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 811-2794
- -------------------------------------------------------------------------------
MFS SERIES TRUST III
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
- -------------------------------------------------------------------------------
(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
- -------------------------------------------------------------------------------
Date of fiscal year end: January 31
- -------------------------------------------------------------------------------
Date of reporting period: July 31, 2006
- -------------------------------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) HIGH YIELD OPPORTUNITIES FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- ------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 20
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS 22
- ------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 23
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 24
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 28
- ------------------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 37
- ------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 41
- ------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 41
- ------------------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------------------------
Fund objective: Seeks high current income.
THE 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.
- ------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- ------------------------------------------------------------------------------
7/31/06
HYO-SEM
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is still
relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets around
the globe as varying economic factors pulled markets in opposite directions.
The global economy, for example, continued to grow at its fastest pace in
three decades -- spurred by increased international trade, good job growth,
and wage increases. At the same time, central banks around the world raised
interest rates in sync in a collaborative attempt to curb inflation. While
this was a positive development in some regions, in other cases, economic and
market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks, bonds,
and cash.
o DIVERSIFY within each class to take advantage of different market segments
and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
September 15, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 91.7%
Common Stocks 3.3%
Preferred Stocks 0.6%
Convertible Preferred Stocks 0.4%
Cash & Other Net Assets 4.0%
TOP FIVE INDUSTRIES (i)
Automotive 9.3%
------------------------------------------------
Emerging Market Sovereigns 7.1%
------------------------------------------------
Gaming & Lodging 5.8%
------------------------------------------------
Broadcasting 5.5%
------------------------------------------------
Medical & Health Technology &
Services 4.8%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 0.1%
------------------------------------------------
A 0.3%
------------------------------------------------
BBB 6.1%
------------------------------------------------
BB 25.9%
------------------------------------------------
B 41.4%
------------------------------------------------
CCC 23.2%
------------------------------------------------
CC 0.4%
------------------------------------------------
C 0.3%
------------------------------------------------
Not Rated 2.3%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.7
------------------------------------------------
Average Life (m) 8.6 yrs.
------------------------------------------------
Average Maturity (m) 9.2 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) B
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre-refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in a "AAA"-rating category. Percentages are
based on the total market value of investments as of 7/31/06.
Percentages are based on net assets as of 7/31/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
February 1, 2006 through July 31, 2006.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period February 1, 2006 through
July 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value
by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the following table provides
information about hypothetical account values and hypothetical expenses based
on the fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have
been higher.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 2/01/06-
Class Ratio 2/01/06 7/31/06 7/31/06
- --------------------------------------------------------------------------------
Actual 0.85% $1,000.00 $1,029.90 $4.28
A ------------------------------------------------------------------------
Hypothetical (h) 0.85% $1,000.00 $1,020.58 $4.26
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,026.50 $7.54
B -------------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.36 $7.50
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,026.50 $7.54
C ------------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.36 $7.50
- --------------------------------------------------------------------------------
Actual 0.50% $1,000.00 $1,031.70 $2.52
I ------------------------------------------------------------------------
Hypothetical (h) 0.50% $1,000.00 $1,022.32 $2.51
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
7/31/06 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 89.3%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -------------------------------------------------------------------------------------------------
Aerospace - 0.9%
- -------------------------------------------------------------------------------------------------
Argo-Tech Corp., 9.25%, 2011 $ 3,200,000 $ 3,304,000
DRS Technologies, Inc., 7.625%, 2018 2,415,000 2,408,963
------------
$ 5,712,963
- -------------------------------------------------------------------------------------------------
Airlines - 0.6%
- -------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.9%, 2017 $ 254,686 $ 239,560
Continental Airlines, Inc., 6.748%, 2017 481,911 452,997
Continental Airlines, Inc., 8.307%, 2018 1,085,159 1,048,999
Continental Airlines, Inc., 6.795%, 2020 1,620,752 1,540,217
Continental Airlines, Inc., 7.566%, 2020 283,549 278,151
------------
$ 3,559,924
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.0%
- -------------------------------------------------------------------------------------------------
Levi Strauss & Co., 9.75%, 2015 $ 3,255,000 $ 3,336,375
Propex Fabrics, Inc., 10%, 2012 3,605,000 3,208,450
------------
$ 6,544,825
- -------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 2.5%
- -------------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6%, 2037 (z) $ 1,500,000 $ 1,366,758
Arbor Realty Mortgage Securities, FRN, 7.82%, 2041 (z) 1,463,646 1,463,207
ARCap REIT, Inc., "H", 6.1%, 2045 (a) 1,025,662 896,012
Asset Securitization Corp., FRN, 8.4991%, 2029 (z) 2,300,000 2,191,109
Babson CDO Ltd., "D", FRN, 6.8528%, 2018 (a) 1,005,000 1,005,000
Crest Ltd., 7%, 2040 (a) 993,500 899,435
Falcon Franchise Loan LLC, FRN, 3.9126%, 2023 (i)(z) 2,010,975 323,433
Lehman Brothers Commercial Conduit Mortgage Trust, FRN,
0.9553%, 2030 (i) 6,388,398 139,721
Morgan Stanley Capital I, Inc., FRN, 1.4476%, 2039 (a)(i) 4,926,790 330,913
Preferred Term Securities VII Ltd., 8.7%, 2032 (e)(z) 1,050,000 888,563
Preferred Term Securities XII Ltd., 9.8%, 2033 (e)(z) 1,775,000 1,595,281
Preferred Term Securities XVI Ltd., 14%, 2035 (e)(z) 3,250,000 2,934,913
Preferred Term Securities XVII Ltd., 9.3%, 2035 (e)(z) 1,813,000 1,643,031
------------
$ 15,677,376
- -------------------------------------------------------------------------------------------------
Automotive - 8.0%
- -------------------------------------------------------------------------------------------------
American Axle & Manufacturing, Inc., 5.25%, 2014 $ 1,130,000 $ 932,250
Cooper Standard Automotive, Inc., 8.375%, 2014 3,525,000 2,643,750
Ford Motor Credit Co., 6.625%, 2008 3,902,000 3,758,828
Ford Motor Credit Co., 5.625%, 2008 1,200,000 1,126,967
Ford Motor Credit Co., 5.8%, 2009 5,648,000 5,250,912
Ford Motor Credit Co., 9.75%, 2010 (z) 1,200,000 1,187,700
Ford Motor Credit Co., 8.625%, 2010 1,255,000 1,206,453
Ford Motor Credit Co., 7%, 2013 5,890,000 5,173,340
General Motors Acceptance Corp., 6.875%, 2011 2,685,000 2,599,867
General Motors Acceptance Corp., 6.75%, 2014 11,024,000 10,377,090
General Motors Acceptance Corp., 8%, 2031 5,309,000 5,206,552
General Motors Corp., 8.375%, 2033 2,706,000 2,218,920
Goodyear Tire & Rubber Co., 9%, 2015 5,285,000 5,086,813
Lear Corp., 8.11%, 2009 2,975,000 2,893,188
Lear Corp., 5.75%, 2014 775,000 627,750
------------
$ 50,290,380
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 1.2%
- -------------------------------------------------------------------------------------------------
ATF Bank, 9%, 2016 (a) $ 1,148,000 $ 1,136,750
Banco BMG S.A., 9.15%, 2016 (a) 1,115,000 1,101,063
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 (a) 1,136,000 1,153,040
HSBK Europe B.V., 7.75%, 2013 (a) 411,000 416,651
Kazkommerts International B.V., 8%, 2015 (a) 262,000 260,690
RSHB Capital S.A., 7.175%, 2013 (a) 212,000 214,862
Russian Standard Finance S.A., 8.125%, 2008 (a) 869,000 870,304
Russian Standard Finance S.A., 7.5%, 2010 (a) 108,000 103,140
Russian Standard Finance S.A., 8.625%, 2011 (a) 643,000 630,944
Turanalem Finance B.V., 7.75%, 2013 (a) 744,000 735,630
VTB Capital S.A., 7.5%, 2011 1,066,000 1,117,914
------------
$ 7,740,988
- -------------------------------------------------------------------------------------------------
Broadcasting - 4.8%
- -------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 4,037,000 $ 3,996,625
EchoStar DBS Corp., 6.375%, 2011 1,680,000 1,642,195
Granite Broadcasting Corp., 9.75%, 2010 3,365,000 3,121,033
Hughes Network Systems LLC, 9.5%, 2014 (a) 1,530,000 1,522,345
Inmarsat Finance II PLC, 0% to 2008, 10.375% to 2012 3,245,000 2,774,470
Intelsat Ltd., 7.625%, 2012 2,770,000 2,309,483
Intelsat Ltd., 9.25%, 2016 (a) 1,550,000 1,584,875
Intelsat Ltd., 11.25%, 2016 (a) 545,000 550,450
Intelsat Ltd., 0% to 2010, 9.25% to 2015(a) 1,745,000 1,182,238
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 1,260,000 1,247,400
ION Media Networks, Inc., FRN, 11.7569%, 2013 (a) 2,700,000 2,733,750
LBI Media Holdings, Inc., 0% to 2008, 11% to 2013 4,375,000 3,609,375
XM Satellite Radio, Inc., 9.75%, 2014 (a) 2,815,000 2,596,838
Young Broadcasting, Inc., 10%, 2011 1,290,000 1,183,575
------------
$ 30,054,652
- -------------------------------------------------------------------------------------------------
Building - 2.1%
- -------------------------------------------------------------------------------------------------
Goodman Global Holdings, Inc., 7.875%, 2012 $ 3,975,000 $ 3,686,813
Interface, Inc., 10.375%, 2010 864,000 943,920
Interface, Inc., 9.5%, 2014 1,055,000 1,081,375
Nortek Holdings, Inc., 8.5%, 2014 544,000 508,640
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 9,558,000 6,690,600
------------
$ 12,911,348
- -------------------------------------------------------------------------------------------------
Business Services - 1.2%
- -------------------------------------------------------------------------------------------------
Nortel Networks Ltd., 10.75%, 2016 (a) $ 1,765,000 $ 1,802,506
Northern Telecom Corp., 6.875%, 2023 695,000 552,525
SunGard Data Systems, 10.25%, 2015 3,330,000 3,375,788
Xerox Corp., 7.625%, 2013 1,500,000 1,515,000
------------
$ 7,245,819
- -------------------------------------------------------------------------------------------------
Cable TV - 4.3%
- -------------------------------------------------------------------------------------------------
C&M Co. Ltd., 8.1%, 2016 (a) $ 344,000 $ 325,940
Cablemas S.A. de C.V., 9.375%, 2015 (a) 240,000 254,400
Cablevision Systems Corp., 8%, 2012 1,195,000 1,183,050
CCH I Holdings LLC, 9.92%, 2014 3,412,000 2,183,680
CCH I Holdings LLC, 11%, 2015 9,552,000 8,572,920
CCH II Holdings LLC, 10.25%, 2010 870,000 878,700
Corsair B.V., FRN, 11.3194%, 2016 665,660 665,660
CSC Holdings, Inc., 8.125%, 2009 680,000 696,150
CSC Holdings, Inc., 7.25%, 2012 (a) 715,000 690,869
Grupo Televisa S.A., 8.5%, 2032 1,368,000 1,601,464
Kabel Deutschland, 10.625%, 2014 (a) 1,635,000 1,733,100
Mediacom LLC, 9.5%, 2013 5,195,000 5,259,938
NTL Cable PLC, 9.125%, 2016 890,000 903,350
Telenet Group Holdings N.V., 0% to 2008, 11.5% to 2014 (a) 2,761,000 2,346,850
------------
$ 27,296,071
- -------------------------------------------------------------------------------------------------
Chemicals - 4.3%
- -------------------------------------------------------------------------------------------------
Basell AF SCA, 8.375%, 2015 (a) $ 5,212,000 $ 5,062,155
Crystal U.S. Holdings LLC, "A", 0% to 2009, 10% to 2014 1,015,000 801,850
Crystal U.S. Holdings LLC, "B", 0% to 2009, 10.5% to 2014 4,864,000 3,793,920
Equistar Chemicals, 10.625%, 2011 230,000 247,250
Hexion U.S. Financial Corp., 9%, 2014 2,240,000 2,290,400
Huntsman International LLC, 10.125%, 2009 1,620,000 1,644,300
Huntsman International LLC, 7.875%, 2015 (a) 1,765,000 1,639,244
KI Holdings, Inc., 0% to 2009, 9.875% to 2014 4,981,000 3,648,583
Lyondell Chemical Co., 9.5%, 2008 589,000 605,198
Lyondell Chemical Co., 11.125%, 2012 1,405,000 1,529,694
Nalco Co., 7.75%, 2011 355,000 356,775
Nalco Co., 8.875%, 2013 4,235,000 4,277,350
Polypore, Inc., 8.75%, 2012 1,305,000 1,247,906
Rockwood Specialties Group, Inc., 10.625%, 2011 3,000 3,225
------------
$ 27,147,850
- -------------------------------------------------------------------------------------------------
Construction - 0.2%
- -------------------------------------------------------------------------------------------------
Technical Olympic USA, Inc., 7.5%, 2015 $ 340,000 $ 263,500
Urbi Desarrollos Urbanos S.A. de C.V., 8.5%, 2016 (a) 950,000 973,750
------------
$ 1,237,250
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.6%
- -------------------------------------------------------------------------------------------------
AAC Group Holding Corp., 12.75%, 2012 (a)(p) $ 2,764,000 $ 2,805,460
Affinion Group, Inc., 11.5%, 2015 (a) 2,305,000 2,310,763
GEO Group, Inc., 8.25%, 2013 2,465,000 2,452,675
Jarden Corp., 9.75%, 2012 1,190,000 1,237,600
Playtex Products, Inc., 9.375%, 2011 630,000 657,563
Revlon Consumer Products Corp., 9.5%, 2011 4,315,000 3,646,175
Samsonite Corp., 8.875%, 2011 1,465,000 1,519,938
Service Corp. International, 7%, 2017 (a) 1,505,000 1,405,294
Simmons Co., 7.875%, 2014 470,000 442,975
------------
$ 16,478,443
- -------------------------------------------------------------------------------------------------
Containers - 1.8%
- -------------------------------------------------------------------------------------------------
Crown Americas, 7.75%, 2015 (a) $ 1,640,000 $ 1,617,450
Graham Packaging Co. LP, 9.875%, 2014 4,475,000 4,351,938
Owens-Brockway Glass Container, Inc., 8.25%, 2013 5,010,000 5,072,625
------------
$ 11,042,013
- -------------------------------------------------------------------------------------------------
Defense Electronics - 0.2%
- -------------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc., 6.125%, 2014 $ 1,065,000 $ 1,019,738
- -------------------------------------------------------------------------------------------------
Electronics - 0.4%
- -------------------------------------------------------------------------------------------------
Magnachip Semiconductor S.A., 8%, 2014 $ 160,000 $ 106,000
Sensata Technologies B.V., 8%, 2014 (a) 2,610,000 2,505,600
------------
$ 2,611,600
- -------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 3.1%
- -------------------------------------------------------------------------------------------------
Banco do Brasil S.A., 7.95%, 2049 (a) $ 283,000 $ 277,340
Gazprom International S.A., 7.201%, 2020 3,754,000 3,894,775
Gazprom OAO, 9.625%, 2013 4,480,000 5,241,600
Gazprom OAO, 8.625%, 2034 (a) 1,975,000 2,382,344
Pemex Project Funding Master Trust, 8.625%, 2022 2,129,000 2,477,637
Pemex Project Funding Master Trust, 9.5%, 2027 3,401,000 4,305,666
Petronas Capital Ltd., 7.875%, 2022 725,000 847,745
------------
$ 19,427,107
- -------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 6.5%
- -------------------------------------------------------------------------------------------------
Dominican Republic, 8.625%, 2027 (a) $ 895,000 $ 917,375
Federative Republic of Brazil, 7.875%, 2015 404,000 435,714
Federative Republic of Brazil, 8%, 2018 4,263,000 4,616,829
Federative Republic of Brazil, 8.875%, 2019 1,733,000 2,010,280
Federative Republic of Brazil, CLN, 6%, 2009 (z) BRL 3,963,190 1,660,113
Republic of Argentina, 8.28%, 2033 $ 1,446,244 1,355,853
Republic of Argentina, FRN, 4.889%, 2012 3,215,250 2,981,608
Republic of Argentina, 0%, 2035 17,114,000 1,591,602
Republic of Bulgaria, 8.25%, 2015 348,000 399,817
Republic of Colombia, 7.375%, 2017 371,000 378,420
Republic of Colombia, FRN, 6.97%, 2015 2,198,000 2,247,522
Republic of El Salvador, 8.25%, 2032 1,475,000 1,585,625
Republic of El Salvador, 7.65%, 2035 88,000 89,100
Republic of El Salvador, 7.65%, 2035 (a) 386,000 390,825
Republic of Indonesia, 6.875%, 2017 (a) 370,000 367,688
Republic of Panama, 7.25%, 2015 361,000 373,094
Republic of Panama, 6.7%, 2036 902,000 856,900
Republic of Peru, 5%, 2017 1,580,000 1,548,400
Republic of Philippines, 8%, 2016 138,000 147,053
Republic of Philippines, 9.375%, 2017 500,000 573,125
Republic of Philippines, 9.875%, 2019 1,396,000 1,657,750
Republic of Philippines, 9.5%, 2030 234,000 276,705
Republic of Turkey, 7.25%, 2015 1,249,000 1,241,194
Republic of Turkey, 7%, 2020 333,000 316,350
Republic of Turkey, 6.875%, 2036 972,000 871,155
Republic of Uruguay, 9.25%, 2017 2,679,000 3,000,480
Republic of Venezuela, 8.5%, 2014 1,369,000 1,499,055
Republic of Venezuela, 7%, 2018 2,886,000 2,871,570
Russian Federation, 3%, 2008 3,096,000 2,943,986
United Mexican States, 5.625%, 2017 284,000 272,640
United Mexican States, 8.3%, 2031 1,218,000 1,464,645
------------
$ 40,942,473
- -------------------------------------------------------------------------------------------------
Energy - Independent - 2.5%
- -------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.375%, 2015 $ 4,485,000 $ 4,215,900
Chesapeake Energy Corp., 6.875%, 2016 4,130,000 3,985,450
Hilcorp Energy I, 9%, 2016 (a) 935,000 967,725
Newfield Exploration Co., 6.625%, 2014 3,110,000 3,012,813
Quicksilver Resources, Inc., 7.125%, 2016 2,375,000 2,244,375
Whiting Petroleum Corp., 7%, 2014 1,595,000 1,563,100
------------
$ 15,989,363
- -------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- -------------------------------------------------------------------------------------------------
TNK-BP Finance S.A., 7.5%, 2016 (z) $ 1,870,000 $ 1,893,375
- -------------------------------------------------------------------------------------------------
Entertainment - 2.1%
- -------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 1,916,000 $ 1,906,420
AMC Entertainment, Inc., 11%, 2016 1,825,000 1,971,000
HRP Myrtle Beach Operations, FRN, 9.8181%, 2012 (z) 1,845,000 1,831,163
Marquee Holdings, Inc., 0% to 2009, 12% to 2014 2,585,000 1,906,438
Six Flags, Inc., 8.875%, 2010 2,125,000 2,047,969
Six Flags, Inc., 9.75%, 2013 3,545,000 3,256,969
------------
$ 12,919,959
- -------------------------------------------------------------------------------------------------
Food & Beverages - 1.1%
- -------------------------------------------------------------------------------------------------
B&G Foods Holding Corp., 8%, 2011 $ 1,525,000 $ 1,528,813
Chaoda Modern Agriculture Holdings, 7.75%, 2010 (a) 2,911,000 2,765,450
JBS S.A., 10.5%, 2016 (z) 264,000 265,320
Michael Foods, Inc., 8%, 2013 2,215,000 2,187,313
------------
$ 6,746,896
- -------------------------------------------------------------------------------------------------
Forest & Paper Products - 3.9%
- -------------------------------------------------------------------------------------------------
Advance Agro Public Co. Ltd., 11%, 2012 (a) $ 268,000 $ 264,650
Buckeye Technologies, Inc., 8%, 2010 875,000 833,438
Graphic Packaging International Corp., 9.5%, 2013 7,260,000 7,260,000
Jefferson Smurfit Corp., 8.25%, 2012 7,585,000 7,167,825
JSG Funding LLC, 11.5%, 2015 (a) EUR 1,979,684 2,572,699
JSG Funding PLC, 7.75%, 2015 $ 365,000 333,063
MDP Acquisitions PLC, 9.625%, 2012 755,000 781,425
Millar Western Forest Products Ltd., 7.75%, 2013 2,280,000 1,727,100
Sino-Forest Corp., 9.125%, 2011 (a) 642,000 662,865
Stone Container Corp., 7.375%, 2014 840,000 747,600
Verso Paper Holdings LLC, 9.125%, 2014 (z) 1,185,000 1,185,000
Verso Paper Holdings LLC, 11.375%, 2016 (z) 1,105,000 1,099,475
------------
$ 24,635,140
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 5.2%
- -------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 6.75%, 2014 $ 2,805,000 $ 2,629,688
Greektown Holdings, 10.75%, 2013 (a) 3,190,000 3,373,425
Grupo Posadas S.A. de C.V., 8.75%, 2011 (a) 253,000 257,428
Host Marriott LP, 7.125%, 2013 1,070,000 1,071,338
Host Marriott LP, 6.375%, 2015 565,000 534,631
Majestic Star Casino LLC, 9.75%, 2011 (a) 1,315,000 1,295,275
Mandalay Resort Group, 9.375%, 2010 1,000,000 1,055,000
MGM Mirage, Inc., 8.375%, 2011 2,280,000 2,342,700
MGM Mirage, Inc., 5.875%, 2014 1,975,000 1,794,781
MTR Gaming Group, Inc., 9%, 2012 (a) 970,000 984,550
NCL Corp. Ltd., 10.625%, 2014 2,140,000 2,086,500
Pinnacle Entertainment, Inc., 8.25%, 2012 1,950,000 1,945,125
Pokagon Gaming Authority, 10.375%, 2014 (a) 2,610,000 2,727,450
Resorts International Hotel & Casino, Inc., 11.5%, 2009 1,600,000 1,712,000
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 340,000 358,700
Station Casinos, Inc., 6.5%, 2014 2,730,000 2,511,600
Trump Entertainment Resorts Holdings, Inc., 8.5%, 2015 3,320,000 3,187,200
Wynn Las Vegas LLC, 6.625%, 2014 2,750,000 2,591,875
------------
$ 32,459,266
- -------------------------------------------------------------------------------------------------
Industrial - 2.5%
- -------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011 (z) $ 1,365,000 $ 1,467,375
Da-Lite Screen Co., Inc., 9.5%, 2011 895,000 941,988
Education Management LLC, 10.25%, 2016 (a) 2,480,000 2,504,800
Interline Brands, Inc., 8.125%, 2014 (a) 755,000 760,663
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 3,545,000 3,509,550
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 2,560,000 2,176,000
Knowledge Learning Corp., 7.75%, 2015 (z) 815,000 749,800
Milacron Escrow Corp., 11.5%, 2011 2,665,000 2,465,125
RBS Global & Rexnord Corp., 11.75%, 2016 (z) 955,000 976,488
------------
$ 15,551,789
- -------------------------------------------------------------------------------------------------
Insurance - 0.4%
- -------------------------------------------------------------------------------------------------
UnumProvident Corp., 7.625%, 2011 $ 618,000 $ 646,168
UnumProvident Corp., 6.85%, 2015 (a) 1,640,000 1,622,185
------------
$ 2,268,353
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 0.9%
- -------------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 2,280,000 $ 2,211,600
Case New Holland, Inc., 9.25%, 2011 1,415,000 1,491,056
Case New Holland, Inc., 7.125%, 2014 2,315,000 2,251,338
------------
$ 5,953,994
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 4.7%
- -------------------------------------------------------------------------------------------------
Accellent, Inc., 10.5%, 2013 $ 1,365,000 $ 1,405,950
CDRV Investors, Inc., 0% to 2010, 9.625% to 2015 3,605,000 2,550,538
DaVita, Inc., 6.625%, 2013 860,000 819,150
DaVita, Inc., 7.25%, 2015 1,425,000 1,362,656
Hanger Orthopedic Group, 10.25%, 2014 (a) 1,845,000 1,831,163
HCA, Inc., 8.75%, 2010 855,000 861,413
HCA, Inc., 7.875%, 2011 2,605,000 2,464,981
HCA, Inc., 6.375%, 2015 1,400,000 1,123,500
HealthSouth Corp., 10.75%, 2016 (a) 4,960,000 4,736,800
Omnicare, Inc., 6.875%, 2015 3,570,000 3,445,050
Select Medical Corp., 7.625%, 2015 1,685,000 1,432,250
Tenet Healthcare Corp., 9.875%, 2014 3,085,000 2,946,175
Triad Hospitals, Inc., 7%, 2013 1,475,000 1,408,625
US Oncology, Inc., 10.75%, 2014 2,050,000 2,224,250
Vanguard Health Holding II, 9%, 2014 615,000 595,013
------------
$ 29,207,514
- -------------------------------------------------------------------------------------------------
Metals & Mining - 0.8%
- -------------------------------------------------------------------------------------------------
Massey Energy Co., 6.875%, 2013 $ 2,990,000 $ 2,758,275
Peabody Energy Corp., 5.875%, 2016 2,290,000 2,066,725
------------
$ 4,825,000
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.1%
- -------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.125%, 2016 $ 785,000 $ 757,525
- -------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.8%
- -------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875%, 2010 $ 210,000 $ 221,918
ANR Pipeline Co., 9.625%, 2021 1,035,000 1,229,412
Atlas Pipeline Partners LP, 8.125%, 2015 (a) 1,325,000 1,334,938
Colorado Interstate Gas Co., 5.95%, 2015 940,000 867,191
El Paso Energy Corp., 7%, 2011 2,965,000 2,939,056
El Paso Energy Corp., 7.75%, 2013 730,000 741,863
El Paso Performance-Linked, 7.75%, 2011 (z) 1,660,000 1,670,375
Intergas Finance B.V., 6.875%, 2011 (a) 1,337,000 1,323,630
Williams Cos., Inc., 7.125%, 2011 1,060,000 1,067,950
------------
$ 11,396,333
- -------------------------------------------------------------------------------------------------
Network & Telecom - 2.8%
- -------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 2,270,000 $ 2,224,600
Citizens Communications Co., 9.25%, 2011 1,225,000 1,329,125
Citizens Communications Co., 9%, 2031 2,835,000 2,905,875
Global Crossing UK Finance, 10.75%, 2014 770,000 816,200
Hawaiian Telecom Communications, Inc., 9.75%, 2013 1,280,000 1,305,600
Hawaiian Telecom Communications, Inc., 12.5%, 2015 1,560,000 1,645,800
Nordic Telephone Co. Holdings, 8.875%, 2016 (a) 1,270,000 1,308,100
Qwest Corp., 7.875%, 2011 1,400,000 1,449,000
Qwest Corp., 8.875%, 2012 1,370,000 1,476,175
Time Warner Telecom Holdings, Inc., 9.25%, 2014 765,000 786,038
Verizon New York, Inc., 7.375%, 2032 1,338,000 1,352,480
Windstream Corp., 8.625%, 2016 (a) 1,180,000 1,227,200
------------
$ 17,826,193
- -------------------------------------------------------------------------------------------------
Oil Services - 0.5%
- -------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 (a) $ 1,135,000 $ 1,058,388
GulfMark Offshore, Inc., 7.75%, 2014 1,000,000 972,500
Hanover Compressor Co., 9%, 2014 1,120,000 1,192,800
------------
$ 3,223,688
- -------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.5%
- -------------------------------------------------------------------------------------------------
Warner Chilcott Corp., 8.75%, 2015 $ 3,055,000 $ 3,032,088
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 2.9%
- -------------------------------------------------------------------------------------------------
American Media Operations, Inc., 8.875%, 2011 $ 2,555,000 $ 2,248,400
Dex Media West LLC, 9.875%, 2013 610,000 657,275
Dex Media, Inc., 0% to 2008, 9% to 2013 3,250,000 2,681,250
Dex Media, Inc., 0% to 2008, 9% to 2013 2,465,000 2,033,625
Houghton Mifflin Co., 0% to 2008, 11.5% to 2013 2,615,000 2,163,913
PRIMEDIA, Inc., 8.875%, 2011 2,955,000 2,814,638
PRIMEDIA, Inc., 8%, 2013 105,000 92,138
R.H. Donnelley Corp., 8.875%, 2016 2,460,000 2,450,775
WDAC Subsidiary Corp., 8.375%, 2014 (a) 3,075,000 3,059,625
------------
$ 18,201,639
- -------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.1%
- -------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 665,000 $ 706,563
- -------------------------------------------------------------------------------------------------
Restaurants - 0.6%
- -------------------------------------------------------------------------------------------------
Denny's Corp. Holdings, Inc., 10%, 2012 $ 1,030,000 $ 1,035,150
El Pollo Loco, Inc., 11.75%, 2013 (a) 1,365,000 1,556,100
Uno Restaurant Corp., 10%, 2011 (z) 1,645,000 1,270,763
------------
$ 3,862,013
- -------------------------------------------------------------------------------------------------
Retailers - 3.2%
- -------------------------------------------------------------------------------------------------
Buhrmann U.S., Inc., 7.875%, 2015 $ 1,935,000 $ 1,876,950
Burlington Coat Factory Warehouse Corp., 11.125%, 2014 (a) 2,765,000 2,644,031
Burlington Coat Factory Warehouse Corp., 0% to 2008,
14.5% to 2014 (a) 3,587,000 2,842,698
Couche-Tard, Inc., 7.5%, 2013 1,430,000 1,426,425
Dollar General Corp., 8.625%, 2010 450,000 475,875
Eye Care Centers of America, 10.75%, 2015 1,105,000 1,185,113
Jean Coutu Group (PJC), Inc., 7.625%, 2012 1,310,000 1,273,975
Jean Coutu Group (PJC), Inc., 8.5%, 2014 1,495,000 1,395,956
Mothers Work, Inc., 11.25%, 2010 1,355,000 1,429,525
Neiman Marcus Group, Inc., 9%, 2015 1,835,000 1,933,631
Neiman Marcus Group, Inc., 10.375%, 2015 1,000,000 1,061,250
Rite Aid Corp., 7.7%, 2027 905,000 753,413
Steinway Musical Instruments, Inc., 7%, 2014 (a) 2,055,000 1,967,663
------------
$ 20,266,505
- -------------------------------------------------------------------------------------------------
Specialty Stores - 0.7%
- -------------------------------------------------------------------------------------------------
GSC Holdings Corp., 8%, 2012 $ 2,965,000 $ 3,009,475
Payless ShoeSource, Inc., 8.25%, 2013 1,155,000 1,182,431
------------
$ 4,191,906
- -------------------------------------------------------------------------------------------------
Steel - 0.3%
- -------------------------------------------------------------------------------------------------
Chaparral Steel Co., 10%, 2013 $ 1,725,000 $ 1,901,813
- -------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
- -------------------------------------------------------------------------------------------------
Pathmark Stores, Inc., 8.75%, 2012 $ 720,000 $ 673,200
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.6%
- -------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10%, 2013 $ 400,000 $ 399,000
Centennial Communications Corp., 10.125%, 2013 1,305,000 1,376,775
Excelcomindo Finance Co., 7.125%, 2013 (a) 215,000 207,475
Mobile TeleSystems Finance S.A., 8.375%, 2010 332,000 338,640
Mobile TeleSystems OJSC, 8.375%, 2010 (a) 272,000 277,440
Rogers Wireless, Inc., 6.375%, 2014 1,295,000 1,243,200
Rogers Wireless, Inc., 7.5%, 2015 570,000 584,250
Rural Cellular Corp., 9.75%, 2010 2,113,000 2,118,283
Rural Cellular Corp., 9.875%, 2010 100,000 103,500
Wind Acquisition Finance S.A., 10.75%, 2015 (a) 3,270,000 3,523,425
------------
$ 10,171,988
- -------------------------------------------------------------------------------------------------
Tobacco - 0.4%
- -------------------------------------------------------------------------------------------------
Reynolds American, Inc., 7.3%, 2015 (z) $ 2,735,000 $ 2,736,791
- -------------------------------------------------------------------------------------------------
Transportation - 0.2%
- -------------------------------------------------------------------------------------------------
PT Arpeni Pratama Ocean Line Tbk, 8.75%, 2013 (a) $ 1,419,000 $ 1,407,808
- -------------------------------------------------------------------------------------------------
Transportation - Services - 0.5%
- -------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 (a) $ 2,665,000 $ 2,778,263
Stena AB, 7.5%, 2013 615,000 595,013
------------
$ 3,373,276
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.9%
- -------------------------------------------------------------------------------------------------
Edison Mission Energy, 7.75%, 2016 (a) $ 1,725,000 $ 1,703,438
Empresa Nacional de Electricidad S.A., 8.35%, 2013 145,000 158,449
Enersis S.A., 7.375%, 2014 1,693,000 1,744,200
Midwest Generation LLC, 8.75%, 2034 2,150,000 2,287,063
Mirant North American LLC, 7.375%, 2013 3,000,000 2,883,750
Mission Energy Holding Co., 13.5%, 2008 1,485,000 1,659,488
NGC Corp. Capital Trust, 8.316%, 2027 1,975,000 1,698,500
NRG Energy, Inc., 7.375%, 2016 4,615,000 4,511,163
Reliant Energy, Inc., 6.75%, 2014 530,000 495,550
Reliant Resources, Inc., 9.25%, 2010 785,000 804,625
------------
$ 17,946,226
- -------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $560,428,571) $561,067,024
- -------------------------------------------------------------------------------------------------
Common Stocks - 3.3%
- -------------------------------------------------------------------------------------------------
Automotive - 0.8%
- -------------------------------------------------------------------------------------------------
Magna International, Inc., "A" 65,450 $ 4,809,921
- -------------------------------------------------------------------------------------------------
Broadcasting - 0.1%
- -------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., "A" 75,683 $ 637,251
- -------------------------------------------------------------------------------------------------
Chemicals - 0.4%
- -------------------------------------------------------------------------------------------------
Huntsman Corp. (n) 78,300 $ 1,248,885
Nalco Holding Co. (n) 73,400 1,236,790
------------
$ 2,485,675
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.2%
- -------------------------------------------------------------------------------------------------
Brink's Co. 17,800 $ 980,602
- -------------------------------------------------------------------------------------------------
Containers - 0.3%
- -------------------------------------------------------------------------------------------------
Crown Holdings, Inc. (n) 99,400 $ 1,656,004
- -------------------------------------------------------------------------------------------------
Energy - Independent - 0.1%
- -------------------------------------------------------------------------------------------------
Foundation Coal Holdings, Inc. 24,690 $ 941,677
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.1%
- -------------------------------------------------------------------------------------------------
HCA, Inc. 12,200 $ 599,752
- -------------------------------------------------------------------------------------------------
Metals & Mining - 0.0%
- -------------------------------------------------------------------------------------------------
Oxford Automotive, Inc. (n) 29 $ 0
Oxford Automotive, Inc. (n) 29 0
------------
$ 0
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.1%
- -------------------------------------------------------------------------------------------------
Ferrell Gas Partners LP 40,712 $ 915,613
- -------------------------------------------------------------------------------------------------
Real Estate - 0.2%
- -------------------------------------------------------------------------------------------------
Mills Corp., REIT 64,500 $ 1,495,110
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.3%
- -------------------------------------------------------------------------------------------------
Lyondell Chemical Co. 74,000 $ 1,647,980
Sterling Chemicals, Inc. (n) 1 14
------------
$ 1,647,994
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.1%
- -------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 31,465 $ 682,161
- -------------------------------------------------------------------------------------------------
Telephone Services - 0.6%
- -------------------------------------------------------------------------------------------------
NTL, Inc. 98,998 $ 2,262,104
Windstream Corp. 100,000 1,253,000
XO Holdings, Inc. (n) 79 312
------------
$ 3,515,416
- -------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $21,546,925) $ 20,367,176
- -------------------------------------------------------------------------------------------------
Floating Rate Loans - 1.0% (g)(r)
- -------------------------------------------------------------------------------------------------
Containers - 0.4%
- -------------------------------------------------------------------------------------------------
Bluegrass Container Co. LLC, Second Lien Term Loan, 10.4%, 2013 $ 2,746,212 $ 2,769,096
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.6%
- -------------------------------------------------------------------------------------------------
Gulfside Casino, Inc., Term Loan B, 10.437%, 2012 $ 3,482,033 $ 3,482,033
- -------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $6,228,245) $ 6,251,129
- -------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.4%
- -------------------------------------------------------------------------------------------------
Automotive - 0.4%
- -------------------------------------------------------------------------------------------------
General Motors Corp., "B", 5.25% (Identified Cost, $2,145,753) 140,466 $ 2,760,157
- -------------------------------------------------------------------------------------------------
Preferred Stocks - 0.6%
- -------------------------------------------------------------------------------------------------
Broadcasting - 0.6%
- -------------------------------------------------------------------------------------------------
Ion Media Networks, Inc., 14.25% (p) 173 $ 1,479,150
Spanish Broadcasting Systems, Inc., "B", 10.75% (p) 1,975 2,128,063
------------
$ 3,607,213
- -------------------------------------------------------------------------------------------------
Real Estate - 0.0%
- -------------------------------------------------------------------------------------------------
HRPT Properties Trust, REIT, "B", 8.75% 1,375 $ 35,516
- -------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $3,532,586) $ 3,642,729
- -------------------------------------------------------------------------------------------------
Warrants - 0.5%
- -------------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES/PAR VALUE ($)
- -------------------------------------------------------------------------------------------------
Cable TV - 0.0%
- -------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc. (n) $45.24 9/16/00 258 $1,419
- -------------------------------------------------------------------------------------------------
Computer Software - 0.0%
- -------------------------------------------------------------------------------------------------
Cybernet Internet Services (n) $22.28 10/29/99 20 $0
- -------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.5%
- -------------------------------------------------------------------------------------------------
Republic of Venezuela, Oil-Indexed Payment
Obligation, expires 2020 (n) N/A N/A 86,635 $ 3,032,225
- -------------------------------------------------------------------------------------------------
Network & Telecom - 0.0%
- -------------------------------------------------------------------------------------------------
Metricom (n) $87.00 8/15/00 225 $0
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.0%
- -------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (n) $52.00 12/31/02 1 $0
- -------------------------------------------------------------------------------------------------
Telephone Services - 0.0%
- -------------------------------------------------------------------------------------------------
GT Group Telecom, Inc. (n) $ 0.00 8/01/00 750 $0
XO Holdings, Inc., "A" (n) 6.25 5/27/03 630 321
XO Holdings, Inc., "B" (n) 7.50 5/27/03 472 165
XO Holdings, Inc., "C" (n) 10.00 5/27/03 472 94
------------
$ 580
- -------------------------------------------------------------------------------------------------
TOTAL WARRANTS (IDENTIFIED COST, $3,317,957) $ 3,034,224
- -------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.2%
- -------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.29%, due 8/01/06, at Amortized
Cost and Value (y) $ 20,157,000 $ 20,157,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $617,357,037) (k) $617,279,439
- -------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.7% 10,741,571
- -------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $628,021,010
- -------------------------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
DELIVER/RECEIVE SETTLEMENT DATE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
SALES
EUR 2,814,815 8/21/06 $3,573,686 $3,600,467 $(26,781)
- -------------------------------------------------------------------------------------------------
PURCHASES
EUR 1,445,930 8/21/06 $1,841,778 $1,849,508 $ 7,730
- -------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
UNREALIZED
NOTIONAL PRINCIPAL APPRECIATION
EXPIRATION AMOUNT OF CONTRACT DESCRIPTION (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
3/20/11 $3,000,000 Agreement between the fund and Merrill $(61,908)
Lynch International to exchange the
credit risk of Sherwin Williams Co. As
a buyer of protection, the fund agrees
to pay Merrill Lynch International
quarterly at a fixed annual rate of
0.98% of the notional amount of
$3,000,000 until maturity on March 20,
2011. If Sherwin Williams Co.
experiences one of the following credit
events: bankruptcy, failure to pay, or
a restructuring, the fund would then
purchase $3,000,000 par of Sherwin
Williams Co. bonds at the post credit
event market price, and then deliver
those bonds to Merrill Lynch
International, who in turn would
deliver $3,000,000 in cash to the fund.
UNFUNDED LOAN COMMITMENTS
As of July 31, 2006 the portfolio had unfunded loan commitments of $878,788, which could be
extended at the option of the borrower, pursuant to the following loan agreements:
UNFUNDED UNREALIZED
LOAN APPRECIATION
BORROWER COMMITMENT (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
Bluegrass Container Co. LLC, Delayed Draw, Second Lien Term
Loan, 2013 $878,788 $7,323
At July 31, 2006 the fund had sufficient cash and/or securities to cover any commitments under
these contracts.
(a) Security exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be sold in transactions exempt from registration, normally to qualified
institutional buyers. At period end, the aggregate value of these securities was
$135,681,250, representing 21.6% of net assets.
(e) The rate shown represents a current effective yield.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the fund receives interest on notional principal (Par
amount). Par amount shown is the notional principal and does not reflect the cost of the
security.
(k) As of July 31, 2006, the fund held securities fair valued in accordance with the policies
adopted by the Board of Trustees, aggregating $540,249,010 and 87.52% of market value. An
independent pricing service provided an evaluated bid for 84.52% of the market value.
(n) Non-income producing security.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a
result of contractual or optional prepayments by the borrower. Such prepayments cannot be
predicted with certainty. These loans may be subject to restrictions on resale. Floating rate
loans generally have rates of interest which are determined periodically by reference to a
base lending rate plus a premium.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to
legal restrictions on resale. These securities generally may be resold in transactions exempt
from registration or to the public if the securities are subsequently registered. Disposal of
these securities may involve time-consuming negotiations and prompt sale at an acceptable
price may be difficult. The fund holds the following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011 8/08/03 $1,400,894 $1,467,375
Anthracite CDO Ltd., 6%, 2037 5/14/02 968,128 1,366,758
Arbor Realty Mortgage Securities, FRN,
7.82%, 2041 12/20/05 1,463,646 1,463,207
Asset Securitization Corp., FRN,
8.4991%, 2029 1/25/05 1,985,098 2,191,109
El Paso Performance-Linked, 7.75%, 2011 7/12/06 1,660,581 1,670,375
Falcon Franchise Loan LLC, FRN,
3.9126%, 2023 1/29/03 382,011 323,433
Federative Republic of Brazil, CLN,
6%, 2009 6/16/06 1,560,715 1,660,113
Ford Motor Credit Co., 9.75%, 2010 7/17/06 1,181,988 1,187,700
HRP Myrtle Beach Operations, FRN,
9.8181%, 2012 3/23/06 1,845,000 1,831,163
JBS S.A., 10.5%, 2016 7/28/06 264,000 265,320
Knowledge Learning Corp., 7.75%, 2015 1/28/05 815,000 749,800
Preferred Term Securities VII Ltd.,
8.7%, 2032 1/25/05 892,500 888,563
Preferred Term Securities XII Ltd.,
9.8%, 2033 1/07/05 1,863,750 1,595,281
Preferred Term Securities XVI Ltd.,
14%, 2035 12/08/04 3,274,750 2,934,913
Preferred Term Securities XVII Ltd.,
9.3%, 2035 3/09/05 1,813,000 1,643,031
RBS Global & Rexnord Corp.,
11.75%, 2016 7/14/06 $ 957,800 $ 976,488
Reynolds American, Inc., 7.3%, 2015 6/22/05 2,730,788 2,736,791
TNK-BP Finance S.A., 7.5%, 2016 7/13/06 1,863,006 1,893,375
Uno Restaurant Corp., 10%, 2011 1/31/05 1,626,543 1,270,763
Verso Paper Holdings LLC, 9.125%, 2014 7/26/06 1,185,000 1,185,000
Verso Paper Holdings LLC, 11.375%, 2016 7/26/06 1,105,000 1,099,475
- --------------------------------------------------------------------------------------------------
Total Restricted Securities $30,400,033 4.8%
- --------------------------------------------------------------------------------------------------
The following abbreviations are used in this report and are defined:
CLN Credit-Linked Note.
FRN Floating Rate Note. The interest rate is the rate in effect as of period end.
REIT Real Estate Investment Trust
Abbreviations indicate amounts shown in currencies other than the U.S. dollar.
All amounts are stated in U.S. dollars unless otherwise indicated. A list of
abbreviations is shown below:
BRL Brazilian Real
EUR Euro
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 7/31/06 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $617,357,037) $617,279,439
Cash 799,833
Foreign currency, at value (identified cost, $35,389) 35,504
Receivable for forward foreign currency exchange contracts 7,730
Receivable for investments sold 9,799,165
Receivable for fund shares sold 2,649,820
Interest and dividends receivable 10,872,033
Receivable from investment adviser 143,839
Unrealized appreciation on unfunded loan commitments 7,323
Other assets 4,571
- ------------------------------------------------------------------------------------------------------
Total assets $641,599,257
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $1,489,978
Payable for forward foreign currency exchange contracts 26,781
Payable for investments purchased 9,099,905
Payable for fund shares reacquired 2,612,305
Unrealized depreciation on credit default swaps 61,908
Payable to affiliates
Management fee 34,280
Shareholder servicing costs 78,631
Distribution and service fees 37,321
Administrative services fee 1,390
Payable for independent trustees' compensation 8,193
Accrued expenses and other liabilities 127,555
- ------------------------------------------------------------------------------------------------------
Total liabilities $13,578,247
- ------------------------------------------------------------------------------------------------------
Net assets $628,021,010
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $629,580,381
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (150,444)
Accumulated net realized gain (loss) on investments and foreign
currency transactions (2,500,052)
Undistributed net investment income 1,091,125
- ------------------------------------------------------------------------------------------------------
Net assets $628,021,010
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 85,453,775
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $366,811,163
Shares outstanding 49,937,496
- ------------------------------------------------------------------------------------------------------
Net asset value per share $7.35
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per
share) $7.72
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $118,556,078
Shares outstanding 16,089,243
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.37
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $94,825,636
Shares outstanding 12,936,846
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.33
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $47,828,133
Shares outstanding 6,490,190
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $7.37
- ------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 7/31/06 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Income
Interest $25,345,203
Dividends 691,168
Foreign taxes withheld (18,491)
- -------------------------------------------------------------------------------------------------------
Total investment income $26,017,880
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,005,538
Distribution and service fees 1,694,250
Shareholder servicing costs 462,838
Administrative services fee 54,994
Independent trustees' compensation 10,372
Custodian fee 123,635
Shareholder communications 44,169
Auditing fees 28,229
Legal fees 7,058
Miscellaneous 118,104
- -------------------------------------------------------------------------------------------------------
Total expenses $4,549,187
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (39,633)
Reduction of expenses by investment adviser (1,312,216)
- -------------------------------------------------------------------------------------------------------
Net expenses $3,197,338
- -------------------------------------------------------------------------------------------------------
Net investment income $22,820,542
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $5,230,649
Swap transactions (9,065)
Foreign currency transactions (468,501)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $4,753,083
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(10,293,490)
Swap transactions (61,908)
Translation of assets and liabilities in foreign currencies 344,273
Unfunded loan commitments 7,323
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(10,003,802)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(5,250,719)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $17,569,823
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
7/31/06 1/31/06
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income $22,820,542 $41,228,928
Net realized gain (loss) on investments and foreign
currency transactions 4,753,083 (924,077)
Net unrealized gain (loss) on investments and foreign
currency translation (10,003,802) (12,053,593)
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $17,569,823 $28,251,258
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------
From net investment income
Class A $(13,002,998) $(23,525,662)
Class B (4,056,095) (9,717,570)
Class C (3,109,017) (6,882,339)
Class I (1,831,736) (3,324,412)
From net realized gain on investments and foreign
currency transactions
Class A -- (1,564,390)
Class B -- (753,548)
Class C -- (531,169)
Class I -- (217,849)
- ------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(21,999,846) $(46,516,939)
- ------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $28,723,507 $56,692,052
- ------------------------------------------------------------------------------------------------------
Redemption fees $8,804 $26,360
- ------------------------------------------------------------------------------------------------------
Total change in net assets $24,302,288 $38,452,731
- ------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------
At beginning of period 603,718,722 565,265,991
At end of period (including undistributed net
investment income of $1,091,125 and $270,429,
respectively) $628,021,010 $603,718,722
- ---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and
the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming
reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------------
CLASS A 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning
of period $7.40 $7.63 $7.65 $6.61 $7.08 $7.96
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.28 $0.56 $0.57 $0.60 $0.62 $0.80
Net realized and unrealized
gain (loss) on investments and
foreign currency (0.06) (0.16) 0.08 1.05 (0.43) (0.85)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.22 $0.40 $0.65 $1.65 $0.19 $(0.05)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.27) $(0.59) $(0.59) $(0.61) $(0.66) $(0.83)
From net realized gain on
investments and foreign
currency transactions -- (0.04) (0.08) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.27) $(0.63) $(0.67) $(0.61) $(0.66) $(0.83)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.35 $7.40 $7.63 $7.65 $6.61 $7.08
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.99(n) 5.55 8.98 26.04 2.95 (0.30)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.28(a) 1.29 1.29 1.34 1.37 1.46
Expenses after expense reductions (f) 0.85(a) 0.85 0.87 1.01 1.01 1.01
Net investment income 7.59(a) 7.51 7.62 8.21 9.35 11.18
Portfolio turnover 44 66 69 98 104 133
Net assets at end of period
(000 Omitted) $366,811 $338,568 $278,886 $150,334 $70,892 $37,187
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------------
CLASS B 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning
of period $7.42 $7.65 $7.67 $6.63 $7.09 $7.98
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.26 $0.51 $0.53 $0.55 $0.58 $0.77
Net realized and unrealized
gain (loss) on investments and
foreign currency (0.06) (0.16) 0.07 1.06 (0.43) (0.87)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.20 $0.35 $0.60 $1.61 $0.15 $(0.10)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.25) $(0.54) $(0.54) $(0.57) $(0.61) $(0.79)
From net realized gain on
investments and foreign
currency transactions -- (0.04) (0.08) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.25) $(0.58) $(0.62) $(0.57) $(0.61) $(0.79)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.37 $7.42 $7.65 $7.67 $6.63 $7.09
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.65(n) 4.87 8.28 25.19 2.43 (1.07)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.92(a) 1.94 1.94 1.99 2.02 2.11
Expenses after expense reductions (f) 1.50(a) 1.50 1.52 1.66 1.66 1.66
Net investment income 6.95(a) 6.88 7.03 7.61 8.75 10.59
Portfolio turnover 44 66 69 98 104 133
Net assets at end of period
(000 Omitted) $118,556 $125,667 $151,711 $140,348 $72,321 $41,481
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ---------------------------------------------------------------------
CLASS C 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning of period $7.38 $7.61 $7.63 $6.60 $7.07 $7.95
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.51 $0.52 $0.54 $0.57 $0.77
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.06) (0.16) 0.08 1.06 (0.43) (0.86)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.19 $0.35 $0.60 $1.60 $0.14 $(0.09)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.54) $(0.54) $(0.57) $(0.61) $(0.79)
From net realized gain on investments
and foreign currency transactions -- (0.04) (0.08) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.24) $(0.58) $(0.62) $(0.57) $(0.61) $(0.79)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.33 $7.38 $7.61 $7.63 $6.60 $7.07
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.65(n) 4.86 8.28 25.10 2.29 (0.94)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.92(a) 1.94 1.94 1.99 2.02 2.11
Expenses after expense reductions (f) 1.50(a) 1.50 1.52 1.66 1.66 1.66
Net investment income 6.95(a) 6.88 7.01 7.56 8.67 10.62
Portfolio turnover 44 66 69 98 104 133
Net assets at end of period
(000 Omitted) $94,826 $92,613 $101,113 $84,643 $38,130 $17,518
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------------
CLASS I 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning of period $7.42 $7.65 $7.68 $6.64 $7.10 $8.04
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.29 $0.59 $0.55 $0.63 $0.64 $0.59
Net realized and unrealized gain (loss)
on investments and foreign currency (0.06) (0.16) 0.12 1.05 (0.42) (0.67)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.23 $0.43 $0.67 $1.68 $0.22 $(0.08)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $(0.62) $(0.62) $(0.64) $(0.68) $(0.86)
From net realized gain on investments
and foreign currency transactions -- (0.04) (0.08) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.28) $(0.66) $(0.70) $(0.64) $(0.68) $(0.86)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.37 $7.42 $7.65 $7.68 $6.64 $7.10
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 3.17(n) 5.92 9.23 26.41 3.45 (0.74)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.93(a) 0.94 0.93 0.99 1.02 1.11
Expenses after expense reductions (f) 0.50(a) 0.50 0.51 0.66 0.66 0.66
Net investment income 7.94(a) 7.86 7.75 8.66 9.76 10.25
Portfolio turnover 44 66 69 98 104 133
Net assets at end of period
(000 Omitted) $47,828 $46,871 $33,556 $3,434 $2,508 $155
- -------------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS High Yield Opportunities Fund (the fund) is a series of MFS Series Trust
III (the trust). The trust is organized as a Massachusetts business trust and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
fund can invest up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions. The fund can invest in
foreign securities. Investments in foreign securities are vulnerable to the
effects of changes in the relative values of the local currency and the U.S.
dollar and to the effects of changes in each country's legal, political, and
economic environment. The markets of emerging markets countries are generally
more volatile than the markets of developed countries with more mature
economies. All of the risks of investing in foreign securities previously
described are heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the
market or exchange on which they are primarily traded. Debt instruments (other
than short-term instruments), including restricted debt instruments, are
generally valued at an evaluated or composite bid as reported by an
independent pricing service. Values of debt instruments obtained from pricing
services can utilize both dealer-supplied valuations and electronic data
processing techniques, which take into account 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. Short-
term instruments with a maturity at issuance of 60 days or less may be valued
at amortized cost, which approximates market value. Forward foreign currency
contracts are generally valued at the mean of bid and asked prices for the
time period interpolated from rates reported by an independent pricing service
for proximate time periods. Swaps are generally valued at a broker-dealer bid
quotation. Securities and other assets generally valued on the basis of
information from an independent pricing service may also be valued at a
broker-dealer bid quotation. The values of foreign securities and other assets
and liabilities expressed in foreign currencies are converted to U.S. dollars
using the mean of bid and asked prices for rates reported by an independent
pricing service. The Board of Trustees has delegated primary responsibility
for determining or causing to be determined the value of the fund's
investments (including any fair valuation) to the adviser pursuant to
valuation policies and procedures approved by the Board. If the adviser
determines that reliable market quotations are not readily available,
investments are valued at fair value as determined in good faith by the
adviser in accordance with such procedures under the oversight of the Board of
Trustees. Under the fund's valuation policies and procedures, market
quotations are not considered to be readily available for many types of debt
instruments. These investments are generally valued at fair value based on
information from independent pricing services. The adviser may rely on
independent pricing services or other information (such as the correlation
with price movements of similar securities in the same or other markets; the
type, cost and investment characteristics of the security; the business and
financial condition of the issuer; and trading and other market data) to
assist in determining whether to fair value and at what value to fair value an
investment. The value of an investment for purposes of calculating the fund's
net asset value can differ depending on the source and method used to
determine value. When fair valuation is used, the value of investments used to
determine the fund's net asset value may differ from quoted or published
prices for the same investments. In addition, investments may be valued at
fair value if the adviser determines that an investment's value has been
materially affected by events occurring after the close of the exchange or
market on which the investment is principally traded (such as foreign exchange
or market) and prior to the determination of the fund's net asset value, or
after the halting of trading of a specific security where trading does not
resume prior to the close of the exchange or market on which the security is
principally traded. Events that occur on a frequent basis after foreign
markets close (such as developments in foreign markets and significant
movements in the U.S. markets) and prior to the determination of the fund's
net asset value may be deemed to have a material affect on the value of
securities traded in foreign markets. Accordingly, the fund's foreign equity
securities may often be valued at fair value.
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.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from
derivative instruments may be substantially greater than the derivative's
original cost. Derivative instruments include forward foreign currency
exchange contracts and swap agreements.
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 the contract. 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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash
payments are exchanged at specified intervals and are recorded as a realized
gain or loss in the Statement of Operations. The value of the swap is adjusted
daily and the change in value is recorded as unrealized appreciation or
depreciation in the Statement of Operations. 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.
CREDIT DEFAULT SWAPS - The fund may enter into credit default swaps to limit
or to reduce risk exposure of the fund to credit events such as bankruptcy,
failure to pay, or a restructuring of corporate and sovereign issuers. The
fund may also use credit default swaps to create direct or synthetic short or
long exposure to domestic or foreign corporate debt securities or certain
sovereign debt securities to which the fund is not otherwise exposed. In a
credit default swap, one party makes a stream of payments to another party in
exchange for the right to receive a specified return in the event of a default
by a third party, such as a corporate issuer or foreign issuer on its
obligation.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The fund may invest in loans and
loan participations or other receivables. These investments may include
standby financing commitments, including revolving credit facilities, which
obligate the fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged a 2% redemption fee (which was retained by the fund)
on proceeds from Class A, Class B, Class C, and Class I shares redeemed or
exchanged within 30 calendar days following their acquisition (either by
purchase or exchange). Effective April 1, 2005, the fund charges a 1%
redemption fee on proceeds from Class A, Class B, Class C, and Class I shares
redeemed or exchanged within 30 calendar days following their acquisition. The
fund may change the redemption fee period in the future, including in
connection with Securities and Exchange Commission rule developments. See the
fund's prospectus for details. Any redemption fees are accounted for as an
addition to paid-in capital.
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 U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund earns certain fees in connection with its floating rate
loan purchasing activities. These fees are in addition to interest payments
earned and may include amendment fees, commitment fees, consent fees, and
prepayment fees. These fees are recorded on an accrual basis as income in the
accompanying financial statements. Dividends received in cash are recorded on
the ex-dividend date. Certain dividends from foreign securities will be
recorded when the fund is informed of the dividend if such information is
obtained subsequent to 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.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the fund. 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 six months ended July 31, 2006, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and
tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt
securities, defaulted bonds, foreign currency transactions, and treating a
portion of the proceeds from redemptions as a distribution for tax purposes.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
1/31/06 1/31/05
Ordinary income (including any short-term
capital gains) $45,471,541 $36,308,924
Long-term capital gain 1,045,398 1,736,139
- -------------------------------------------------------------------------------
Total distributions $46,516,939 $38,045,063
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 7/31/06
Cost of investments $620,595,404
---------------------------------------------------------
Gross appreciation $11,393,650
Gross depreciation (14,709,615)
---------------------------------------------------------
Net unrealized appreciation (depreciation) $(3,315,965)
AS OF 1/31/06
Undistributed ordinary income $3,624,169
Post-October capital loss deferral (4,422,799)
Other temporary differences (3,716,274)
Net unrealized appreciation (depreciation) 7,385,556
The aggregate cost above includes prior fiscal year end tax adjustments.
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of
the Interpretation to the fund, and has not at this time determined the
impact, if any, resulting from the adoption of this Interpretation on the
fund's financial statements.
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 0.65%
of the fund's average daily net assets. As part of a settlement agreement with
the New York Attorney General concerning market timing and related matters,
MFS has agreed to reduce the management fee to 0.50% of the fund's average
daily net assets for the period March 1, 2004 through February 28, 2009.
For the six months ended July 31, 2006, this waiver amounted to $462,816 and
is reflected as a reduction of total expenses in the Statement of Operations.
The management fee incurred for the six months ended July 31, 2006 was
equivalent to an annual effective rate of 0.50% of the fund's average daily
net assets.
The investment adviser has agreed in writing to pay all of the fund's operating
expenses, exclusive of management, distribution and service and certain other
fees and expenses. This written agreement will continue through May 31, 2007.
For the six months ended July 31, 2006, this reduction amounted to $847,571 and
is reflected as a reduction of total expenses in the Statement of Operations.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $72,675 for the six months ended July 31, 2006,
as its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $620,691
Class B 0.75% 0.25% 1.00% 1.00% 607,632
Class C 0.75% 0.25% 1.00% 1.00% 465,927
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,694,250
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up
to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six months ended
July 31, 2006 based on each class' average daily net assets.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the six months ended July
31, 2006, were as follows:
AMOUNT
Class A $187
Class B $145,363
Class C $8,926
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the six months ended July 31, 2006, the fee was $306,457, which equated to
0.0993% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the six months ended July 31, 2006, these
costs amounted to $78,190.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. From July 1, 2005 through March 31, 2006, the fund's annual fixed
amount was $10,000. Effective April 1, 2006, the fund's annual fixed amount is
$17,500. The administrative services fee incurred for the six months ended
July 31, 2006 was equivalent to an annual effective rate of 0.0178% of the
fund's average daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
Independent Trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to Trustees or officers of the fund who are also officers
of the investment adviser, 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, MFD, and MFSC. The fund has an unfunded, retirement benefit
deferral plan for certain Independent Trustees which resulted in an expense of
$256. This amount is included in Independent Trustees' compensation for the six
months ended July 31, 2006. The deferred liability for retirement benefits
payable to certain Trustees amounted to $8,193 at July 31, 2006, and is
included in payable for Independent Trustees' compensation.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended July 31, 2006, the fee paid to Tarantino
LLC was $2,427. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $1,829, which is
shown as a reduction of total expenses in the Statement of Operations.
Additionally, MFS has agreed to bear all expenses associated with office
space, other administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$300,332,447 and $258,859,070, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
7/31/06 1/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 11,909,498 $88,057,305 23,977,257 $178,646,326
Class B 1,628,812 12,067,993 3,145,326 23,481,984
Class C 1,828,383 13,501,636 3,023,579 22,507,817
Class I 918,365 6,808,517 2,796,435 20,868,063
- ----------------------------------------------------------------------------------------------------------
16,285,058 $120,435,451 32,942,597 $245,504,190
Shares issued to shareholders in
reinvestment of distributions
Class A 1,251,189 $9,250,637 2,333,406 $17,291,324
Class B 295,933 2,195,264 769,335 5,723,400
Class C 221,157 1,631,355 506,375 3,745,237
Class I 18,581 137,822 40,352 299,617
- ----------------------------------------------------------------------------------------------------------
1,786,860 $13,215,078 3,649,468 $27,059,578
Shares reacquired
Class A (8,999,897) $(66,482,465) (17,086,602) $(126,841,975)
Class B (2,774,728) (20,532,435) (6,802,691) (50,722,310)
Class C (1,661,853) (12,267,829) (4,263,101) (31,585,150)
Class I (763,595) (5,644,293) (903,916) (6,722,281)
- ----------------------------------------------------------------------------------------------------------
(14,200,073) $(104,927,022) (29,056,310) $(215,871,716)
Net change
Class A 4,160,790 $30,825,477 9,224,061 $69,095,675
Class B (849,983) (6,269,178) (2,888,030) (21,516,926)
Class C 387,687 2,865,162 (733,147) (5,332,096)
Class I 173,351 1,302,046 1,932,871 14,445,399
- ----------------------------------------------------------------------------------------------------------
3,871,845 $28,723,507 7,535,755 $56,692,052
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally at a rate equal to the Federal Reserve funds rate plus
0.35%. In addition, a commitment fee, based on the average daily, unused
portion of the committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the six months ended
July 31, 2006, the fund's commitment fee and interest expense were $1,958 and
$0, respectively, and are included in miscellaneous expense on the Statement
of Operations.
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2006 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2005 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts and other clients, (iv) information
as to whether and to what extent applicable expense waivers, reimbursements or
fee "breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance
monitoring and portfolio trading practices, and (viii) information regarding
the overall organization of MFS, including information about MFS' senior
management and other personnel providing investment advisory, administrative
and other services to the Fund and the other MFS Funds. The comparative
performance, fee and expense information prepared and provided by Lipper Inc.
was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 2nd quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total
return performance of the Fund's Class A shares was in the 1st quintile
for the one-year period and the 1st quintile for the five-year period
ended December 31, 2005 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year regarding the Fund's
performance. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that they were satisfied with MFS' responses
and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that there is an advisory fee reduction in effect for the Fund through
February 28, 2009 as part of MFS' settlement with the New York Attorney
General concerning market timing and related matters and that MFS has agreed
in writing to observe an expense limitation for the Fund. The Trustees also
considered that, according to the Lipper data, the Fund's effective advisory
fee rate (taking into account the advisory fee reduction and expense
limitation) and total expense ratio were each lower than the Lipper expense
group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Taking into account the advisory fee
reduction and expense limitation described above, the Trustees determined not
to recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for investment research (excluding
third-party research, for which MFS pays directly) and various other factors.
Additionally, the Trustees considered so-called "fall-out benefits" to MFS
such as reputational value derived from serving as investment manager to the
Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2006.
A discussion regarding the Board's most recent review and renewal of the
fund's investment advisory agreement with MFS will be available on or before
November 1, 2006 by clicking on the fund's name under "Select a fund" on the
MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
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 Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site at
http://www.sec.gov, and copies of this information may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov or by writing the Public Reference Section at the
above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
---------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send
prospectuses, reports, and proxies directly to your e-mail
inbox. You'll get timely information and less clutter in your
mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply 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 a retirement plan, MFS TALK, MFS Access, and
eDelivery may not be available to you.
---------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) HIGH INCOME FUND
LETTER FROM THE CEO 1
- -------------------------------------------------------
PORTFOLIO COMPOSITION 2
- -------------------------------------------------------
EXPENSE TABLE 3
- -------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- -------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 18
- -------------------------------------------------------
STATEMENT OF OPERATIONS 21
- -------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 22
- -------------------------------------------------------
FINANCIAL HIGHLIGHTS 23
- -------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 32
- -------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 44
- -------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 49
- -------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 49
- -------------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------
Fund objective: To provide high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities,
some of which may involve equity features.
THE 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.
- ------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- ------------------------------------------------------------------------------
7/31/06
MFH-SEM
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is still
relevant today -- "slow and steady" is the way to go when it comes to
investing. While financial markets will naturally ebb and flow over time,
investors who remain committed to a long-term investment strategy are more
likely to achieve their goals than those who consistently chase short-term
performance.
The first half of 2006 brought a high degree of fluctuation in markets around
the globe as varying economic factors pulled markets in opposite directions.
The global economy, for example, continued to grow at its fastest pace in
three decades -- spurred by increased international trade, good job growth,
and wage increases. At the same time, central banks around the world raised
interest rates in sync in a collaborative attempt to curb inflation. While
this was a positive development in some regions, in other cases, economic and
market gains were tempered.
What does all of this mean to you as an investor? If you're focused on the
long term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years --
combines a unique teamwork approach with an unwavering focus on helping you
realize your long-term financial goals. We believe in a three-pronged
investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market segments
and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a
loss. Investing and planning for the long term requires diligence and
patience, two traits that in our experience are essential to capitalizing on
the many opportunities the financial markets can offer -- through both up and
down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
September 15, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE(i)
Bonds 92.5%
Common Stocks 2.0%
Convertible Preferred Stocks 1.0%
Preferred Stocks 0.3%
Cash & Other Net Assets 4.2%
TOP FIVE INDUSTRIES (i)
Automotive 9.8%
------------------------------------------------
Gaming & Lodging 7.3%
------------------------------------------------
Medical & Health Technology &
Services 5.7%
------------------------------------------------
Chemicals 5.6%
------------------------------------------------
Forest & Paper Products 4.4%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 0.3%
------------------------------------------------
A 0.1%
------------------------------------------------
BBB 1.4%
------------------------------------------------
BB 32.6%
------------------------------------------------
B 46.0%
------------------------------------------------
CCC 19.2%
------------------------------------------------
CC 0.3%
------------------------------------------------
Not Rated 0.1%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 4.5
------------------------------------------------
Average Life (m) 7.8 yrs.
------------------------------------------------
Average Maturity (m) 8.3 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) B
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which
have been pre-refunded or pre-paid to an earlier date or which have a
mandatory put date prior to the stated maturity. The average life shown
takes into account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments as
of 7/31/06.
Percentages are based on net assets as of 7/31/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
February 1, 2006 through July 31, 2006.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period February 1, 2006 through
July 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value
by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the following table provides
information about hypothetical account values and hypothetical expenses based
on the fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have
been higher.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 2/01/06-
Class Ratio 2/01/06 7/31/06 7/31/06
- --------------------------------------------------------------------------------
Actual 1.03% $1,000.00 $1,018.30 $5.15
A ------------------------------------------------------------------------
Hypothetical (h) 1.03% $1,000.00 $1,019.69 $5.16
- --------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $1,014.80 $8.64
B -------------------------------------------------------------------------
Hypothetical (h) 1.73% $1,000.00 $1,016.22 $8.65
- --------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $1,014.80 $8.64
C ------------------------------------------------------------------------
Hypothetical (h) 1.73% $1,000.00 $1,016.22 $8.65
- --------------------------------------------------------------------------------
Actual 0.73% $1,000.00 $1,019.80 $3.66
I ------------------------------------------------------------------------
Hypothetical (h) 0.73% $1,000.00 $1,021.17 $3.66
- --------------------------------------------------------------------------------
Actual 1.23% $1,000.00 $1,017.30 $6.15
R ------------------------------------------------------------------------
Hypothetical (h) 1.23% $1,000.00 $1,018.70 $6.16
- --------------------------------------------------------------------------------
Actual 1.83% $1,000.00 $1,014.30 $9.14
R1 ------------------------------------------------------------------------
Hypothetical (h) 1.83% $1,000.00 $1,015.72 $9.15
- --------------------------------------------------------------------------------
Actual 1.48% $1,000.00 $1,016.10 $7.40
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.48% $1,000.00 $1,017.46 $7.40
- --------------------------------------------------------------------------------
Actual 1.38% $1,000.00 $1,013.90 $6.89
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.38% $1,000.00 $1,017.95 $6.90
- --------------------------------------------------------------------------------
Actual 1.13% $1,000.00 $1,017.80 $5.65
R4 ------------------------------------------------------------------------
Hypothetical (h) 1.13% $1,000.00 $1,019.19 $5.66
- --------------------------------------------------------------------------------
Actual 0.82% $1,000.00 $1,019.30 $4.11
R5 ------------------------------------------------------------------------
Hypothetical (h) 0.82% $1,000.00 $1,020.73 $4.11
- --------------------------------------------------------------------------------
Actual 1.33% $1,000.00 $1,016.80 $6.65
529A ------------------------------------------------------------------------
Hypothetical (h) 1.33% $1,000.00 $1,018.20 $6.66
- --------------------------------------------------------------------------------
Actual 1.97% $1,000.00 $1,013.50 $9.83
529B ------------------------------------------------------------------------
Hypothetical (h) 1.97% $1,000.00 $1,015.03 $9.84
- --------------------------------------------------------------------------------
Actual 1.98% $1,000.00 $1,013.50 $9.88
529C ------------------------------------------------------------------------
Hypothetical (h) 1.98% $1,000.00 $1,014.98 $9.89
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
7/31/06 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 89.3%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 3.6%
- --------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 6,535,000 $ 6,469,650
EchoStar DBS Corp., 6.375%, 2011 4,175,000 4,081,063
Granite Broadcasting Corp., 9.75%, 2010 4,485,000 4,159,838
Hughes Network Systems LLC, 9.5%, 2014 (a) 3,400,000 3,383,000
Intelsat Ltd., 9.25%, 2016 (a) 3,600,000 3,681,000
Intelsat Ltd., 11.25%, 2016 (a) 1,255,000 1,267,550
Intelsat Ltd., 0% to 2010, 9.25% to 2015 (a) 5,720,000 3,875,300
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 2,330,000 2,306,700
ION Media Networks, Inc., FRN, 11.7569%, 2013 (a) 6,275,000 6,353,438
XM Satellite Radio, Inc., 9.75%, 2014 (a) 5,660,000 5,221,350
Young Broadcasting, Inc., 10%, 2011 2,840,000 2,605,700
---------------
$ 43,404,589
- --------------------------------------------------------------------------------------------------
Aerospace - 1.0%
- --------------------------------------------------------------------------------------------------
Argo-Tech Corp., 9.25%, 2011 $ 4,550,000 $ 4,697,875
DRS Technologies, Inc., 7.625%, 2018 7,680,000 7,660,800
---------------
$ 12,358,675
- --------------------------------------------------------------------------------------------------
Airlines - 0.9%
- --------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.9%, 2017 $ 1,306,292 $ 1,228,712
Continental Airlines, Inc., 6.748%, 2017 2,544,044 2,391,401
Continental Airlines, Inc., 6.795%, 2018 6,134,367 5,829,550
Continental Airlines, Inc., 7.566%, 2020 1,926,443 1,889,764
---------------
$ 11,339,427
- --------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.5%
- --------------------------------------------------------------------------------------------------
Levi Strauss & Co., 12.25%, 2012 $ 2,985,000 $ 3,343,200
Levi Strauss & Co., 9.75%, 2015 2,300,000 2,357,500
---------------
$ 5,700,700
- --------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 2.2%
- --------------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6%, 2037 (z) $ 5,148,000 $ 4,690,713
Asset Securitization Corp., FRN, 8.0091%, 2029 2,786,991 2,887,120
Asset Securitization Corp., FRN, 8.4991%, 2029 (z) 2,000,000 1,905,313
Babson CDO Ltd., "D", FRN, 6.8528%, 2018 (a) 2,385,000 2,385,000
CWCapital Cobalt CDO Ltd., "E2", 6%, 2045 (z) 1,000,000 949,190
CWCapital Cobalt CDO Ltd., "F", FRN, 6.79%, 2050 (z) 610,000 609,902
CWCapital Cobalt CDO Ltd., "G", FRN, 6.99%, 2050 (z) 1,890,000 1,889,698
Falcon Franchise Loan LLC, FRN, 3.9126%, 2023 (i)(z) 15,851,839 2,549,512
First Union National Bank Commercial Mortgage Corp.,
6.75%, 2032 2,000,000 1,992,926
Lehman Brothers Commercial Conduit Mortgage Trust, FRN,
0.9553%, 2030 (i) 43,525,455 951,945
Morgan Stanley Capital I, Inc., FRN, 1.4476%, 2039 (a)(i) 23,489,233 1,577,678
TIERS Beach Street Synthetic, CLO, FRN, 9.9639%, 2011 (z) 2,750,000 2,750,000
Wachovia Credit, CDO, FRN, 6.8227%, 2026 (z) 1,320,000 1,320,000
---------------
$ 26,458,997
- --------------------------------------------------------------------------------------------------
Automotive - 8.3%
- --------------------------------------------------------------------------------------------------
American Axle & Manufacturing, Inc., 5.25%, 2014 $ 2,530,000 $ 2,087,250
Cooper Standard Automotive, Inc., 8.375%, 2014 7,130,000 5,347,500
Ford Motor Credit Co., 6.625%, 2008 3,562,000 3,431,303
Ford Motor Credit Co., 5.625%, 2008 5,135,000 4,822,479
Ford Motor Credit Co., 5.8%, 2009 9,683,000 9,002,227
Ford Motor Credit Co., 9.75%, 2010 (a) 2,695,000 2,667,376
Ford Motor Credit Co., 8.625%, 2010 3,855,000 3,705,877
Ford Motor Credit Co., 7%, 2013 13,169,000 11,566,675
General Motors Acceptance Corp., 6.875%, 2011 6,005,000 5,814,599
General Motors Acceptance Corp., 6.75%, 2014 25,060,000 23,589,429
General Motors Acceptance Corp., 8%, 2031 11,870,000 11,640,945
General Motors Corp., 8.375%, 2033 6,149,000 5,042,180
Goodyear Tire & Rubber Co., 9%, 2015 10,220,000 9,836,750
Lear Corp., 5.75%, 2014 1,755,000 1,421,550
---------------
$ 99,976,140
- --------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.9%
- --------------------------------------------------------------------------------------------------
Cablevision Systems Corp., 8%, 2012 $ 3,125,000 $ 3,093,750
CCH I Holdings LLC, 9.92%, 2014 4,150,000 2,656,000
CCH I Holdings LLC, 11%, 2015 18,340,000 16,460,150
CCH II Holdings LLC, 10.25%, 2010 5,725,000 5,782,250
CCO Holdings LLC, 8.75%, 2013 2,560,000 2,540,800
Corsair B.V., FRN, 11.35%, 2016 665,660 665,660
CSC Holdings, Inc., 8.125%, 2009 4,730,000 4,842,338
CSC Holdings, Inc., 7.25%, 2012 (a) 3,855,000 3,724,894
Mediacom LLC, 9.5%, 2013 4,805,000 4,865,063
NTL Cable PLC, 9.125%, 2016 1,965,000 1,994,475
---------------
$ 46,625,380
- --------------------------------------------------------------------------------------------------
Building - 2.1%
- --------------------------------------------------------------------------------------------------
Goodman Global Holdings, Inc., 7.875%, 2012 $ 9,335,000 $ 8,658,213
Interface, Inc., 10.375%, 2010 3,391,000 3,704,668
Interface, Inc., 9.5%, 2014 600,000 615,000
Nortek Holdings, Inc., 8.5%, 2014 3,790,000 3,543,650
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 12,640,000 8,848,000
---------------
$ 25,369,531
- --------------------------------------------------------------------------------------------------
Business Services - 2.1%
- --------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $ 1,095,000 $ 1,116,900
Iron Mountain, Inc., 7.75%, 2015 2,610,000 2,544,750
Nortel Networks Ltd., 10.75%, 2016 (a) 2,625,000 2,680,781
Northern Telecom Corp., 6.875%, 2023 2,420,000 1,923,900
SunGard Data Systems, 10.25%, 2015 7,645,000 7,750,119
Xerox Corp., 7.625%, 2013 9,650,000 9,746,500
---------------
$ 25,762,950
- --------------------------------------------------------------------------------------------------
Chemicals - 5.2%
- --------------------------------------------------------------------------------------------------
Basell AF SCA, 8.375%, 2015 (a) $ 11,457,000 $ 11,127,611
BCP Crystal Holdings Corp., 9.625%, 2014 2,487,000 2,670,416
Crystal U.S. Holdings LLC, "A", 0% to 2009, 10% to 2014 1,238,000 978,020
Crystal U.S. Holdings LLC, "B", 0% to 2009, 10.5% to 2014 10,547,000 8,226,660
Equistar Chemicals, 10.625%, 2011 1,255,000 1,349,125
Equistar Chemicals, LP, 10.125%, 2008 2,505,000 2,636,513
Hexion U.S. Financial Corp., 9%, 2014 4,290,000 4,386,525
Huntsman International LLC, 10.125%, 2009 4,116,000 4,177,740
Huntsman International LLC, 7.375%, 2015 (a) 5,090,000 4,727,338
KI Holdings, Inc., 0% to 2009, 9.875% to 2014 7,030,000 5,149,475
Lyondell Chemical Co., 9.5%, 2008 1,425,000 1,464,188
Lyondell Chemical Co., 11.125%, 2012 2,580,000 2,808,975
Nalco Co., 7.75%, 2011 4,115,000 4,135,575
Nalco Co., 8.875%, 2013 9,090,000 9,180,900
Rockwood Specialties Group, Inc., 10.625%, 2011 1,000 1,075
---------------
$ 63,020,136
- --------------------------------------------------------------------------------------------------
Construction - 0.7%
- --------------------------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875%, 2015 $ 4,475,000 $ 3,982,750
Technical Olympic USA, Inc., 7.5%, 2015 835,000 647,125
WCI Communities, Inc., 7.875%, 2013 4,210,000 3,620,600
---------------
$ 8,250,475
- --------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.4%
- --------------------------------------------------------------------------------------------------
GEO Group, Inc., 8.25%, 2013 $ 5,710,000 $ 5,681,450
Jarden Corp., 9.75%, 2012 3,000,000 3,120,000
Playtex Products, Inc., 9.375%, 2011 3,720,000 3,882,750
Revlon Consumer Products Corp., 9.5%, 2011 6,775,000 5,724,875
Samsonite Corp., 8.875%, 2011 4,220,000 4,378,250
Service Corp. International, 7.75%, 2017 (a) 4,360,000 4,071,150
Simmons Co., 7.875%, 2014 1,070,000 1,008,475
Visant Holding Corp., 8.75%, 2013 (a) 865,000 828,238
---------------
$ 28,695,188
- --------------------------------------------------------------------------------------------------
Containers - 2.1%
- --------------------------------------------------------------------------------------------------
Crown Americas, 7.75%, 2015 (a) $ 3,825,000 $ 3,772,406
Graham Packaging Co. LP, 9.875%, 2014 9,205,000 8,951,863
Owens-Brockway Glass Container, Inc., 8.25%, 2013 12,540,000 12,696,750
---------------
$ 25,421,019
- --------------------------------------------------------------------------------------------------
Defense Electronics - 0.8%
- --------------------------------------------------------------------------------------------------
L-3 Communications Corp., 5.875%, 2015 $ 5,275,000 $ 4,945,313
L-3 Communications Holdings, Inc., 6.125%, 2014 4,600,000 4,404,500
---------------
$ 9,349,813
- --------------------------------------------------------------------------------------------------
Electronics - 0.7%
- --------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 2,550,000 $ 2,473,500
Magnachip Semiconductor S.A., 8%, 2014 560,000 371,000
Sensata Technologies B.V., 8%, 2014 (a) 5,970,000 5,731,200
---------------
$ 8,575,700
- --------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0.3%
- --------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 (a) $ 2,140,000 $ 2,503,800
Gazprom OAO, 8.625%, 2034 (a) 780,000 940,875
---------------
$ 3,444,675
- --------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.2%
- --------------------------------------------------------------------------------------------------
Federative Republic of Brazil, 8.875%, 2019 $ 1,071,000 $ 1,242,360
Russian Ministry of Finance, 12.75%, 2028 880,000 1,527,152
---------------
$ 2,769,512
- --------------------------------------------------------------------------------------------------
Energy - Independent - 3.1%
- --------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7%, 2014 $ 3,702,000 $ 3,618,705
Chesapeake Energy Corp., 6.375%, 2015 9,700,000 9,118,000
Chesapeake Energy Corp., 6.875%, 2016 5,615,000 5,418,475
Hilcorp Energy I, 9%, 2016 (a) 2,155,000 2,230,425
Newfield Exploration Co., 6.625%, 2014 7,350,000 7,120,313
Quicksilver Resources, Inc., 7.125%, 2016 5,870,000 5,547,150
Whiting Petroleum Corp., 7%, 2014 4,030,000 3,949,400
---------------
$ 37,002,468
- --------------------------------------------------------------------------------------------------
Entertainment - 1.4%
- --------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 3,102,000 $ 3,086,490
AMC Entertainment, Inc., 11%, 2016 3,110,000 3,358,800
Six Flags, Inc., 8.875%, 2010 3,685,000 3,551,419
Six Flags, Inc., 9.75%, 2013 7,220,000 6,633,375
---------------
$ 16,630,084
- --------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 0.7%
- --------------------------------------------------------------------------------------------------
B&G Foods Holding Corp., 8%, 2011 $ 3,570,000 $ 3,578,925
Michael Foods, Inc., 8%, 2013 5,100,000 5,036,250
---------------
$ 8,615,175
- --------------------------------------------------------------------------------------------------
Forest & Paper Products - 4.3%
- --------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8%, 2010 $ 1,295,000 $ 1,233,488
Buckeye Technologies, Inc., 8.5%, 2013 7,725,000 7,531,875
Graphic Packaging International Corp., 9.5%, 2013 9,075,000 9,075,000
Jefferson Smurfit Corp., 8.25%, 2012 15,035,000 14,208,075
JSG Funding LLC, 11.5%, 2015 (a)(p) EUR 3,015,670 3,919,016
JSG Funding PLC, 7.75%, 2015 $ 525,000 479,063
MDP Acquisitions PLC, 9.625%, 2012 4,145,000 4,290,075
Millar Western Forest Products Ltd., 7.75%, 2013 3,810,000 2,886,075
Stone Container Corp., 7.375%, 2014 2,995,000 2,665,550
Verso Paper Holdings LLC, 9.125%, 2014 (a) 2,685,000 2,685,000
Verso Paper Holdings LLC, 11.375%, 2016 (a) 2,520,000 2,507,400
---------------
$ 51,480,617
- --------------------------------------------------------------------------------------------------
Gaming & Lodging - 6.5%
- --------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 6.75%, 2014 $ 5,360,000 $ 5,025,000
Greektown Holdings, 10.75%, 2013 (a) 4,515,000 4,774,613
Host Marriott LP, 7.125%, 2013 3,165,000 3,168,956
Majestic Star Casino LLC, 9.75%, 2011 (a) 3,545,000 3,491,825
Mandalay Resort Group, 9.375%, 2010 3,525,000 3,718,875
MGM Mirage, Inc., 8.5%, 2010 3,075,000 3,209,531
MGM Mirage, Inc., 8.375%, 2011 6,215,000 6,385,913
MGM Mirage, Inc., 6.75%, 2013 (a) 4,020,000 3,859,200
MGM Mirage, Inc., 5.875%, 2014 3,010,000 2,735,338
MGM Mirage, Inc., 6.875%, 2016 (a) 3,620,000 3,411,850
Pinnacle Entertainment, Inc., 8.25%, 2012 3,795,000 3,785,513
Pokagon Gaming Authority, 10.375%, 2014 (a) 3,755,000 3,923,975
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 9,200,000 9,706,000
Station Casinos, Inc., 6.5%, 2014 8,075,000 7,429,000
Trump Entertainment Resorts Holdings, Inc., 8.5%, 2015 7,825,000 7,512,000
Wynn Las Vegas LLC, 6.625%, 2014 6,455,000 6,083,838
---------------
$ 78,221,427
- --------------------------------------------------------------------------------------------------
Industrial - 3.4%
- --------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011 (z) $ 6,155,000 $ 6,616,625
Blount, Inc., 8.875%, 2012 1,090,000 1,100,900
Da-Lite Screen Co., Inc., 9.5%, 2011 2,780,000 2,925,950
Education Management LLC, 8.75%, 2014 (a) 2,610,000 2,616,525
Education Management LLC, 10.25%, 2016 (a) 2,830,000 2,858,300
Interline Brands, Inc., 8.125%, 2014 (a) 1,815,000 1,828,613
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 7,525,000 7,449,750
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 6,262,000 5,322,700
Knowledge Learning Corp., 7.75%, 2015 (z) 2,615,000 2,405,800
Milacron Escrow Corp., 11.5%, 2011 5,580,000 5,161,500
RBS Global & Rexnord Corp., 11.75%, 2016 (a) 2,150,000 2,198,375
---------------
$ 40,485,038
- --------------------------------------------------------------------------------------------------
Insurance - 0.6%
- --------------------------------------------------------------------------------------------------
UnumProvident Corp., 7.625%, 2011 $ 1,905,000 $ 1,991,830
UnumProvident Corp., 6.85%, 2015 (a) 5,608,000 5,547,080
---------------
$ 7,538,910
- --------------------------------------------------------------------------------------------------
Machinery & Tools - 1.6%
- --------------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 5,125,000 $ 4,971,250
Case New Holland, Inc., 9.25%, 2011 1,840,000 1,938,900
Case New Holland, Inc., 7.125%, 2014 9,540,000 9,277,650
Terex Corp., 10.375%, 2011 2,490,000 2,619,181
---------------
$ 18,806,981
- --------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 5.5%
- --------------------------------------------------------------------------------------------------
CDRV Investors, Inc., 0% to 2010, 9.625% to 2015 $ 8,750,000 $ 6,190,625
DaVita, Inc., 6.625%, 2013 2,665,000 2,538,413
DaVita, Inc., 7.25%, 2015 5,465,000 5,225,906
Extendicare Health Services, Inc., 6.875%, 2014 4,390,000 4,565,600
HCA, Inc., 8.75%, 2010 1,915,000 1,929,363
HCA, Inc., 7.875%, 2011 7,515,000 7,111,069
HCA, Inc., 6.375%, 2015 10,370,000 8,321,925
HealthSouth Corp., 10.75%, 2016 (a) 8,120,000 7,754,600
Omnicare, Inc., 6.875%, 2015 7,650,000 7,382,250
Select Medical Corp., 7.625%, 2015 2,115,000 1,797,750
Tenet Healthcare Corp., 9.875%, 2014 2,755,000 2,631,025
Triad Hospitals, Inc., 7%, 2013 3,295,000 3,146,725
US Oncology, Inc., 10.75%, 2014 5,435,000 5,896,975
Vanguard Health Holding II, 9%, 2014 1,375,000 1,330,313
---------------
$ 65,822,539
- --------------------------------------------------------------------------------------------------
Metals & Mining - 1.4%
- --------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 3,955,000 $ 3,767,138
Massey Energy Co., 6.875%, 2013 9,180,000 8,468,550
Peabody Energy Corp., 5.875%, 2016 5,630,000 5,081,075
---------------
$ 17,316,763
- --------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.5%
- --------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.25%, 2015 $ 3,050,000 $ 2,958,500
AmeriGas Partners LP, 7.125%, 2016 3,530,000 3,406,450
---------------
$ 6,364,950
- --------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.5%
- --------------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625%, 2021 $ 3,165,000 $ 3,759,507
Atlas Pipeline Partners LP, 8.125%, 2015 (a) 3,830,000 3,858,725
Colorado Interstate Gas Co., 5.95%, 2015 2,880,000 2,656,927
El Paso Energy Corp., 7%, 2011 6,820,000 6,760,325
El Paso Energy Corp., 7.75%, 2013 3,590,000 3,648,338
El Paso Performance-Linked, 7.75%, 2011 (a) 3,735,000 3,758,344
Transcontinental Gas Pipe Line Corp., 7%, 2011 2,705,000 2,752,338
Williams Cos., Inc., 7.125%, 2011 2,608,000 2,627,560
---------------
$ 29,822,064
- --------------------------------------------------------------------------------------------------
Network & Telecom - 3.7%
- --------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 5,260,000 $ 5,154,800
Citizens Communications Co., 9.25%, 2011 5,641,000 6,120,485
Citizens Communications Co., 9%, 2031 7,010,000 7,185,250
Hawaiian Telecom Communications, Inc., 9.75%, 2013 3,350,000 3,417,000
Hawaiian Telecom Communications, Inc., 12.5%, 2015 1,035,000 1,091,925
Nordic Telephone Co. Holdings, 8.875%, 2016 (a) 3,085,000 3,177,550
Qwest Corp., 7.875%, 2011 3,915,000 4,052,025
Qwest Corp., 8.875%, 2012 6,255,000 6,739,763
Time Warner Telecom Holdings, Inc., 9.25%, 2014 1,745,000 1,792,988
Verizon New York, Inc., 7.375%, 2032 2,872,000 2,903,081
Windstream Corp., 8.625%, 2016 (a) 2,685,000 2,792,400
---------------
$ 44,427,267
- --------------------------------------------------------------------------------------------------
Oil Services - 1.0%
- --------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 (a) $ 4,805,000 $ 4,480,663
GulfMark Offshore, Inc., 7.75%, 2014 3,635,000 3,535,038
Hanover Compressor Co., 9%, 2014 3,785,000 4,031,025
---------------
$ 12,046,726
- --------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.4%
- --------------------------------------------------------------------------------------------------
Warner Chilcott Corp., 8.75%, 2015 $ 5,130,000 $ 5,091,525
- --------------------------------------------------------------------------------------------------
Printing & Publishing - 3.5%
- --------------------------------------------------------------------------------------------------
American Media Operations, Inc., 8.875%, 2011 $ 4,790,000 $ 4,215,200
Dex Media, Inc., 0% to 2008, 9% to 2013 10,320,000 8,514,000
Dex Media, Inc., 0% to 2008, 9% to 2013 6,115,000 5,044,875
MediaNews Group, Inc., 6.875%, 2013 6,775,000 6,207,594
PRIMEDIA, Inc., 8.875%, 2011 2,785,000 2,652,713
PRIMEDIA, Inc., 8%, 2013 2,705,000 2,373,638
R.H. Donnelley Corp., 8.875%, 2016 6,185,000 6,161,806
WDAC Subsidiary Corp., 8.375%, 2014 (a) 6,565,000 6,532,175
---------------
$ 41,702,001
- --------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.4%
- --------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 3,343,000 $ 3,551,938
TFM S.A. de C.V., 12.5%, 2012 1,025,000 1,127,500
---------------
$ 4,679,438
- --------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- --------------------------------------------------------------------------------------------------
Denny's Corp. Holdings, Inc., 10%, 2012 $ 3,030,000 $ 3,045,150
- --------------------------------------------------------------------------------------------------
Retailers - 2.4%
- --------------------------------------------------------------------------------------------------
Buhrmann U.S., Inc., 7.875%, 2015 $ 5,545,000 $ 5,378,650
Couche-Tard, Inc., 7.5%, 2013 3,740,000 3,730,650
Dollar General Corp., 8.625%, 2010 1,715,000 1,813,613
Jean Coutu Group (PJC), Inc., 7.625%, 2012 3,290,000 3,199,525
Jean Coutu Group (PJC), Inc., 8.5%, 2014 3,650,000 3,408,188
Neiman Marcus Group, Inc., 9%, 2015 3,785,000 3,988,444
Neiman Marcus Group, Inc., 10.375%, 2015 2,340,000 2,483,325
Steinway Musical Instruments, Inc., 7%, 2014 (a) 5,415,000 5,184,863
---------------
$ 29,187,258
- --------------------------------------------------------------------------------------------------
Specialty Stores - 0.9%
- --------------------------------------------------------------------------------------------------
GSC Holdings Corp., 8%, 2012 $ 6,920,000 $ 7,023,800
Payless ShoeSource, Inc., 8.25%, 2013 3,935,000 4,028,456
---------------
$ 11,052,256
- --------------------------------------------------------------------------------------------------
Steel - 0.4%
- --------------------------------------------------------------------------------------------------
Chaparral Steel Co., 10%, 2013 $ 4,545,000 $ 5,010,863
- --------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
- --------------------------------------------------------------------------------------------------
Jitney Jungle Stores of America, Inc., 10.375%, 2007 (d) $ 500,000 $ 0
Pathmark Stores, Inc., 8.75%, 2012 1,775,000 1,659,625
---------------
$ 1,659,625
- --------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.9%
- --------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10%, 2013 $ 1,090,000 $ 1,087,275
Centennial Communications Corp., 10.125%, 2013 2,365,000 2,495,075
Rogers Wireless, Inc., 6.375%, 2014 5,120,000 4,915,200
Rogers Wireless, Inc., 7.5%, 2015 3,575,000 3,664,375
Rural Cellular Corp., 9.875%, 2010 4,275,000 4,424,625
Wind Acquisition Finance S.A., 10.75%, 2015 (a) 5,180,000 5,581,450
---------------
$ 22,168,000
- --------------------------------------------------------------------------------------------------
Tobacco - 0.6%
- --------------------------------------------------------------------------------------------------
Reynolds American, Inc., 7.25%, 2012 (a) $ 3,715,000 $ 3,742,625
Reynolds American, Inc., 7.3%, 2015 (a) 3,175,000 3,177,080
---------------
$ 6,919,705
- --------------------------------------------------------------------------------------------------
Transportation - Services - 1.2%
- --------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 (a) $ 7,405,000 $ 7,719,713
Stena AB, 7.5%, 2013 1,785,000 1,726,988
Stena AB, 7%, 2016 4,610,000 4,287,300
Westinghouse Air Brake Technologies Corp., 6.875%, 2013 1,048,000 1,032,280
---------------
$ 14,766,281
- --------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.0%
- --------------------------------------------------------------------------------------------------
Edison Mission Energy, 7.75%, 2016 (a) $ 2,670,000 $ 2,636,625
Empresa Nacional de Electricidad S.A., 8.35%, 2013 3,610,000 3,944,824
Enersis S.A., 7.375%, 2014 1,882,000 1,938,915
Midwest Generation LLC, 8.75%, 2034 7,100,000 7,552,625
Mirant North American LLC, 7.375%, 2013 6,285,000 6,041,456
Mission Energy Holding Co., 13.5%, 2008 5,095,000 5,693,663
NRG Energy, Inc., 7.375%, 2016 15,765,000 15,410,266
Reliant Energy, Inc., 6.75%, 2014 755,000 705,925
Reliant Resources, Inc., 9.25%, 2010 3,710,000 3,802,750
Reliant Resources, Inc., 9.5%, 2013 90,000 92,250
---------------
$ 47,819,299
- --------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $1,092,382,674) $ 1,074,205,317
- --------------------------------------------------------------------------------------------------
Common Stocks - 2.0%
- --------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.3%
- --------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., "A" 393,554 $ 3,313,725
- --------------------------------------------------------------------------------------------------
Automotive - 0.5%
- --------------------------------------------------------------------------------------------------
Magna International, Inc., "A" 79,200 $ 5,820,408
- --------------------------------------------------------------------------------------------------
Chemicals - 0.2%
- --------------------------------------------------------------------------------------------------
Huntsman Corp. (n) 184,100 $ 2,936,395
- --------------------------------------------------------------------------------------------------
Containers - 0.3%
- --------------------------------------------------------------------------------------------------
Crown Holdings, Inc. (n) 235,400 $ 3,921,764
- --------------------------------------------------------------------------------------------------
Energy - Independent - 0.2%
- --------------------------------------------------------------------------------------------------
Foundation Coal Holdings, Inc. 55,370 $ 2,111,812
- --------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.1%
- --------------------------------------------------------------------------------------------------
HCA, Inc. 27,400 $ 1,346,984
- --------------------------------------------------------------------------------------------------
Metals & Mining - 0.0%
- --------------------------------------------------------------------------------------------------
Oxford Automotive, Inc. (n) 1,087 $ 0
- --------------------------------------------------------------------------------------------------
Printing & Publishing - 0.0%
- --------------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc. (n) 206,408 $ 0
- --------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.0%
- --------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (n) 86 $ 1,196
- --------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.1%
- --------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR 45,942 $ 996,023
- --------------------------------------------------------------------------------------------------
Telephone Services - 0.3%
- --------------------------------------------------------------------------------------------------
NTL, Inc. 74,900 $ 1,711,465
Windstream Corp. 112,200 1,405,866
XO Holdings, Inc. (n) 448 1,770
---------------
$ 3,119,101
- --------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $26,333,356) $ 23,567,408
- --------------------------------------------------------------------------------------------------
Floating Rate Loans - 1.3% (g)(r)
- --------------------------------------------------------------------------------------------------
Automotive - 0.4%
- --------------------------------------------------------------------------------------------------
Lear Corp., Term Loan, 7.93%, 2012 $ 4,659,465 $ 4,621,607
- --------------------------------------------------------------------------------------------------
Containers - 0.3%
- --------------------------------------------------------------------------------------------------
Bluegrass Container Co. LLC, Second Lien Term Loan,
10.4%, 2013 $ 3,317,424 $ 3,345,068
- --------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.6%
- --------------------------------------------------------------------------------------------------
Gulfside Casino, Inc., Term Loan B, 10.44%, 2012 $ 8,092,481 $ 8,092,481
- --------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.0%
- --------------------------------------------------------------------------------------------------
CDX Funding, Second Lien Term Loan, 10.75%, 2013 $ 100,000 $ 101,083
- --------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $16,172,203) $ 16,160,239
- --------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.0%
- --------------------------------------------------------------------------------------------------
Automotive - 0.5%
- --------------------------------------------------------------------------------------------------
General Motors Corp., "B", 5.25% 314,179 $ 6,173,617
- --------------------------------------------------------------------------------------------------
Real Estate - 0.5%
- --------------------------------------------------------------------------------------------------
Mills Corp., 6.75% (z) 4,850 $ 3,867,875
Mills Corp., "F", 6.75% 1,950 1,555,125
---------------
$ 5,423,000
- --------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(IDENTIFIED COST, $10,736,355) $ 11,596,617
- --------------------------------------------------------------------------------------------------
Preferred Stocks - 0.3%
- --------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 0.3%
- --------------------------------------------------------------------------------------------------
Ion Media Networks, Inc., 14.25% (p) 158 $ 1,350,900
Spanish Broadcasting Systems, Inc., "B", 10.75% (p) 2,034 2,191,635
---------------
$ 3,542,535
- --------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.0%
- --------------------------------------------------------------------------------------------------
Renaissance Cosmetics, Inc., 14% (n)(p) 8,899 $ 0
- --------------------------------------------------------------------------------------------------
Real Estate - 0.0%
- --------------------------------------------------------------------------------------------------
HRPT Properties Trust, REIT, "B", 8.75% 4,500 $ 116,235
- --------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $3,405,898) $ 3,658,770
- --------------------------------------------------------------------------------------------------
Warrants - 0.0%
- --------------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 0.0%
- --------------------------------------------------------------------------------------------------
XM Satellite Radio, Inc. (n) $45.24 9/16/00 3,440 $ 18,920
- --------------------------------------------------------------------------------------------------
Business Services - 0.0%
- --------------------------------------------------------------------------------------------------
Loral Space & Communications Ltd. (n) $ 0.14 1/28/97 5,000 $ 0
Loral Space & Communications Ltd. (n) 0.14 1/28/97 11,775 0
---------------
$ 0
- --------------------------------------------------------------------------------------------------
Computer Software - 0.0%
- --------------------------------------------------------------------------------------------------
Cybernet Internet Services (n) $22.28 10/29/99 3,385 $ 0
- --------------------------------------------------------------------------------------------------
Network & Telecom - 0.0%
- --------------------------------------------------------------------------------------------------
Knology, Inc. (n)(z) $ 0.10 11/22/97 2,475 $ 5,781
- --------------------------------------------------------------------------------------------------
Specialty Chemicals - 0.0%
- --------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (n) $52.00 12/31/02 141 $ 14
- --------------------------------------------------------------------------------------------------
Telephone Services - 0.0%
- --------------------------------------------------------------------------------------------------
GT Group Telecom, Inc. (n) $ 0.00 8/01/00 11,650 $ 0
XO Holdings, Inc., "A" (n) 6.25 5/27/03 3,537 1,804
XO Holdings, Inc., "B" (n) 7.50 5/27/03 2,653 929
XO Holdings, Inc., "C" (n) 10.00 5/27/03 2,653 531
---------------
$ 3,264
- --------------------------------------------------------------------------------------------------
TOTAL WARRANTS (IDENTIFIED COST, $1,279,306) $ 27,979
- --------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.7%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------
General Electric Capital Corp., 5.29%, due 8/01/06, at
Amortized Cost and Value (y) $45,078,000 $45,078,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,195,387,792) (k) $ 1,174,294,330
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.4% 28,941,647
- --------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 1,203,235,977
- --------------------------------------------------------------------------------------------------
(a) Security exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be sold in the ordinary course of business in transactions exempt from
registration, normally to qualified institutional buyers. At period end, the aggregate value of
these securities was $176,768,995, representing 14.7% of net assets.
(d) Non-income producing security - in default.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the fund receives interest on notional principal (Par amount).
Par amount shown is the notional principal and does not reflect the cost of the security.
(k) As of July 31, 2006, the fund held securities fair valued in accordance with the policies
adopted by the Board of Trustees, aggregating $1,051,521,621 and 89.54% of market value. An
independent pricing service provided an evaluated bid for 88.88% of the market value.
(n) Non-income producing security.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a
result of contractual or optional prepayments by the borrower. Such prepayments cannot be
predicted with certainty. These loans may be subject to restrictions on resale. Floating rate
loans generally have rates of interest which are determined periodically by reference to a base
lending rate plus a premium.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to
legal restrictions on resale. These securities generally may be resold in transactions exempt
from registration or to the public if the securities are subsequently registered. Disposal of
these securities may involve time-consuming negotiations and prompt sale at an acceptable price
may be difficult. The fund holds the following restricted securities:
- --------------------------------------------------------------------------------------------------
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011 8/08/03 $6,155,000 $6,616,625
Anthracite CDO Ltd., 6%, 2037 5/14/02 3,322,615 4,690,713
Asset Securitization Corp., FRN,
8.4991%, 2029 1/25/05 1,726,172 1,905,313
CWCapital Cobalt CDO Ltd., "E2",
6%, 2045 3/20/06 957,539 949,190
CWCapital Cobalt CDO Ltd., "F", FRN,
6.79%, 2050 4/12/06 610,000 609,902
CWCapital Cobalt CDO Ltd., "G", FRN,
6.99%, 2050 4/12/06 1,890,000 1,889,698
Falcon Franchise Loan LLC, FRN,
3.9126%, 2023 1/29/03 2,847,399 2,549,512
Knology, Inc. 10/16/97 5,980 5,781
Knowledge Learning Corp., 7.75%, 2015 1/28/05 2,615,000 2,405,800
Mills Corp., 6.75% 3/30/06 38,194 3,867,875
TIERS Beach Street Synthetic, CLO, FRN,
9.9639%, 2011 5/17/06 2,750,000 2,750,000
Wachovia Credit, CDO, FRN,
6.8227%, 2026 6/08/06 1,320,000 1,320,000
- --------------------------------------------------------------------------------------------------
Total Restricted Securities $29,560,409 2.5%
- --------------------------------------------------------------------------------------------------
UNFUNDED LOAN COMMITMENTS
As of July 31, 2006, the portfolio had unfunded loan commitments of $1,061,576, which could be
extended at the option of the borrower, pursuant to the following loan agreements:
UNFUNDED UNREALIZED
LOAN APPRECIATION
BORROWER COMMITMENT (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
Bluegrass Container Co. LLC, Second Lien Term Loan, 2013 $1,061,576 $8,846
At July 31, 2006, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
DELIVER/RECEIVE SETTLEMENT DATE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
SALES
EUR 3,558,719 8/21/06 $4,518,147 $4,552,005 $(33,858)
GBP 788,716 8/02/06 1,470,325 1,473,191 (2,866)
- ------------------------------------------------------------------------------------------------
$5,988,472 $6,025,196 $(36,724)
- ------------------------------------------------------------------------------------------------
PURCHASES
EUR 3,477,772 8/21/06 $4,429,871 $4,448,464 $ 18,593
GBP 1,577,432 8/02/06 - 10/02/06 2,951,665 2,948,254 (3,411)
- ------------------------------------------------------------------------------------------------
$7,381,536 $7,396,718 $ 15,182
- ------------------------------------------------------------------------------------------------
At July 31, 2006, the fund had sufficient cash and/or securities to cover any
commitments under these derivative contracts.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
CDO Collateralized Debt Obligation
CLO Collateralized Loan Obligation
FRN Floating Rate Note. The interest rate is the rate in effect as of period end.
REIT Real Estate Investment Trust
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are
stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
EUR Euro
GBP British Pound
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 7/31/06 (unaudited)
This statement represents your fund's balance sheet, which details the assets
and liabilities comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $1,195,387,792) $1,174,294,330
Cash 28,824
Foreign currency, at value (identified cost, $12,390) 12,374
Receivable for forward foreign currency exchange contracts 21,403
Receivable for investments sold 30,274,827
Receivable for fund shares sold 1,771,694
Interest and dividends receivable 21,815,123
Unrealized appreciation on unfunded loan commitments 8,846
Other assets 9,829
- -------------------------------------------------------------------------------------------------------
Total assets $1,228,237,250
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Distributions payable $1,904,542
Payable for forward foreign currency exchange contracts 42,945
Payable for investments purchased 20,133,226
Payable for fund shares reacquired 2,123,186
Payable to affiliates
Management fee 60,407
Shareholder servicing costs 184,552
Distribution and service fees 55,202
Administrative services fee 2,509
Program manager fees 38
Retirement plan administration and services fees 89
Payable for independent trustees' compensation 134,776
Accrued expenses and other liabilities 359,801
- -------------------------------------------------------------------------------------------------------
Total liabilities $25,001,273
- -------------------------------------------------------------------------------------------------------
Net assets $1,203,235,977
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $1,661,516,403
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (21,105,508)
Accumulated net realized gain (loss) on investments and
foreign currency transactions (435,464,978)
Accumulated distributions in excess of net investment income (1,709,940)
- -------------------------------------------------------------------------------------------------------
Net assets $1,203,235,977
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 319,662,309
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $631,018,391
Shares outstanding 167,774,844
- -------------------------------------------------------------------------------------------------------
Net asset value per share $3.76
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $3.95
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $220,134,510
Shares outstanding 58,351,430
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.77
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $90,240,716
Shares outstanding 23,871,559
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.78
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $250,629,412
Shares outstanding 66,685,550
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.76
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,986,854
Shares outstanding 1,324,374
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.77
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $256,415
Shares outstanding 68,019
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.77
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $384,620
Shares outstanding 102,095
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.77
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,861,269
Shares outstanding 494,438
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.76
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,266,514
Shares outstanding 602,796
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.76
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $53,626
Shares outstanding 14,259
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $3.76
- -------------------------------------------------------------------------------------------------------
Class 529A shares
- -------------------------------------------------------------------------------------------------------
Net assets $784,539
Shares outstanding 208,652
- -------------------------------------------------------------------------------------------------------
Net asset value per share $3.76
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $3.95
- -------------------------------------------------------------------------------------------------------
Class 529B shares
- -------------------------------------------------------------------------------------------------------
Net assets $168,338
Shares outstanding 44,770
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.76
- -------------------------------------------------------------------------------------------------------
Class 529C shares
- -------------------------------------------------------------------------------------------------------
Net assets $450,773
Shares outstanding 119,523
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.77
- -------------------------------------------------------------------------------------------------------
On sales of $100,000 or more, the offering prices of Class A and Class 529A shares are 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
Six months ended 7/31/06 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Income
Interest $50,374,791
Dividends 1,040,371
Foreign taxes withheld (19,509)
- -------------------------------------------------------------------------------------------------------
Total investment income $51,395,653
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,904,621
Distribution and service fees 2,752,421
Program manager fees 1,695
Shareholder servicing costs 1,016,361
Administrative services fee 104,768
Retirement plan administration and services fees 4,200
Independent trustees' compensation 20,519
Custodian fee 253,862
Shareholder communications 73,374
Auditing fees 29,494
Legal fees 4,275
Miscellaneous 183,771
- -------------------------------------------------------------------------------------------------------
Total expenses $7,349,361
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (77,564)
Reduction of expenses by investment adviser (4,977)
- -------------------------------------------------------------------------------------------------------
Net expenses $7,266,820
- -------------------------------------------------------------------------------------------------------
Net investment income $44,128,833
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(1,089,773)
Foreign currency transactions (784,501)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $(1,874,274)
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(21,286,934)
Translation of assets and liabilities in foreign currencies 635,419
Unfunded loan commitments 8,846
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(20,642,669)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(22,516,943)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $21,611,890
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
7/31/06 1/31/06
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $44,128,833 $92,983,426
Net realized gain (loss) on investments and foreign
currency transactions (1,874,274) (5,942,538)
Net unrealized gain (loss) on investments and foreign
currency translation (20,642,669) (39,704,561)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $21,611,890 $47,336,327
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(22,823,968) $(55,578,562)
Class B (7,648,257) (22,027,569)
Class C (3,020,536) (8,430,256)
Class I (8,671,378) (15,874,191)
Class R (173,349) (371,890)
Class R1 (7,250) (8,590)
Class R2 (9,183) (10,613)
Class R3 (49,613) (43,025)
Class R4 (52,780) (4,947)
Class R5 (1,863) (3,390)
Class 529A (24,953) (55,508)
Class 529B (4,782) (10,029)
Class 529C (12,839) (25,326)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(42,500,751) $(102,443,896)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(103,123,008) $(120,835,566)
- -------------------------------------------------------------------------------------------------------
Redemption fees $6,386 $6,191
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(124,005,483) $(175,936,944)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 1,327,241,460 1,503,178,404
At end of period (including accumulated distributions
in excess of net investment income of $1,709,940 and
$3,338,022, respectively) $1,203,235,977 $1,327,241,460
- -------------------------------------------------------------------------------------------------------
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 life of a particular share class, if shorter). 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 share class (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------------
CLASS A 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $3.82 $3.98 $3.98 $3.52 $3.78 $4.44
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.27 $0.29 $0.30 $0.33 $0.41
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.06) (0.13) 0.01(g) 0.46 (0.25) (0.65)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.07 $0.14 $0.30 $0.76 $0.08 $(0.24)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.30) $(0.30) $(0.30) $(0.34) $(0.42)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.82 $3.98 $3.98 $3.52 $3.78
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.83(n) 3.61 7.74 22.83 2.34 (5.50)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.03(a) 1.00 0.99 0.99 1.00 1.06
Expenses after expense reductions (f) 1.03(a) 1.00 0.99 N/A N/A N/A
Net investment income 7.13(a) 6.85 7.31 7.87 9.32 10.12
Portfolio turnover 46 51 68 81 80 72
Net assets at end of period
(000 Omitted) $631,018 $703,305 $799,651 $934,958 $769,069 $746,096
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------------
CLASS B 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $3.83 $3.99 $3.99 $3.53 $3.79 $4.44
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.24 $0.26 $0.27 $0.31 $0.38
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.06) (0.13) 0.01(g) 0.47 (0.26) (0.64)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.06 $0.11 $0.27 $0.74 $0.05 $(0.26)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.27) $(0.27) $(0.28) $(0.31) $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.77 $3.83 $3.99 $3.99 $3.53 $3.79
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.48(n) 2.90 7.10 21.65 1.64 (5.94)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.73(a) 1.72 1.69 1.69 1.70 1.76
Expenses after expense reductions (f) 1.73(a) 1.72 1.69 N/A N/A N/A
Net investment income 6.43(a) 6.26 6.63 7.18 8.65 9.45
Portfolio turnover 46 51 68 81 80 72
Net assets at end of period
(000 Omitted) $220,135 $275,363 $379,253 $471,520 $411,533 $439,987
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------------
CLASS C 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $3.84 $4.00 $4.00 $3.54 $3.80 $4.45
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.24 $0.26 $0.27 $0.30 $0.38
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.06) (0.13) 0.01(g) 0.47 (0.25) (0.64)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.06 $0.11 $0.27 $0.74 $0.05 $(0.26)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.27) $(0.27) $(0.28) $(0.31) $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.78 $3.84 $4.00 $4.00 $3.54 $3.80
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.48(n) 2.91 7.10 21.61 1.64 (5.91)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.73(a) 1.72 1.69 1.69 1.70 1.76
Expenses after expense reductions (f) 1.73(a) 1.72 1.69 N/A N/A N/A
Net investment income 6.43(a) 6.26 6.63 7.18 8.59 9.39
Portfolio turnover 46 51 68 81 80 72
Net assets at end of period
(000 Omitted) $90,241 $108,181 $148,073 $214,915 $183,364 $160,798
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ---------------------------------------------------------------------
CLASS I 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $3.82 $3.98 $3.98 $3.52 $3.78 $4.43
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.28 $0.29 $0.30 $0.33 $0.42
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.06) (0.13) 0.02(g) 0.47 (0.24) (0.64)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.08 $0.15 $0.31 $0.77 $0.09 $(0.22)
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.31) $(0.31) $(0.31) $(0.35) $(0.43)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.82 $3.98 $3.98 $3.52 $3.78
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.98(n) 3.92 8.17 22.88 2.66 (4.99)
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.73(a) 0.71 0.68 0.69 0.70 0.76
Expenses after expense reductions (f) 0.73(a) 0.71 0.68 N/A N/A N/A
Net investment income 7.41(a) 7.24 7.55 8.03 9.58 10.43
Portfolio turnover 46 51 68 81 80 72
Net assets at end of period
(000 Omitted) $250,629 $231,455 $170,679 $93,887 $26,373 $19,352
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------
CLASS R 7/31/06 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.83 $3.98 $3.98 $3.52 $3.51
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.26 $0.28 $0.28 $0.02
Net realized and unrealized gain (loss) on
investments and foreign currency (0.06) (0.12) 0.01(g) 0.48 0.02(g)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.07 $0.14 $0.29 $0.76 $0.04
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.29) $(0.29) $(0.30) $(0.03)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.77 $3.83 $3.98 $3.98 $3.52
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.73(n) 3.68 7.63 22.29 1.03(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.23(a) 1.21 1.18 1.20 1.20(a)
Expenses after expense reductions (f) 1.23(a) 1.21 1.18 N/A N/A
Net investment income 6.92(a) 6.76 7.06 7.46 7.97(a)
Portfolio turnover 46 51 68 81 80
Net assets at end of period (000 Omitted) $4,987 $5,422 $4,021 $1,359 $40
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
CLASS R1 ENDED 7/31/06 1/31/06(i)
(UNAUDITED)
Net asset value, beginning of period $3.83 $3.89
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.19
Net realized and unrealized gain (loss) on investments
and foreign currency (0.07) (0.03)(g)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.16
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.11) $(0.22)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.77 $3.83
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.43(n) 4.28(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.93(a) 1.91(a)
Expenses after expense reductions (f) 1.83(a) 1.85(a)
Net investment income 6.33(a) 6.08(a)
Portfolio turnover 46 51
Net assets at end of period (000 Omitted) $256 $231
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED
CLASS R2 ENDED 7/31/06 1/31/06(i)
(UNAUDITED)
Net asset value, beginning of period $3.83 $3.89
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.21
Net realized and unrealized gain (loss) on investments
and foreign currency (0.07) (0.04)(g)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.06 $0.17
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.23)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.77 $3.83
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.61(n) 4.56(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.63(a) 1.59(a)
Expenses after expense reductions (f) 1.48(a) 1.51(a)
Net investment income 6.69(a) 6.50(a)
Portfolio turnover 46 51
Net assets at end of period (000 Omitted) $385 $277
- -----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEARS ENDED 1/31
ENDED ------------------------------------------------
CLASS R3 7/31/06 2006 2005 2004(i)
(UNAUDITED)
Net asset value, beginning of period $3.83 $3.98 $3.98 $3.85
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.24 $0.25 $0.07
Net realized and unrealized gain (loss) on
investments and foreign currency (0.08) (0.11) 0.03(g) 0.13(g)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.13 $0.28 $0.20
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.28) $(0.28) $(0.07)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.83 $3.98 $3.98
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.39(n) 3.45 7.37 5.32(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.48(a) 1.46 1.49 1.43(a)
Expenses after expense reductions (f) 1.38(a) 1.42 1.49 N/A
Net investment income 6.78(a) 6.61 6.58 7.07(a)
Portfolio turnover 46 51 68 81
Net assets at end of period (000 Omitted) $1,861 $1,212 $246 $42
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED
CLASS R4 ENDED 7/31/06 1/31/06(i)
(UNAUDITED)
Net asset value, beginning of period $3.82 $3.88
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.21
Net realized and unrealized gain (loss) on investments
and foreign currency (0.07) (0.02)(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.07 $0.19
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.25)
- -------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.82
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.78(n) 4.94(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.13(a) 1.15(a)
Expenses after expense reductions (f) 1.13(a) 1.15(a)
Net investment income 7.03(a) 6.73(a)
Portfolio turnover 46 51
Net assets at end of period (000 Omitted) $2,267 $393
- -------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
CLASS R5 ENDED 7/31/06 1/31/06(i)
(UNAUDITED)
Net asset value, beginning of period $3.82 $3.88
- -------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.23
Net realized and unrealized gain (loss) on investments
and foreign currency (0.07) (0.03)(g)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $0.07 $0.20
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.26)
- -------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.82
- -------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.93(n) 5.20(n)
- -------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.82(a) 0.80(a)
Expenses after expense reductions (f) 0.82(a) 0.80(a)
Net investment income 7.33(a) 7.11(a)
Portfolio turnover 46 51
Net assets at end of period (000 Omitted) $54 $53
- -------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------
CLASS 529A 7/31/06 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.82 $3.98 $3.98 $3.52 $3.42
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.26 $0.27 $0.28 $0.13
Net realized and unrealized gain (loss)
on investments and foreign currency (0.07) (0.14) 0.02(g) 0.47 0.13(g)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.06 $0.12 $0.29 $0.75 $0.26
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.28) $(0.29) $(0.29) $(0.16)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.82 $3.98 $3.98 $3.52
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.68(n) 3.30 7.53 22.16 7.70(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.33(a) 1.32 1.29 1.30 1.30(a)
Expenses after expense reductions (f) 1.33(a) 1.32 1.29 N/A N/A
Net investment income 6.83(a) 6.65 6.97 7.42 8.66(a)
Portfolio turnover 46 51 68 81 80
Net assets at end of period (000 Omitted) $785 $776 $768 $406 $53
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEARS ENDED 1/31
ENDED ------------------------------------------------------------
CLASS 529B 7/31/06 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.82 $3.97 $3.98 $3.52 $3.42
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.23 $0.25 $0.25 $0.11
Net realized and unrealized gain (loss) on
investments and foreign currency (0.07) (0.12) 0.00(g)(w) 0.48 0.14(g)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.11 $0.25 $0.73 $0.25
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.11) $(0.26) $(0.26) $(0.27) $(0.15)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.76 $3.82 $3.97 $3.98 $3.52
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.35(n) 2.89 6.57 21.39 7.35(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98(a) 1.96 2.01 1.95 1.95(a)
Expenses after expense reductions (f) 1.97(a) 1.96 2.01 N/A N/A
Net investment income 6.18(a) 6.00 6.29 6.80 8.37(a)
Portfolio turnover 46 51 68 81 80
Net assets at end of period (000 Omitted) $168 $157 $139 $119 $31
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ------------------------------------------------------------
CLASS 529C 7/31/06 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.83 $3.99 $3.99 $3.53 $3.43
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.23 $0.25 $0.26 $0.13
Net realized and unrealized gain (loss) on
investments and foreign currency (0.07) (0.13) 0.01(g) 0.47 0.12(g)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.05 $0.10 $0.26 $0.73 $0.25
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.11) $(0.26) $(0.26) $(0.27) $(0.15)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.77 $3.83 $3.99 $3.99 $3.53
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.35(n) 2.64 6.84 21.35 7.33(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.98(a) 1.96 1.97 1.95 1.95(a)
Expenses after expense reductions (f) 1.98(a) 1.96 1.97 N/A N/A
Net investment income 6.18(a) 6.00 6.31 6.79 8.05(a)
Portfolio turnover 46 51 68 81 80
Net assets at end of period (000 Omitted) $451 $417 $347 $189 $43
- -----------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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.
(i) For the period from the class' inception, December 31, 2002 (Class R), July 31, 2002 (Classes 529A, 529B, and 529C),
October 31, 2003 (Class R3) and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS High Income Fund (the fund) is a series of MFS Series Trust III (the
trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
fund can invest up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions. The fund can invest in
foreign securities, including securities of emerging market issuers.
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. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the
market or exchange on which they are primarily traded. Debt instruments (other
than short-term instruments), including restricted debt instruments, are
generally valued at an evaluated or composite bid as reported by an
independent pricing service. Values of debt instruments obtained from pricing
services can utilize both dealer-supplied valuations and electronic data
processing techniques, which take into account 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. Short-
term instruments with a maturity at issuance of 60 days or less may be valued
at amortized cost, which approximates market value. Forward foreign currency
contracts are generally valued at the mean of bid and asked prices for the
time period interpolated from rates reported by an independent pricing service
for proximate time periods. Securities and other assets generally valued on
the basis of information from an independent pricing service may also be
valued at a broker-dealer bid quotation. The values of foreign securities and
other assets and liabilities expressed in foreign currencies are converted to
U.S. dollars using the mean of bid and asked prices for rates reported by an
independent pricing service. The Board of Trustees has delegated primary
responsibility for determining or causing to be determined the value of the
fund's investments (including any fair valuation) to the adviser pursuant to
valuation policies and procedures approved by the Board. If the adviser
determines that reliable market quotations are not readily available,
investments are valued at fair value as determined in good faith by the
adviser in accordance with such procedures under the oversight of the Board of
Trustees. Under the fund's valuation policies and procedures, market
quotations are not considered to be readily available for many types of debt
instruments. These investments are generally valued at fair value based on
information from independent pricing services. The adviser may rely on
independent pricing services or other information (such as the correlation
with price movements of similar securities in the same or other markets; the
type, cost and investment characteristics of the security; the business and
financial condition of the issuer; and trading and other market data) to
assist in determining whether to fair value and at what value to fair value an
investment. The value of an investment for purposes of calculating the fund's
net asset value can differ depending on the source and method used to
determine value. When fair valuation is used, the value of investments used to
determine the fund's net asset value may differ from quoted or published
prices for the same investments. In addition, investments may be valued at
fair value if the adviser determines that an investment's value has been
materially affected by events occurring after the close of the exchange or
market on which the investment is principally traded (such as foreign exchange
or market) and prior to the determination of the fund's net asset value, or
after the halting of trading of a specific security where trading does not
resume prior to the close of the exchange or market on which the security is
principally traded. Events that occur on a frequent basis after foreign
markets close (such as developments in foreign markets and significant
movements in the U.S. markets) and prior to the determination of the fund's
net asset value may be deemed to have a material affect on the value of
securities traded in foreign markets. Accordingly, the fund's foreign equity
securities may often be valued at fair value.
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.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from
derivative instruments may be substantially greater than the derivative's
original cost. Derivative instruments include forward foreign currency
exchange contracts.
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 the contract. 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.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The fund may invest in loans and
loan participations or other receivables. These investments may include
standby financing commitments, including revolving credit facilities, which
obligate the fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged a 2% redemption fee (which was retained by the fund)
on proceeds from Class A, Class B, Class C, and Class I shares redeemed or
exchanged within 30 calendar days following their acquisition (either by
purchase or exchange). Effective April 1, 2005, the fund charges a 1%
redemption fee on proceeds from Class A, Class B, Class C, and Class I shares
redeemed or exchanged within 30 calendar days following their acquisition. The
fund may change the redemption fee period in the future, including in
connection with Securities and Exchange Commission rule developments. See the
fund's prospectus for details. Any redemption fees are accounted for as an
addition to paid-in capital.
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 U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund earns certain fees in connection with its floating rate
loan purchasing activities. These fees are in addition to interest payments
earned and may include amendment fees, commitment fees, consent fees, and
prepayment fees. These fees are recorded on an accrual basis as income in the
accompanying financial statements. Dividends received in cash are recorded on
the ex-dividend date. Certain dividends from foreign securities will be
recorded when the fund is informed of the dividend if such information is
obtained subsequent to 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.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the fund.
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 six months ended July 31, 2006, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue
Code, and to distribute all of its taxable income, including realized capital
gains. Accordingly, no provision for federal income tax is required in the
financial statements. Foreign taxes, if any, have been accrued by the fund in
the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share.
Temporary differences which arise from recognizing certain items of income,
expense, gain or loss in different periods for financial statement and tax
purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to amortization and accretion of debt
securities, defaulted bonds and foreign currency transactions.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
1/31/06 1/31/05
Ordinary income (including any short-term
capital gains) $102,443,896 $113,094,388
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 7/31/06
Cost of investments $1,225,533,795
----------------------------------------------------------
Gross appreciation $13,756,611
Gross depreciation (64,996,076)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(51,239,465)
AS OF 1/31/06
Undistributed ordinary income $7,790,251
Capital loss carryforwards (389,086,167)
Post-October capital loss deferral (13,242,538)
Other temporary differences (11,784,584)
Net unrealized appreciation (depreciation) (31,068,527)
The aggregate cost above includes prior fiscal year end tax adjustments.
As of January 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
1/31/07 $(17,432,351)
1/31/08 (10,853,391)
1/31/09 (24,778,024)
1/31/10 (137,538,425)
1/31/11 (159,064,624)
1/31/13 (19,406,719)
1/31/14 (20,012,633)
----------------------------------------------------------
$(389,086,167)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years
as of the effective date. This Interpretation prescribes a minimum threshold
for financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of
the Interpretation to the fund, and has not at this time determined the
impact, if any, resulting from the adoption of this Interpretation on the
fund's financial statements.
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 MFS to
provide overall investment advisory and administrative services, and general
office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $1.4 billion of average daily net assets 0.46%
Average daily net assets in excess of $1.4 billion 0.44%
As part of a settlement agreement with the New York Attorney General
concerning market timing and related matters, MFS has agreed to reduce the
management fee to 0.39% of the fund's average daily net assets in excess of
$1.4 billion for the period March 1, 2004 through February 28, 2009. For the
six months ended July 31, 2006, the fund's average daily net assets did not
exceed $1.4 billion and therefore, the management fee was not reduced.
The management fee incurred for the six months ended July 31, 2006 was
equivalent to an annual effective rate of 0.46% of the fund's average daily
net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $33,093 and $561 for the six months ended July
31, 2006, as its portion of the initial sales charge on sales of Class A and
Class 529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.30% $996,377
Class B 0.75% 0.25% 1.00% 1.00% 1,241,144
Class C 0.75% 0.25% 1.00% 1.00% 490,225
Class R 0.25% 0.25% 0.50% 0.50% 13,010
Class R1 0.50% 0.25% 0.75% 0.75% 897
Class R2 0.25% 0.25% 0.50% 0.50% 712
Class R3 0.25% 0.25% 0.50% 0.50% 3,800
Class R4 -- 0.25% 0.25% 0.25% 1,945
Class 529A 0.25% 0.25% 0.50% 0.35% 1,330
Class 529B 0.75% 0.25% 1.00% 1.00% 809
Class 529C 0.75% 0.25% 1.00% 1.00% 2,172
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,752,421
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to
these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six months ended
July 31, 2006 based on each class' average daily net assets. Assets attributable to Class A shares sold prior to
March 1, 1991 are subject to a service fee of 0.15% annually. 0.05% of the Class A and 0.10% of the Class 529A
distribution fee is currently being paid by the fund. Payment of the remaining 0.05% of the Class A and 0.15% of
the Class 529A distribution fee is not yet in effect and will be implemented on such date as the fund's Board of
Trustees may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 12
months of purchase. Class B and Class 529B shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within six
years of purchase. All contingent deferred sales charges are paid to MFD and
during the six months ended July 31, 2006, were as follows:
AMOUNT
Class A $630
Class B $208,666
Class C $1,639
Class 529B $26
Class 529C $--
The fund has entered into 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% of the average daily net assets attributable to each
529 share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily net assets of the fund's 529
share classes. The fee may only be increased with the approval of the Board of
Trustees who 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. Program
manager fees for the six months ended July 31, 2006, were as follows:
AMOUNT
Class 529A $950
Class 529B 202
Class 529C 543
----------------------------------------------------------
Total Program Manager Fees $1,695
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the six months ended July 31, 2006, the fee was $627,676, which equated to
0.0995% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the six months ended July 31, 2006, these
costs amounted to $205,625.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. From July 1, 2005 through March 31, 2006, the fund's annual fixed
amount was $10,000. Effective April 1, 2006, the fund's annual fixed amount is
$17,500.
The administrative services fee incurred for the six months ended July 31, 2006
was equivalent to an annual effective rate of 0.0166% of the fund's average
daily net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain shares. These services
include various administrative, recordkeeping, and communication/educational
services with respect to the retirement plans which invest in these shares,
and may be provided directly by MFS or by a third party. MFS may subsequently
pay all, or a portion, of the retirement plan administration and services fee
to affiliated or unaffiliated third parties. For the six months ended July 31,
2006, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily
net assets:
ANNUAL
EFFECTIVE TOTAL
FEE RATE RATE(g) AMOUNT
Class R1 0.45% 0.35% $538
Class R2 0.40% 0.25% 569
Class R3 0.25% 0.15% 1,900
Class R4 0.15% 0.15% 1,167
Class R5 0.10% 0.10% 26
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and
Services Fees $4,200
(g) Effective October 1, 2005, MFS has agreed in writing to waive a portion of
the retirement plan administration and services fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
This agreement will continue until at least September 30, 2007. For the
six months ended July 31, 2006, this waiver amounted to $1,093 and is
reflected as a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
Independent Trustees in the form of a retainer, attendance fees, and
additional compensation to Board and Committee chairpersons. The fund does not
pay compensation directly to Trustees or officers of the fund who are also
officers of the investment adviser, 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, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired Independent
Trustees which resulted in a pension expense of $3,705. The fund also has an
unfunded retirement benefit deferral plan for certain Independent Trustees
which resulted in an expense of $1,385. Both amounts are included in
Independent trustees' compensation for the six months ended July 31, 2006. The
deferred liability for retirement benefits payable to certain Trustees under
both plans amounted to $133,096 at July 31, 2006, and is included in payable
for independent trustees' compensation.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended July 31, 2006, the fee paid to Tarantino
LLC was $5,332. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $3,884, which is
shown as a reduction of total expenses in the Statement of Operations.
Additionally, MFS has agreed to bear all expenses associated with office
space, other administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$558,630,575 and $671,316,792, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
7/31/06 1/31/06 (i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 13,060,745 $49,618,192 53,094,170 $204,613,715
Class B 1,637,330 6,245,349 8,512,442 33,027,271
Class C 1,257,669 4,802,621 8,349,621 32,524,744
Class I 5,825,221 22,226,593 14,852,538 57,233,094
Class R 213,053 810,509 670,594 2,615,846
Class R1 10,180 38,775 66,771 258,252
Class R2 43,972 166,481 93,309 362,470
Class R3 203,522 775,780 397,413 1,536,498
Class R4 535,063 2,039,656 102,258 389,569
Class R5 -- -- 12,886 49,903
Class 529A 19,837 75,347 46,995 181,253
Class 529B 2,662 10,154 7,237 27,829
Class 529C 10,704 40,903 41,648 162,287
- ----------------------------------------------------------------------------------------------------------
22,819,958 $86,850,360 86,247,882 $332,982,731
Shares issued to shareholders in
reinvestment of distributions
Class A 3,941,984 $14,994,655 9,501,874 $36,674,060
Class B 1,154,869 4,407,867 3,232,023 12,513,655
Class C 486,822 1,861,218 1,319,009 5,121,049
Class I 2,264,201 8,600,758 4,068,920 15,679,773
Class R 44,677 170,073 95,583 368,742
Class R1 1,898 7,233 2,220 8,514
Class R2 2,366 9,004 2,707 10,401
Class R3 13,016 49,453 11,099 42,667
Class R4 13,744 52,087 1,289 4,943
Class R5 490 1,863 883 3,390
Class 529A 6,512 24,750 14,295 55,143
Class 529B 1,258 4,779 2,593 9,994
Class 529C 3,364 12,821 6,512 25,170
- ----------------------------------------------------------------------------------------------------------
7,935,201 $30,196,561 18,259,007 $70,517,501
Shares reacquired
Class A (33,167,277) $(125,964,624) (79,701,513) $(308,719,388)
Class B (16,244,079) (61,870,161) (35,002,183) (135,898,194)
Class C (6,023,944) (22,994,183) (18,557,769) (72,355,245)
Class I (1,976,814) (7,505,420) (1,280,490) (4,929,805)
Class R (349,698) (1,331,764) (359,289) (1,398,275)
Class R1 (4,241) (16,085) (8,809) (33,691)
Class R2 (16,464) (62,572) (23,795) (90,465)
Class R3 (38,725) (146,736) (153,808) (591,663)
Class R4 (48,928) (185,169) (630) (2,404)
Class 529A (20,749) (79,316) (51,419) (199,388)
Class 529B (299) (1,140) (3,676) (14,149)
Class 529C (3,356) (12,759) (26,433) (103,131)
- ----------------------------------------------------------------------------------------------------------
(57,894,574) $(220,169,929) (135,169,814) $(524,335,798)
Net change
Class A (16,164,548) $(61,351,777) (17,105,469) $(67,431,613)
Class B (13,451,880) (51,216,945) (23,257,718) (90,357,268)
Class C (4,279,453) (16,330,344) (8,889,139) (34,709,452)
Class I 6,112,608 23,321,931 17,640,968 67,983,062
Class R (91,968) (351,182) 406,888 1,586,313
Class R1 7,837 29,923 60,182 233,075
Class R2 29,874 112,913 72,221 282,406
Class R3 177,813 678,497 254,704 987,502
Class R4 499,879 1,906,574 102,917 392,108
Class R5 490 1,863 13,769 53,293
Class 529A 5,600 20,781 9,871 37,008
Class 529B 3,621 13,793 6,154 23,674
Class 529C 10,712 40,965 21,727 84,326
- ----------------------------------------------------------------------------------------------------------
(27,139,415) $(103,123,008) (30,662,925) $(120,835,566)
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5), through the
stated period end.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-of-funds do not invest in the underlying MFS funds for
the purpose of exercising management or control. At the end of the period, the
MFS Moderate Allocation Fund and MFS Growth Allocation Fund were the owners of
record of approximately 8% and 9%, respectively, of the value of outstanding
voting shares. In addition, the MFS Lifetime 2020 Fund and the MFS Lifetime
2030 Fund were each the owners of record of less than 1% of the value of
outstanding voting shares.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally at a rate equal to the Federal Reserve funds rate plus
0.35%. In addition, a commitment fee, based on the average daily, unused
portion of the committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the six months ended
July 31, 2006, the fund's commitment fee and interest expense were $4,125 and
$0, respectively, and are included in miscellaneous expense on the Statement
of Operations.
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2006 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2005 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts and other clients, (iv) information
as to whether and to what extent applicable expense waivers, reimbursements or
fee "breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance
monitoring and portfolio trading practices, and (viii) information regarding
the overall organization of MFS, including information about MFS' senior
management and other personnel providing investment advisory, administrative
and other services to the Fund and the other MFS Funds. The comparative
performance, fee and expense information prepared and provided by Lipper Inc.
was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 4th quintile relative to the other funds in the
universe for this three-year period (the 1st quintile being the best
performers and the 5th quintile being the worst performers). The total
return performance of the Fund's Class A shares was in the 3rd quintile
for the one-year period and the 3rd quintile for the five-year period
ended December 31, 2005 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
The Trustees expressed concern to MFS about the ongoing substandard investment
performance of the Fund. In the course of their deliberations, the Trustees
took into account information provided by MFS in connection with the contract
review meetings, as well as during investment review meetings conducted with
portfolio management personnel during the course of the year, as to MFS'
efforts to improve the Fund's performance, including the recent restructuring
of responsibilities among MFS' senior investment management executives and the
addition of a second portfolio manager in 2004. In addition, the Trustees
requested that they receive a separate update on the Fund's performance at
each of their meetings and a more in-depth review of the Fund's performance
quarterly. After reviewing these and related factors, the Trustees concluded,
within the context of their overall conclusions regarding the investment
advisory agreement, that MFS' responses and efforts and plans to improve
investment performance were sufficient to support approval of the continuance
of the investment advisory agreement for an additional one year period, but
that they would continue to closely monitor the performance of the Fund.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that there is an advisory fee reduction on assets over $1.4 billion, which is
in effect for the Fund through February 28, 2009 as part of MFS' settlement
with the New York Attorney General concerning market timing and related
matters. The Trustees also considered that, according to the Lipper data, the
Fund's effective advisory fee rate was lower than the Lipper expense group
median, and the Fund's total expense ratio was approximately at the Lipper
expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
subject to a contractual breakpoint that reduces the fund's advisory fee rate
on net assets over $1.4 billion and that the advisory fee associated with such
breakpoint is reduced during the period in which the advisory fee reduction
described above is in effect. The Trustees concluded that the existing
breakpoint was sufficient to allow the Fund to benefit from economies of scale
as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for investment research (excluding
third-party research, for which MFS pays directly) and various other factors.
Additionally, the Trustees considered so-called "fall-out benefits" to MFS such
as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2006.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
November 1, 2006 by clicking on the fund's name under "Select a fund" on the
MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
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 Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site at
http://www.sec.gov, and copies of this information may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov or by writing the Public Reference Section at the
above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
---------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send
prospectuses, reports, and proxies directly to your e-mail
inbox. You'll get timely information and less clutter in your
mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply 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 a retirement plan, MFS TALK, MFS Access, and
eDelivery may not be available to you.
---------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) MUNICIPAL HIGH INCOME FUND
LETTER FROM THE CEO 1
- ---------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------------------
EXPENSE TABLE 3
- ---------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- ---------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 34
- ---------------------------------------------------------------
STATEMENT OF OPERATIONS 36
- ---------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 37
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS 38
- ---------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 41
- ---------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 49
- ---------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 53
- ---------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 53
- ---------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------------------
Fund objective: Seeks to provide high current income exempt from federal income
taxes by investing primarily in municipal bonds and notes which may be of
medium and lower quality.
THE 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.
- ------------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- ------------------------------------------------------------------------------
7/31/06
MMH-SEM
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The story is as old as the tortoise and the hare, but we believe it is still
relevant today -- "slow and steady" is the way to go when it comes to investing.
While financial markets will naturally ebb and flow over time, investors who
remain committed to a long-term investment strategy are more likely to achieve
their goals than those who consistently chase short-term performance.
The first half of 2006 brought a high degree of fluctuation in markets around
the globe as varying economic factors pulled markets in opposite directions. The
global economy, for example, continued to grow at its fastest pace in three
decades -- spurred by increased international trade, good job growth, and wage
increases. At the same time, central banks around the world raised interest
rates in sync in a collaborative attempt to curb inflation. While this was a
positive development in some regions, in other cases, economic and market gains
were tempered.
What does all of this mean to you as an investor? If you're focused on the long
term, these global developments become part of a longer cycle instead of
one-time events that can have a significant impact on your portfolio.
At MFS(R), our investment management process -- honed over 80 years -- combines
a unique teamwork approach with an unwavering focus on helping you realize your
long-term financial goals. We believe in a three-pronged investment strategy:
o ALLOCATE holdings across the major asset classes -- including stocks,
bonds, and cash.
o DIVERSIFY within each class to take advantage of different market segments
and investing styles.
o REBALANCE assets regularly to maintain a desired asset allocation.
Of course, these strategies cannot guarantee a profit or protect against a loss.
Investing and planning for the long term requires diligence and patience, two
traits that in our experience are essential to capitalizing on the many
opportunities the financial markets can offer -- through both up and down
economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
September 15, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 98.3%
Cash & Other Net Assets 1.7%
TOP FIVE INDUSTRIES (i)
Healthcare Revenue - Hospitals 21.4%
------------------------------------------------
Healthcare Revenue - Long-term Care 9.9%
------------------------------------------------
Tax Assessment 5.6%
------------------------------------------------
Tobacco 5.3%
------------------------------------------------
Industrial Revenue - Airlines 4.9%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 23.7%
------------------------------------------------
AA 2.2%
------------------------------------------------
A 6.8%
------------------------------------------------
BBB 27.8%
------------------------------------------------
BB 8.0%
------------------------------------------------
B 5.3%
------------------------------------------------
CCC 4.5%
------------------------------------------------
Not Rated 21.7%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 5.9
------------------------------------------------
Average Life (m) 16.7 yrs.
------------------------------------------------
Average Maturity (m) 19.4 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (Long Term) (a) A-
------------------------------------------------
Average Credit Quality of Rated
Securities (Short Term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which
have been pre-refunded or pre-paid to an earlier date or which have a
mandatory put date prior to the stated maturity. The average life shown
takes into account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments as
of 7/31/06.
Percentages are based on net assets as of 7/31/06, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period, February 1, 2006
through July 31, 2006.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1) fees;
and other fund expenses. This example is intended to help you understand your
ongoing costs (in dollars) of investing in the fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period February 1, 2006 through July 31, 2006.
ACTUAL EXPENSES
The first line for each share class in the following table provides information
about actual account values and actual expenses. You may use the information in
this line, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first line under the heading entitled "Expenses Paid
During Period" to estimate the expenses you paid on your account during this
period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the following table provides information
about hypothetical account values and hypothetical expenses based on the fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account values
and expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period. You may use this information to compare the
ongoing costs of investing in the fund and other funds. To do so, compare this
5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 2/01/06-
Class Ratio 2/01/06 7/31/06 7/31/06
- --------------------------------------------------------------------------------
Actual 0.74% $1,000.00 $1,027.70 $3.72
A ------------------------------------------------------------------------
Hypothetical (h) 0.74% $1,000.00 $1,021.12 $3.71
- --------------------------------------------------------------------------------
Actual 1.51% $1,000.00 $1,023.70 $7.58
B -------------------------------------------------------------------------
Hypothetical (h) 1.51% $1,000.00 $1,017.31 $7.55
- --------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $1,022.60 $8.68
C ------------------------------------------------------------------------
Hypothetical (h) 1.73% $1,000.00 $1,016.22 $8.65
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
7/31/06 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Municipal Bonds - 97.0%
- --------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------
Airport & Port Revenue - 1.3%
- --------------------------------------------------------------------------------------------------
Chicago, IL, O'Hare International Airport Rev., "A", RITES,
FSA, 6.92%, 2022 (v)(z) $ 6,250,000 $ 7,265,740
Chicago, IL, O'Hare International Airport Rev., Third Lien,
"A", MBIA, 5%, 2029 4,270,000 4,385,970
Denver, CO, City & County Airport Rev., RITES, AMBAC,
8.05%, 2017 (v)(z) 2,500,000 2,869,340
Miami-Dade County, FL, Aviation Revenue, "A", CIFG, 5%, 2038 2,195,000 2,228,714
New York, NY, City Industrial Development Agency, Special
Facilities Rev. (Terminal One Group), 5.5%, 2024 850,000 894,591
Port of Seattle, WA, Rev., XLCA, 5%, 2027 2,120,000 2,187,925
---------------
$ 19,832,280
- --------------------------------------------------------------------------------------------------
General Obligations - General Purpose - 3.8%
- --------------------------------------------------------------------------------------------------
Cranston, RI, FGIC, 6.375%, 2009 (c) $ 855,000 $ 931,514
Delaware County, OH, 6.25%, 2010 (c) 1,000,000 1,106,620
Florida Department of Transportation, RITES,
5.478%, 2017 (v)(z) 2,300,000 2,503,504
Kane Kendall County, IL, Capital Appreciation, "E", FGIC,
0%, 2023 5,945,000 2,513,070
Kane Kendall County, IL, Capital Appreciation, "E", FGIC,
0%, 2025 6,000,000 2,265,660
Little Rock, AR, Capital Improvement Rev., 5.7%, 2018 765,000 783,490
Los Angeles, CA, RITES, FGIC, 5.978%, 2015 (v)(z) 5,310,000 6,362,761
New York, NY, "F", FGIC, 5.875%, 2024 685,000 696,385
New York, NY, "H", FGIC, 6.125%, 2007 (c) 1,210,000 1,250,656
New York, NY, "H", FGIC, 6.125%, 2025 6,790,000 7,010,064
New York, NY, "I-1", 5%, 2025 6,000,000 6,185,160
New York, NY, "M", 5%, 2035 11,200,000 11,444,048
State of Massachusetts, ROLS, 7.149%, 2011 (c)(v)(z) 2,000,000 2,283,120
Texas Department of Transportation, 7%, 2012 134,252 134,451
Washington Motor Vehicle Fuel Tax, "B", FSA, 5%, 2024 9,850,000 10,229,915
West Warwick, RI, 7.45%, 2013 410,000 418,942
---------------
$ 56,119,360
- --------------------------------------------------------------------------------------------------
General Obligations - Improvement - 0.5%
- --------------------------------------------------------------------------------------------------
Bergen County, NJ, Improvement Authority School District Rev.
(Township of Wyckoff Board of Education), 5%, 2032 $ 540,000 $ 559,548
Birmingham, AL, "B", 5.75%, 2009 (c) 910,000 966,793
Birmingham, AL, "B", 5.75%, 2019 90,000 95,119
District of Columbia, "A", 6%, 2007 (c) 5,000,000 5,191,700
---------------
$ 6,813,160
- --------------------------------------------------------------------------------------------------
General Obligations - Schools - 4.0%
- --------------------------------------------------------------------------------------------------
Aledo, TX, Independent School District, School Building, "A",
PSF, 5.125%, 2033 $ 2,815,000 $ 2,906,262
Chicago, IL, Board of Education, RITES, FGIC,
5.966%, 2020 (v)(z) 7,910,000 9,468,586
De Soto, TX, Independent School District, School Building,
PSF, 0%, 2031 1,700,000 464,559
De Soto, TX, Independent School District, School Building,
PSF, 0%, 2034 1,285,000 298,955
De Soto, TX, Independent School District, School Building,
PSF, 0%, 2036 1,715,000 358,521
Ennis, TX, Independent School District, Capital Appreciation,
"N", PSF, 0%, 2028 910,000 293,639
Ennis, TX, Independent School District, Capital Appreciation,
"N", PSF, 0%, 2029 1,740,000 547,213
Ennis, TX, Independent School District, Capital Appreciation,
"N", PSF, 0%, 2031 1,725,000 471,391
Florida Board of Education, RITES, FGIC, 6.001%, 2012 (v)(z) 1,500,000 1,717,230
Florida Board of Education, RITES, FGIC, 6.001%, 2013 (v)(z) 5,000,000 5,795,600
Forsyth County, GA, School District, 6%, 2010 (c) 1,700,000 1,849,940
Fort Bend, TX, Independent School District, "A", PSF,
5.25%, 2027 2,825,000 2,989,895
Houston, TX, Independent School District, RITES, PSF,
5.978%, 2017 (v)(z) 5,000,000 5,361,600
Irving, TX, Independent School District, Capital Appreciation,
PSF, 0%, 2026 3,495,000 1,269,524
Kane Cook & Dupage Counties, IL, FSA, 6.375%, 2011 (c) 1,255,000 1,385,595
Kane Cook & Dupage Counties, IL, FSA, 6.5%, 2011 (c) 1,355,000 1,502,817
Lake County, IL, FGIC, 6%, 2008 (c) 2,500,000 2,626,400
Lancaster, TX, Independent School District, Capital
Appreciation, FSA, 0%, 2025 1,300,000 512,135
Lancaster, TX, Independent School District, Capital
Appreciation, FSA, 0%, 2026 1,300,000 485,173
Leander, TX, Independent School District, Capital
Appreciation, Refunding, School Building, FGIC, 0%, 2026 3,780,000 1,336,343
Leander, TX, Independent School District, Capital
Appreciation, Refunding, School Building, FGIC, 0%, 2031 3,820,000 1,003,743
Leander, TX, Independent School District, PSF, 0%, 2029 7,310,000 2,071,215
Leander, TX, Independent School District, PSF, 0%, 2030 6,480,000 1,728,086
McHenry & Lake County, IL, FSA, 6.125%, 2010 (c) 1,700,000 1,829,931
Royse City, TX, Independent School District, School Building,
PSF, 0%, 2027 2,960,000 1,019,986
Royse City, TX, Independent School District, School Building,
PSF, 0%, 2028 2,975,000 970,326
Royse City, TX, Independent School District, School Building,
PSF, 0%, 2029 2,995,000 926,354
San Jose Evergreen, CA, Community College District, Election
2004, "A", MBIA, 0%, 2028 3,260,000 1,043,428
Snyder, TX, Independent School District, School Building,
AMBAC, 5.25%, 2030 2,150,000 2,266,294
State Public School Building Authority, PA, School Rev.,
(Haverford Township Project), XLCA, 5%, 2027 2,670,000 2,756,294
White Settlement, TX, Independent School District, School
Building, PSF, 0%, 2033 8,965,000 2,187,460
---------------
$ 59,444,495
- --------------------------------------------------------------------------------------------------
Healthcare Revenue - Hospitals - 21.1%
- --------------------------------------------------------------------------------------------------
Alexander City, AL, Special Care Facilities Financing
Authority Medical Facilities Rev. (Russell Hospital Corp.),
"A", 5.75%, 2036 $ 1,900,000 $ 1,933,250
Allegheny County, PA, Hospital Development Authority Rev.
(South Hills Health Systems), "B", 6.75%, 2025 1,200,000 1,285,152
Allegheny County, PA, Hospital Development Authority Rev.
(West Penn Allegheny Health), 9.25%, 2030 6,100,000 7,229,537
Allegheny County, PA, Hospital Development Authority Rev.
(West Penn Allegheny Health), "B", 9.25%, 2022 3,360,000 3,982,171
Arkansas Development Finance Authority Rev. (Washington
Regional Medical Center), 7.25%, 2010 (c) 2,500,000 2,773,700
Athens County, OH, Hospital Facilities Rev. (O'Bleness
Memorial Hospital), "A", 7.125%, 2033 2,500,000 2,687,950
Baldwin County, AL, Eastern Shore Health Care Authority Rev.
(Thomas Hospital), 5.75%, 2008 (c) 1,600,000 1,679,472
Birmingham, AL, Baptist Medical Center, Special Care
Facilities Rev. (Baptist Health Systems, Inc.), "A", 5%, 2030 5,510,000 5,478,924
Brookhaven, NY, Industrial Development Agency Rev. (Memorial
Hospital Medical Center Inc.), "A", 8.25%, 2030 2,500,000 2,682,675
California Valley Health Systems, COP, 6.875%, 2023 2,120,000 2,127,166
Chautauqua County, NY, Industrial Development Agency, Civic
Facilities Rev. (Women's Christian Assn.), "A", 6.35%, 2017 1,175,000 1,194,564
Chautauqua County, NY, Industrial Development Agency, Civic
Facilities Rev. (Women's Christian Assn.), "A", 6.4%, 2029 3,430,000 3,459,189
Chemung County, NY, Civic Facilities Rev. (St. Joseph's
Hospital-Elmira), "A", 6%, 2013 1,810,000 1,831,430
Chemung County, NY, Civic Facilities Rev. (St. Joseph's
Hospital-Elmira), "B", 6.35%, 2013 1,280,000 1,318,362
Chester County, PA, Health & Educational Facilities Rev.
(Chester County Hospital), "A", 6.75%, 2031 2,500,000 2,707,900
Citrus County, FL, Hospital Development Authority Rev. (Citrus
Memorial Hospital), 6.25%, 2023 930,000 994,905
Coffee County, GA, Hospital Authority Rev. (Coffee Regional
Medical Center, Inc.), 5%, 2026 110,000 108,473
Colorado Health Facilities Authority Rev. (Parkview Medical
Center, Inc.), 6.5%, 2020 770,000 835,181
Colorado Health Facilities Authority Rev. (Parkview Medical
Center, Inc.), 5%, 2025 1,000,000 1,010,140
Colorado Health Facilities Authority Rev. (Portercare
Adventist Health Systems), 6.625%, 2011 (c) 2,200,000 2,508,308
Crittenden County, AR, Hospital Rev., Refunding & Improvement,
7.15%, 2025 1,165,000 1,167,225
Cuyahoga County, OH, Hospital Facilities Rev. (Canton, Inc.),
7.5%, 2030 5,020,000 5,583,144
Denver, CO, Health & Hospital Authority Rev., 5.375%, 2018 3,700,000 3,749,691
Denver, CO, Health & Hospital Authority Rev., 5.375%, 2028 950,000 952,356
Denver, CO, Health & Hospital Authority Rev., "A", 6%, 2023 750,000 790,013
District of Columbia, Health & Hospital Authority Rev.
(Medstar University Hospital), "D", 6.875%, 2007 (c) 3,875,000 3,940,681
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial
Hospital), 6.2%, 2025 750,000 765,818
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial
Hospital), 6.5%, 2031 865,000 894,254
Grand Forks, ND, Health Care Authority Rev. (Altru Health
Systems Obligated Group), 7.125%, 2024 2,250,000 2,474,775
Highlands County, FL, Health Facilities Authority Rev.
(Adventist Health Systems), "C", 5.25%, 2036 3,735,000 3,860,683
Highlands County, FL, Health Facilities Authority Rev.
(Adventist/Sunbelt Hospital), 6%, 2011 (c) 3,000,000 3,331,530
Illinois Health Facilities Authority Rev. (Sinai Health), FHA,
5.15%, 2037 2,500,000 2,569,675
Indiana Health Facilities Financing Authority, Hospital Rev.
(Clarian Health), "A", 5%, 2039 1,155,000 1,161,942
Indiana Health Facilities Financing Authority, Hospital Rev.
(Community Hospital), "A", AMBAC, 5%, 2035 5,220,000 5,327,114
Indiana Health Facilities Financing Authority, Hospital Rev.
(Munster Medical Research Foundation, Inc.), 6.375%, 2031 8,950,000 9,470,443
Indiana Health Facilities Financing Authority, Hospital Rev.
(Munster Medicial Research Foundation, Inc.), 6.375%, 2021 3,300,000 3,496,383
Indiana Health Facilities Financing Authority, Hospital Rev.
(Riverview Hospital), 6.125%, 2031 3,750,000 3,951,225
Johnson City, TN, Health & Educational Facilities, Hospital
Rev. (Mountain States Health), "A", 5.5%, 2036 1,095,000 1,140,804
Joplin, MO, Industrial Development Authority Health Facilities
Rev. (Freeman Health Systems), 5.5%, 2029 1,290,000 1,330,558
Joplin, MO, Industrial Development Authority Health Facilities
Rev. (Freeman Health Systems), 5.75%, 2035 1,395,000 1,479,844
Kentucky Economic Development Finance Authority, Health
Systems Rev. (Norton Healthcare, Inc.), 6.5%, 2020 5,000,000 5,387,200
Kentucky Economic Development Finance Authority, Health
Systems Rev. (Norton Healthcare, Inc.), 6.625%, 2028 2,000,000 2,161,880
Knox County, TN, Health Educational Housing Facilities Board,
Hospital Facilities Rev. (Baptist Health Systems), 6.5%, 2031 5,350,000 5,674,799
Lufkin, TX, Health Facilities Rev. (Memorial Health System of
East Texas), 5.7%, 2008 (c) 3,305,000 3,459,509
Macomb County, MI, Hospital Finance Authority Rev. (Mount
Clemens General Hospital), 5.75%, 2025 2,000,000 2,092,420
Macomb County, MI, Hospital Finance Authority Rev. (Mount
Clemens General Hospital), 5.875%, 2034 4,345,000 4,550,736
Madison County, ID, Hospital Rev., COP, 5.25%, 2030 1,260,000 1,273,532
Madison County, ID, Hospital Rev., COP, 5.25%, 2037 2,640,000 2,668,354
Maryland Health & Higher Educational Facilities Authority Rev.
(University of Maryland Medical System), 6.75%, 2010 (c) 1,000,000 1,112,160
Massachusetts Health & Educational Facilities Authority Rev.
(Caritas Christi), 6.5%, 2012 1,500,000 1,617,555
Massachusetts Health & Educational Facilities Authority Rev.
(Caritas Christi), 5.7%, 2015 3,500,000 3,622,990
Massachusetts Health & Educational Facilities Authority Rev.
(Jordan Hospital), 5.25%, 2018 4,600,000 4,612,880
Massachusetts Health & Educational Facilities Authority Rev.
(Milford Whitinsville Hospital), 6.35%, 2032 1,450,000 1,532,331
Massachusetts Health & Educational Facilities Authority Rev.
(North Adams Regional Hospital), "C", 6.625%, 2018 1,405,000 1,441,909
Massachusetts Health & Educational Facilities Authority Rev.
(Northern Berkshire Health), "B", 6.375%, 2034 760,000 788,295
Massachusetts Health & Educational Facilities Authority Rev.
(Saints Memorial Medical Center), 6%, 2023 12,530,000 12,558,443
Massachusetts Health & Educational Facilities Authority Rev.
(University of Massachusetts Memorial Hospital), 6.5%, 2021 500,000 543,140
Mecosta County, MI, General Hospital Rev., 6%, 2018 1,200,000 1,230,480
Miami Beach, FL, Health Facilities Rev. (Mount Sinai Medical
Center), 6.75%, 2029 2,490,000 2,758,298
Miami Beach, FL, Health Facilities Rev. (Mount Sinai Medical
Center), "A", 6.7%, 2019 3,505,000 3,844,494
Michigan Hospital Finance Authority Rev. (Memorial Healthcare
Center), 5.875%, 2021 1,000,000 1,048,220
Mississippi Business Finance Corp., Health Facilities Rev.
(Rush Medical Foundation, Inc.), 5.375%, 2015 700,000 703,269
Mississippi Business Finance Corp., Health Facilities Rev.
(Rush Medical Foundation, Inc.), 5.625%, 2023 250,000 248,068
Monongalia County, WV, Building Commission Hospital Rev.
(Monongalia General Hospital), "A", 5%, 2030 1,325,000 1,325,888
Monroe County, MI, Hospital Finance Authority Hospital Rev.
(Mercy Memorial Hospital Corp.), 5.5%, 2035 3,225,000 3,300,884
Monroe County, NY, Industrial Development Agency, Civic
Facilities Rev. (Highland Hospital of Rochester), 5%, 2025 185,000 185,797
Montgomery, AL, Special Care Facilities, Financing Authority
Rev. (Baptist Health), "A-2", MBIA, 0% to 2007, 5% to 2014 (c) 5,100,000 5,082,099
Montgomery, AL, Special Care Facilities, Financing Authority
Rev. (Baptist Health), "C", 5.25%, 2014 (c) 2,240,000 2,437,277
New Hampshire Health & Educational Facilities Authority Rev.
(Catholic Medical Center), "A", 6.125%, 2012 (c) 1,320,000 1,481,938
New Hampshire Health & Educational Facilities Authority Rev.
(Catholic Medical Center), "A", 6.125%, 2032 180,000 194,463
New Hampshire Health & Educational Facilities Authority Rev.
(Covenant Health), 6.5%, 2017 3,975,000 4,400,246
New Hampshire Higher Educational & Health Facilities Authority
Rev. (Littleton Regional Hospital), 5.9%, 2018 1,750,000 1,792,823
New Hampshire Higher Educational & Health Facilities Authority
Rev. (Littleton Regional Hospital), "B", 5%, 2008 310,000 309,721
New Jersey Health Care Facilities, Financing Authority Rev.
(Children's Specialized Hospital), "A", 5.5%, 2030 755,000 779,402
New Jersey Health Care Facilities, Financing Authority Rev.
(Palisades Medical Center), 6.625%, 2031 1,115,000 1,205,081
New Jersey Health Care Facilities, Financing Authority Rev.
(St. Peter's University Hospital), 6.875%, 2030 4,000,000 4,409,320
New York Dormitory Authority Rev., Non State Supported Debt
(Mt. Sinai NYU Health), 5.5%, 2026 1,895,000 1,921,625
New York Dormitory Authority Rev., Non State Supported Debt
(Mt. Sinai NYU Health), "C", 5.5%, 2026 2,000,000 2,028,100
New York, NY, Industrial Development Agency, Civic Facilities
Rev. (Staten Island University Hospital), "B", 6.375%, 2031 1,465,000 1,489,700
New York, NY, Industrial Development Agency, Civic Facilities
Rev. (Staten Island University Hospital), "C", 6.45%, 2032 930,000 947,038
New York, NY, Industrial Development Agency, Civic Facilities
Rev. (Staten Island University Hospital), "A", 6.375%, 2031 495,000 503,346
Norman, OK, Regional Hospital Authority Rev., 5.375%, 2036 1,510,000 1,543,114
Ohio County, WV, County Commission Health System Rev. (Ohio
Valley Medical Center), 5.75%, 2013 5,000,000 4,780,450
Oklahoma Development Finance Authority Rev. (Comanche County
Hospital), 6%, 2014 2,400,000 2,631,600
Oklahoma Development Finance Authority Rev. (Comanche County
Hospital), 6.6%, 2031 4,080,000 4,434,715
Peninsula Ports Authority, VA, Hospital Facility Rev.
(Whittaker Memorial), FHA, 8.7%, 2023 485,000 558,143
Rhode Island Health & Education Building Rev., Hospital
Financing (Lifespan Obligated Group), 6.5%, 2012 (c) 9,000,000 10,257,480
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare
Systems, Inc.), 6.375%, 2014 1,395,000 1,433,070
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare
Systems, Inc.), 6.5%, 2027 1,855,000 1,895,124
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6%, 2012 (c) 450,000 501,197
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6%, 2012 (c) 750,000 835,328
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6%, 2012 (c) 745,000 829,759
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6%, 2012 (c) 1,255,000 1,397,781
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.25%, 2012 (c) 750,000 845,393
Shelby County, TN, Educational & Housing Facilities Board
Hospital Rev. (Methodist Healthcare), 6.25%, 2012 (c) 1,250,000 1,408,988
Sierra View, CA, Local Health Care District Rev., 5.4%, 2022 3,000,000 3,074,430
South Carolina Jobs & Economic Development Authority, Hospital
Facilities Rev. (Palmetto Health Alliance), 6.25%, 2031 2,725,000 2,928,966
South Carolina Medical University, Hospital Facilities Rev.,
"A", MBIA, 5%, 2031 1,995,000 2,039,987
Southwestern Illinois Development Authority Rev. (Anderson
Hospital), 5.375%, 2015 885,000 915,462
Southwestern Illinois Development Authority Rev. (Anderson
Hospital), 5.5%, 2020 1,805,000 1,864,132
Southwestern Illinois Development Authority Rev. (Anderson
Hospital), 5.625%, 2029 1,330,000 1,361,534
Springfield, TN, Health & Educational Facilities Rev
(Northcrest Medical Center), 5.25%, 2018 3,500,000 3,432,905
Springfield, TN, Health & Educational Facilities Rev
(Northcrest Medical Center), 5.375%, 2024 4,000,000 3,876,720
St. Paul, MN, Housing & Redevelopment Hospital (Healtheast
Project), 6%, 2035 2,000,000 2,140,380
Tallahassee, FL, Health Facilities Rev. (Tallahassee Memorial
Healthcare), 6.25%, 2020 4,500,000 4,726,800
Texas Metro Health Facilities Development Corp., Metro Health
Facilities Development Rev. (Wilson N. Jones Memorial
Hospital), 7.2%, 2021 4,300,000 4,466,109
Texas Metro Health Facilities Development Corp., Metro Health
Facilities Development Rev. (Wilson N. Jones Memorial
Hospital), 7.25%, 2031 2,000,000 2,073,340
Tom Green County, TX, Health Facilities Rev. (Shannon Health
System), 6.75%, 2021 3,150,000 3,384,014
University of Colorado, Hospital Authority Rev., "A",
5.25%, 2039 755,000 771,753
Upper Illinois River Valley Development, Health Facilities
Rev. (Morris Hospital), 6.625%, 2031 1,900,000 2,054,508
Valley, AL, Financing Authority Rev. (Lanier Memorial
Hospital), 5.45%, 2011 1,175,000 1,189,746
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional
Health Center), 6.25%, 2022 2,000,000 2,108,240
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional
Health Center), 6.375%, 2031 2,595,000 2,750,960
Washington County, AR, Hospital Rev., Regional Medical Center,
"A", 5%, 2035 750,000 739,905
Washington County, AR, Hospital Rev., Regional Medical Center,
"B", 5%, 2025 3,000,000 3,020,640
Weirton, WV, Municipal Hospital Building, Commission Rev.
(Weirton Hospital Medical Center), 6.375%, 2031 3,885,000 3,996,461
Weslaco, TX, Health Facilities Rev. (Knapp Medical Center),
6.25%, 2032 4,000,000 4,216,680
West Plains, MO, Industrial Development Authority Rev. (Ozarks
Medical Center), 6.75%, 2024 810,000 833,571
West Shore Pennsylvania, Hospital Authority Rev. (Holy Spirit
Hospital), 6.2%, 2026 4,500,000 4,750,830
Wichita, KS, Hospital Authority Rev. (Via Christi Health
System), 6.25%, 2020 2,500,000 2,738,050
Wisconsin Health & Educational Facilities Authority Rev.
(Aurora Health Care, Inc.), 5.625%, 2029 1,100,000 1,135,277
Wisconsin Health & Educational Facilities Authority Rev.
(Aurora Health Care, Inc.), 6.875%, 2030 2,250,000 2,551,770
Wisconsin Health & Educational Facilities Authority Rev.
(Marshfield Clinic), "A", 5.375%, 2034 1,510,000 1,545,591
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), 6.8%, 2016 1,475,000 1,543,396
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), 7.125%, 2031 2,000,000 2,081,040
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. John's Riverside Hospital), "A", 7.125%, 2031 1,495,000 1,555,577
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. Joseph's Hospital), 6.15%, 2015 2,000,000 1,992,500
Yonkers, NY, Industrial Development Agency, Civic Facilities
Rev. (St. Joseph's Hospital), "C", 6.2%, 2020 250,000 248,950
---------------
$ 315,454,683
- --------------------------------------------------------------------------------------------------
Healthcare Revenue - Long Term Care - 9.8%
- --------------------------------------------------------------------------------------------------
Abilene, TX, Health Facilities Development Co., Retirement
Facilities Rev. (Sears Methodist Retirement), "A", 7%, 2033 $ 1,155,000 $ 1,240,551
Arizona Health Facilities Authority Rev. (The Terraces
Project), 7.75%, 2033 2,250,000 2,530,845
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 7.75%, 2006 90,000 89,935
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 8.125%, 2016 1,415,000 1,360,763
Bell County, TX, Health Facilities Development Rev. (Advanced
Living Technology), 8.5%, 2026 3,145,000 2,969,698
Bridgeport, CT, Senior Living Facility Rev. (3030 Park
Retirement Community), 7.25%, 2035 2,980,000 2,274,634
Bucks County, PA, Industrial Development Authority Rev. (Ann's
Choice, Inc.), 6.125%, 2025 1,320,000 1,364,656
Cambria County, PA, Industrial Development Authority Rev.
(Beverly Enterprises, Inc.), ETM, 10%, 2012 (c) 540,000 645,538
Chester County, PA, Industrial Development Authority Rev. (RHA
Nursing Home), 8.5%, 2032 1,165,000 1,201,628
Clarion, PA, Industrial Development Authority Rev. (Beverly
Enterprises, Inc.), 7.5%, 2012 1,950,000 1,974,902
Colorado Health Facilities Authority Rev. (Covenant Retirement
Communities, Inc.), "B", 6.125%, 2033 1,500,000 1,600,200
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A",
7.25%, 2013 (c) 1,965,000 2,340,610
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A",
7.25%, 2035 760,000 812,356
Daphne, AL, Special Care Facilities Financing Authority (1st
Mortgage Presbyterian), 0%, 2008 (c) 29,975,000 27,705,293
Daphne, AL, Special Care Facilities Financing Authority (2nd
Mortgage Presbyterian), 0%, 2008 (c) 4,500,000 4,150,980
Daphne, AL, Special Care Facilities Financing Authority
(Presbyterian Hospital), 0%, 2008 (c) 48,475,000 12,727,596
Fulton County, GA, Residential Care Facilities (Canterbury
Court), "A", 6.125%, 2034 1,020,000 1,058,270
Hawaii Department of Budget & Finance, Special Purpose Rev.
(Kahala Nui Senior Living Community), 8%, 2033 1,500,000 1,720,260
Illinois Finance Authority Rev. (Clare at Water Tower), "A",
6%, 2025 1,510,000 1,553,624
Illinois Finance Authority Rev. (Landing at Plymouth Place),
"A", 6%, 2037 1,510,000 1,554,545
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), 9.25%, 2011 (c) 5,515,000 6,862,756
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), 5.75%, 2018 2,520,000 2,579,976
Iowa Finance Authority, Health Care Facilities Rev. (Care
Initiatives Project), "A", 5.5%, 2025 2,495,000 2,546,048
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village,
Inc.), 6.875%, 2032 1,250,000 1,338,425
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village,
Inc.), "B", 6.25%, 2026 1,500,000 1,524,270
Louisiana Local Government, Environmental Facilities &
Community Development Authority Rev. (CDF Healthcare LA, LLC),
"A", 7%, 2036 1,600,000 1,604,704
Loves Park, IL (Hoosier Care), 7.125%, 2034 1,890,000 1,903,778
Maine Health & Higher Educational Facilities Rev. (Piper
Shores), 7.5%, 2009 (c) 1,455,000 1,557,738
Massachusetts Industrial Finance Agency Rev. (GF/Revere,
Inc.), 6.6%, 2025 6,825,000 6,873,458
Millbrae, CA, Residential Facilities Rev. (Magnolia of
Millbrae), "A", 7.375%, 2027 7,065,000 7,348,942
Montana Facility Finance Authority Rev. (Senior Living St.
Johns Lutheran), "A", 6.125%, 2036 1,360,000 1,377,544
Montgomery County, PA, Higher Education & Health Authority
Rev. (AHF/Montgomery), 6.875%, 2036 3,805,000 3,938,822
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.125%, 2028 750,000 789,480
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.25%, 2035 1,490,000 1,573,202
New Jersey Economic Development Authority Rev. (Courthouse
Convalescent Center), "A", 8.7%, 2014 1,350,000 1,354,712
New Jersey Economic Development Authority Rev. (Lions Gate),
"A", 5.875%, 2037 920,000 940,442
New Jersey Health Care Facilities Financing Authority Rev.
(Cherry Hill), 8%, 2027 4,000,000 4,115,520
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort
Norfolk Retirement Community), "A", 6%, 2025 375,000 381,926
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort
Norfolk Retirement Community), "A", 6.125%, 2035 260,000 264,862
North Carolina Medical Care Commission, Health Care Facilities
Rev. (First Mortgage-Presbyterian Homes), 5.4%, 2027 1,515,000 1,528,817
North Carolina Medical Care Commission, Health Care Facilities
Rev. (First Mortgage-Presbyterian Homes), 5.5%, 2031 955,000 968,150
Olathe, KS, Senior Living Facilities Rev. (Catholic Care
Campus, Inc.), "A", 6%, 2038 1,700,000 1,761,659
Reedley, CA, COP (Mennonite Home), 7.5%, 2006 (c) 4,835,000 4,959,405
Shelby County, TN, Health Educational Rev. (Germantown
Village), 7.25%, 2034 2,470,000 2,627,882
Shelby County, TN, Nursing Home Rev. (Beverly Enterprises,
Inc.), 7.4%, 2006 (c) 800,000 824,504
St. Joseph County, IN, Economic Development Rev. (Holy Cross
Village at Notre Dame), "A", 6%, 2038 475,000 492,257
Sterling, IL (Hoosier Care), 7.125%, 2034 1,325,000 1,334,659
Suffolk County, NY, Industrial Development Agency (Medford
Hamlet Assisted Living), 6.375%, 2039 1,500,000 1,480,920
Travis County, TX, Health Facilities Development Corp.,
Retirement Facilities Rev. (Querencia Barton Creek),
5.5%, 2025 1,440,000 1,417,075
Travis County, TX, Health Facilities Development Corp.,
Retirement Facilities Rev. (Querencia Barton Creek),
5.65%, 2035 2,155,000 2,119,055
Wilkinsburg, PA, Municipal Authority Health Rev. (Monroeville
Christian/Judea), 8.25%, 2007 (c) 6,970,000 7,347,774
---------------
$ 146,615,646
- --------------------------------------------------------------------------------------------------
Human Services - 1.4%
- --------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority (Prides
Industries), 7.125%, 2009 (c) $ 1,565,000 $ 1,709,387
Colorado Educational & Cultural Facilities Authority (Cerebral
Palsy Project), "A", 6.25%, 2036 775,000 788,260
Lehigh County, PA, General Purpose Authority (Kidspeace
Obligation Group), 6%, 2018 3,550,000 3,450,778
Louisiana Local Government Environmental Facilities &
Community Development (Westside Rehab Center Project), "A",
6.85%, 2036 3,415,000 3,420,020
Louisiana Local Government Environmental Facilities &
Community Development (Westside Rehab Center Project), "B",
6.5%, 2013 400,000 400,252
Montgomery County, PA, Industrial Development Authority
(Wordsworth Academy), 8%, 2024 2,850,000 2,851,967
New Hampshire Higher Educational & Health Facilities Authority
Rev. (Child & Family Services), 6.125%, 2019 1,155,000 1,203,810
New York, NY Industrial Development Agency Rev. (Special Needs
Facilities Pooled Program), 6.1%, 2012 1,315,000 1,337,053
Orange County, FL, Health Facilities Authority Rev. (GF/
Orlando Healthcare Facilities), 8.875%, 2021 1,925,000 2,136,173
Orange County, FL, Health Facilities Authority Rev. (GF/
Orlando Healthcare Facilities), 9%, 2031 2,185,000 2,404,308
Osceola County, FL, Industrial Development Authority Rev.
(Community Provider), 7.75%, 2017 878,000 883,233
Philadelphia, PA, Industrial Development Authority Rev.,
6.125%, 2019 1,250,000 938,225
---------------
$ 21,523,466
- --------------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 4.8%
- --------------------------------------------------------------------------------------------------
Alliance Airport Authority, Inc., TX, Special Facilities Rev.
(AMR Corp.), 7.5%, 2029 $ 10,505,000 $ 10,560,571
Dallas Fort Worth, TX, International Airport Facility
Improvement Corp. (American Airlines, Inc.), 7.25%, 2030 8,180,000 8,205,440
Dallas Fort Worth, TX, International Airport Facility
Improvement Corp. (American Airlines, Inc.), 6.375%, 2035 9,695,000 9,512,734
Houston, TX, Airport Systems Rev., Special Facilities
(Continental, Inc.), "E", 6.75%, 2029 5,025,000 5,317,757
Los Angeles, CA, Regional Airport Lease Rev. (AMR Corp.),
7%, 2012 1,700,000 1,791,239
Los Angeles, CA, Regional Airport Lease Rev. (AMR Corp.),
7.5%, 2024 5,450,000 6,039,472
New Jersey Economic Development Authority, Special Facilities
Rev. (Continental Airlines, Inc.), 6.25%, 2019 3,205,000 3,260,639
New Jersey Economic Development Authority, Special Facilities
Rev. (Continental Airlines, Inc.), 6.25%, 2029 3,880,000 3,969,822
New York, NY, Industrial Development Agencies Rev.
(Continental Airlines, Inc.), 7.25%, 2008 475,000 483,688
New York, NY, Industrial Development Agencies Rev.
(Continental Airlines, Inc.), 8%, 2012 950,000 1,034,474
New York, NY, Industrial Development Agency Rev. (American
Airlines, Inc.), 7.625%, 2025 19,225,000 22,140,471
Tulsa, OK, Municipal Airport Trust Rev. (American Airlines,
Inc.), "B", 5.65%, 2035 120,000 119,806
---------------
$ 72,436,113
- --------------------------------------------------------------------------------------------------
Industrial Revenue - Chemicals - 0.7%
- --------------------------------------------------------------------------------------------------
Power County, ID, Pollution Control Rev. (FMC Corp.),
5.625%, 2014 $ 1,000,000 $ 1,031,740
Red River Authority, TX, Pollution Control Rev. (Celanese
Project), 6.7%, 2030 5,380,000 5,849,889
Sweetwater County, WY, Solid Waste Disposal Rev. (FMC Corp.),
5.6%, 2035 3,015,000 3,159,117
---------------
$ 10,040,746
- --------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 1.8%
- --------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid Waste
Disposal Rev. (Browning Ferris, Inc.), "A", 5.8%, 2016 $ 5,000,000 $ 4,907,100
California Pollution Control Financing Authority, Solid Waste
Disposal Rev. (Waste Management, Inc.), "B", 5%, 2027 1,080,000 1,084,136
Cobb County, GA, Development Authority, Solid Waste Disposal
Rev. (Waste Management, Inc.), "A", 5%, 2033 1,000,000 992,650
Colorado Housing & Finance Authority, Solid Waste Rev. (Waste
Management, Inc.), 5.7%, 2018 540,000 578,102
Gulf Coast Waste Disposal Authority, TX, (Waste Mangement of
Texas), "A", 5.2%, 2028 2,890,000 2,925,258
Henrico County, VA, Industrial Development Authority Rev
(Browning Ferris, Inc.), 5.45%, 2014 2,000,000 1,939,140
Illinois Finance Authority Solid Waste Disposal Waste
Management Inc., Project, "A", 5.05%, 2029 2,000,000 1,994,600
Massachusetts Development Finance Agency Rev., Resource
Recovery Rev. (Waste Management, Inc.), 6.9%, 2029 1,700,000 1,831,189
Nevada Department of Business Rev. (Republic Services, Inc.),
5.625%, 2026 2,000,000 2,127,000
New Hampshire State Business Finance Authority, Solid Waste
Disposal Rev, (Waste Management, Inc. Project), 5.2%, 2027 2,890,000 2,907,456
New Morgan, PA, Industrial Development Authority, Solid Waste
Disposal Rev. (New Morgan Landfill Co., Inc./Browning Ferris,
Inc.), 6.5%, 2019 2,500,000 2,504,125
Schuylkill County, PA, Industrial Development Authority Rev.
(Waste Managment, Inc.), 5.1%, 2019 1,000,000 1,017,840
Yavapai County, AZ, Industrial Development Authority Rev.
(Waste Management, Inc.), 4.9%, 2028 1,500,000 1,482,225
---------------
$ 26,290,821
- --------------------------------------------------------------------------------------------------
Industrial Revenue - Metals - 0.5%
- --------------------------------------------------------------------------------------------------
Burns Harbor, IN, Solid Waste Disposal Facilities Rev.
(Bethlehem Steel), 8%, 2024 (d) $ 10,455,000 $ 1,046
Cambria County, PA, Industrial Development Authority Rev.
(Bethlehem Steel), 7.5%, 2015 (d) 3,890,000 389
Indiana Development Finance Authority Rev. (Inland Steel),
7.25%, 2011 5,000,000 5,106,650
Mobile County, AL, Industrial Development Authority Rev.
(Ipsco, Inc.), 6.875%, 2030 2,850,000 3,014,189
---------------
$ 8,122,274
- --------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 3.5%
- --------------------------------------------------------------------------------------------------
Bayonne, NJ, Redevelopment Agency (Royal Caribbean Project),
"A", 5.375%, 2035 $ 1,500,000 $ 1,522,725
Gulf Coast, TX, Waste Disposal Rev. (Valero Energy Corp.),
6.65%, 2032 1,500,000 1,623,480
Hardeman County, TN, Correctional Facilities Rev., 7.75%, 2017 6,155,000 6,345,251
Janesville, WI, Industrial Development Rev. (Simmons
Manufacturing Co.), 7%, 2017 3,900,000 3,905,772
Madison County, FL, Rev. (Twin Oaks Project), "A", 6%, 2025 1,625,000 1,660,913
New Jersey Economic Development Authority, Economic
Development Rev. (Holt Hauling & Warehousing), 8.4%, 2015 (q) 4,000,000 3,640,000
New Jersey Economic Development Authority, Economic
Development Rev. (Holt Hauling & Warehousing), 8.6%, 2017 (q) 8,000,000 7,280,000
Park Creek Metropolitan District, CO, Rev., Custodial
Receipts, CR-1, 7.875%, 2032 (a) 4,230,000 4,660,360
Park Creek Metropolitan District, CO, Rev., Custodial
Receipts, CR-2, 7.875%, 2032 (a) 1,860,000 2,049,236
Philadelphia, PA, Industrial Development Authority Rev. (Host
Marriott LP), 7.75%, 2017 2,000,000 2,007,400
Port Corpus Christi, TX, Industrial Development Authority Rev.
(Citgo Petroleum Corp.), 8.25%, 2031 2,300,000 2,396,278
Spirit Lake, IA, Industrial Development Rev. (Crystal Tips,
Inc.), 0%, 2008 (c) 9,815,602 10,716,184
Tooele County, UT, Hazardous Waste Treatment Rev. (Union
Pacific Corp.), 5.7%, 2026 3,895,000 4,060,031
---------------
$ 51,867,630
- --------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 2.4%
- --------------------------------------------------------------------------------------------------
Arkansas Development Finance Authority, Industrial Facilities
Rev. (Potlatch Corp.), "A", 7.75%, 2025 $ 1,200,000 $ 1,350,348
Butler, AL, Industrial Development Board, Solid Waste Disposal
Rev. (Georgia Pacific Corp.), 5.75%, 2028 1,510,000 1,535,428
De Soto Parish, LA, Environmental Improvement Rev.
(International Paper Co.), 6.35%, 2025 1,650,000 1,736,246
Delta County, MI, Economic Development Corp., Environmental
Improvements Rev. (Mead Westvaco Escanaba), "A",
6.25%, 2012 (c) 3,100,000 3,480,680
Delta County, MI, Economic Development Corp., Environmental
Improvements Rev. (Mead Westvaco Escanaba), "B",
6.45%, 2012 (c) 1,100,000 1,237,258
Florence County, SC, Industrial Development Rev. (Stone
Container Corp.), 7.375%, 2007 860,000 867,749
Hodge, LA, Utilities Rev. (Stone Container Corp.), 7.45%, 2024 3,000,000 3,407,760
Maine Finance Authority, Solid Waste Recycling Facility Rev.
(Bowater, Inc.), 7.75%, 2022 8,500,000 8,520,655
Onondaga County, NY, Industrial Development Authority Rev.,
Solid Waste Disposal Rev. (Solvay Paperboard LLC), 6.8%, 2014 3,800,000 3,975,598
Sabine River Authority Rev., Louisiana Water Facilities
(International Paper Co.), 6.2%, 2025 2,250,000 2,405,453
West Point, VA, Industrial Development Authority, Solid Waste
Disposal Rev. (Chesapeake Corp.), 6.25%, 2019 6,830,000 6,842,567
West Point, VA, Industrial Development Authority, Solid Waste
Disposal Rev. (Chesapeake Corp.), "A", 6.375%, 2019 800,000 800,080
---------------
$ 36,159,822
- --------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 0.6%
- --------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev.,
East Valley Tourist (Cabazon Casino), "A", 9.25%, 2020 (a) $ 3,845,000 $ 4,206,738
Mississippi Development Bank, Special Obligation (Diamond
Lakes Utilities), 6.25%, 2017 3,200,000 3,266,912
New York, NY, City Industrial Development Agency Rev., Liberty
Bonds (IAC/InterActiveCorp), 5%, 2035 1,880,000 1,852,496
---------------
$ 9,326,146
- --------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 1.4%
- --------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises, Inc.),
"A", 6.6%, 2021 $ 1,300,000 $ 1,388,244
Austin, TX, Convention Center (Convention Enterprises, Inc.),
"A", 6.7%, 2028 2,000,000 2,137,880
Baltimore, MD, Convention Center Hotel Rev., "B",
5.875%, 2039 905,000 946,956
Cleveland-Cuyahoga County, OH, Port Authority Rev.
(Fairmount), "B", 5.125%, 2025 560,000 566,765
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Myers
University), "E", 5.6%, 2025 395,000 409,256
Gallery Certificate Trust, PA, Parking Rev., FSA,
4.5%, 2013 (a) 2,500,000 2,469,350
New Jersey Economic Development Authority Rev. (Kapkowski
Project), "B", 6.8%, 2018 3,895,000 4,417,553
San Antonio, TX, Convention Center, Hotel Financial Corp.,
Contract Rev. (Empowerment Zone), "A", AMBAC, 5%, 2034 2,050,000 2,072,058
Southwestern Illinois Development Authority Rev., Solid Waste
Disposal Rev., 5.9%, 2014 1,965,000 1,978,912
Summit County, OH, Port Authority Building (Seville), "A",
5.1%, 2025 610,000 615,972
Summit County, OH, Port Authority Building (Twinsburg
Township), "D", 5.125%, 2025 495,000 500,980
Summit County, OH, Port Authority Building (Workforce Policy
Board), "F", 4.875%, 2025 2,810,000 2,797,636
Toledo Lucas County, OH, Port Authority Development Rev.
(Northwest Ohio Bond Fund), "C", 5.125%, 2025 280,000 277,105
---------------
$ 20,578,667
- --------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.7%
- --------------------------------------------------------------------------------------------------
Alexandria, VA, Redevelopment & Housing Finance Authority Rev.
(Buckingham Village), 5.5%, 2029 $ 3,360,000 $ 3,391,517
Alexandria, VA, Redevelopment & Housing Finance Authority Rev.
(Jefferson Village Apartments), "B", 9%, 2018 1,790,000 1,783,198
Bay County, FL, Housing Finance Authority, Multi-family Rev.
(Andrews Place II Apartments), FSA, 5%, 2035 635,000 638,937
Bay County, FL, Housing Finance Authority, Multi-family Rev.
(Andrews Place II Apartments), FSA, 5.1%, 2046 1,155,000 1,162,126
Charter Mac Equity Issuer Trust, 6.625%, 2009 (a) 8,000,000 8,462,640
GMAC Municipal Mortgage Trust, "B-1", 5.6%, 2039 (a) 4,000,000 4,116,640
GMAC Municipal Mortgage Trust, "C-1", 5.7%, 2040 (a) 2,000,000 1,992,960
Indianapolis, IN, Multi -Family Rev. (Cambridge Station
Apartments II), FNMA, 5.25%, 2039 1,430,000 1,450,077
Maplewood, RI, Housing Development Corp. (Terrace Apartments),
6.9%, 2025 3,745,000 3,747,659
Munimae, TE, Bond Subsidiary LLC, 6.875%, 2009 (a) 6,000,000 6,387,480
Munimae, TE, Bond Subsidiary LLC, 5.9%, 2015 (a) 2,000,000 2,002,620
Munimae, TE, Bond Subsidiary LLC, 5.4%, 2049 (a) 2,000,000 2,001,160
North Charleston, SC, Housing Authority Rev. (Horizon
Village), "A", FHA/GNMA, 5.15%, 2048 1,380,000 1,352,152
Seattle, WA, Housing Authority Rev., Capped Fund Program (High
Rise Rehab), "I", FSA, 5%, 2025 2,050,000 2,047,335
---------------
$ 40,536,501
- --------------------------------------------------------------------------------------------------
Parking - 0.1%
- --------------------------------------------------------------------------------------------------
Rail Connections, Inc., MA Rev., 0%, 2009 (c) $ 375,000 $ 234,304
Rail Connections, Inc., MA Rev., 0%, 2009 (c) 450,000 263,079
Rail Connections, Inc., MA Rev., 0%, 2009 (c) 975,000 532,984
Rail Connections, Inc., MA Rev., 0%, 2009 (c) 1,235,000 632,295
---------------
$ 1,662,662
- --------------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 0.3%
- --------------------------------------------------------------------------------------------------
Desloge, MO, Tax Increment Rev. (U.S. Highway 67 Street
Redevelopment), 5.2%, 2020 $ 1,510,000 $ 1,501,710
Wyandotte County-Kansas City, KS, Sales Tax Second Lien Area
B, 5%, 2020 2,585,000 2,636,002
---------------
$ 4,137,712
- --------------------------------------------------------------------------------------------------
Single Family Housing - Local - 1.8%
- --------------------------------------------------------------------------------------------------
California Rural Home Mortgage Finance Authority Rev., GNMA,
6.55%, 2030 $ 370,000 $ 372,572
Chicago, IL, Single Family Mortgage Rev., "C", GNMA,
7.05%, 2030 35,000 34,974
Cook County, IL, Single Family Mortgage Rev., "A", 0%, 2015 145,000 34,783
Corpus Christi, TX, Housing Finance Authority Rev., "B",MBIA,
0%, 2011 2,430,000 929,864
Escambia County, FL, Single Family Housing Rev., GNMA,
6.95%, 2024 290,000 294,222
Jefferson County, TX, Housing Finance Corp., MBIA, 0%, 2015 775,000 289,176
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA,
6.625%, 2023 575,000 588,927
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA,
7.5%, 2026 175,000 176,442
Jefferson Parish, LA, Single Family Mortgage Rev., GNMA,
6.75%, 2030 1,735,000 1,783,649
Lee County, FL, Housing Finance Authority Rev., "A", GNMA,
7%, 2031 75,000 75,458
New Castle County, DE, Single Family Mortgage Rev., FGIC,
0%, 2016 10,000 3,613
Nortex Housing Finance Corp., TX, Single Family Mortgage Rev.,
"B", 5.5%, 2038 440,000 439,195
Pima County, AZ, Industrial Development Authority Rev., "B-1",
GNMA, 7.05%, 2030 325,000 327,984
Pinellas County, FL, Housing Finance Authority Rev., Multi-
County Program, "B", GNMA, 6.2%, 2031 1,620,000 1,642,534
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", FNMA, 5.55%, 2037 2,970,000 3,167,535
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", GNMA, 6.45%, 2029 355,000 361,550
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", GNMA, 5.65%, 2037 2,355,000 2,494,510
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A", GNMA, 5.4%, 2037 2,500,000 2,599,425
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-1", GNMA, 6.875%, 2026 275,000 280,924
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-1", GNMA, 5.75%, 2037 860,000 919,890
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-2", GNMA, 5.6%, 2029 2,275,000 2,405,244
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-2",GNMA, 5.75%, 2037 1,745,000 1,860,990
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-3", GNMA, 6%, 2035 1,450,000 1,565,130
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-4", GNMA, 5.625%, 2036 955,000 1,003,017
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-4", GNMA, 5.85%, 2037 1,600,000 1,720,384
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"A-5", GNMA, 5.9%, 2037 630,000 681,062
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev.,
"B-2", GNMA, 6.45%, 2033 1,115,000 1,142,262
---------------
$ 27,195,316
- --------------------------------------------------------------------------------------------------
Single Family Housing - State - 1.8%
- --------------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "A-1", 7.4%, 2027 $ 60,000 $ 61,915
Colorado Housing & Finance Authority Rev., "A-2", 7.15%, 2014 21,000 21,389
Colorado Housing & Finance Authority Rev., "A-2", AMBAC,
6.6%, 2028 1,125,000 1,160,663
Colorado Housing & Finance Authority Rev., "B-2", 6.1%, 2023 380,000 394,197
Colorado Housing & Finance Authority Rev., "B-3", 6.55%, 2025 102,000 102,527
Colorado Housing & Finance Authority Rev., "B-3", 6.55%, 2033 360,000 369,436
Colorado Housing & Finance Authority Rev., "C", 6.75%, 2021 160,000 160,594
Colorado Housing & Finance Authority Rev., "C-2", 5.9%, 2023 625,000 648,281
Colorado Housing & Finance Authority Rev., "C-2", FHA,
6.6%, 2032 600,000 616,002
Colorado Housing & Finance Authority Rev., "C-3", 7.15%, 2030 90,000 90,301
Delaware Single Family Housing Authority Rev., "A-2",
6.75%, 2024 350,000 353,196
Louisiana Housing Finance Agency, Single Family Mortgage Rev.,
"B-2", GNMA, 7.55%, 2031 235,000 242,125
Mississippi Home Corp. Rev., Single Family Rev., "A", GNMA,
6.1%, 2034 2,935,000 3,029,947
Mississippi Home Corp. Rev., Single Family Rev., "A-2", GNMA,
6.5%, 2032 2,695,000 2,771,080
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), 6.35%, 2032 495,000 505,261
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), "B", GNMA, 6.7%, 2030 835,000 858,530
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), "B", GNMA/FNMA, 6.05%, 2037 3,470,000 3,759,849
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), GNMA, 7.45%, 2031 140,000 145,866
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), GNMA, 6.85%, 2032 405,000 416,753
Missouri Housing Development Commission, Single Family
Mortgage Rev. (Home Loan Program), GNMA, 6.75%, 2034 420,000 443,171
New Hampshire Housing Finance Authority Rev., "B",
5.875%, 2030 380,000 381,835
New Hampshire Housing Finance Authority Rev., "B",
6.3%, 2031 290,000 291,824
New Hampshire Housing Finance Authority Rev., "B",
6.5%, 2035 3,295,000 3,562,521
New Mexico Mortgage Finance Authority Rev., "B-2", GNMA,
6.35%, 2033 695,000 719,165
North Dakota Housing Finance Agency Rev., Housing Finance,
"A", 5%, 2033 1,310,000 1,312,450
Oklahoma Housing Finance Agency, Single Family, 7.55%, 2028 295,000 304,641
Texas Affordable Housing Corp., Single Family Mortgage Rev.,
"B", 5.25%, 2039 2,280,000 2,358,272
Texas Housing & Community Affairs, Residential Mortgage Rev.,
GNMA, 7.1%, 2021 2,270,000 2,364,841
---------------
$ 27,446,632
- --------------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.0%
- --------------------------------------------------------------------------------------------------
Delaware County, PA, Industrial Development Authority,
Resource Recovery Facilities Rev. (American Ref-Fuel Co.),
"A", 6.2%, 2019 $ 3,900,000 $ 4,061,109
Hudson County, NJ, Solid Waste System Rev., 6%, 2019 2,000,000 2,005,360
Massachusetts Industrial Finance Agency, Resource Recovery
Rev. (Ogden Haverhill Associates), 5.5%, 2013 2,475,000 2,580,311
Massachusetts Industrial Finance Agency, Resource Recovery
Rev. (Ogden Haverhill Associates), 5.6%, 2019 5,425,000 5,606,683
---------------
$ 14,253,463
- --------------------------------------------------------------------------------------------------
State & Local Agencies - 4.5%
- --------------------------------------------------------------------------------------------------
Alabama Building Renovation Authority, AMBAC, 6%, 2017 $ 1,805,000 $ 1,943,191
Alabama Building Renovation Authority, AMBAC, 6%, 2018 1,155,000 1,243,427
Chicago, IL, Public Building Commission Rev., RITES, FGIC,
9.004%, 2017 (v)(z) 4,500,000 5,352,840
College Park, GA, Industrial Development Authority Rev. (Civic
Center), AMBAC, 5.75%, 2010 (c) 3,000,000 3,273,990
Delaware Valley, PA, Regional Finance Authority, RITES, AMBAC,
6.981%, 2018 (v) 7,000,000 8,191,960
Essex County, NJ, RITES, FGIC, 7.137%, 2020 (v)(z) 6,000,000 6,906,480
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., "A", FSA, 0% to 2010, 4.55% to 2022 4,085,000 3,312,649
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., "A-1", AMBAC, 0% to 2010, 4.6% to 2023 1,185,000 958,973
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., "B", AMBAC, 5%, 2013 (c) 11,260,000 12,009,466
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., Enhanced, "A", 5%, 2045 5,000,000 5,018,200
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement Rev., Enhanced, "B", 5.375%, 2010 (c) 2,500,000 2,641,650
Harris County, TX, 5.8%, 2014 1,256,300 1,287,708
Harris County, TX, 5.625%, 2020 2,352,935 2,353,123
King George County, VA, Industrial Development Authority Lease
Rev., FSA, 5%, 2036 3,800,000 3,905,982
Mississippi Development Bank, Special Obligations, Hinds
County Public Improvements, FSA, 5.25%, 2035 2,080,000 2,176,845
New Jersey Economic Development Authority Rev., School
Facilities Construction, "O", 5.25%, 2025 1,940,000 2,051,007
New Jersey Transportation Trust Fund Authority, Capital
Appreciation Transportation Systems, "C", AMBAC, 0%, 2028 5,415,000 1,866,171
Northumberland County, PA (Country Careers & Arts Center),
6.65%, 2020 1,125,000 1,148,411
Northumberland County, PA (Mountain View Manor), 7%, 2020 1,000,000 1,035,960
Shawnee County, KS (Community Mental Health Center, Inc.),
5.35%, 2009 (c) 250,000 260,295
---------------
$ 66,938,328
- --------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.5%
- --------------------------------------------------------------------------------------------------
Access to Loans for Learning, California Student Loan Rev.,
7.95%, 2030 $ 2,700,000 $ 2,832,786
Arizona Student Loan Acquisition Authority, Student Loan Rev.,
6.15%, 2029 1,500,000 1,577,880
South Dakota Student Loan Rev., Education Loans, Inc.,
5.6%, 2020 2,605,000 2,703,052
---------------
$ 7,113,718
- --------------------------------------------------------------------------------------------------
Tax - Other - 0.8%
- --------------------------------------------------------------------------------------------------
Black Hawk, CO, Device Tax Rev., 5.625%, 2021 $ 2,750,000 $ 2,773,375
Harris County-Houston, TX, Sports Authority Rev., MBIA,
0%, 2032 6,310,000 1,556,109
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.5%, 2024 1,000,000 1,038,250
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.75%, 2029 1,795,000 1,897,243
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.5%, 2031 800,000 828,912
New Jersey Economic Development Authority Rev. Cigarette Tax,
5.75%, 2034 1,195,000 1,256,686
Virgin Islands Public Finance Authority Rev., 6%, 2006 500,000 501,570
Virgin Islands Public Finance Authority Rev., "E",
5.875%, 2018 1,500,000 1,566,270
---------------
$ 11,418,415
- --------------------------------------------------------------------------------------------------
Tax Assessment - 5.6%
- --------------------------------------------------------------------------------------------------
Allegheny County, PA, Redevelopment Authority Rev. (Pittsburgh
Mills), 5.1%, 2014 $ 1,190,000 $ 1,200,091
Allegheny County, PA, Redevelopment Authority Rev. (Pittsburgh
Mills), 5.6%, 2023 450,000 464,769
Amelia Walk Community Development District, FL, "B",
5.2%, 2014 2,115,000 2,124,285
Arborwood Community Development District, FL Capital
Improvement Rev. (Centex Homes Project), "A-1", 5.5%, 2036 1,500,000 1,499,205
Arborwood Community Development District, FL Capital
Improvement Rev. (Master Infrastructure Projects), "A",
5.35%, 2036 1,870,000 1,866,915
Arborwood Community Development District, FL, Capital
Improvement Rev., 5.25%, 2016 500,000 500,750
Arborwood Community Development District, FL, Capital
Improvement Rev. (Master Infrastructure Projects), "B",
5.1%, 2014 750,000 750,878
Atlanta, GA, Tax Allocation (Eastside Project), "B",
5.6%, 2030 2,450,000 2,500,642
Atlanta, GA, Tax Allocation (Princeton Lakes Project),
5.5%, 2031 1,765,000 1,769,501
Belmont Community Development District, FL, Capital
Improvement Rev., "B", 5.125%, 2014 3,015,000 3,015,452
Broadview, IL, Tax Increment Rev., 5.25%, 2012 4,180,000 4,277,060
Broadview, IL, Tax Increment Rev., 5.375%, 2015 3,400,000 3,473,678
Capital Region Community Development District, FL, Capital
Improvement Rev., "A-2", 6.85%, 2031 695,000 736,373
Concord Station Community Development District, FL, Capital
Improvement Rev., 5%, 2015 905,000 896,783
Concorde Estates Community Development District, FL, Capital
Improvement Rev., "B", 5%, 2011 515,000 513,867
Du Page County, IL, Special Service Area No. 31 Special Tax
(Monarch Landing Project), 5.625%, 2036 945,000 945,576
Durbin Crossing Community Development District, FL, "B-1",
4.875%, 2010 3,750,000 3,738,938
East Homestead Community Development District, Special
Assessment, FL, "B", 5%, 2011 755,000 757,039
Fishhawk Community Development District, FL, 5.125%, 2009 1,890,000 1,885,275
Greyhawk Landing Community Development, FL, Special Assessment
Rev., "B", 6.25%, 2009 265,000 267,555
Heritage Harbour South Community, Development District, FL,
Rev., Capital Improvement, "B", 5.4%, 2008 115,000 115,247
Hyland Hills Metropolitan Park & Recreation District of
Colorado, 6.75%, 2015 2,500,000 2,546,375
Katy, TX, Development Authority Rev., 5.8%, 2011 2,340,000 2,403,508
Katy, TX, Development Authority Rev., "B", 6%, 2018 4,600,000 4,739,058
Killarney, FL, Community Development District, "B",
5.125%, 2009 1,245,000 1,241,788
Lake Elsinore, CA, Public Financing Authority, 7.1%, 2020 2,280,000 2,388,779
Lakes by the Bay South Community Development District, FL,
Special Assessment, "B", 5.3%, 2009 1,685,000 1,682,304
Lancaster County, SC, Assessment Rev. (Sun City Carolina
Lakes), 5.45%, 2037 340,000 344,087
Markham, IL, Tax Increment Rev., 9%, 2012 1,960,000 1,971,270
Middle Village, FL, Community Development District Rev., "A",
5.8%, 2022 870,000 891,150
New Port Tampa Bay Community Development District, FL, Special
Assessment, "B", 5.3%, 2012 1,360,000 1,358,626
North Springs Improvement District, FL, Special Assessment
Rev. (Parkland Golf Country Club), "B-1", 5.125%, 2015 1,090,000 1,081,498
North Springs Improvement District, FL, Special Assessment
Rev. (Parkland Golf Country Club), "B-2", 5.125%, 2015 500,000 496,415
Old Palm Community Development District, FL, Special
Assessment (Palm Beach Gardens), "A", 5.9%, 2035 735,000 755,036
Old Palm Community Development District, FL, Special
Assessment (Palm Beach Gardens), "B", 5.375%, 2014 1,025,000 1,031,847
Palm Glades Community Development District, FL, Special
Assessment, "A", 5.3%, 2036 1,110,000 1,107,969
Panther Trace II, FL, Community Development District Rev.,
Special Assessment, 5.125%, 2013 1,145,000 1,149,271
Panther Trace, FL, Community Development District Rev., "B",
5%, 2010 3,165,000 3,142,750
Parkway Center, FL, Community Development District Rev., "B",
5.625%, 2014 3,705,000 3,749,682
Paseo, FL, Community Development District, "B", 4.875%, 2010 1,495,000 1,475,550
Preserve At Wilderness Lake, FL, 6.2%, 2008 145,000 145,223
Prince George's County, MD, Special Obligations (National
Harbor Project), 5.2%, 2034 755,000 751,972
Renaissance Community Development, FL, "B", 6.25%, 2008 490,000 492,509
Reunion East Community Development District, FL, Special
Assessment, 5.9%, 2007 335,000 335,442
Riverside County, CA, Public Financing Authority, Tax
Allocation Rev., XLCA, 5%, 2037 2,000,000 2,042,880
Shingle Creek Community Development District, FL, Capital
Improvement Rev., 6.125%, 2037 1,530,000 1,518,647
Sterling Hill Community Development District, FL, Capital
Improvement Rev., 5.5%, 2010 2,305,000 2,314,174
Stonebrier Community Development District, FL, Speical
Assessment, 5.5%, 2037 1,845,000 1,851,273
Tuscany Reserve Community Development District, FL, "B",
5.25%, 2016 1,555,000 1,561,127
Villa Portofino West Community Development District, FL,
Special Assessment, "A", 5.35%, 2036 995,000 1,001,000
Watergrass Community Development District, FL, Special
Assessment Rev., "B", 4.875%, 2010 2,865,000 2,860,359
Wentworth Estates Community Development District, FL, Special
Assessment, "B", 5.125%, 2012 1,370,000 1,371,617
---------------
$ 83,103,065
- --------------------------------------------------------------------------------------------------
Tobacco - 5.2%
- --------------------------------------------------------------------------------------------------
Badger, WI, Tobacco Asset Securitization Corp., 6.125%, 2027 $ 10,830,000 $ 11,509,258
Badger, WI, Tobacco Asset Securitization Corp., 6.375%, 2032 495,000 531,486
California County, CA, Tobacco Securitization Agency, Capital
Appreciation Asset Backed (Gold Country), 0%, 2033 8,015,000 1,719,298
California County, CA, Tobacco Securitization Corp., Tobacco
Settlement, L.A. County, "A", 0%, 2041 1,525,000 1,233,008
California Statewide Financing Authority, Tobacco Settlement,
5.625%, 2029 4,445,000 4,598,708
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico,
"A", 0%, 2050 8,000,000 516,960
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico,
"B", 0%, 2055 14,000,000 476,840
District of Columbia, Tobacco Settlement, 6.25%, 2024 3,670,000 3,874,272
District of Columbia, Tobacco Settlement, 6.75%, 2040 885,000 954,003
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement, 7.8%, 2042 3,000,000 3,605,640
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement, "A-1", 6.75%, 2039 2,620,000 2,938,487
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement, "A-1", 6.25%, 2033 6,095,000 6,659,275
Golden State, CA, Tobacco Securitization Corp., Tobacco
Settlement, "A-1", 6.625%, 2040 1,070,000 1,192,312
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev.,
Asset Backed, "B", 5.3%, 2011 (c) 5,000,000 5,277,100
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev.,
Asset Backed, "B", 0% to 2007, 5.6% to 2034 4,295,000 4,029,182
Louisiana Tobacco Settlement Authority, 5.5%, 2030 4,915,000 5,108,110
Louisiana Tobacco Settlement Authority, "B", 5.875%, 2039 4,325,000 4,540,472
New Jersey Tobacco Settlement Authority, 5.75%, 2032 7,420,000 7,745,664
Rockland Tobacco Asset Securitization Corp., NY, Tobacco Asset
Backed, "C", 0%, 2060 33,955,000 602,701
South Carolina Tobacco Settlement Authority, 6.375%, 2028 3,725,000 3,979,678
South Carolina Tobacco Settlement Authority, "B", 6%, 2022 2,500,000 2,608,125
South Carolina Tobacco Settlement Authority, "B", 6.375%, 2030 1,895,000 2,129,999
Tobacco Settlement Financing Corp., NJ, 7%, 2041 45,000 51,066
Tobacco Settlement Financing Corp., VA, 5.625%, 2037 1,150,000 1,188,479
Washington Tobacco Settlement Authority, 6.5%, 2026 1,060,000 1,156,004
---------------
$ 78,226,127
- --------------------------------------------------------------------------------------------------
Toll Roads - 2.4%
- --------------------------------------------------------------------------------------------------
E-470 Public Highway Authority, Colorado Rev., Capital
Appreciation, "B", MBIA, 0%, 2027 $ 12,305,000 $ 4,182,470
Foothill/Eastern Transportation Corridor Agency, CA, Toll Road
Rev., "A", 7.15%, 2010 (c) 5,000,000 5,641,250
New Jersey Turnpike Authority, RITES, MBIA, 6.262%, 2020 (v)(z) 5,000,000 5,508,900
Pocahontas Parkway Assn., VA, Toll Road Rev., 0%, 2008 (c) 2,100,000 1,591,968
Pocahontas Parkway Assn., VA, Toll Road Rev., 0%, 2008 (c) 7,000,000 5,014,100
Pocahontas Parkway Assn., VA, Toll Road Rev., 0%, 2008 (c) 5,100,000 3,448,416
San Joaquin Hills, CA, Toll Road Rev. (Transportation Corridor
Agency), ETM, 0%, 2010 (c) 13,400,000 11,157,778
---------------
$ 36,544,882
- --------------------------------------------------------------------------------------------------
Transportation - Special Tax - 0.5%
- --------------------------------------------------------------------------------------------------
Telluride, CO, Real Estate Transfer Assessment Rev. (Gondola
Transit Co.), ETM, 11.5%, 2012 (c) $ 6,000,000 $ 8,085,540
- --------------------------------------------------------------------------------------------------
Universities - Colleges - 2.3%
- --------------------------------------------------------------------------------------------------
California Educational Facilities Authority Rev. (L.A. College
of Chiropractic), 5.6%, 2017 $ 2,000,000 $ 1,935,600
California Educational Facilities Authority Rev. (University
of La Verne), "A", 5%, 2029 2,205,000 2,215,782
Houston, TX, Community College Systems, MBIA, 7.875%, 2025 9,150,000 10,892,252
Illinois Educational Facilities Authority Rev. (Augustana
College), "A", 5.625%, 2022 1,300,000 1,367,132
Illinois Finance Authority Rev. (Illinois Institute of
Technology), "A", 5%, 2031 2,000,000 2,015,120
Illinois Finance Authority Rev. (Illinois Institute of
Technology), "A", 5%, 2036 1,520,000 1,527,995
Indiana Educational Facilities Authority Rev. (Manchester
College), 5.75%, 2018 1,000,000 1,025,040
New Hampshire Higher Educational & Health Facilities Authority
Rev. (Franklin Pierce Law Center), 5.5%, 2018 1,200,000 1,236,048
New Hampshire Higher Educational & Health Facilities Rev.,
6.3%, 2007 (c) 495,000 509,820
New Hampshire Higher Educational & Health Facilities Rev.,
6.3%, 2016 1,195,000 1,224,493
Private Colleges & Universities Authority, GA, Rev. (Mercer
University Project), "A", 5.375%, 2029 760,000 773,809
Savannah, GA, Economic Development Authority Rev. (College of
Art & Design, Inc.), 6.5%, 2009 (c) 2,000,000 2,182,880
Savannah, GA, Economic Development Authority Rev. (College of
Art & Design, Inc.), ETM, 6.2%, 2009 (c) 820,000 845,272
University of Arkansas, University Rev. (UAMS Campus), "B",
MBIA, 5%, 2034 890,000 914,751
University of Colorado Enterprise Systems Rev., Refunding &
Improvement, FGIC, 5%, 2030 1,865,000 1,926,713
West Virginia, Higher Education Facilities Rev., "B", FGIC,
5%, 2034 3,730,000 3,825,190
Wisconsin Health & Educational Facilities Authority Rev
(Carroll College, Inc. Project), 5.25%, 2021 500,000 517,485
---------------
$ 34,935,382
- --------------------------------------------------------------------------------------------------
Universities - Dormitories - 0.1%
- --------------------------------------------------------------------------------------------------
Illinois Educational Facilities Authority, Educational
Advancement Fund (University Center), 6.625%, 2017 $ 1,500,000 $ 1,659,480
- --------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 1.4%
- --------------------------------------------------------------------------------------------------
California Statewide Communities, Development Authority Rev.
(Escondido Charter High School), 7.5%, 2011 (c) $ 1,910,000 $ 2,186,320
California Statewide Communities, Development Authority Rev.
(Escondido Charter High School), 7.5%, 2011 (c) 3,485,000 4,126,066
Deerfield, IL, Educational Facilities Authority (Chicagoland
Jewish High School Project), 6%, 2041 2,610,000 2,630,802
Illinois Development Finance Authority, Economic Development
Rev. (Latin School of Chicago), 5.6%, 2008 (c) 850,000 878,951
Illinois Development Finance Authority, Economic Development
Rev. (Latin School of Chicago), 5.65%, 2008 (c) 1,730,000 1,790,585
Maryland Industrial Development Financing Authority, Economic
Development Authority Rev., (Our Lady of Good Council), "A",
6%, 2035 450,000 476,141
Massachusetts Development Finance Agency Rev. (Williston
Northampton School), 6.5%, 2008 (c) 1,400,000 1,503,138
Michigan Municipal Bond Authority Rev. (YMCA Service Learning
Academy), 7.625%, 2021 550,000 582,813
Michigan Municipal Bond Authority Rev. (YMCA Service Learning
Academy), 7.75%, 2031 2,450,000 2,597,588
Pima County, AZ, Industrial Development Authority Education
Rev. (Arizona Charter Schools), "C", 6.4%, 2013 1,065,000 1,102,105
Pima County, AZ, Industrial Development Authority Education
Rev. (Arizona Charter Schools), "C", 6.75%, 2031 3,000,000 3,113,880
---------------
$ 20,988,389
- --------------------------------------------------------------------------------------------------
Utilities - Cogeneration - 1.3%
- --------------------------------------------------------------------------------------------------
Alaska Industrial Development & Export Authority, 5.7%, 2012 $ 970,000 $ 969,496
Alaska Industrial Development & Export Authority, 5.875%, 2032 1,800,000 1,660,554
Carbon County, PA, Industrial Development Authority Rev.
(Panther Creek Partners), 6.65%, 2010 5,965,000 6,240,464
Ohio Water Development Authority (Bay Shore Power),
5.875%, 2020 1,800,000 1,802,178
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Colver), "G", 5.125%, 2015 1,050,000 1,030,124
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Northampton Generating), 6.5%, 2013 2,300,000 2,298,988
Pennsylvania Economic Development Financing Authority Rev.,
Resources Recovery Rev. (Northampton Generating), 6.6%, 2019 5,000,000 4,974,950
---------------
$ 18,976,754
- --------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 3.9%
- --------------------------------------------------------------------------------------------------
Brazos River Authority, TX, Pollution Control Rev. (Texas
Utility Co.), "B", 6.3%, 2032 $ 685,000 $ 737,533
Brazos River Authority, TX, Pollution Control Rev. (Texas
Utility Co.), "C", 6.75%, 2038 2,505,000 2,766,121
Calcasieu Parish, LA, Industrial Development Board, Pollution
Control Rev. (Entergy Gulf States, Inc.), 5.45%, 2010 4,800,000 4,843,344
Clark County, NV, Industrial Development Rev. (Southwest Gas
Corp.), "A", AMBAC, 4.85%, 2035 3,215,000 3,165,457
Farmington, NM, Pollution Control Rev. (New Mexico Public
Service), 5.8%, 2022 1,390,000 1,405,971
Farmington, NM, Pollution Control Rev. (New Mexico Public
Service), 5.8%, 2022 4,500,000 4,551,705
Farmington, NM, Pollution Control Rev. (New Mexico Public
Service), "A", 6.3%, 2016 3,240,000 3,327,188
Farmington, NM, Pollution Control Rev. (Tucson Electric),
6.95%, 2020 3,000,000 3,133,050
Forsyth, MT, Pollution Control Rev. (Northwestern Corp.),
AMBAC, 4.65%, 2023 3,085,000 3,109,557
Forsyth, MT, Pollution Control Rev. (Portland General),
5.2%, 2033 770,000 788,326
Forsyth, MT, Pollution Control Rev. (Puget Sound Energy), "A",
AMBAC, 5%, 2031 3,165,000 3,263,495
Matagorda County, TX, Pollution Control Rev. (Reliant Energy),
5.95%, 2030 3,095,000 3,166,711
Mecklenburg County, VA, Industrial Development Authority Rev
(UAE Mecklenburg LP), 6.5%, 2017 2,800,000 3,046,148
New Hampshire Industrial Development Authority, Pollution
Control Rev. (Connecticut Light & Power), 5.9%, 2018 1,000,000 1,048,950
Pima County, AZ, Industrial Development Authority Rev. (Tucson
Electric Power Co.), "A", 6.1%, 2025 2,000,000 2,001,960
Pittsylvania County, VA, Industrial Development Authority Rev.
(Multi-trade of Pittsylvania), 7.55%, 2019 10,000,000 10,148,200
Pointe Coupee Parish, LA, Pollution Control Rev. (Gulf States
Utilities Co.), 6.7%, 2013 1,000,000 1,009,100
Port Morrow, OR, Pollution Control Rev. (Portland General
Electric), 5.2%, 2033 1,900,000 1,954,606
Trinity River Authority, TX, Pollution Control Rev. (TXU
Electric Co.), 6.25%, 2028 1,500,000 1,612,200
West Feliciana Parish, LA, Pollution Control Rev. (Entergy
Gulf States), 6.6%, 2028 3,335,000 3,340,836
---------------
$ 58,420,458
- --------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 0.4%
- --------------------------------------------------------------------------------------------------
Corpus Christi, TX, Utility Systems Rev., AMBAC, 5%, 2025 $ 2,600,000 $ 2,683,226
North Carolina Municipal Power Agency, Catawba Electric Rev.,
6.375%, 2013 2,750,000 2,976,573
Southern California Public Power Authority (Transmission
Project Rev.), RIBS, 7.559%, 2012 (v) 150,000 150,309
---------------
$ 5,810,108
- --------------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 2.8%
- --------------------------------------------------------------------------------------------------
Alabama Drinking Water Finance Authority, "A", AMBAC,
4%, 2028 $ 5,000,000 $ 4,469,350
Forsyth County, GA, Water & Sewage Authority,
6.25%, 2010 (c) 1,000,000 1,090,940
Forsyth County, GA, Water & Sewer Authority Rev.,
6.25%, 2010 (c) 1,010,000 1,101,849
Louisville & Jefferson, KY, District Sewer & Drain System,
"A", FGIC, 5.25%, 2037 2,635,000 2,798,080
Magnolia, TX, Water & Sewer System Rev., 5.15%, 2031 655,000 658,006
Massachusetts Water Resources Authority, RITES, FGIC,
8.421%, 2019 (v)(z) 765,000 1,040,461
Miami-Dade County, FL, Stormwater Utility Rev., MBIA,
5%, 2028 1,685,000 1,747,227
Michigan Municipal Bond Authority Rev., RITES,
6.489%, 2009 (c)(v)(z) 7,585,000 8,508,095
Mississippi Development Bank Special Obligations, Grenada, MS,
Water & Sewer Systems Project, "N", FSA, 5%, 2030 2,155,000 2,221,525
Montgomery County, TX, Municipal Utility District No. 46
(Waterworks & Sewer Systems), MBIA, 4.75%, 2028 1,490,000 1,489,940
New York, NY, Municipal Water Finance Authority Rev., "B",
5.75%, 2007 (c) 8,590,000 8,821,586
Nueces River Authority, Texas Water Supply Rev. (Corpus
Christi Project), FSA, 5%, 2027 2,000,000 2,068,480
Phoenix, AZ, FGIC, 6.25%, 2010 (c) 1,000,000 1,098,000
Virginia Clean Water Rev., 5.75%, 2010 (c) 2,500,000 2,688,850
Westmoreland County, PA, Municipal Authority Services Rev.,
FSA, 5.25%, 2026 2,075,000 2,206,866
---------------
$ 42,009,255
- --------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST, $1,394,233,202) $ 1,450,087,496
- --------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 1.5%
- --------------------------------------------------------------------------------------------------
Allegheny County, PA, Hospital Development Authority Rev.
(Presbyterian University Hospital), "A", 3.68%, due 8/03/06 $ 100,000 $ 100,000
Allegheny County, PA, Hospital Development Authority Rev.
(Presbyterian University Hospital), "B", 3.68%, due 8/03/06 300,000 300,000
Allegheny County, PA, Hospital Development Authority Rev.
(Presbyterian University Hospital), "D", 3.68%, due 8/03/06 200,000 200,000
Bell County, TX, Health Facility Development Corp. Rev. (Scott
& White Memorial Hospital), 3.68%, due 8/01/06 750,000 750,000
Blount County, TN, Public Building Authority, Local Government
Public Improvement, "A-1", 3.67%, due 8/01/06 390,000 390,000
California Department of Water Resources, Power Supply Rev.,
"C-2", 3.59%, due 8/03/06 200,000 200,000
Chicago, IL, Midway Airport Rev., Second Lien, "B",
3.71%, due 8/01/06 3,475,000 3,475,000
Harris County, TX, Health Facilities Development Rev.
(University of Texas Medical Center), 3.68%, due 8/01/06 200,000 200,000
Illinois Development Finance Authority Rev. (Jewish Federation
of Metropolitan Chicago), 3.68%, due 8/01/06 350,000 350,000
Illinois Health Facilities Authority Rev. (University of
Chicago Hospital), 3.68%, due 8/01/06 695,000 695,000
Jackson County, MS, Pollution Control Rev. (Chevron USA,
Inc.), 3.68%, due 8/01/06 400,000 400,000
Jefferson County, AL, Sewer Rev., 3.65%, due 8/03/06 300,000 300,000
Lincoln County, WY, Pollution Control Rev. (Exxon Mobile
Corp.), 3.69%, due 8/01/06 6,600,000 6,600,000
Philadelphia, PA, Hospitals & Higher Educational Facilities
Authority Rev. (Children's Hospital Project), "C",
3.66%, due 8/01/06 800,000 800,000
Sevier County, TN, Public Building Authority,
3.66%, due 8/03/06 50,000 50,000
Sevier County, TN, Public Building Authority, "B-6",
3.67%, due 8/01/06 100,000 100,000
State of Oregon, "73G", 3.65%, due 8/02/06 1,200,000 1,200,000
Triborough Bridge & Tunnel Authority, NY, Rev., "F",
3.64%, due 8/03/06 6,500,000 6,500,000
---------------
TOTAL FLOATING RATE DEMAND NOTES $ 22,610,000
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,416,843,202) (k) $ 1,472,697,496
- --------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.5% 22,065,478
- --------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 1,494,762,974
- --------------------------------------------------------------------------------------------------
SWAP AGREEMENTS
INTEREST RATE SWAPS
NOTIONAL
PRINCIPAL CASH FLOWS UNREALIZED
AMOUNT OF CASH FLOWS PAID RECEIVED BY APPRECIATION
EXPIRATION CURRENCY CONTRACT BY THE FUND THE FUND (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
12/01/2007 USD $22,000,000 Fixed - 3 Year Floating - 7 Day $ 279,874
BMA Swap Index BMA Swap Index
(2.795%)
2/15/2017 USD 25,000,000 Fixed - 10 Year Floating - 7 Day (222,847)
BMA Swap Index BMA Swap Index
(4.184%)
1/04/2019 USD 26,000,000 Fixed - 12 Year Floating - 7 Day (415,845)
BMA Swap Index BMA Swap Index
(4.307%)
8/02/2021 USD 14,000,000 Fixed - 15 Year Floating - 7 Day 242,355
BMA Swap Index BMA Swap Index
(4.011%)
- -------------------------------------------------------------------------------------------------
$(116,463)
- -------------------------------------------------------------------------------------------------
At July 31, 2006, the fund had sufficient cash and/or securities to cover any
commitments under all derivative contracts.
(a) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be sold in the ordinary course of business in transactions exempt from
registration, normally to qualified institutional buyers. At period end, the aggregate value
of these securities was $38,349,184 representing 2.6% of net assets.
(c) Refunded bond.
(d) Non-income producing security - in default.
(k) As of July 31, 2006, the fund held securities fair valued in accordance with the policies
adopted by the Board of Trustees, aggregating $1,450,087,496 and 98.46% of market value. All
of these security values were provided by an independent pricing service using an evaluated
bid.
(q) Interest received was less than stated coupon rate.
(v) Inverse floating rate security.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to
legal restrictions on resale. These securities generally may be resold in transactions
exempt from registration or to the public if the securities are subsequently registered.
Disposal of these securities may involve time-consuming negotiations and prompt sale at an
acceptable price may be difficult. The fund holds the following restricted securities:
ACQUISITION ACQUISITION CURRENT TOTAL % OF
RESTRICTED SECURITIES DATE COST MARKET VALUE NET ASSETS
- -------------------------------------------------------------------------------------------------
Chicago, IL, Board of Education,
RITES, FGIC, 5.966%, 2020 2/09/2000 $6,211,881 $ 9,468,586
Chicago, IL, Public Building
Commission Rev., RITES, FGIC,
9.004%, 2017 3/10/1999 4,815,180 5,352,840
Chicago, IL, O'Hare International
Airport Rev., "A", RITES, FSA,
6.92%, 2022 8/21/2003 6,664,625 7,265,740
Denver, CO, City & County Airport
Rev., RITES, AMBAC, 8.05%, 2017 8/28/2000 2,683,700 2,869,340
Essex County, NJ, RITES, FGIC,
7.137%, 2020 3/20/2000 5,968,080 6,906,480
Florida Board of Education, RITES,
FGIC, 6.001%, 2012 2/25/2002 1,756,860 1,717,230
Florida Board of Education, RITES,
FGIC, 6.001%, 2013 2/25/2002 5,791,400 5,795,600
Florida Department of Transportation,
RITES, 5.478%, 2017 4/09/1999 2,332,844 2,503,504
Houston, TX, Independent School
District, RITES, PSF,
5.978%, 2017 2/26/1999 5,249,100 5,361,600
Los Angeles, CA, RITES, FGIC,
5.978%, 2015 7/21/1999 5,563,924 6,362,761
Massachusetts Water Resources
Authority, RITES, FGIC,
8.421%, 2019 3/16/2000 904,780 1,040,461
Michigan Municipal Bond Authority
Rev., RITES, 6.489%, 2009 2/23/2000 6,633,841 8,508,095
New Jersey Turnpike Authority, RITES,
MBIA, 6.262%, 2020 4/19/2000 4,637,900 5,508,900
State of Massachusetts, ROLS,
7.149%, 2011 8/28/2001 2,226,440 2,283,120
- ---------------------------------------------------------------------------------------------------
Total Restricted Securities $70,944,257 4.7%
- ---------------------------------------------------------------------------------------------------
The following abbreviations are used in this report and are defined:
BMA Bond Market Assn.
COP Certificate of Participation
ETM Escrowed to Maturity
Insurers
AMBAC AMBAC Indemnity Corp.
CIFG CDC IXIS Financial Guaranty
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FNMA Federal National Mortgage Assn.
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Assn.
MBIA MBIA Insurance Corp.
PSF Permanent School Fund
XLCA XL Capital Insurance Co.
Inverse Floaters
RIBS Residual Interest Bonds
RITES Residual Interest Tax-Exempt Security
ROLS Residual Options Longs
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 7/31/06 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $1,416,843,202) $1,472,697,496
Cash 416,797
Receivable for investments sold 6,550,428
Receivable for fund shares sold 7,237,759
Interest receivable 19,434,731
Unrealized appreciation on interest rate swap agreements 522,229
Other assets 10,358
- -------------------------------------------------------------------------------------------------------
Total assets $1,506,869,798
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Distributions payable $3,175,303
Payable for investments purchased 5,690,876
Payable for fund shares reacquired 2,230,435
Unrealized depreciation on interest rate swap agreements 638,692
Payable to affiliates
Management fee 81,622
Shareholder servicing costs 89,339
Distribution and service fees 39,435
Administrative services fee 3,068
Payable for independent trustees' compensation 52,073
Accrued expenses and other liabilities 105,981
- -------------------------------------------------------------------------------------------------------
Total liabilities $12,106,824
- -------------------------------------------------------------------------------------------------------
Net assets $1,494,762,974
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $1,504,656,368
Unrealized appreciation (depreciation) on investments 55,737,831
Accumulated net realized gain (loss) on investments (67,861,215)
Undistributed net investment income 2,229,990
- -------------------------------------------------------------------------------------------------------
Net assets $1,494,762,974
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 177,584,832
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,156,768,080
Shares outstanding 137,461,390
- -------------------------------------------------------------------------------------------------------
Net asset value per share $8.42
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per
share) $8.84
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $197,241,114
Shares outstanding 23,416,903
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.42
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $140,753,780
Shares outstanding 16,706,539
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.43
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 7/31/06 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Interest income $43,705,143
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $4,335,363
Distribution and service fees 1,458,027
Shareholder servicing costs 972,763
Administrative services fee 119,625
Independent trustees' compensation 17,991
Custodian fee 223,135
Shareholder communications 43,754
Auditing fees 24,464
Legal fees 174,382
Miscellaneous 130,858
- -------------------------------------------------------------------------------------------------------
Total expenses $7,500,362
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (54,774)
Reduction of expenses by investment adviser (719,420)
- -------------------------------------------------------------------------------------------------------
Net expenses $6,726,168
- -------------------------------------------------------------------------------------------------------
Net investment income $36,978,975
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(864,561)
Swap transactions 1,170,803
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $306,242
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $1,618,071
Swap transactions (589,800)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $1,028,271
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $1,334,513
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $38,313,488
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
7/31/06 1/31/06
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $36,978,975 $72,482,474
Net realized gain (loss) on investments 306,242 (3,691,985)
Net unrealized gain (loss) on investments 1,028,271 5,160,906
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $38,313,488 $73,951,395
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(29,256,170) $(55,605,183)
Class B (4,683,036) (11,731,680)
Class C (2,773,406) (4,423,031)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(36,712,612) $(71,759,894)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $71,538,856 $72,920,977
- -------------------------------------------------------------------------------------------------------
Redemption fees $12,228 $8,158
- -------------------------------------------------------------------------------------------------------
Total change in net assets $73,151,960 $75,120,636
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 1,421,611,014 1,346,490,378
At end of period (including undistributed net
investment income of $2,229,990 and $1,963,627,
respectively) $1,494,762,974 $1,421,611,014
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming
reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------------------------
CLASS A 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $8.41 $8.39 $8.28 $8.12 $8.23 $8.24
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.46 $0.48 $0.47 $0.48 $0.51
Net realized and
unrealized gain (loss) on
investments 0.01 0.02 0.09 0.17 (0.09) (0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations $0.23 $0.48 $0.57 $0.64 $0.39 $0.49
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment
income $(0.22) $(0.46) $(0.46) $(0.48) $(0.50) $(0.50)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.42 $8.41 $8.39 $8.28 $8.12 $8.23
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.77(n) 5.81 7.16 7.98 4.96 6.13
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions (f) 0.83(a) 0.82 0.80 0.81 0.84 0.83
Expenses after expense
reductions (f) 0.74(a) 0.72 0.71 0.79 0.79 0.76
Net investment income 5.31(a) 5.47 5.82 5.80 5.88 6.11
Portfolio turnover 7 20 13 9 20 17
Net assets at end of period
(000 Omitted) $1,156,768 $1,080,805 $977,416 $1,003,328 $1,050,204 $1,037,925
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ----------------------------------------------------------------------------------
CLASS B 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $8.41 $8.40 $8.28 $8.13 $8.24 $8.25
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.40 $0.42 $0.41 $0.42 $0.44
Net realized and
unrealized gain (loss)
on investments 0.01 0.00(w) 0.10 0.16 (0.10) (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations $0.20 $0.40 $0.52 $0.57 $0.32 $0.43
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.19) $(0.39) $(0.40) $(0.42) $(0.43) $(0.44)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.42 $8.41 $8.40 $8.28 $8.13 $8.24
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.37(n) 4.88 6.47 7.15 4.01 5.28
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions (f) 1.61(a) 1.58 1.57 1.59 1.63 1.63
Expenses after expense
reductions (f) 1.51(a) 1.48 1.48 1.57 1.58 1.56
Net investment income 4.55(a) 4.73 5.05 5.02 5.09 5.29
Portfolio turnover 7 20 13 9 20 17
Net assets at end of
period (000 Omitted) $197,241 $220,854 $283,360 $337,065 $355,602 $382,280
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------------------
CLASS C 7/31/06 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $8.42 $8.40 $8.29 $8.13 $8.24 $8.25
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.18 $0.37 $0.39 $0.39 $0.40 $0.43
Net realized and unrealized gain
(loss) on investments 0.01 0.02 0.10 0.17 (0.10) (0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.19 $0.39 $0.49 $0.56 $0.30 $0.41
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.18) $(0.37) $(0.38) $(0.40) $(0.41) $(0.42)
- -------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in
capital (d) $0.00(w) $0.00(w) $0.00(w) $-- $-- $--
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.43 $8.42 $8.40 $8.29 $8.13 $8.24
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.26(n) 4.76 6.10 6.91 3.92 5.07
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%)
(TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83(a) 1.82 1.80 1.81 1.84 1.83
Expenses after expense reductions (f) 1.73(a) 1.72 1.71 1.79 1.79 1.76
Net investment income 4.29(a) 4.44 4.80 4.78 4.86 5.07
Portfolio turnover 7 20 13 9 20 17
Net assets at end of period
(000 Omitted) $140,754 $119,952 $85,715 $78,975 $71,519 $59,799
- -------------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Municipal High Income Fund (the fund) is a series of MFS Series Trust III
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund can
invest up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. 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, the security could
decline in value, interest from the security could become taxable and the fund
may be required to issue Forms 1099-DIV.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. Values of debt
instruments obtained from pricing services can utilize both dealer-supplied
valuations and electronic data processing techniques, which take into account
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. Short-term instruments with a maturity at issuance of 60
days or less may be valued at amortized cost, which approximates market value.
Swaps are generally valued at a broker-dealer bid quotation. Securities and
other assets generally valued on the basis of information from an independent
pricing service may also be valued at a broker-dealer bid quotation. The Board
of Trustees has delegated primary responsibility for determining or causing to
be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments. These investments are generally
valued at fair value based on information from independent pricing services.
The adviser may rely on independent pricing services or other information (such
as the correlation with price movements of similar securities in the same or
other markets; the type, cost and investment characteristics of the security;
the business and financial condition of the issuer; and trading and other
market data) to assist in determining whether to fair value and at what value
to fair value an investment. The value of an investment for purposes of
calculating the fund's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from quoted
or published prices for the same investments.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-hedging
purposes. While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains. When the fund uses derivatives as an investment to gain market
exposure, or for hedging purposes, gains and losses from derivative instruments
may be substantially greater than the derivative's original cost. Derivative
instruments include swap agreements.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an exchange
of cash payments between the fund and another party. Net cash payments are
exchanged at specified intervals and are recorded as a realized gain or loss in
the Statement of Operations. The value of the swap is adjusted daily and the
change in value is recorded as unrealized appreciation or depreciation in the
Statement of Operations. 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.
INTEREST RATE SWAP AGREEMENTS - Interest rate swap agreements are agreements to
exchange cash flows periodically based on a notional principal amount, such as
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 recorded as an unrealized gain or loss, and
any payments received or made are recorded as realized gains or losses, in the
Statement of Operations. The primary risk associated with interest rate swap
agreements is that unfavorable changes in the fluctuation of interest rates
could adversely impact the fund.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged a 2% redemption fee (which was retained by the fund)
on proceeds from Class A, Class B, and Class C shares redeemed or exchanged
within 30 calendar days following their acquisition (either by purchase or
exchange). Effective April 1, 2005, the fund charges a 1% redemption fee on
proceeds from Class A, Class B, and Class C shares redeemed or exchanged within
30 calendar days following their acquisition. The fund may change the redemption
fee period in the future, including in connection with Securities and Exchange
Commission rule developments. See the fund's prospectus for details. Any
redemption fees are accounted for as an addition to paid-in capital.
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 U.S. generally accepted accounting principles. All premium and original
issue discount is amortized or accreted for tax reporting purposes as required
by federal income tax regulations. The fund may receive proceeds from litigation
settlements involving its portfolio holdings. Any proceeds received are
reflected in realized gain/loss in the Statement of Operations, or in unrealized
gain/loss if the security is still held by the fund.
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 six months ended July 31, 2006, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable and tax-exempt income, including realized
capital gains. Accordingly, no provision for federal income tax is required in
the financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Certain capital accounts in the financial statements are periodically adjusted
for permanent differences in order to reflect their tax character. These
adjustments have no impact on net assets or net asset value per share. Temporary
differences which arise from recognizing certain items of income, expense, gain
or loss in different periods for financial statement and tax purposes will
reverse at some time in the future. Distributions in excess of net investment
income or net realized gains are temporary overdistributions for financial
statement purposes resulting from differences in the recognition or
classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to expiration of capital loss
carryforwards, amortization and accretion of debt securities, and defaulted
bonds.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
1/31/06 1/31/05
Ordinary income (including any short-term
capital gains) $273,910 $829,813
Tax-exempt income 71,485,984 71,656,306
- -------------------------------------------------------------------------------
Total distributions $71,759,894 $72,486,119
The federal tax cost and the tax basis components of distributable earnings were
as follows:
AS OF 7/31/06
Cost of investments $1,415,505,015
----------------------------------------------------------
Gross appreciation 82,714,898
Gross depreciation (25,522,417)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $57,192,481
AS OF 1/31/06
Undistributed ordinary income $301,170
Undistributed tax-exempt income $8,406,920
Capital loss carryforwards (69,273,707)
Other temporary differences (6,283,567)
Net unrealized appreciation (depreciation) $55,354,914
The aggregate cost above includes prior fiscal year end tax adjustments.
As of January 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
1/31/07 $(6,121,853)
1/31/08 (1,353,678)
1/31/09 (10,935,605)
1/31/10 (2,971,573)
1/31/11 (18,364,839)
1/31/12 (15,537,212)
1/31/13 (3,190,630)
1/31/14 (10,798,317)
----------------------------------------------------------
$(69,273,707)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded disclosures.
Management has recently begun to evaluate the application of the Interpretation
to the fund, and has not at this time determined the impact, if any, resulting
from the adoption of this Interpretation on the fund's financial statements.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B shares will convert to Class A shares approximately eight
years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $1.4 billion of average daily net assets 0.60%
Average daily net assets in excess of $1.4 billion 0.57%
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters, MFS has agreed to reduce the management fee
to 0.50% of the fund's average daily net assets for the period March 1, 2004
through February 28, 2009. For the six months ended July 31, 2006, this waiver
amounted to $715,109 and is reflected as a reduction of total expenses in the
Statement of Operations. The management fee incurred for the six months ended
July 31, 2006, was equivalent to an annual effective rate of 0.50% of the fund's
average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $269,786 for the six months ended July 31, 2006,
as its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the distribution
and servicing of certain share classes. One component of the plan is a
distribution fee paid to MFD and another component of the plan is a service fee
paid to MFD. MFD may subsequently pay all, or a portion, of the distribution
and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class B 0.75% 0.25% 1.00% 0.78% $806,799
Class C 0.75% 0.25% 1.00% 1.00% 651,228
- ---------------------------------------------------------------------------------------------------------------------
Total distribution and service fees $1,458,027
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up
to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six months ended
July 31, 2006 based on each class' average daily net assets. For one year from the date of sale of Class B
shares, assets attributable to such Class B shares are subject to the 0.25% annual Class B service fee.
Otherwise, the service fee is not currently in effect, but may be implemented on such date as the fund's Board
of Trustees may determine.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event of
a shareholder redemption within six years of purchase. All contingent deferred
sales charges are paid to MFD and during the six months ended July 31, 2006,
were as follows:
AMOUNT
Class A $1,322
Class B $145,420
Class C $16,446
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS. MFSC
receives a fee from the fund, for its services as shareholder servicing agent,
set periodically under the supervision of the fund's Board of Trustees. For the
six months ended July 31, 2006, the fee was $719,206, which equated to 0.0993%
annually of the fund's average daily net assets. MFSC also receives payment from
the fund for out-of-pocket and sub-accounting expenses paid by MFSC on behalf of
the fund. For the six months ended July 31, 2006, these costs amounted to
$127,514.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. From July 1, 2005 through March 31, 2006, the fund's annual fixed amount
was $10,000. Effective April 1, 2006, the fund's annual fixed amount is $17,500.
The administrative services fee incurred for the six months ended July 31, 2006
was equivalent to an annual effective rate of 0.0165% of the fund's average
daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to Independent
Trustees in the form of a retainer, attendance fees, and additional compensation
to Board and Committee chairpersons. The fund does not pay compensation directly
to Trustees or officers of the fund who are also officers of the investment
adviser, 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,
MFD, and MFSC. The fund has an unfunded, defined benefit plan for certain
retired Independent Trustees which resulted in a pension expense of $2,277. This
amount is included in Independent Trustees' compensation for the six months
ended July 31, 2006. The deferred liability for retirement benefits payable to
certain retired Trustees amounted to $51,360 at July 31, 2006, and is included
in payable for independent trustees' compensation.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. The funds can terminate the
Agreement with Tarantino LLC at any time under the terms of the Agreement. For
the six months ended July 31, 2006, the fee paid to Tarantino LLC was $5,761.
MFS has agreed to reimburse the fund for a portion of the payments made by the
funds to Tarantino LLC in the amount of $4,311, which is shown as a reduction of
total expenses in the Statement of Operations. Additionally, MFS has agreed to
bear all expenses associated with office space, other administrative support,
and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$169,633,146 and $104,867,813, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
7/31/06 1/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 16,434,975 $138,113,599 26,541,560 $223,301,024
Class B 1,081,233 9,094,822 2,188,616 18,426,446
Class C 3,483,098 29,311,892 5,397,216 45,484,475
- ----------------------------------------------------------------------------------------------------------
20,999,306 $176,520,313 34,127,392 $287,211,945
Shares issued to shareholders in
reinvestment of distributions
Class A 1,719,129 $14,446,121 3,206,817 $26,966,277
Class B 223,623 1,880,351 545,639 4,592,022
Class C 165,124 1,389,146 253,396 2,133,722
- ----------------------------------------------------------------------------------------------------------
2,107,876 $17,715,618 4,005,852 $33,692,021
Shares reacquired
Class A (9,263,944) $(77,834,598) (17,665,426) $(148,419,854)
Class B (4,137,648) (34,814,156) (10,224,466) (86,098,379)
Class C (1,194,439) (10,048,321) (1,600,899) (13,464,756)
- ----------------------------------------------------------------------------------------------------------
(14,596,031) $(122,697,075) (29,490,791) $(247,982,989)
Net change
Class A 8,890,160 $74,725,122 12,082,951 $101,847,447
Class B (2,832,792) (23,838,983) (7,490,211) (63,079,911)
Class C 2,453,783 20,652,717 4,049,713 34,153,441
- ----------------------------------------------------------------------------------------------------------
8,511,151 $71,538,856 8,642,453 $72,920,977
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally at a rate equal to the Federal Reserve funds rate plus
0.35%. In addition, a commitment fee, based on the average daily, unused portion
of the committed line of credit, is allocated among the participating funds at
the end of each calendar quarter. For the six months ended July 31, 2006, the
fund's commitment fee and interest expense were $4,587 and $0, respectively, and
are included in miscellaneous expense on the Statement of Operations.
(7) CONCENTRATION OF CREDIT RISK
At July 31, 2006, 20.7% 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 4.5% of total investments.
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees
and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2006 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to the
independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent Trustees,
considered such information and factors as they believed, in light of the legal
advice furnished to them and their own business judgment, to be relevant. The
investment advisory agreement for the Fund was considered separately, although
the Trustees also took into account the common interests of all MFS Funds in
their review. As described below, the Trustees considered the nature, quality,
and extent of the various investment advisory, administrative, and shareholder
services performed by MFS under the existing investment advisory agreement and
other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2005 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of MFS peer funds, (iii) information provided by MFS on the
advisory fees of comparable portfolios of other clients of MFS, including
institutional separate accounts and other clients, (iv) information as to
whether and to what extent applicable expense waivers, reimbursements or fee
"breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance monitoring
and portfolio trading practices, and (viii) information regarding the overall
organization of MFS, including information about MFS' senior management and
other personnel providing investment advisory, administrative and other
services to the Fund and the other MFS Funds. The comparative performance, fee
and expense information prepared and provided by Lipper Inc. was not
independently verified and the independent Trustees did not independently
verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information provided
to the Trustees and not the result of any single factor. Some of the factors
that figured particularly in the Trustees' deliberations are described below,
although individual Trustees may have evaluated the information presented
differently from one another, giving different weights to various factors. It is
also important to recognize that the fee arrangements for the Fund and other MFS
Funds are the result of years of review and discussion between the independent
Trustees and MFS, that certain aspects of such arrangements may receive greater
scrutiny in some years than others, and that the Trustees' conclusions may be
based, in part, on their consideration of these same arrangements during the
course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 1st quintile relative to the other funds in the universe
for this three-year period (the 1st quintile being the best performers and the
5th quintile being the worst performers). The total return performance of the
Fund's Class A shares was in the 2nd quintile for the one-year period and the
2nd quintile for the five-year period ended December 31, 2005 relative to the
Lipper performance universe. Because of the passage of time, these performance
results are likely to differ from the performance results for more recent
periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information
provided by MFS in connection with the contract review meetings, as well as
during investment review meetings conducted with portfolio management personnel
during the course of the year regarding the Fund's performance. After reviewing
these and related factors, the Trustees concluded, within the context of their
overall conclusions regarding the investment advisory agreement, that they were
satisfied with MFS' responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that there is an advisory fee reduction in effect for the Fund through February
28, 2009 as part of MFS's settlement with the New York Attorney General
concerning market timing and related matters. The Trustees also considered
that, according to the Lipper data, the Fund's effective advisory fee rate
(taking into account the advisory fee reduction) was approximately at the
Lipper expense group median, and the Fund's total expense ratio was lower than
the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
subject to a contractual breakpoint. However, such breakpoint is not applicable
because the Fund is currently subject to the advisory fee reduction described
above. Accordingly, the Trustees determined not to recommend any advisory fee
breakpoint changes at this time.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for investment research (excluding
third-party research, for which MFS pays directly) and various other factors.
Additionally, the Trustees considered so-called "fall-out benefits" to MFS such
as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2006.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2006
by clicking on the fund's name under "Select a fund" on the MFS website
(mfs.com).
PROXY VOTING POLICIES AND INFORMATION
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 Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is available
without charge by visiting the Proxy Voting section of mfs.com or by visiting
the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities
and Exchange Commission (the Commission) for the first and third quarters of
each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed and copied at
the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
---------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send
prospectuses, reports, and proxies directly to your e-mail
inbox. You'll get timely information and less clutter in your
mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply 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 a retirement plan, MFS TALK, MFS Access, and
eDelivery may not be available to you.
---------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) 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 second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. 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.
(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.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of the Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST III
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: September 25, 2006
------------------
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)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: September 25, 2006
------------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: September 25, 2006
------------------
* Print name and title of each signing officer under his or her signature.