04 4/30/03*
Net asset value, beginning of period $10.43 $10.34
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.31 $0.10
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.11) 0.14###
- ----------------------------------------------------------------- ------- -------
Total from investment operations $0.20 $0.24
- ----------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.43) $(0.15)
- ----------------------------------------------------------------------------------------------------
From net realized gain on investments $(0.01) $--
- ----------------------------------------------------------------- ------- -------
Total distributions declared to shareholders $(0.44) $(0.15)
- ----------------------------------------------------------------- ------- -------
Net asset value, end of period $10.19 $10.43
- ----------------------------------------------------------------- ------- -------
Total return (%) 1.92 2.36++
- ----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.09 1.10+
- ----------------------------------------------------------------------------------------------------
Net investment income 2.96 3.06+
- ----------------------------------------------------------------------------------------------------
Portfolio turnover 40 79
- ----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $325 $48
- ----------------------------------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other
Expenses", which are defined as the fund's operating expenses, exclusive of management,
distribution and service, and certain other fees and expenses, such that Other Expenses do not
exceed 0.25% annually. This arrangement is effected by MFS bearing all of the fund's Other
Expenses during the fund's fiscal year and the fund paying MFS an expense reimbursement fee not
greater than 0.25% of average daily net assets. To the extent that the expense reimbursement fee
exceeds the fund's actual expenses, the excess will be applied to unreimbursed amounts paid by
MFS under the current agreement. This agreement will terminate on the earlier of September 1,
2004 or such date as all expenses previously borne by MFS under the current agreement have been
paid by the fund. In addition, the investment advisor contractually waived a portion of its fees
for certain of the periods indicated. To the extent actual expenses were over these limitations
and the waivers had not been in place, the net investment income (loss) per share and the ratios
would have been:
Net investment income $0.29 $0.09
- ----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.31 1.56+
- ----------------------------------------------------------------------------------------------------
Net investment income 2.74 2.60+
- ----------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through April 30, 2003.
** Effective November 3, 2003, Class R shares have been renamed R1 shares.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and unrealized gain/loss for the
period because of the timing of sales of fund shares and the amount of per share realized and
unrealized gains and losses at such time.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
4/30/04*
CLASS R2
Net asset value, beginning of period $10.30
- ------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.14
- -----------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.04)###
- ----------------------------------------------------------------- -------
Total from investment operations $0.10
- ----------------------------------------------------------------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.20)
- -----------------------------------------------------------------------------
From net realized gain on investments (0.01)
- ----------------------------------------------------------------- -------
Total distributions declared to shareholders $(0.21)
- ----------------------------------------------------------------- -------
Net asset value, end of period $10.19
- ----------------------------------------------------------------- -------
Total return (%) 0.95++
- -----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.32+
- -----------------------------------------------------------------------------
Net investment income 2.71+
- -----------------------------------------------------------------------------
Portfolio turnover 40
- -----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $40
- -----------------------------------------------------------------------------
(S) MFS has contractually agreed, subject to reimbursement, to bear a portion
of the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain
other fees and expenses, such that Other Expenses do not exceed 0.50%
annually. This arrangement is effected by MFS bearing all of the fund's
Other Expenses during the fund's fiscal year and the fund paying MFS an
expense reimbursement fee not greater than 0.50% of average daily net
assets. To the extent that the expense reimbursement fee exceeds the
fund's actual expenses, the excess will be applied to unreimbursed amounts
paid by MFS under the current agreement. This agreement will terminate on
the earlier of September 1, 2004 or such date as all expenses previously
borne by MFS under the current agreement have been paid by the fund. In
addition, the investment advisor contractually waived a portion of its
fees for certain of the periods indicated. To the extent actual expenses
were over these limitations and the waivers had not been in place, the net
investment income (loss) per share and the ratios would
have been:
Net investment income $0.13
- -----------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.54+
- -----------------------------------------------------------------------------
Net investment income 2.49+
- -----------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through April 30, 2004.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
### The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and
losses at such time.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Intermediate Investment Grade Fund (the fund) is a non-diversified series
of MFS Series Trust IX (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
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 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 - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. 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. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Futures contracts are valued at the
settlement price as reported by an independent pricing service on the primary
exchange on which they are traded. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
All other short-term obligations in the fund's portfolio are valued at
amortized cost, which constitutes market value as determined by the Board of
Trustees. 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.
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 - 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.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, 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 securities
prices. Investments in index contracts or contracts on related options for
purposes other than hedging, may be made when the fund has cash on hand and
wishes to participate in anticipated market appreciation while the cash is
being invested. Should securities prices move unexpectedly, the fund may not
achieve the anticipated benefits of the futures contracts and may realize a
loss.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United Sates of
America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations. Some securities may be purchased on a "when-
issued" or "forward delivery" basis, which means that the securities will be
delivered to the fund at a future date, usually beyond customary settlement
time. The fund may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
0.01%. The fund holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
fund may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the fund's other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Investment Valuations"
above. The fund may enter into "TBA" (to be announced) sale commitments to
hedge its portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale commitments are not
received until the contractual settlement date. During the time a TBA sale
commitment is outstanding, equivalent deliverable securities, or an offsetting
TBA purchase commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction.
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, for the year ended April 30, 2004, 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 mortgage-backed securities, derivatives, and amortization and
accretion on debt securities.
The tax character of distributions declared for the years ended April 30, 2004
and April 30, 2003 was as follows:
4/30/04 4/30/03
Distributions declared from:
----------------------------------------------------------------
Ordinary income $7,767,514 $2,229,087
----------------------------------------------------------------
Long-term capital gain -- 4,691
----------------------------------------------------------------
Total distributions declared $7,767,514 $2,233,778
----------------------------------------------------------------
During the year ended April 30, 2004, accumulated distributions in excess of
net investment income decreased by $1,735,261, accumulated distributions in
excess of net realized gain on investments increased by $1,735,783, and paid-
in capital increased by $522 due to differences between book and tax accounting
for mortgage-backed securities, amortization and accretion on debt securities,
and market discount. This change had no effect on the net assets or net asset
value per share. At April 30, 2004, accumulated distributions in excess of net
investment income and accumulated distributions in excess of net realized gain
on investments under book accounting were different from tax accounting due to
temporary differences in accounting for mortgage-backed securities,
amortization and accretion on debt securities, market discount, and wash sales.
As of April 30, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $538,178
----------------------------------------------------------
Capital loss carryforward (108,693)
----------------------------------------------------------
Post-October capital loss deferral (59,410)
----------------------------------------------------------
Unrealized depreciation (2,460,710)
----------------------------------------------------------
Other temporary differences (853,797)
----------------------------------------------------------
Post-October capital loss deferrals represent 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 on April 30, 2012.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B shares will convert to Class A shares approximately eight
years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.50% of
the fund's average daily net assets. The investment adviser has contractually
agreed to waive a portion of its fee, which is shown as a reduction of total
expenses in the Statement of Operations. Management fees incurred for the year
ended April 30, 2004 were 0.34% of average daily net assets on an annualized
basis.
As part of the settlement agreement with the New York Attorney General
concerning market timing and related matters, MFS has agreed to reduce the
fund's management fee to 0.30% of average daily net assets for the period March
1, 2004 through February 28, 2009. During this time period, the Board of
Trustees will continue to review the appropriateness of all advisory fees in
accordance with their oversight responsibilities. After February 28, 2009, the
management fee will be determined in accordance with then existing review
policies approved by the Board of Trustees overseeing the fund.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service, and certain other
fees and expenses, such that Other Expenses do not exceed 0.25% annually. This
arrangement is effected by MFS bearing all of the fund's other expenses during
the fund's fiscal year, and the fund paying MFS a reimbursement fee not greater
than 0.25% of average daily net assets for Class A, Class B, Class C, Class I,
and Class R1 and not greater than 0.50% of average daily net assets for Class
R2. To the extent that the expense reimbursement fee exceeds the fund's actual
expenses, the excess will be applied to unreimbursed amounts paid by MFS under
the current agreement. This agreement will terminate on the earlier of
September 1, 2004 or such date as all expenses previously borne by MFS under
the current agreement have been paid by the fund. At April 30, 2004, aggregate
unreimbursed expenses amounted to $62,072. The fund will not be required to
reimburse MFS the $43,434 for expenses borne under a previous agreement that
expired on September 1, 2003.
The fund pays compensation to the Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, 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).
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance and other administrative services to certain funds
for which MFS acts as an investment adviser. Under an administrative services,
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates 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%
------------------------------------------------------
Effective April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
------------------------------------------------------
Next $2.5 billion 0.00832%
------------------------------------------------------
Next $2.5 billion 0.00032%
------------------------------------------------------
In excess of $7 billion 0.00000%
------------------------------------------------------
For the year ended April 30, 2004, the fund paid MFS $16,078, equivalent to
0.0095% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS for
the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$21,128 for the year ended April 30, 2004, 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, Class C,
Class R1 and Class R2 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 R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------
MFD retains the serice fee for accounts not attributable to a securities dealer, which for the year ended April
30, 2004 amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $1,867 $26 $10 $28 $--
- ----------------------------------------------------------------------------------------------------------------
The Class A distribution fee and 0.10% of the Class A service fee are currently being waived on a contractual
basis. Fees incurred under the distribution plan during the year ended April 30, 2004, were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Total Distribution Plan 0.15% 1.00% 1.00% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------
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 year ended April 30, 2004, were
as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales
Charges Imposed $3 $44,556 $3,142
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING FEE - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as
shareholder servicing agent. The fee, which is calculated as a percentage of
the fund's average daily net assets is set periodically under the supervision
of the fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of
the fund's average daily net assets. Effective April 1, 2004, the fee is set
at 0.10% of the fund's average daily net assets. For the year ended April 30,
2004, the fund paid MFSC a fee of $185,203 for shareholder services which
amounted to 0.109% of the fund's average daily net assets. Also included in
the shareholder servicing costs are out-of-pocket expenses, paid to MFSC,
which amounted to $13,531 for the year ended April 30, 2004, as well other
expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $72,766,343 $44,962,606
- ------------------------------------------------------------------------------
Investments (non-U.S. government securities) $126,188,899 $21,223,655
- ------------------------------------------------------------------------------
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 $237,121,566
------------------------------------------------------------------
Gross unrealized depreciation $(3,521,409)
------------------------------------------------------------------
Gross unrealized appreciation 1,060,699
------------------------------------------------------------------
Net unrealized depreciation $(2,460,710)
------------------------------------------------------------------
(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:
Year ended 4/30/04 Year ended 4/30/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 2,520,976 $26,156,263 3,620,157 $36,808,485
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 52,268 542,135 18,576 191,160
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,225,867) (12,688,264) (312,134) (3,191,231)
- -----------------------------------------------------------------------------------------------------------
Net increase 1,347,377 $14,010,134 3,326,599 $33,808,414
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 686,945 $7,142,346 1,713,055 $17,528,658
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 45,378 471,026 22,185 228,330
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (862,074) (8,913,393) (262,852) (2,699,734)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) (129,751) $(1,300,021) 1,472,388 $15,057,254
- -----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 426,501 $4,438,052 567,241 $5,806,103
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 15,270 158,421 6,123 63,025
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (246,879) (2,562,443) (126,964) (1,298,344)
- -----------------------------------------------------------------------------------------------------------
Net increase 194,892 $2,034,030 446,400 $4,570,784
- -----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 11,425,967 $118,577,853 4,398,671 $45,228,052
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 439,744 4,556,888 57,928 597,300
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (122,226) (1,252,980) (43,778) (447,132)
- -----------------------------------------------------------------------------------------------------------
Net increase 11,743,485 $121,881,761 4,412,821 $45,378,220
- -----------------------------------------------------------------------------------------------------------
Year ended 4/30/04 Period ended 4/30/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 26,850 $275,975 4,527 $46,876
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 772 8,002 44 453
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (278) (2,853) (5) (51)
- -----------------------------------------------------------------------------------------------------------
Net increase 27,344 $281,124 4,566 $47,278
- -----------------------------------------------------------------------------------------------------------
Period ended 4/30/04**
SHARES AMOUNT
CLASS R2 SHARES
Shares sold 3,889 $40,020
- -----------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 67 693
- -----------------------------------------------------------------------------
Net increase 3,956 $40,713
- -----------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through April 30, 2003.
** For the period from the inception of Class R2 shares, October 31, 2003, through April 30, 2004.
(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 plus 0.50%. 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 calendar quarter. The commitment fee allocated to the
fund for the year ended April 30, 2004 was $1,210 and is included in
miscellaneous expense. The fund had no significant borrowings during the year
ended April 30, 2004.
(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 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.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
5 Year U.S. Treasury Notes June 2004 27 Short $9,180
- --------------------------------------------------------------------------------
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) RESTRICTED SECURITIES
The fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 2004,
the fund owned the following restricted security, excluding securities issued
under Rule 144A, constituting 0.26% 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
Republic of El Salvador, 9.5% 2006 3/2/04 550,000 $623,700 $607,750
- ------------------------------------------------------------------------------------------------------------
(9) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- -------------------------------------------------------------------------------
To The Trustees of MFS Series Trust IX and Shareholders of
MFS Intermediate Investment Grade Bond Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Intermediate Investment Grade Bond Fund (a portfolio of MFS Series Trust IX
(the Trust)) as of April 30, 2004, and the related statements of operations,
the statement of changes in net assets, and the financial highlights for each
of the five years in the period ended April 30, 2004. These financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned as of April 30, 2004 by correspondence with the custodian;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Intermediate Investment Grade Bond Fund as of April 30, 2004, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the five years in the period the ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 18, 2004
- ---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- ------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- ------------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. Each Trustee and officer holds office until his or her successor is chosen and
qualified or until his or her earlier death, resignation, retirement or removal.
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 109 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 State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741 AUDITORS
Deloitte & Touche LLP
DISTRIBUTOR 200 Berkeley Street, Boston, MA 02116
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
James J. Calmas
- -------------------------------------------------------------------------------
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
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 fund's proxy voting policies and procedures is
available without charge, upon request, by calling 202-547-7071, extension
201, by visiting www.jmr-financial.com/MFS 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 55824
Boston, MA 02205-5824
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) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to 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 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) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
IBF-ANN-6/04 17M
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.
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to certain series of the Registrant ("Funds"), and
Ernst & Young LLP ("E&Y") to serve in this capacity for another Fund of the
Registrant. In addition, Deloitte and E&Y may provide non-audit related
services to the Funds and/or to the Funds' investment adviser, Massachusetts
Financial Services Company ("MFS") and to various entities either controlling,
controlled by, or under common control with MFS that provide ongoing services
to the Funds ("MFS Related Entities").
For the fiscal years ended April 30, 2004 and 2003, audit fees billed to the
Funds by Deloitte were as follows:
REGISTRANT'S
AUDIT FEES
Fees billed by Deloitte: 2004 2003
---- ----
MFS Bond Fund $39,475 $36,200
MFS Inflation Adjusted Bond Fund 11,500 0
MFS Intermediate Investment Grade Bond Fund 30,300 21,300
MFS Limited Maturity Fund 29,100 26,500
MFS Municipal Limited Maturity Fund 29,610 27,000
MFS Research Bond Fund 39,550 36,300
MFS Research Bond Fund J 11,300 0
-------- --------
TOTAL $190,835 $147,300
For the fiscal years ended April 30, 2004 and 2003, audit fees billed to the
Fund by E&Y were as follows:
REGISTRANT'S
AUDIT FEES
Fees billed by E&Y: 2004 2003
---- ----
MFS Emerging Opportunities Fund $23,500 $16,830
For the fiscal years ended April 30, 2004 and 2003, fees billed by Deloitte for
audit-related, tax and other services provided to the Funds, MFS and MFS
Related Entities were as follows:
TOTAL
AUDIT-RELATED FEES(1) TAX FEES(2) ALL OTHER FEES(3) NON-AUDIT FEES
Fees billed by Deloitte: 2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
MFS Bond Fund $ 0 $ 0 $4,775 $ 4,100 $ 0 $ 0 $ 4,775 $ 4,100
MFS Inflation Adjusted Bond Fund 3,000 0 3,000 0
MFS Intermediate Investment Grade
Bond Fund 4,600 4,000 4,600 4,000
MFS Limited Maturity Fund 4,700 4,300 4,700 4,300
MFS Municipal Limited Maturity Fund 4,300 3,900 4,300 3,900
MFS Research Bond Fund 4,700 4,000 4,700 4,000
MFS Research Bond Fund J 4,000 0 0 0 4,000 0
-------- -------- ------- ------- -------- -------- -------- --------
TOTAL FEES BILLED BY DELOITTE $ 0 $ 0 $30,075 $20,300 $ 0 $ 0 $ 30,075 $ 20,300
To MFS and MFS Related Entities 392,450 220,000 57,195 51,784 $146,000 192,172 595,645 463,956
-------- -------- ------- ------- -------- -------- -------- --------
TOTAL FEES BILLED $392,450 $220,000 $87,270 $72,084 $146,000 $192,172 $625,720 $484,256
-------- -------- ------- ------- -------- -------- -------- --------
For the fiscal years ended April 30, 2004 and 2003, fees billed by E&Y for audit-related, tax and other services provided to the
Registrant, MFS and MFS Related Entities were as follows:
TOTAL
AUDIT-RELATED FEES(1) TAX FEES(2) ALL OTHER FEES(3) NON-AUDIT FEES
--------------------- ----------- ----------------- --------------
2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
Fees billed by E&Y:
To MFS Emerging Opportunities Fund $ 0 $ 0 $ 4,100 $ 2,970 $ 0 $ 0 $ 4,100 $ 2,970
To MFS and MFS Related Entities 0 0 10,000 129,000 0 0 10,000 129,000
---- ---- ------- -------- ---- ---- ------- --------
TOTAL FEES BILLED $ 0 $ 0 $14,100 $131,970 $ 0 $ 0 $14,100 $131,970
---- ---- ------- -------- ---- ---- ------- --------
(1) There were no Audit-Related services provided to the Funds by either Deloitte or E&Y for the fiscal years ended April 30, 2004
and 2003. Audit-Related Fees paid to Deloitte for MFS and MFS Related Entities includes fees for internal control reviews.
(2) Fees included in the Tax Fees category comprise all services performed by professional staff in the independent accountant's
tax division except those services related to the audit. For both Deloitte and E&Y this category includes fees for tax
compliance, tax planning, and tax advice. For Deloitte, tax compliance, tax advice, and tax planning services include
preparation of original and amended tax returns, and tax advice related to income recognition and distribution policies. For
E&Y, tax compliance, tax advice, and tax planning services include preparation of original and amended tax returns, tax advice
and consultation on mutual fund capital structures, investment securities, preferential dividend regulations and technical
questions related to wash sale rules of the Internal Revenue Code.
(3) For Deloitte, All Other Fees include fees for services related to financial information system implementation, and
consultation on internal cost allocations. There were no services provided to the Fund, MFS or MFS Related Entities by E&Y for
the fiscal years ended January 31, 2004 and 2003 other than tax services.
ITEM 4(E)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services:
Pre-approval is needed for all planned and anticipated audit and
permissible non-audit services rendered to the Funds and all
permissible non-audit services rendered to MFS or MFS Related Entities
if the services relate directly to the operations and/or financial
reporting of the Registrant. In the event such services arise between
regular meetings of the Audit Committee and it is not practical to
seek pre-approval at the next regular meeting of the Audit Committee,
such services may be referred to the Chair of the Audit Committee for
approval; provided that, the Chair may not approve any individual
engagement for such services exceeding $50,000 or multiple engagements
for such services in the aggregate exceeding $100,000 between such
regular meetings of the Audit Committee. Any engagement approved by
the Chair between regular meetings of the Audit Committee shall be
presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(E)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the funds and MFS and MFS Related Entities disclosed
above were approved by the audit committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit review or
attest services, if certain conditions are satisfied).
ITEM 4(F): Not applicable.
ITEM 4(H): Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time. [Applicable for periods ending on or after July 9,
2004 (beginning with Form N-CSRs filed at the end of September, 2004 for July
31, 2004 reporting period.)]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 10. CONTROLS AND PROCEDURES.
(a) 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.
(b) 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 11. 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(b) 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 IX
By (Signature and Title)* ROBERT J. MANNING
--------------------------------------------------
Robert J. Manning, President
Date: June 23, 2004
-------------
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)* ROBERT J. MANNING
--------------------------------------------------
Robert J. Manning, President (Principal Executive
Officer)
Date: June 23, 2004
-------------
By (Signature and Title)* RICHARD M. HISEY
--------------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting Officer)
Date: June 23, 2004
-------------
* Print name and title of each signing officer under his or her signature.