UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2464
- -------------------------------------------------------------------------------
MFS SERIES TRUST IX
- -------------------------------------------------------------------------------
(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: October 31*
- -------------------------------------------------------------------------------
Date of reporting period: October 31, 2006
- -------------------------------------------------------------------------------
* This Form N-CSR filing pertains to the MFS Inflation-Adjusted Bond Fund, a
series of the Registrant. The remaining series of the Registrant do not have
a fiscal year end of October 31.
ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) INFLATION-ADJUSTED BOND FUND
LETTER FROM THE CEO 1
- -------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- -------------------------------------------------------------------
MANAGEMENT REVIEW 3
- -------------------------------------------------------------------
PERFORMANCE SUMMARY 4
- -------------------------------------------------------------------
EXPENSE TABLE 7
- -------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 9
- -------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 10
- -------------------------------------------------------------------
STATEMENT OF OPERATIONS 13
- -------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 14
- -------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 15
- -------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- -------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 31
- -------------------------------------------------------------------
TRUSTEES AND OFFICERS 33
- -------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 39
- -------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 43
- -------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 43
- -------------------------------------------------------------------
FEDERAL TAX INFORMATION 43
- -------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 44
- -------------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- -------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
10/31/06
IAB-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
What a difference a year can make. By the end of 2005, the Dow Jones
Industrial Average had lost value over the course of the year, as stocks were
beaten back by a myriad of investor worries, including a spike in oil prices, a
rise in interest rates, and political uncertainty in the Middle East.
Fast forward to 2006, and we have seen a dramatically different picture.
While there were some fluctuations in the global markets in the first half of
the year, the second half of 2006 has, so far, been good to many investors. Oil
prices retreated, boosting consumer confidence, and interest rates have held
steady. U.S. stock markets responded favorably to this news, as the Dow reached
a record high in October, passing the 12,000 mark.
What does all of this mean for you? If you're focused on a long-term
investment strategy, the high points in the road -- and the bumps -- should not
necessarily dictate portfolio action on your part. Markets are inherently
cyclical, and we firmly believe that 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.
At MFS(R), our unique teamwork approach to managing money and our global
research platform support an unwavering focus on helping you realize your
long-term financial goals. We believe in a three-pronged investment strategy of
allocating your holdings across major asset classes, diversifying within each
class, and rebalancing regularly. Of course, these strategies cannot guarantee
a profit or protect against a loss. Investing and planning for the long term
require diligence and patience -- two traits that are essential to capitalizing
on the many opportunities the financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 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 94.8%
Cash & Other Net Assets 5.2%
FIXED INCOME SECTORS (i)
U.S. Treasury Securities 94.8%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 100.0%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d) 6.3
------------------------------------------------
Average Life (m) 10.4 yrs.
------------------------------------------------
Average Maturity (m) 10.4 yrs.
------------------------------------------------
Average Credit Quality of
Rated Securities (long-term) (a) AAA
------------------------------------------------
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 the "AAA"-rating
category. Percentages are based on the total market value of investments as
of 10/31/06.
Percentages are based on net assets as of 10/31/06, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2006, Class A shares of the MFS
Inflation-Adjusted Bond Fund provided a total return of 2.49%, at net asset
value. This compares with a return of 3.05% for the fund's benchmark, the
Lehman Brothers U.S. Treasury Inflation Protected Securities (TIPS) Index.
DETRACTORS FROM PERFORMANCE
Our holdings in Small Business Administration (SBA) government agency debt
securities(g) held back relative returns. During the first half of 2006, credit
spreads between agency securities and U.S. Treasury bonds widened and breakeven
inflation rates (the difference between nominal yields on U.S. Treasury bonds
and real yields on a TIPS securities for similar maturities) widened. Both of
these dynamics caused SBAs to underperform TIPS bonds.
CONTRIBUTORS TO PERFORMANCE
The fund's shorter duration(d) stance added to relative performance as real
interest rates rose slightly over the period. A number of longer-maturity TIPS
and U.S. Treasury bonds were among the fund's top contributors relative to the
benchmark as the yield curve(y) flattened during the second half of the
reporting period.
Respectfully,
Erik Weisman
Portfolio Manager
(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.
(g) Security was not held in the portfolio at period end.
(y) A yield curve graphically depicts the yields of different maturity bonds of
the same credit quality and type; a normal yield curve is upward sloping,
with short-term rates lower than long-term rates.
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific
securities are not recommendations of such securities, and may not be
representative of any MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 10/31/06
The following chart illustrates the historical performance of the fund's Class
A shares in comparison to its benchmark. Performance results include the
deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including reinvestment of dividends and capital
gains distributions. The performance of other share classes will be greater
than or less than that of the class depicted below. Benchmark comparisons are
unmanaged; do not reflect sales charges, commissions or expenses; and cannot be
invested in directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. FOR MOST RECENT MONTH-END
PERFORMANCE, PLEASE VISIT MFS.COM. (FOR THE MOST RECENT MONTH-END PERFORMANCE
FOR CLASS I SHARES CALL 1-800-343-2829.) THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's operations,
September 30, 2003, through October 31, 2006.)
MFS Inflation- Lehman Brothers U.S. Treasury
Adjusted Bond Inflation Protected Securities
Fund--Class A (TIPS) Index
9/03 $ 9,525 $10,000
10/03 9,543 10,104
10/04 10,139 10,913
10/05 10,327 11,234
10/06 10,584 11,569
TOTAL RETURNS THROUGH 10/31/06
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr Life (t)
- -----------------------------------------------------------------------------
A 9/30/03 2.49% 3.47%
- -----------------------------------------------------------------------------
B 9/01/04 1.63% 2.84%
- -----------------------------------------------------------------------------
C 9/01/04 1.53% 2.88%
- -----------------------------------------------------------------------------
I 9/30/03 2.65% 3.58%
- -----------------------------------------------------------------------------
R 9/01/04 2.03% 3.21%
- -----------------------------------------------------------------------------
R1 4/01/05 1.53% 2.96%
- -----------------------------------------------------------------------------
R2 4/01/05 1.88% 3.13%
- -----------------------------------------------------------------------------
R3 9/01/04 1.88% 3.06%
- -----------------------------------------------------------------------------
R4 4/01/05 2.24% 3.34%
- -----------------------------------------------------------------------------
R5 4/01/05 2.54% 3.50%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- -----------------------------------------------------------------------------
Lehman Brothers U.S. Treasury Inflation Protected
Securities (TIPS) Index (f) 3.05% 4.81%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A -2.38% 1.86%
With Initial Sales Charge (4.75%)
- -----------------------------------------------------------------------------
B -2.28% 1.95%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -----------------------------------------------------------------------------
C 0.55% 2.88%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
CDSC - Contingent Deferred Sales Charge
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencement of the fund's investment operations,
September 30, 2003 through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Lehman Brothers U.S. Treasury Inflation Protected Securities (TIPS) Index -
consists of inflation-protection securities issued by the U.S. Treasury.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class R shares are available only to existing Class R shareholders. Class I
shares are only available to certain eligible investors, and Class R1, R2, R3,
R4, and R5 shares are only available to certain retirement plans.
Performance for share classes offered after Class A shares includes the
performance of the fund's Class A shares for periods prior to their offering.
This blended class performance has been adjusted to take into account
differences in sales loads, if any, applicable to these share classes, but has
not been adjusted to take into account differences in class specific operating
expenses (such as Rule 12b-1 fees). Compared to performance these share classes
would have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the share class to which it is blended, and
lower performance for share classes with lower operating expenses than the
share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
Prior to September 1, 2004, MFS(R) Inflation-Adjusted Bond Fund was available
only to MFS employees and had limited assets.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
May 1, 2006 through October 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 May 1, 2006 through October 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 5/01/06-
Class Ratio 5/01/06 10/31/06 10/31/06
- --------------------------------------------------------------------------------
Actual 0.65% $1,000.00 $1,037.50 $3.34
A ------------------------------------------------------------------------
Hypothetical (h) 0.65% $1,000.00 $1,021.93 $3.31
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,033.10 $7.69
B -------------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.64 $7.63
- --------------------------------------------------------------------------------
Actual 1.51% $1,000.00 $1,033.10 $7.74
C ------------------------------------------------------------------------
Hypothetical (h) 1.51% $1,000.00 $1,017.59 $7.68
- --------------------------------------------------------------------------------
Actual 0.50% $1,000.00 $1,038.30 $2.57
I ------------------------------------------------------------------------
Hypothetical (h) 0.50% $1,000.00 $1,022.68 $2.55
- --------------------------------------------------------------------------------
Actual 1.00% $1,000.00 $1,035.70 $5.13
R ------------------------------------------------------------------------
Hypothetical (h) 1.00% $1,000.00 $1,020.16 $5.09
- --------------------------------------------------------------------------------
Actual 1.59% $1,000.00 $1,032.60 $8.15
R1 ------------------------------------------------------------------------
Hypothetical (h) 1.59% $1,000.00 $1,017.19 $8.08
- --------------------------------------------------------------------------------
Actual 1.25% $1,000.00 $1,034.40 $6.41
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.25% $1,000.00 $1,018.90 $6.36
- --------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,034.90 $5.90
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.15% $1,000.00 $1,019.41 $5.85
- --------------------------------------------------------------------------------
Actual 0.89% $1,000.00 $1,036.20 $4.57
R4 ------------------------------------------------------------------------
Hypothetical (h) 0.89% $1,000.00 $1,020.72 $4.53
- --------------------------------------------------------------------------------
Actual 0.60% $1,000.00 $1,037.70 $3.08
R5 ------------------------------------------------------------------------
Hypothetical (h) 0.60% $1,000.00 $1,022.18 $3.06
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
10/31/06
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Bonds - 94.3%
- -------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -------------------------------------------------------------------------------------------
U.S. Treasury Inflation Protected Securities
- -------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 2.5%, 2016 $ 822,808 $ 834,636
U.S. Treasury Bonds, 2.375%, 2025 1,303,388 1,319,376
U.S. Treasury Bonds, 2%, 2026 832,081 795,254
U.S. Treasury Bonds, 3.625%, 2028 825,686 1,019,594
U.S. Treasury Bonds, 5.25%, 2028 65,000 68,844
U.S. Treasury Bonds, 3.875%, 2029 942,582 1,213,648
U.S. Treasury Bonds, 3.375%, 2032 292,908 362,611
U.S. Treasury Notes, 3.625%, 2008 384,919 385,490
U.S. Treasury Notes, 3.875%, 2009 484,852 495,174
U.S. Treasury Notes, 4.25%, 2010 476,257 499,996
U.S. Treasury Notes, 0.875%, 2010 1,420,624 1,338,716
U.S. Treasury Notes, 3.5%, 2011 492,013 511,790
U.S. Treasury Notes, 2.375%, 2011 775,544 771,393
U.S. Treasury Notes, 3.375%, 2012 143,530 150,045
U.S. Treasury Notes, 3%, 2012 980,884 1,011,115
U.S. Treasury Notes, 1.875%, 2013 1,259,975 1,220,108
U.S. Treasury Notes, 2%, 2014 1,009,648 984,051
U.S. Treasury Notes, 2%, 2014 941,036 916,627
U.S. Treasury Notes, 1.625%, 2015 971,680 918,807
U.S. Treasury Notes, 1.875%, 2015 838,568 807,417
U.S. Treasury Notes, 2%, 2016 852,626 828,312
- -------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $16,372,700) $16,453,004
- -------------------------------------------------------------------------------------------
Short-term Obligations - 6.1% (y)
- -------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.3%, due 11/01/06 $ 692,000 $ 692,000
General Electric Co., 5.3%, due 11/01/06 368,000 368,000
- -------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS, AT AMORTIZED COST AND VALUE $ 1,060,000
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $17,432,700) (k) $17,513,004
- -------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.4)% (62,271)
- -------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $17,450,733
- -------------------------------------------------------------------------------------------
(k) As of October 31, 2006 the fund held securities fair valued in accordance
with the policies adopted by the Board of Trustees, aggregating $16,453,004
and 93.95% of market value. All of these security values were provided by
an independent pricing service using an evaluated bid.
(y) The rate shown represents an annualized yield at time of purchase.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/06
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, $17,432,700) $17,513,004
Cash 433
Receivable for fund shares sold 14,382
Interest receivable 90,665
Receivable from investment adviser 8,132
- -----------------------------------------------------------------------------------------------
Total assets $17,626,616
- -----------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------
Distributions payable $9,854
Payable for investments purchased 70,421
Payable for fund shares reacquired 8,876
Payable to affiliates
Management fee 333
Shareholder servicing costs 2,258
Distribution and service fees 459
Administrative services fee 96
Retirement plan administration and services fees 11
Payable for independent trustees' compensation 317
Accrued expenses and other liabilities 83,258
- -----------------------------------------------------------------------------------------------
Total liabilities $175,883
- -----------------------------------------------------------------------------------------------
Net assets $17,450,733
- -----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------
Paid-in capital $18,405,851
Unrealized appreciation (depreciation) on investments 80,304
Accumulated net realized gain (loss) on investments (1,117,671)
Accumulated undistributed net investment income 82,249
- -----------------------------------------------------------------------------------------------
Net assets $17,450,733
- -----------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 1,800,655
- -----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -----------------------------------------------------------------------------------------------
Net assets $7,698,383
Shares outstanding 794,378
- -----------------------------------------------------------------------------------------------
Net asset value per share $9.69
- -----------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value
per share) $10.17
- -----------------------------------------------------------------------------------------------
Class B shares
- -----------------------------------------------------------------------------------------------
Net assets $4,437,107
Shares outstanding 458,061
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.69
- -----------------------------------------------------------------------------------------------
Class C shares
- -----------------------------------------------------------------------------------------------
Net assets $2,293,738
Shares outstanding 236,387
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.70
- -----------------------------------------------------------------------------------------------
Class I shares
- -----------------------------------------------------------------------------------------------
Net assets $1,931,903
Shares outstanding 199,388
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
Class R shares
- -----------------------------------------------------------------------------------------------
Net assets $145,512
Shares outstanding 15,010
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
Class R1 shares
- -----------------------------------------------------------------------------------------------
Net assets $232,845
Shares outstanding 24,040
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
Class R2 shares
- -----------------------------------------------------------------------------------------------
Net assets $51,587
Shares outstanding 5,325
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
Class R3 shares
- -----------------------------------------------------------------------------------------------
Net assets $371,762
Shares outstanding 38,350
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- -----------------------------------------------------------------------------------------------
Net assets $236,068
Shares outstanding 24,366
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
Class R5 shares
- -----------------------------------------------------------------------------------------------
Net assets $51,828
Shares outstanding 5,350
- -----------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.69
- -----------------------------------------------------------------------------------------------
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
Year ended 10/31/06
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 $1,167,357
- ------------------------------------------------------------------------------------------------
Expenses
Management fee $104,286
Distribution and service fees 115,065
Shareholder servicing costs 31,812
Administrative services fee 15,198
Retirement plan administration and services fees 1,908
Independent trustees' compensation 1,657
Custodian fee 33,489
Shareholder communications 58,416
Auditing fees 29,520
Legal fees 3,256
Registration fees 110,533
Miscellaneous 11,574
- ------------------------------------------------------------------------------------------------
Total expenses $516,714
- ------------------------------------------------------------------------------------------------
Fees paid indirectly (1,728)
Reduction of expenses by investment adviser and distributor (318,664)
- ------------------------------------------------------------------------------------------------
Net expenses $196,322
- ------------------------------------------------------------------------------------------------
Net investment income $971,035
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(912,337)
Futures contracts (12,055)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(924,392)
- ------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $393,630
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $(530,762)
- ------------------------------------------------------------------------------------------------
Change in net assets from operations $440,273
- ------------------------------------------------------------------------------------------------
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.
YEARS ENDED 10/31
-------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income $971,035 $415,547
Net realized gain (loss) on investments (924,392) (68,255)
Net unrealized gain (loss) on investments 393,630 (368,491)
- ----------------------------------------------------------------------------------------------
Change in net assets from operations $440,273 $(21,199)
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------
From net investment income
Class A $(544,885) $(213,813)
Class B (183,309) (115,769)
Class C (102,520) (59,013)
Class I (74,557) (69,708)
Class R (5,978) (4,160)
Class R1 (5,167) (1,146)
Class R2 (2,109) (1,238)
Class R3 (12,912) (2,091)
Class R4 (4,929) (1,381)
Class R5 (2,450) (1,471)
From net realized gain on investments
Class A (4,069) --
Class B (1,584) --
Class C (919) --
Class I (428) --
Class R (42) --
Class R1 (27) --
Class R2 (16) --
Class R3 (82) --
Class R4 (17) --
Class R5 (16) --
- ----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(946,016) $(469,790)
- ----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(165,270) $16,108,174
- ----------------------------------------------------------------------------------------------
Redemption fees $-- $6
- ----------------------------------------------------------------------------------------------
Total change in net assets $(671,013) $15,617,191
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
At beginning of period 18,121,746 2,504,555
At end of period (including accumulated undistributed
net investment income of $82,249 and $2,390,
respectively) $17,450,733 $18,121,746
- ----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the
past 5 years (or 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. This information has been audited by the fund's independent registered public
accounting firm, whose report, together with the fund's financial statements, are included in this report.
CLASS A YEAR
YEARS ENDED 10/31 ENDED 4/30
------------------------------------ ----------
2006 2005 2004(z) 2004(c)
Net asset value, beginning of period $9.92 $10.24 $9.85 $10.00
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.48 $0.46 $0.20 $0.16
Net realized and unrealized gain (loss)
on investments (0.24) (0.27) 0.40 (0.13)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations $0.24 $0.19 $0.60 $0.03
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
From net investment income $(0.47) $(0.51) $(0.21) $(0.18)
From net realized gain on investments (0.00)(w) -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.47) $(0.51) $(0.21) $(0.18)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92 $10.24 $9.85
- ------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.49 1.85 6.09(n) 0.33(n)
- ------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.29 3.22 17.87(a) 5.20(a)
Expenses after expense reductions (f) 0.65 0.64 0.55(a) 0.50(a)
Net investment income 4.89 4.64 3.93(a) 2.72(a)
Portfolio turnover 231 203 90 141
Net assets at end of period (000 omitted) $7,698 $8,831 $647 $503
- -----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 10/31
--------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $9.92 $10.23 $10.20
- --------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income (d) $0.40 $0.37 $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.25) (0.26) 0.08
- --------------------------------------------------------------------------------------------
Total from investment operations $0.15 $0.11 $0.08
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------
From net investment income $(0.38) $(0.42) $(0.05)
From net realized gain on investments (0.00)(w) -- --
- --------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.38) $(0.42) $(0.05)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92 $10.23
- --------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.63 1.04 0.82(n)
- --------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.88 3.87 18.54(a)
Expenses after expense reductions (f) 1.50 1.49 1.52(a)
Net investment income 4.16 3.69 0.26(a)
Portfolio turnover 231 203 90
Net assets at end of period (000 omitted) $4,437 $4,818 $310
- --------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 10/31
---------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $9.94 $10.24 $10.20
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.40 $0.38 $(0.00)(w)
Net realized and unrealized gain (loss)
on investments (0.26) (0.26) 0.09
- ---------------------------------------------------------------------------------------------
Total from investment operations $0.14 $0.12 $0.09
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
From net investment income $(0.38) $(0.42) $(0.05)
From net realized gain on investments (0.00)(w) -- --
- ---------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.38) $(0.42) $(0.05)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $9.70 $9.94 $10.24
- ---------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.53 1.15 0.92(n)
- ---------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.90 3.87 18.51(a)
Expenses after expense reductions (f) 1.50 1.49 1.49(a)
Net investment income (loss) 4.11 3.74 (0.17)(a)
Portfolio turnover 231 203 90
Net assets at end of period (000 omitted) $2,294 $2,548 $85
- ---------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEAR
YEARS ENDED 10/31 ENDED 4/30
------------------------------------ ----------
2006 2005 2004(z) 2004(c)
Net asset value, beginning of period $9.92 $10.24 $9.85 $10.00
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.51 $0.43 $0.20 $0.16
Net realized and unrealized gain (loss)
on investments (0.26) (0.22) 0.40 (0.13)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations $0.25 $0.21 $0.60 $0.03
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
From net investment income $(0.48) $(0.53) $(0.21) $(0.18)
From net realized gain on investments (0.00)(w) -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.48) $(0.53) $(0.21) $(0.18)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92 $10.24 $9.85
- ------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 2.65 2.02 6.12(n) 0.33(n)
- ------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.87 2.88 17.52(a) 4.86(a)
Expenses after expense reductions (f) 0.50 0.50 0.50(a) 0.50(a)
Net investment income 5.26 4.23 4.01(a) 2.74(a)
Portfolio turnover 231 203 90 141
Net assets at end of period (000 omitted) $1,932 $1,339 $1,382 $1,044
- ------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 10/31
---------------------------------------
2006 2005 2004(i)
Net asset value, beginning of period $9.93 $10.24 10.20
- ---------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income (d) $0.45 $0.42 $0.00(w)
Net realized and unrealized gain (loss)
on investments (0.26) (0.26) 0.10
- ---------------------------------------------------------------------------------------------
Total from investment operations $0.19 $0.16 $0.10
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
From net investment income $(0.43) $(0.47) (0.06)
From net realized gain on investments (0.00)(w) -- --
- ---------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.43) $(0.47) (0.06)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.93 10.24
- ---------------------------------------------------------------------------------------------
Total return (%) (r)(s) 2.03 1.58 1.01(n)
- ---------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.39 3.38 18.02(a)
Expenses after expense reductions (f) 1.00 1.00 1.00(a)
Net investment income 4.68 4.15 0.15(a)
Portfolio turnover 231 203 90
Net assets at end of period (000 omitted) $146 $129 $40
- -----------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 10/31
-------------------------
2006 2005(i)
Net asset value, beginning of period $9.92 $10.10
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income (d) $0.43 $0.24
Net realized and unrealized gain (loss)
on investments (0.29) (0.19)
- -------------------------------------------------------------------------------
Total from investment operations $0.14 $0.05
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.37) $(0.23)
From net realized gain on investments (0.00)(w) --
- -------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.37) $(0.23)
- -------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92
- -------------------------------------------------------------------------------
Total return (%) (r)(s) 1.53 0.47(n)
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.96 4.08(a)
Expenses after expense reductions (f) 1.60 1.69(a)
Net investment income 4.44 3.97(a)
Portfolio turnover 231 203
Net assets at end of period (000 omitted) $233 $50
- -------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 10/31
-------------------------
2006 2005(i)
Net asset value, beginning of period $9.92 $10.10
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income (d) $0.43 $0.25
Net realized and unrealized gain (loss)
on investments (0.25) (0.18)
- -------------------------------------------------------------------------------
Total from investment operations $0.18 $0.07
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.41) $(0.25)
From net realized gain on investments (0.00)(w) --
- -------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.41) $(0.25)
- -------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92
- -------------------------------------------------------------------------------
Total return (%) (r)(s) 1.88 0.65(n)
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.79 3.78(a)
Expenses after expense reductions (f) 1.25 1.38(a)
Net investment income 4.43 4.29(a)
Portfolio turnover 231 203
Net assets at end of period (000 omitted) $52 $50
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 10/31
------------------------------------------
2006 2005 2004(i)(z)
Net asset value, beginning of period $9.93 $10.24 $10.20
- ------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.46 $0.29 $(0.00)(w)
Net realized and unrealized gain (loss)
on investments (0.28) (0.15)(g) 0.10
- ------------------------------------------------------------------------------------------------
Total from investment operations $0.18 $0.14 $0.10
- ------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
From net investment income $(0.42) $(0.45) $(0.06)
From net realized gain on investments (0.00)(w) -- --
- ------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.42) $(0.45) $(0.06)
- ------------------------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.93 $10.24
- ------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.88 1.32 0.96(n)
- ------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.66 3.59 18.27(a)
Expenses after expense reductions (f) 1.15 1.21 1.25(a)
Net investment income (loss) 4.73 3.77 (0.10)(a)
Portfolio turnover 231 203 90
Net assets at end of period (000 omitted) $372 $255 $40
- ------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 10/31
-------------------------
2006 2005(i)
Net asset value, beginning of period $9.92 $10.10
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income (d) $0.50 $0.28
Net realized and unrealized gain (loss)
on investments (0.29) (0.18)
- -------------------------------------------------------------------------------
Total from investment operations $0.21 $0.10
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.44) $(0.28)
From net realized gain on investments (0.00)(w) --
- -------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.44) $(0.28)
- -------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92
- -------------------------------------------------------------------------------
Total return (%) (r)(s) 2.24 0.93(n)
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.28 3.28(a)
Expenses after expense reductions (f) 0.90 0.90(a)
Net investment income 5.16 4.76(a)
Portfolio turnover 231 203
Net assets at end of period (000 omitted) $236 $50
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 10/31
-------------------------
2006 2005(i)
Net asset value, beginning of period $9.92 $10.10
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------
Net investment income (d) $0.49 $0.30
Net realized and unrealized gain (loss)
on investments (0.25) (0.19)
- -------------------------------------------------------------------------------
Total from investment operations $0.24 $0.11
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------
From net investment income $(0.47) $(0.29)
From net realized gain on investments (0.00)(w) --
- -------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.47) $(0.29)
- -------------------------------------------------------------------------------
Net asset value, end of period $9.69 $9.92
- -------------------------------------------------------------------------------
Total return (%) (r)(s) 2.54 1.10(n)
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND
SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.99 2.98(a)
Expenses after expense reductions (f) 0.60 0.60(a)
Net investment income 5.08 5.06(a)
Portfolio turnover 231 203
Net assets at end of period (000 omitted) $52 $51
- -------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years
resulted in a per share impact of less than $0.01.
(a) Annualized.
(c) For the period from the commencement of the fund's investment operations,
September 30, 2003, through the stated period end.
(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 per share amount of realized and unrealized gains and losses
at such time.
(i) For the period from the class' inception, September 1, 2004 (Classes B, C, R
and 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.
(z) During 2004, the fund changed its fiscal year-end from April 30 to
October 31.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Inflation-Adjusted Bond Fund (the fund) is a series of MFS Series Trust IX
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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.
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.
Exchange-traded options are generally valued at the last sale or official
closing price as reported by an independent pricing service on the exchange on
which they are primarily traded. Exchange-traded options for which there were
no sales reported that day are generally valued at the last daily bid quotation
as reported by an independent pricing service on the exchange on which they are
primarily traded. Options not traded on an exchange are generally valued at
broker-dealer bid quotation. Foreign currency options are generally valued
using an external pricing model that uses market data from an independent
source. Futures contracts are generally valued at last posted settlement price
as reported by an independent pricing service on the market on which they are
primarily traded. Futures contracts for which there were no trades that day for
a particular position are generally valued at the closing bid quotation as
reported by an independent pricing service on the market on which they are
primarily traded. 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. In
September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
INFLATION-ADJUSTED DEBT SECURITIES - The fund invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The fund may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the debt
security is typically equal to the inflation-adjusted principal amount, or the
security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
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 purchased options and futures contracts.
PURCHASED OPTIONS - The fund may purchase call or put options for a premium.
Purchasing call options may be a hedge against an anticipated increase in the
dollar cost of securities to be acquired or to increase the fund's exposure to
the underlying instrument. Purchasing put options may hedge against a decline
in the value of portfolio securities. The premium paid is included as an
investment in the Statement of Assets and Liabilities and is subsequently
adjusted to the current value of the option. Premiums paid for purchased
options which have expired are treated as realized losses on investments in the
Statement of Operations. Premiums paid for purchased options which are
exercised or closed are added to the amount paid or offset against the proceeds
on the underlying security or financial instrument to determine the realized
gain or loss. The risk of loss associated with purchased options is limited to
the premium paid.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. Upon entering into such contracts, the
fund bears the risk of interest or exchange rates or securities prices moving
unexpectedly, in which case, the fund may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
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 5 business days following their acquisition (either by
purchase or exchange). Effective April 1, 2005, the fund no longer charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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 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.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended October 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 U.S. 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 and wash sale loss deferrals.
The tax character of distributions declared to shareholders is as follows:
10/31/06 10/31/05
Ordinary income (including any short-term
capital gains) $938,888 $469,790
Long-term capital gain 7,128 --
- ----------------------------------------------------------------------------
Total distributions $946,016 $469,790
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 10/31/06
Cost of investments $17,816,519
------------------------------------------------------
Gross appreciation $--
Gross depreciation (303,515)
------------------------------------------------------
Net unrealized appreciation (depreciation) $(303,515)
Undistributed ordinary income 132,570
Capital loss carryforwards (715,997)
Other temporary differences (68,176)
As of October 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/14 $(715,997)
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 is evaluating 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
management and related administrative services and facilities to the fund. The
management fee is computed daily and paid monthly at an annual rate of 0.50% of
the fund's average daily net assets.
The investment adviser has agreed in writing to reduce its management fee to
0.35% of average daily net assets. This written agreement may be rescinded only
upon consent of the fund's Board of Trustees. This management fee reduction
amounted to $31,286, which is shown as a reduction of total expenses in the
Statement of Operations. The management fee incurred for the year ended October
31, 2006 was equivalent to an annual effective rate of 0.35% of the fund's
average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund's
operating expenses, exclusive of management, distribution and service,
retirement plan administration and services and certain other fees and
expenses, such that operating expenses do not exceed 0.15% annually of the
fund's average daily net assets. This written agreement will continue through
February 28, 2007 unless changed or rescinded by the fund's Board of Trustees.
For the year ended October 31, 2006, this reduction amounted to $264,054 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 $11,414 for the year ended October 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% 0.15% $39,674
Class B 0.75% 0.25% 1.00% 1.00% 45,923
Class C 0.75% 0.25% 1.00% 1.00% 25,517
Class R 0.25% 0.25% 0.50% 0.50% 678
Class R1 0.50% 0.25% 0.75% 0.75% 1,150
Class R2 0.25% 0.25% 0.50% 0.50% 252
Class R3 0.25% 0.25% 0.50% 0.50% 1,564
Class R4 -- 0.25% 0.25% 0.25% 307
- ---------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $115,065
(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 year ended
October 31, 2006 based on each class" average daily net assets. 0.10% of the Class A service fee is
currently being waived under a written waiver arrangement through February 28, 2007. For the year ended
October 31, 2006, this waiver amounted to $11,335 and is reflected as a reduction of total expenses in the
Statement of Operations. Assets attributable to Class B shares sold prior to May 1, 2006 are subject to the
0.25% annual Class B service fee. Assets attributable to Class B shares are currently subject to a Class B
service fee of 0.15% annually. The remaining portion of the Class B service fee is not in effect on such
assets but may be implemented on such date as the fund's Board of Trustees may determine. 0.10% of the Class
A distribution fee is currently being waived under a written waiver arrangement through February 28, 2007.
For the year ended October 31, 2006, this waiver amounted to $11,335 and is reflected as a reduction of
total expenses in the Statement of Operations.
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 year ended October 31,
2006, were as follows:
AMOUNT
Class A $--
Class B $4,424
Class C $2,144
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average net assets of the
fund as determined periodically under the supervision of the fund's Board of
Trustees. For the year ended October 31, 2006, the fee was $19,886, which
equated to 0.0954% 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 year ended October 31, 2006, these
costs amounted to $6,064. The fund may also pay shareholder servicing related
costs to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The 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 year ended October 31, 2006 was equivalent to an
annual effective rate of 0.0729% 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 year ended October 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% $690
Class R2 0.40% 0.25% 201
Class R3 0.25% 0.15% 782
Class R4 0.15% 0.15% 184
Class R5 0.10% 0.10% 51
- -----------------------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $1,908
(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, 2008. For the year ended October 31, 2006, this waiver amounted to $542 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.
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 year ended October 31, 2006, the fee paid to Tarantino LLC
was $123. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $112, 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 purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $45,707,270 $46,748,295
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) $115,560 $118,958
- --------------------------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
10/31/06 10/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 749,013 $7,328,673 952,909 $9,698,933
Class B 157,766 1,525,473 551,989 5,620,493
Class C 103,300 1,009,657 272,913 2,781,571
Class I 99,153 956,104 79,595 812,800
Class R 3,710 36,113 13,915 141,284
Class R1 36,005 344,216 4,951 50,000
Class R2 71 684 4,951 50,000
Class R3 22,004 209,822 21,562 213,062
Class R4 19,974 192,751 4,950 50,000
Class R5 8 75 4,951 50,000
- -----------------------------------------------------------------------------------------------------------
1,191,004 $11,603,568 1,912,686 $19,468,143
Shares issued to shareholders in
reinvestment of distributions
Class A 49,307 $479,508 18,680 $188,595
Class B 14,267 138,853 8,599 86,898
Class C 5,875 57,299 3,603 36,472
Class I 7,659 74,414 6,743 68,417
Class R 618 6,009 410 4,152
Class R1 525 5,093 113 1,146
Class R2 218 2,125 122 1,238
Class R3 1,337 12,994 207 2,091
Class R4 509 4,934 137 1,381
Class R5 254 2,466 145 1,471
- -----------------------------------------------------------------------------------------------------------
80,569 $783,695 38,759 $391,861
YEAR ENDED YEAR ENDED
10/31/06 10/31/05(i)
SHARES AMOUNT SHARES AMOUNT
Shares reacquired
Class A (893,815) $(8,661,197) (144,917) $(1,468,226)
Class B (199,640) (1,928,007) (105,226) (1,065,745)
Class C (129,220) (1,249,804) (28,368) (287,725)
Class I (42,341) (409,246) (86,332) (875,900)
Class R (2,306) (22,320) (5,284) (54,234)
Class R1 (17,554) (167,979) - -
Class R2 (37) (357) - -
Class R3 (10,706) (102,015) - -
Class R4 (1,204) (11,533) - -
Class R5 (8) (75) - -
- -----------------------------------------------------------------------------------------------------------
(1,296,831) $(12,552,533) (370,127) $(3,751,830)
Net change
Class A (95,495) $(853,016) 826,672 $8,419,302
Class B (27,607) (263,681) 455,362 4,641,646
Class C (20,045) (182,848) 248,148 2,530,318
Class I 64,471 621,272 6 5,317
Class R 2,022 19,802 9,041 91,202
Class R1 18,976 181,330 5,064 51,146
Class R2 252 2,452 5,073 51,238
Class R3 12,635 120,801 21,769 215,153
Class R4 19,279 186,152 5,087 51,381
Class R5 254 2,466 5,096 51,471
- -----------------------------------------------------------------------------------------------------------
(25,258) $(165,270) 1,581,318 $16,108,174
(i) For the period from the class' inception, April 1, 2005 (Classes R1, R2, R4, and R5), through the stated
period end.
(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 year ended October 31, 2006,
the fund's commitment fee and interest expense were $145 and $1,949,
respectively, and are included in miscellaneous expense on the Statement of
Operations.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To The Trustees of MFS Series Trust IX and the Shareholders of MFS Inflation-
Adjusted Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Inflation-Adjusted Bond Fund (one of the
portfolios comprising MFS Series Trust IX) (the "Trust") as of October 31,
2006, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the two years in the
period then ended, the six month period ended October 31, 2004 and the period
September 30, 2003 (commencement of operations) to April 30, 2004. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Trust is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of October 31, 2006, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Inflation-
Adjusted Bond Fund as of October 31, 2006, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the two years
in the period then ended, the six month period ended October 31, 2004 and the
period September 30, 2003 (commencement of operations) to April 30, 2004, in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 21, 2006
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2006, are listed
below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The address of each Trustee
and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(S) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ----------------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity
Investments, Vice Chairman (June
2000 to December 2001); Fidelity
Management & Research Company
(investment adviser), President
(March 1997 to July 2001); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(k) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant June 2006 Massachusetts Financial Services
(born 3/07/73) Secretary and Company, Assistant Vice President
Assistant Clerk and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Senior Vice President
Susan S. Newton(k) Assistant May 2005 Massachusetts Financial Services
(born 3/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(k) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and January 2006 Massachusetts Financial Services
(born 5/01/52) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant September 1990 Massachusetts Financial Services
(born 6/12/60) Treasurer Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(k) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the
fund, as a result of position with MFS. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related
matters. The terms of that settlement required that compensation and expenses related to the
independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler
for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid
Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting
at least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) has been elected by shareholders and each Trustee and
officer holds office until his or her successor is chosen and qualified or until his or her earlier
death, resignation, retirement or removal. Messrs. Butler, Sherratt and Uek and Ms. Thomsen are members
of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of January 1, 2006, the Trustees served as board members of 98 funds
within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 200 Berkeley Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGER
Erik Weisman
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 the one-
year period ended December 31, 2004 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 Class A total return investment performance as well as the performance
of peer groups of funds for the one-year period ended December 31, 2005. The
Fund's performance was in the 3rd quintile relative to the other funds in the
universe for this one-year period (the 1st quintile being the best performers
and the 5th quintile being the worst performers). The Fund commenced investment
operations in 2003, therefore, no performance quintile for the three- or
five-year periods was available. Because of the passage of time, this
performance may differ from 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 MFS has agreed in writing to waive a portion of its advisory fee, which
may not be changed without the Trustees' approval, and that MFS currently
observes an expense limitation for the Fund, and that MFS Fund Distributors,
Inc. ("MFD"), an affiliate of MFS, currently observes a Class A 12b-1 fee
waiver. The Trustees also considered that, according to the Lipper data, the
Fund's effective advisory fee rate (taking into account the advisory fee waiver
and expense limitation) and total expense ratio (taking into account the Class
A 12b-1 fee waiver) 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
waiver and the expense limitation noted 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 MFD. The Trustees
also considered the nature, extent and quality of certain other services MFS
performs or arranges for on the Fund's behalf, which may include 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, if applicable, 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 is available 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.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
The fund designates $7,128 as capital gain dividends paid during the fiscal
year.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE 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 adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has not amended any provision in its Code of Ethics
(the "Code") that relates to an element of the Code's definitions enumerated in
paragraph (b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler and Robert W. Uek and Ms. Laurie J. Thomsen, members
of the Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Messrs.
Butler, and Uek and Ms. Thomsen are "independent" members of the Audit
Committee (as such term has been defined by the Securities and Exchange
Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of
2002). The Securities and Exchange Commission has stated that the designation
of a person as an audit committee financial expert pursuant to this Item 3 on
the Form N-CSR does not impose on such a person any duties, obligations or
liability that are greater than the duties, obligations or liability imposed on
such person as a member of the Audit Committee and the Board of Trustees in the
absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(A) THROUGH 4(D) AND 4(G):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to a certain series of the Registrant (the series
referred to as the "Fund"). The tables below set forth the audit fees billed to
the Fund as well as fees for non-audit services provided to the Fund and/or to
the Fund's investment adviser, Massachusetts Financial Services Company
("MFS"), and to various entities either controlling, controlled by, or under
common control with MFS that provide ongoing services to the Fund ("MFS Related
Entities").
For the fiscal years ended October 31, 2006 and 2005, audit fees billed to the
Fund by Deloitte were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2006 2005
---- ----
MFS Inflation-Adjusted Bond Fund 25,772 24,572
For the fiscal years ended October 31, 2006 and 2005, fees billed by Deloitte
for audit-related, tax and other services provided to the Fund and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY DELOITTE: 2006 2005 2006 2005 2006 2005
---- ---- ---- ---- ---- ----
To MFS Inflation-Adjusted Bond Fund 0 0 6,450 8,150 0 0
To MFS and MFS Related Entities of
MFS Inflation-Adjusted Bond Fund* 1,047,925 959,191 0 62,000 276,806 830,675
AGGREGATE FEES FOR NON-AUDIT SERVICES:
2006 2005
---- ----
To MFS Inflation - Adjusted Bond
Fund, MFS and MFS Related Entities# 1,459,366 1,907,912
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly
to the operations and financial reporting of the Fund (portions of which services also related to the
operations and financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte, for non-audit services rendered to the Fund and
for non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are
reasonably related to the performance of the audit or review of financial statements, but not reported under
"Audit Fees," including accounting consultations, agreed-upon procedure reports, attestation reports, comfort
letters and internal control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning,
including services relating to the filing or amendment of federal, state or local income tax returns,
regulated investment company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than
those reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for services related to
sales tax refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales, analysis of certain portfolio holdings versus investment styles, review of internal controls and review
of Rule 38a-1 compliance program.
ITEM 4(E)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Fund and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 in each period betwen regular meetings of the Audit Committee. Any
engagement pre-approved by the Chair between regular meetings of the Audit
Committee shall be presented for ratification by the entire Audit Committee at
its next regularly scheduled meeting.
ITEM 4(E)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(F): Not applicable.
ITEM 4(H): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services did not relate directly to the
operations and financial reporting of the Registrant) was compatible with
maintaining the independence of the independent registered public accounting
firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments 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: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
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 IX
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: December 21, 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: December 21, 2006
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 21, 2006
-----------------
* Print name and title of each signing officer under his or her signature.