UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2464
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MFS SERIES TRUST IX
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: April 30*
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Date of reporting period: April 30, 2007
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* This Form N-CSR pertains to the following series of the Registrant: MFS Bond
Fund, MFS Intermediate Investment Grade Bond Fund, MFS Limited Maturity Fund,
MFS Municipal Limited Maturity Fund, MFS Research Bond Fund and MFS Research
Bond Fund J. The remaining series of the Registrant, MFS Inflation-Adjusted
Bond Fund, has a fiscal year end of October 31.
ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) BOND FUND
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 4
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EXPENSE TABLE 7
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PORTFOLIO OF INVESTMENTS 9
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STATEMENT OF ASSETS AND LIABILITIES 21
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STATEMENT OF OPERATIONS 24
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STATEMENTS OF CHANGES IN NET ASSETS 25
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FINANCIAL HIGHLIGHTS 26
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NOTES TO FINANCIAL STATEMENTS 32
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 45
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TRUSTEES AND OFFICERS 46
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 52
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PROXY VOTING POLICIES AND INFORMATION 52
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QUARTERLY PORTFOLIO DISCLOSURE 52
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FEDERAL TAX INFORMATION 52
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MFS(R) PRIVACY NOTICE 53
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CONTACT INFORMATION BACK COVER
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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.
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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
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4/30/07
MFB-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. 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
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
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 96.6%
Cash & Other Net Assets 3.4%
FIXED INCOME SECTORS (i)
High Grade Corporates 51.2%
------------------------------------------------
High Yield Corporates 11.9%
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Commercial Mortgage-Backed Securities 10.1%
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Mortgage-Backed Securities 9.1%
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Emerging Market Bonds 5.6%
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U.S. Treasury Securities 3.6%
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U.S. Government Agencies 3.1%
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Asset-Backed Securities 0.9%
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Collateralized Debt Obligations 0.8%
------------------------------------------------
Non-U.S. Government Bonds 0.2%
------------------------------------------------
Residential Mortgage-Backed Securities 0.1%
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CREDIT QUALITY OF BONDS (r)
AAA 23.8%
------------------------------------------------
AA 7.7%
------------------------------------------------
A 15.9%
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BBB 37.9%
------------------------------------------------
BB 9.2%
------------------------------------------------
B 4.1%
------------------------------------------------
CCC 0.8%
------------------------------------------------
Not Rated 0.6%
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PORTFOLIO FACTS
Average Duration (d)(i) 5.0
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Average Life (i)(m) 7.2 yrs
------------------------------------------------
Average Maturity (i)(m) 15.0 yrs
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Average Credit Quality of Rated
Securities (long-term) (a) A-
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this 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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended April 30, 2007, Class A shares of the MFS Bond Fund
provided a total return of 8.13%, at net asset value. This compares with a
return of 7.34% for the fund's benchmark, the Lehman Brothers U.S.
Government/Credit Bond Index (the Lehman Index).
CONTRIBUTORS TO PERFORMANCE
The fund's larger allocation to corporate bonds and lower exposure to U.S.
Treasuries helped relative performance in comparison to the Lehman Index, as
corporate bonds outperformed Treasuries throughout the reporting period.
Exposure to high yield bonds further enhanced the fund's performance, as these
bonds outperformed the overall bond market. Positioning in emerging markets
debt also added to the fund's relative return. The fund also enjoyed a
favorable yield advantage over the period, generating a higher level of income
than the index.
On a sector basis, strong performance was seen in the banking and finance and
industrial sectors. At the security level the fund held seven companies that
were upgraded to investment grade that delivered strong performance. These
bonds included utilities firms DPL, Enersis, and Empresa Nacional, office
automation and equipment manufacturer Xerox, cable television operator Rogers
Cable, metals and mining firm International Steel Group, and medical and health
technology and services firm Fisher Scientific.
DETRACTORS FROM PERFORMANCE
The fund's position in asset-backed securities detracted from overall results.
Select mortgage pools were also detractors. Individual securities that were
among top relative detractors included casino operator Harrah's(g), and
hospital company HCA which were targets of LBOs (leveraged buy outs) during the
period.
Respectfully,
Richard Hawkins Robert Persons
Portfolio Manager Portfolio Manager
(g) Security was not held in the portfolio at period end.
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 or
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 4/30/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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
Lehman Brothers
MFS Bond U.S. Government/
Fund - Credit
Class A Bond Index
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4/97 $ 9,525 $10,000
4/98 10,607 11,133
4/99 10,949 11,831
4/00 10,783 11,942
4/01 11,886 13,388
4/02 12,646 14,389
4/03 14,269 16,176
4/04 14,935 16,468
4/05 15,764 17,316
4/06 15,940 17,346
4/07 17,237 18,620
TOTAL RETURNS THROUGH 4/30/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
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A 5/08/74 8.13% 6.39% 6.11%
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B 9/07/93 7.39% 5.66% 5.37%
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C 1/03/94 7.31% 5.64% 5.36%
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I 1/02/97 8.45% 6.73% 6.44%
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R 12/31/02 8.01% 6.21% 6.02%
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R1 4/01/05 7.29% 5.60% 5.34%
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R2 4/01/05 7.58% 5.73% 5.41%
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R3 10/31/03 7.76% 5.89% 5.49%
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R4 4/01/05 8.03% 6.35% 6.09%
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R5 4/01/05 8.43% 6.50% 6.16%
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AVERAGE ANNUAL
Comparative benchmark
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Lehman Brothers U.S. Government/Credit
Bond Index (f) 7.34% 5.29% 6.41%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A 3.00% 5.36% 5.60%
With Initial Sales Charge (4.75%)
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B 3.39% 5.33% 5.37%
With CDSC (Declining over six years
from 4% to 0%) (x)
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C 6.31% 5.64% 5.36%
With CDSC (1% for 12 months) (x)
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Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Summary for more details.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Lehman Brothers U.S. Government/Credit Bond Index - measures investment grade
debt obligations of the U.S. Treasury and U.S. government agencies, as well as
U.S. corporate and foreign debentures and secured notes that meet specified
maturity, liquidity, and quality requirements.
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 and certain
other retirement plans. 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 classes R, R4 and R5 shares includes the performance of the
fund's class A shares for periods prior to their offering. Performance for
classes R1, R2 and R3 shares includes the performance of the fund's class B
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.
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,
November 1, 2006 through April 30, 2007.
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 November 1, 2006 through April 30,
2007.
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.
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Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
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Actual 0.82% $1,000.00 $1,034.20 $4.14
A ------------------------------------------------------------------------
Hypothetical (h) 0.82% $1,000.00 $1,020.73 $4.11
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Actual 1.52% $1,000.00 $1,030.60 $7.65
B ------------------------------------------------------------------------
Hypothetical (h) 1.52% $1,000.00 $1,017.26 $7.60
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Actual 1.52% $1,000.00 $1,030.60 $7.65
C ------------------------------------------------------------------------
Hypothetical (h) 1.52% $1,000.00 $1,017.26 $7.60
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Actual 0.53% $1,000.00 $1,036.50 $2.68
I ------------------------------------------------------------------------
Hypothetical (h) 0.53% $1,000.00 $1,022.17 $2.66
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Actual 1.02% $1,000.00 $1,034.00 $5.14
R ------------------------------------------------------------------------
Hypothetical (h) 1.02% $1,000.00 $1,019.74 $5.11
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Actual 1.63% $1,000.00 $1,030.90 $8.21
R1 ------------------------------------------------------------------------
Hypothetical (h) 1.63% $1,000.00 $1,016.71 $8.15
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Actual 1.28% $1,000.00 $1,031.90 $6.45
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.28% $1,000.00 $1,018.45 $6.41
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Actual 1.18% $1,000.00 $1,033.20 $5.95
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.18% $1,000.00 $1,018.94 $5.91
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Actual 0.93% $1,000.00 $1,033.70 $4.69
R4 ------------------------------------------------------------------------
Hypothetical (h) 0.93% $1,000.00 $1,020.18 $4.66
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Actual 0.64% $1,000.00 $1,036.00 $3.23
R5 ------------------------------------------------------------------------
Hypothetical (h) 0.64% $1,000.00 $1,021.62 $3.21
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(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset
classes.
Bonds - 96.0%
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ISSUER SHARES/PAR VALUE ($)
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<c>
Aerospace - 0.5%
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Bombardier, Inc., 6.3%, 2014 (n) $ 6,940,000 $ 6,697,100
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Asset Backed & Securitized - 11.7%
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ARCap REIT, Inc., "G", 6.1%, 2045 (n) $ 2,150,000 $ 1,945,414
Asset Securitization Corp., FRN, 8.1466%, 2029 4,095,000 4,414,947
Banc of America Commercial Mortgage, Inc., FRN, 5.9651%, 2045 4,320,000 4,456,928
Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 (z) 2,930,000 2,929,993
BlackRock Capital Finance LP, 7.75%, 2026 (n) 619,505 610,058
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011 (z) 5,485,062 5,539,913
Chase Commercial Mortgage Securities Corp., 6.6%, 2029 (z) 4,039,542 4,118,667
Citigroup Commercial Mortgage Trust, 5.462%, 2049 4,340,000 4,340,810
Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8817%, 2049 (z) 1,088,766 1,041,473
Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8817%, 2049 (z) 1,760,000 1,635,700
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.366%, 2049 2,920,000 2,900,837
Commercial Mortgage Acceptance Corp., 7.03%, 2031 4,637,279 4,759,965
Commercial Mortgage Acceptance Corp., FRN, 1.1119%, 2030 (i) 59,563,290 1,354,416
Countrywide Asset-Backed Certificates, FRN, 4.575%, 2035 400,695 398,315
Credit Suisse Mortgage Capital Certificate, 5.343%, 2039 6,760,000 6,700,562
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (n) 1,793,720 1,797,846
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 2,196,257 2,201,192
DLJ Commercial Mortgage Corp., 6.04%, 2031 2,675,000 2,717,963
Falcon Franchise Loan LLC, 6.5%, 2014 (z) 2,733,000 2,428,100
Falcon Franchise Loan LLC, FRN, 3.7848%, 2025 (i)(z) 16,624,722 2,337,768
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029 (n) 3,028,000 3,283,593
GE Commercial Mortgage Corp., FRN, 5.5182%, 2044 2,710,000 2,711,653
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 4,140,000 4,204,374
GMAC Commercial Mortgage Securities, Inc., FRN, 7.9175%, 2034 (n) 3,212,000 3,468,427
Greenwich Capital Commercial Funding Corp., 4.305%, 2042 3,544,438 3,473,456
Greenwich Capital Commercial Funding Corp., FRN, 6.1125%, 2016 2,125,000 2,212,059
IKON Receivables Funding LLC, 3.27%, 2011 1,279,748 1,276,642
JPMorgan Chase Commercial Mortgage Securities Corp., 5.372%, 2047 5,200,000 5,152,886
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.508%, 2042 (n) 4,734,928 4,582,574
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.5421%, 2043 7,331,619 7,304,482
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.855%, 2043 4,318,739 4,461,387
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 5,520,000 5,419,266
KKR Financial CLO Ltd., "C", FRN, 6.7563%, 2021 (z) 3,651,630 3,651,630
Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 1.092%, 2030 (i) 36,819,854 702,854
Morgan Stanley Capital I, Inc., 5.72%, 2032 4,062,997 4,094,356
Morgan Stanley Capital I, Inc., FRN, 0.7013%, 2030 (i)(n) 123,964,800 1,418,194
Mortgage Capital Funding, Inc., FRN, 0.806%, 2031 (i) 39,580,799 197,853
Nomura Asset Acceptance Corp., FRN, 4.423%, 2034 2,028,120 2,007,292
Prudential Securities Secured Financing Corp., FRN, 7.3872%, 2013 (z) 3,468,000 3,689,212
Spirit Master Funding LLC, 5.05%, 2023 (z) 2,861,673 2,763,002
TIAA Real Estate CDO Ltd., 7.17%, 2032 (n) 1,233,494 1,233,067
TPREF Funding III Ltd., CDO, 5.34% to 2008, FRN to 2033(z) 6,675,000 6,635,367
Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 3,448,527 3,347,677
Wachovia Bank Commercial Mortgage Trust, FRN, 6.021%, 2043 (z) 2,740,000 2,644,058
Wachovia Bank Commercial Mortgage Trust, FRN, 5.3713%, 2044 2,387,000 2,372,778
Wachovia Bank Commercial Mortgage Trust, FRN, 5.4906%, 2044 3,900,000 3,892,211
Wachovia Bank Commercial Mortgage Trust, FRN, 6.1638%, 2045 (n) 4,320,000 4,505,456
Wachovia Bank Commercial Mortgage Trust, FRN, 5.603%, 2048 4,300,000 4,348,464
--------------
$ 153,685,137
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Automotive - 0.8%
- --------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 8%, 2016 $ 195,000 $ 190,705
Ford Motor Credit Co. LLC, 9.75%, 2010 3,470,000 3,671,864
Johnson Controls, Inc., 5.5%, 2016 6,390,000 6,337,219
--------------
$ 10,199,788
- --------------------------------------------------------------------------------------------------------------------------------
Broadcasting - 1.5%
- --------------------------------------------------------------------------------------------------------------------------------
CBS Corp., 6.625%, 2011 $ 6,040,000 $ 6,307,028
Clear Channel Communications, Inc., 7.65%, 2010 4,329,000 4,571,121
Clear Channel Communications, Inc., 6.25%, 2011 3,130,000 3,104,788
News America Holdings, 8.5%, 2025 4,931,000 5,974,133
--------------
$ 19,957,070
- --------------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.7%
- --------------------------------------------------------------------------------------------------------------------------------
AMVESCAP PLC, 4.5%, 2009 $ 7,053,000 $ 6,931,216
Goldman Sachs Group, Inc., 5.625%, 2017 6,941,000 6,909,939
Lehman Brothers Holdings, Inc., 8.25%, 2007 8,405,000 8,432,215
Lehman Brothers Holdings, Inc., 5.5%, 2016 3,344,000 3,348,264
Merrill Lynch & Co., Inc., 6.05%, 2016 9,502,000 9,794,633
Morgan Stanley, 5.75%, 2016 5,924,000 6,004,744
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 7,094,000 7,513,383
--------------
$ 48,934,394
- --------------------------------------------------------------------------------------------------------------------------------
Building - 1.2%
- --------------------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 6,465,000 $ 6,535,468
American Standard Cos., Inc., 7.625%, 2010 1,955,000 2,068,781
Hanson PLC, 6.125%, 2016 6,610,000 6,814,461
--------------
$ 15,418,710
- --------------------------------------------------------------------------------------------------------------------------------
Business Services - 1.0%
- --------------------------------------------------------------------------------------------------------------------------------
Deluxe Corp., 5%, 2012 $ 3,465,000 $ 3,135,825
Deluxe Corp., 5.125%, 2014 3,480,000 3,010,200
Xerox Corp., 6.4%, 2016 6,230,000 6,419,149
--------------
$ 12,565,174
- --------------------------------------------------------------------------------------------------------------------------------
Cable TV - 2.0%
- --------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., 6.45%, 2037 $ 6,090,000 $ 6,159,030
Cox Communications, Inc., 4.625%, 2013 6,087,000 5,819,434
CSC Holdings, Inc., 7.875%, 2007 5,875,000 5,948,437
Rogers Cable, Inc., 5.5%, 2014 2,229,000 2,206,710
TCI Communications, Inc., 9.8%, 2012 3,539,000 4,196,252
Time Warner Entertainment Co. LP, 8.375%, 2033 1,734,000 2,116,481
--------------
$ 26,446,344
- --------------------------------------------------------------------------------------------------------------------------------
Computer Software - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Seagate Technology HDD Holdings, 6.375%, 2011 $ 3,973,000 $ 3,958,101
- --------------------------------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 $ 4,801,000 $ 5,155,885
- --------------------------------------------------------------------------------------------------------------------------------
Construction - 0.5%
- --------------------------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 7.875%, 2011 $ 4,993,000 $ 5,308,463
D.R. Horton, Inc., 5.625%, 2014 1,731,000 1,647,884
--------------
$ 6,956,347
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.6%
- --------------------------------------------------------------------------------------------------------------------------------
Fortune Brands, Inc., 5.125%, 2011 $ 6,080,000 $ 6,023,547
Service Corp., International, 7.375%, 2014 1,880,000 1,955,200
--------------
$ 7,978,747
- --------------------------------------------------------------------------------------------------------------------------------
Defense Electronics - 1.2%
- --------------------------------------------------------------------------------------------------------------------------------
L-3 Communications Corp., 6.375%, 2015 $ 6,885,000 $ 6,850,575
Litton Industries, Inc., 8%, 2009 8,035,000 8,543,744
--------------
$ 15,394,319
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 1.2%
- --------------------------------------------------------------------------------------------------------------------------------
Corporacion Nacional del Cobre de Chile, 6.375%, 2012 (n) $ 2,308,000 $ 2,432,433
Export-Import Banks of Korea, 5.25%, 2014 (n) 3,528,000 3,511,835
Gazprom International S.A., 6.51%, 2022 (n) 3,000,000 3,086,250
Pemex Finance Ltd., 9.69%, 2009 3,916,000 4,127,268
Pemex Finance Ltd., 10.61%, 2017 1,500,000 1,944,855
--------------
$ 15,102,641
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Republic of Argentina, FRN, 5.475%, 2012 $ 3,000,000 $ 2,865,850
United Mexican States, 8.3%, 2031 688,000 902,656
--------------
$ 3,768,506
- --------------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.7%
- --------------------------------------------------------------------------------------------------------------------------------
Ocean Energy, Inc., 7.25%, 2011 $ 8,687,000 $ 9,316,799
- --------------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.7%
- --------------------------------------------------------------------------------------------------------------------------------
TNK-BP Ltd., 6.875%, 2011 (n) $ 8,640,000 $ 8,890,560
- --------------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.7%
- --------------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 9.125%, 2013 $ 6,649,000 $ 7,803,120
Time Warner, Inc., 6.5%, 2036 1,100,000 1,100,826
--------------
$ 8,903,946
- --------------------------------------------------------------------------------------------------------------------------------
Financial Institutions - 3.1%
- --------------------------------------------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 $ 3,474,000 $ 3,423,043
CIT Group, Inc., 6.1% to 2017, FRN to 2067 1,030,000 992,265
Countrywide Financial Corp., 6.25%, 2016 6,069,000 6,130,971
General Motors Acceptance Corp., 5.85%, 2009 4,197,000 4,150,304
General Motors Acceptance Corp., 7.25%, 2011 4,461,000 4,535,494
HSBC Finance Corp., 6.75%, 2011 2,384,000 2,514,338
HSBC Finance Corp., 5.5%, 2016 8,598,000 8,585,387
International Lease Finance Corp., 5.625%, 2013 3,380,000 3,442,249
Residential Capital LLC, 6.875%, 2015 6,100,000 6,176,964
--------------
$ 39,951,015
- --------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 1.5%
- --------------------------------------------------------------------------------------------------------------------------------
Diageo Capital PLC, 5.5%, 2016 $ 6,930,000 $ 6,941,296
Miller Brewing Co., 5.5%, 2013 (n) 6,362,000 6,386,640
Tyson Foods, Inc., 6.6%, 2016 6,160,000 6,421,800
--------------
$ 19,749,736
- --------------------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.6%
- --------------------------------------------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.8%, 2032 $ 3,121,000 $ 3,000,576
Stora Enso Oyj, 7.25%, 2036 (n) 5,177,000 5,314,201
--------------
$ 8,314,777
- --------------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.2%
- --------------------------------------------------------------------------------------------------------------------------------
Host Marriott LP, 6.75%, 2016 $ 6,890,000 $ 7,001,962
Marriott International, Inc., 6.2%, 2016 3,099,000 3,183,364
MGM Mirage, Inc., 8.375%, 2011 6,070,000 6,441,787
Royal Caribbean Cruises Ltd., 8%, 2010 4,190,000 4,464,923
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 3,425,000 3,673,336
Wyndham Worldwide Corp., 6%, 2016 (n) 4,380,000 4,345,205
--------------
$ 29,110,577
- --------------------------------------------------------------------------------------------------------------------------------
Industrial - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Steelcase, Inc., 6.5%, 2011 $ 5,024,000 $ 5,160,874
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - 1.6%
- --------------------------------------------------------------------------------------------------------------------------------
American International Group, Inc., 6.25%, 2037 $ 3,670,000 $ 3,652,927
ING Groep N.V., 5.775% to 2015, FRN to 2049 5,646,000 5,624,878
Prudential Insurance Co., 7.65%, 2007 (n) 4,623,000 4,641,515
UnumProvident Corp., 6.85%, 2015 (n) 6,141,000 6,418,788
--------------
$ 20,338,108
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.2%
- --------------------------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 5,540,000 $ 5,502,832
Chubb Corp., 6.375% to 2017, FRN to 2067 4,340,000 4,392,332
Fund American Cos., Inc., 5.875%, 2013 6,104,000 6,115,952
--------------
$ 16,011,116
- --------------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.5%
- --------------------------------------------------------------------------------------------------------------------------------
Case New Holland, Inc., 7.125%, 2014 $ 6,815,000 $ 7,155,750
- --------------------------------------------------------------------------------------------------------------------------------
Major Banks - 7.6%
- --------------------------------------------------------------------------------------------------------------------------------
BAC Capital Trust XIV, 5.63% to 2012, FRN to 2043 $ 6,300,000 $ 6,324,494
Bank of America Corp., 5.49%, 2019 (n) 8,100,000 8,035,986
Barclays Bank PLC, 8.55% to 2011, FRN to 2049 (n) 10,798,000 12,107,970
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) 7,063,000 6,805,984
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (n) 7,199,000 7,366,283
MUFG Capital Finance 1 Ltd., 6.346% to 2016, FRN to 2049 10,231,000 10,449,319
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049 (n) 9,752,000 10,091,223
PNC Funding Corp., 5.625%, 2017 4,570,000 4,609,672
Royal Bank of Scotland Group PLC, 9.118%, 2049 2,152,000 2,375,713
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049 (n) 12,502,000 12,620,907
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (n) 5,204,000 5,844,050
Wachovia Corp., 4.875%, 2014 3,896,000 3,793,746
Wachovia Corp., 6.605%, 2025 7,936,000 8,633,606
--------------
$ 99,058,953
- --------------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.9%
- --------------------------------------------------------------------------------------------------------------------------------
Cardinal Health, Inc., 5.85%, 2017 $ 2,105,000 $ 2,106,488
Fisher Scientific International, Inc., 6.125%, 2015 6,885,000 6,908,030
HCA, Inc., 8.75%, 2010 4,117,000 4,358,874
Hospira, Inc., 5.55%, 2012 1,390,000 1,397,588
Hospira, Inc., 6.05%, 2017 5,030,000 5,081,774
McKesson Corp., 5.7%, 2017 5,010,000 5,002,149
--------------
$ 24,854,903
- --------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.1%
- --------------------------------------------------------------------------------------------------------------------------------
International Steel Group, Inc., 6.5%, 2014 $ 6,119,000 $ 6,397,170
Peabody Energy Corp., 5.875%, 2016 4,265,000 4,083,738
Vale Overseas Ltd., 6.25%, 2017 4,337,000 4,447,611
--------------
$ 14,928,519
- --------------------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 9.1%
- --------------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2017 - 2035 $ 40,198,061 $ 40,084,230
Fannie Mae, 6%, 2017 - 2035 13,136,346 13,277,016
Fannie Mae, 4.5%, 2018 10,765,657 10,451,366
Fannie Mae, 7.5%, 2030 - 2031 2,433,186 2,547,138
Fannie Mae, 6.5%, 2032 - 2036 7,489,069 7,714,291
Freddie Mac, 6%, 2021 - 2034 4,708,005 4,777,661
Freddie Mac, 5%, 2025 - 2035 28,847,577 28,007,717
Freddie Mac, 5.5%, 2035 12,268,929 12,147,996
--------------
$ 119,007,415
- --------------------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.9%
- --------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 8,438,000 $ 9,423,567
CenterPoint Energy, Inc., 5.95%, 2017 2,950,000 2,977,904
Kinder Morgan Energy Partners LP, 5.125%, 2014 2,559,000 2,492,302
Kinder Morgan Energy Partners LP, 7.4%, 2031 3,627,000 3,991,495
Kinder Morgan, Inc., 6.8%, 2008 3,345,000 3,389,499
Magellan Midstream Partners LP, 5.65%, 2016 4,760,000 4,722,077
Spectra Energy Capital LLC, 8%, 2019 5,750,000 6,618,187
Williams Cos., Inc., 7.125%, 2011 4,311,000 4,526,550
--------------
$ 38,141,581
- --------------------------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.7%
- --------------------------------------------------------------------------------------------------------------------------------
AT&T, Inc., 5.1%, 2014 $ 8,569,000 $ 8,413,884
CenturyTel, Inc., 8.375%, 2010 230,000 251,902
Deutsche Telekom International Finance B.V., 8%, 2010 3,029,000 3,277,648
Telecom Italia Capital, 6.2%, 2011 6,070,000 6,262,455
Telecomunicaciones de Puerto Rico, Inc., 6.8%, 2009 2,346,000 2,401,638
Telefonica Emisiones S.A.U., 7.045%, 2036 3,450,000 3,701,602
Telefonica Europe B.V., 7.75%, 2010 6,019,000 6,483,817
Verizon New York, Inc., 6.875%, 2012 3,786,000 3,999,485
--------------
$ 34,792,431
- --------------------------------------------------------------------------------------------------------------------------------
Oil Services - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $ 5,729,000 $ 5,800,630
- --------------------------------------------------------------------------------------------------------------------------------
Oils - 0.8%
- --------------------------------------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 10,500,000 $ 10,837,533
- --------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 6.6%
- --------------------------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co. S.A., FRN, 7.35%, 2012 (z) $ 3,470,000 $ 3,470,000
Alfa Diversified Payment Rights Finance Co., FRN, 7.2549%, 2011 (n) 4,120,150 4,120,150
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 4,158,000 4,170,474
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049 (n) 6,696,000 6,497,316
Citigroup, Inc., 5%, 2014 5,712,000 5,589,112
Credit Suisse (USA), Inc., 4.875%, 2010 8,611,000 8,581,774
Fifth Third Bancorp, 5.45%, 2017 5,600,000 5,579,644
Kazkommerts International B.V., 8.5%, 2013 4,196,000 4,437,270
Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) 9,630,000 9,891,387
Mizuho Financial Group, Inc., 5.79%, 2014 (n) 5,310,000 5,419,885
Nordea Bank AB, 5.424% to 2015, FRN to 2049 (n) 4,178,000 4,104,898
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 6,312,000 6,281,450
Russian Standard Finance S.A., 8.625%, 2011 (n) 3,883,000 3,926,684
Turanalem Finance B.V., 8.25%, 2037 (n) 1,042,000 1,047,210
UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 6,470,000 6,687,411
UFJ Finance Aruba AEC, 6.75%, 2013 6,193,000 6,675,026
--------------
$ 86,479,691
- --------------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.8%
- --------------------------------------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013 $ 3,975,000 $ 4,327,781
Idearc, Inc., 8%, 2016 (n) 5,655,000 5,895,337
--------------
$ 10,223,118
- --------------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.9%
- --------------------------------------------------------------------------------------------------------------------------------
CSX Corp., 6.3%, 2012 $ 4,932,000 $ 5,100,191
TFM S.A. de C.V., 9.375%, 2012 6,032,000 6,514,560
--------------
$ 11,614,751
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate - 2.3%
- --------------------------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, REIT, 6.25%, 2016 $ 6,245,000 $ 6,500,002
Liberty Property Ltd. Partnership, REIT, 5.5%, 2016 4,340,000 4,318,053
ProLogis, REIT, 5.75%, 2016 6,887,000 7,015,987
ProLogis, REIT, 5.625%, 2016 1,300,000 1,312,155
Simon Property Group LP, REIT, 6.35%, 2012 4,283,000 4,506,842
Simon Property Group LP, REIT, 5.75%, 2015 6,800,000 6,923,978
--------------
$ 30,577,017
- --------------------------------------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 2,887,000 $ 3,237,551
- --------------------------------------------------------------------------------------------------------------------------------
Retailers - 1.4%
- --------------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.625%, 2010 $ 4,765,000 $ 5,074,725
Federated Retail Holdings, Inc., 5.35%, 2012 3,170,000 3,168,412
Home Depot, Inc., 5.4%, 2016 3,037,000 2,974,222
Home Depot, Inc., 5.875%, 2036 3,470,000 3,363,329
J.C. Penney Corp., Inc., 8%, 2010 527,000 563,998
J.C. Penney Corp., Inc., 5.75%, 2018 1,300,000 1,297,011
J.C. Penney Corp., Inc., 6.375%, 2036 1,300,000 1,295,735
--------------
$ 17,737,432
- --------------------------------------------------------------------------------------------------------------------------------
Supranational - 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
Corporacion Andina de Fomento, 6.875%, 2012 $ 2,747,000 $ 2,931,928
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
- --------------------------------------------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 9.75%, 2008 (n) $ 3,758,000 $ 3,857,587
Nextel Communications, Inc., 5.95%, 2014 9,650,000 9,500,039
Rogers Wireless, Inc., 7.25%, 2012 3,315,000 3,571,913
--------------
$ 16,929,539
- --------------------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.6%
- --------------------------------------------------------------------------------------------------------------------------------
Embarq Corp., 7.082%, 2016 $ 6,930,000 $ 7,159,653
- --------------------------------------------------------------------------------------------------------------------------------
Tobacco - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Reynolds American, Inc., 7.25%, 2012 $ 5,112,000 $ 5,406,104
- --------------------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.5%
- --------------------------------------------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $ 5,930,000 $ 7,051,784
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 3.1%
- --------------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 $ 5,528,646 $ 5,270,034
Small Business Administration, 4.93%, 2024 6,672,019 6,625,087
Small Business Administration, 4.99%, 2024 5,958,715 5,924,973
Small Business Administration, 4.625%, 2025 6,147,652 5,940,735
Small Business Administration, 4.86%, 2025 3,671,135 3,613,490
Small Business Administration, 5.11%, 2025 13,105,321 13,119,087
--------------
$ 40,493,406
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 3.6%
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.25%, 2023 $ 26,700,000 $ 30,786,355
U.S. Treasury Bonds, 4.5%, 2036 3,665,000 3,475,450
U.S. Treasury Notes, TIPS, 2%, 2014 7,512,624 7,449,232
U.S. Treasury Notes, TIPS, 2.375%, 2017 5,251,429 5,333,277
--------------
$ 47,044,314
- --------------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 7.4%
- --------------------------------------------------------------------------------------------------------------------------------
AES Corp., 8.875%, 2011 $ 6,068,000 $ 6,553,440
Allegheny Energy Supply Co. LLC, 8.25%, 2012 (n) 8,890,000 9,645,650
Beaver Valley Funding Corp., 9%, 2017 9,886,000 11,224,367
DPL, Inc., 6.875%, 2011 3,644,000 3,860,705
Empresa Nacional de Electricidad S.A., 8.35%, 2013 3,211,000 3,640,494
Enersis S.A., 7.375%, 2014 4,189,000 4,548,056
Exelon Generation Co. LLC, 6.95%, 2011 8,341,000 8,791,130
Mirant Americas Generation, Inc., 8.3%, 2011 5,000,000 5,287,500
NiSource Finance Corp., 7.875%, 2010 4,840,000 5,251,686
NorthWestern Corp., 5.875%, 2014 4,275,000 4,248,183
NRG Energy, Inc., 7.375%, 2016 6,825,000 7,089,469
Pacific Gas & Electric Co., 5.8%, 2037 3,500,000 3,448,883
Progress Energy, Inc., 7.1%, 2011 1,798,000 1,920,411
Progress Energy, Inc., 5.625%, 2016 2,828,000 2,857,768
PSEG Power LLC, 5.5%, 2015 1,705,000 1,686,577
System Energy Resources, Inc., 5.129%, 2014 (n) 3,179,723 3,112,409
TXU Energy Co., 7%, 2013 7,105,000 7,397,960
Waterford 3 Funding Corp., 8.09%, 2017 6,068,635 6,278,428
--------------
$ 96,843,116
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $1,248,443,825) $1,256,272,890
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.0%
- --------------------------------------------------------------------------------------------------------------------------------
New Center Asset Trust, 5.29%, due 5/01/07, at Amortized Cost and Value (y) $ 39,492,000 $ 39,492,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,287,935,825) (k) $1,295,764,890
- --------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.0% 13,408,295
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,309,173,185
- --------------------------------------------------------------------------------------------------------------------------------
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the
notional principal and does not reflect the cost of the security.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of Trustees,
aggregating $1,220,179,610 and 94.17% of market value. An independent pricing service provided an evaluated bid for 93.82% of
the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the
ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period
end, the aggregate value of these securities was $205,411,996, representing 15.7% of net assets.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale.
These securities generally may be resold in transactions exempt from registration or to the public if the securities are
subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an
acceptable price may be difficult. The fund holds the following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co. S.A., FRN, 7.35%, 2012 3/23/07 $3,470,000 $3,470,000
Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 3/01/06 2,930,000 2,929,993
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011 7/02/03 - 3/08/07 5,493,225 5,539,913
Chase Commercial Mortgage Securities Corp., 6.6%, 2029 6/07/00 3,248,903 4,118,667
Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8817%, 2049 3/14/07 1,080,160 1,041,473
Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8817%, 2049 3/14/07 1,733,239 1,635,700
Falcon Franchise Loan LLC, 6.5%, 2014 7/15/05 2,370,664 2,428,100
Falcon Franchise Loan LLC, FRN, 3.7848%, 2025 1/29/03 3,158,084 2,337,768
KKR Financial CLO Ltd., "C", FRN, 6.7563%, 2021 4/27/07 3,651,630 3,651,630
Prudential Securities Secured Financing Corp., FRN, 7.3872%, 2013 12/06/04 3,850,157 3,689,212
Spirit Master Funding LLC, 5.05%, 2023 10/04/05 2,824,784 2,763,002
TPREF Funding III Ltd., CDO, 5.34% to 2008, FRN to 2033 4/18/06 6,587,624 6,635,367
Wachovia Bank Commercial Mortgage Trust, FRN, 6.021%, 2043 3/14/07 2,744,392 2,644,058
- ------------------------------------------------------------------------------------------------------------------------------------
Total Restricted Securities $42,884,883 3.3%
=======================
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
CLO Collateralized Loan Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
REIT Real Estate Investment Trust
TIPS Treasury Inflation Protected Security
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
3/20/17 USD 1,060,000 JPMorgan Chase Bank (1) 0.8% (fixed rate) $ 11,689
3/20/17 USD 1,049,000 Merrill Lynch (1) 0.81% (fixed rate) 10,792
International
3/20/17 USD 1,060,000 JPMorgan Chase Bank (1) 0.78% (fixed rate) 13,305
3/20/17 USD 3,270,000 Merrill Lynch (2) 0.37% (fixed rate) 21,120
International
3/20/17 USD 3,270,000 JPMorgan Chase Bank (3) 0.38% (fixed rate) 19,807
3/20/17 USD 2,520,000 Goldman Sachs (4) 0.40% (fixed rate) (32,138)
International
3/20/17 USD 3,180,000 Goldman Sachs 0.52% (fixed rate) (5) (17,099)
International
3/20/17 USD 3,270,000 JPMorgan Chase Bank 0.49% (fixed rate) (5) (25,164)
6/20/17 USD 3,200,000 Merrill Lynch (6) 0.91% (fixed rate) (12,356)
International
--------
$(10,044)
========
(1) Fund to receive notional amount upon a defined credit default event by Waste Management. Inc., 7.375%, 8/01/10.
(2) Fund to receive notional amount upon a defined credit default event by Rohm & Haas Co., 7.85%, 7/15/29.
(3) Fund to receive notional amount upon a defined credit default event by PPG Industries, Inc., 7.05%, 8/15/09.
(4) Fund to receive notional amount upon a defined credit default event by Dover Corp., 6.25%, 6/01/08.
(5) Fund to pay notional amount upon a defined credit default event by Burlington Northern Santa Fe Corp., 6.75%, 7/15/11.
(6) Fund to receive notional amount upon a defined credit default event by New York Times Co., 4.61%, 9/26/12.
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative
contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $1,287,935,825) $1,295,764,890
Cash 16,955
Receivable for investments sold 6,289,847
Receivable for fund shares sold 1,995,199
Interest receivable 17,229,416
Unrealized appreciation on credit default swaps 76,713
Other assets 16,975
- ------------------------------------------------------------------------------------------------------
Total assets $1,321,389,995
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $823,074
Payable for investments purchased 5,842,380
Payable for fund shares reacquired 4,539,961
Unrealized depreciation on credit default swaps 86,757
Payable to affiliates
Management fee 42,838
Shareholder servicing costs 520,744
Distribution and service fees 59,128
Administrative services fee 2,565
Retirement plan administration and services fees 2,048
Payable for independent trustees' compensation 103,426
Accrued expenses and other liabilities 193,889
- ------------------------------------------------------------------------------------------------------
Total liabilities $12,216,810
- ------------------------------------------------------------------------------------------------------
Net assets $1,309,173,185
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $1,363,291,022
Unrealized appreciation (depreciation) on investments 7,819,021
Accumulated net realized gain (loss) on investments (61,603,007)
Accumulated distributions in excess of net investment income (333,851)
- ------------------------------------------------------------------------------------------------------
Net assets $1,309,173,185
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 103,232,205
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $832,751,603
Shares outstanding 65,620,977
- ------------------------------------------------------------------------------------------------------
Net asset value per share $12.69
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $13.32
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $164,851,657
Shares outstanding 13,032,151
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.65
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $79,473,282
Shares outstanding 6,290,355
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $12.63
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $49,251,216
Shares outstanding 3,879,443
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.70
- ------------------------------------------------------------------------------------------------------
Class R shares
- ------------------------------------------------------------------------------------------------------
Net assets $40,761,723
Shares outstanding 3,213,281
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.69
- ------------------------------------------------------------------------------------------------------
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $3,611,606
Shares outstanding 285,602
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.65
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $2,882,910
Shares outstanding 228,015
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.64
- ------------------------------------------------------------------------------------------------------
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $27,068,584
Shares outstanding 2,133,599
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.69
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $38,826,929
Shares outstanding 3,060,058
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.69
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $69,693,675
Shares outstanding 5,488,724
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $12.70
- ------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A shares are 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 4/30/07
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
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Interest income $78,812,789
Other 265,562
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Total investment income $79,078,351
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Expenses
Management fee $5,017,361
Distribution and service fees 5,759,408
Program manager fees 2,165
Shareholder servicing costs 1,967,640
Administrative services fee 235,372
Retirement plan administration and services fees 110,345
Independent trustees' compensation 40,994
Custodian fee 494,981
Shareholder communications 66,141
Auditing fees 54,274
Legal fees 17,862
Miscellaneous 205,785
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Total expenses $13,972,328
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Fees paid indirectly (117,840)
Reduction of expenses by investment adviser (1,170,494)
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Net expenses $12,683,994
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Net investment income $66,394,357
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
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Realized gain (loss) (identified cost basis)
Investment transactions $4,628,464
Futures contracts (52,111)
Swap transactions (159,071)
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Net realized gain (loss) on investments $4,417,282
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Change in unrealized appreciation (depreciation)
Investments $27,999,235
Swap transactions 69,777
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Net unrealized gain (loss) on investments $28,069,012
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Net realized and unrealized gain (loss) on investments $32,486,294
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $98,880,651
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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 4/30
----------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
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Net investment income $66,394,357 $66,453,461
Net realized gain (loss) on investments 4,417,282 (482,228)
Net unrealized gain (loss) on investments 28,069,012 (52,141,153)
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Change in net assets from operations $98,880,651 $13,830,080
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DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
From net investment income
Class A $(46,541,934) $(49,673,439)
Class B (9,212,451) (12,636,755)
Class C (3,708,159) (3,832,093)
Class I (2,549,390) (2,469,539)
Class R (2,169,220) (1,816,984)
Class R1 (125,469) (39,989)
Class R2 (79,913) (15,377)
Class R3 (929,392) (292,716)
Class R4 (1,179,768) (49,520)
Class R5 (826,175) (2,815)
Class 529A (23,415) (23,914)
Class 529B (7,535) (7,314)
Class 529C (10,303) (13,092)
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Total distributions declared to shareholders $(67,363,124) $(70,873,547)
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Change in net assets from fund share transactions $(34,861,439) $(22,657,557)
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Total change in net assets $(3,343,912) $(79,701,024)
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NET ASSETS
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At beginning of period 1,312,517,097 1,392,218,121
At end of period (including accumulated distributions in
excess of net investment income of $333,851 and
$3,433,551, respectively) $1,309,173,185 $1,312,517,097
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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 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.
CLASS A YEARS ENDED 4/30
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2007 2006 2005 2004 2003
Net asset value, beginning of period $12.38 $12.91 $12.92 $13.03 $12.27
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.66 $0.64 $0.65 $0.65 $0.70
Net realized and unrealized gain (loss)
on investments 0.32 (0.49) 0.05 (0.05) 0.82
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Total from investment operations $0.98 $0.15 $0.70 $0.60 $1.52
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.67) $(0.68) $(0.71) $(0.71) $(0.76)
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Net asset value, end of period $12.69 $12.38 $12.91 $12.92 $13.03
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Total return (%) (r)(s)(t) 8.13 1.11 5.55 4.67 12.84
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 0.93 0.97 0.93 0.94 0.92
Expenses after expense reductions (f) 0.84 0.88 0.84 0.93 N/A
Net investment income 5.29 4.99 4.98 4.95 5.59
Portfolio turnover 45 55 40 73 112
Net assets at end of period (000 omitted) $832,752 $896,891 $926,909 $956,960 $1,116,853
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 4/30
----------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $12.34 $12.86 $12.88 $12.99 $12.23
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.57 $0.55 $0.56 $0.55 $0.61
Net realized and unrealized gain (loss)
on investments 0.32 (0.48) 0.04 (0.04) 0.82
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Total from investment operations $0.89 $0.07 $0.60 $0.51 $1.43
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.58) $(0.59) $(0.62) $(0.62) $(0.67)
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Net asset value, end of period $12.65 $12.34 $12.86 $12.88 $12.99
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Total return (%) (r)(s)(t) 7.39 0.47 4.74 3.94 12.09
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 1.63 1.67 1.63 1.64 1.62
Expenses after expense reductions (f) 1.54 1.58 1.54 1.63 N/A
Net investment income 4.60 4.28 4.29 4.25 4.89
Portfolio turnover 45 55 40 73 112
Net assets at end of period (000 omitted) $164,852 $230,360 $307,017 $376,847 $474,882
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CLASS C YEARS ENDED 4/30
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2007 2006 2005 2004 2003
Net asset value, beginning of period $12.33 $12.85 $12.87 $12.97 $12.22
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.57 $0.54 $0.55 $0.55 $0.61
Net realized and unrealized gain (loss)
on investments 0.31 (0.48) 0.05 (0.04) 0.81
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Total from investment operations $0.88 $0.06 $0.60 $0.51 $1.42
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.58) $(0.58) $(0.62) $(0.61) $(0.67)
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Net asset value, end of period $12.63 $12.33 $12.85 $12.87 $12.97
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Total return (%) (r)(s)(t) 7.31 0.47 4.74 4.02 12.02
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 1.63 1.67 1.63 1.64 1.62
Expenses after expense reductions (f) 1.54 1.58 1.54 1.63 N/A
Net investment income 4.59 4.29 4.28 4.25 4.91
Portfolio turnover 45 55 40 73 112
Net assets at end of period (000 omitted) $79,473 $79,921 $82,890 $91,338 $108,718
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 4/30
---------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $12.39 $12.91 $12.93 $13.03 $12.27
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.70 $0.67 $0.69 $0.69 $0.67
Net realized and unrealized gain (loss)
on investments 0.32 (0.47) 0.04 (0.04) 0.89
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Total from investment operations $1.02 $0.20 $0.73 $0.65 $1.56
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.71) $(0.72) $(0.75) $(0.75) $(0.80)
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Net asset value, end of period $12.70 $12.39 $12.91 $12.93 $13.03
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Total return (%) (r)(s) 8.45 1.50 5.79 5.06 13.17
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 0.63 0.67 0.63 0.64 0.62
Expenses after expense reductions (f) 0.54 0.58 0.54 0.63 N/A
Net investment income 5.59 5.29 5.28 5.25 5.73
Portfolio turnover 45 55 40 73 112
Net assets at end of period (000 omitted) $49,251 $41,976 $44,604 $41,613 $53,249
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CLASS R YEARS ENDED 4/30
--------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $12.37 $12.90 $12.92 $13.03 $12.67
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.63 $0.60 $0.61 $0.64 $0.11
Net realized and unrealized gain (loss)
on investments 0.34 (0.48) 0.06 (0.07) 0.49(g)
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Total from investment operations $0.97 $0.12 $0.67 $0.57 $0.60
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------
From net investment income $(0.65) $(0.65) $(0.69) $(0.68) $(0.24)
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Net asset value, end of period $12.69 $12.37 $12.90 $12.92 $13.03
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Total return (%) (r)(s) 8.01 0.91 5.26 4.46 4.77(n)
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 1.13 1.17 1.15 1.13 1.12(a)
Expenses after expense reductions (f) 1.04 1.08 1.06 1.12 N/A
Net investment income 5.07 4.81 4.76 5.04 2.95(a)
Portfolio turnover 45 55 40 73 112
Net assets at end of period (000 omitted) $40,762 $45,396 $25,582 $11,353 $872
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 4/30
-------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $12.34 $12.86 $12.80
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income (d) $0.56 $0.53 $0.04
Net realized and unrealized gain (loss) on investments 0.32 (0.48) 0.07(g)
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Total from investment operations $0.88 $0.05 $0.11
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.57) $(0.57) $(0.05)
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Net asset value, end of period $12.65 $12.34 $12.86
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Total return (%) (r)(s) 7.29 0.33 0.85(n)
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 1.81 1.87 1.96(a)
Expenses after expense reductions (f) 1.64 1.70 1.87(a)
Net investment income 4.49 4.28 4.06(a)
Portfolio turnover 45 55 40
Net assets at end of period (000 omitted) $3,612 $1,900 $50
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CLASS R2 YEARS ENDED 4/30
-------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $12.34 $12.86 $12.80
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.59 $0.56 $0.05
Net realized and unrealized gain (loss) on investments 0.32 (0.47) 0.06(g)
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Total from investment operations $0.91 $0.09 $0.11
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.61) $(0.61) $(0.05)
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Net asset value, end of period $12.64 $12.34 $12.86
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Total return (%) (r)(s) 7.58 0.66 0.87(n)
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
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Expenses before expense reductions (f) 1.50 1.58 1.68(a)
Expenses after expense reductions (f) 1.29 1.36 1.59(a)
Net investment income 4.83 4.69 4.37(a)
Portfolio turnover 45 55 40
Net assets at end of period (000 omitted) $2,883 $907 $50
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $12.38 $12.90 $12.92 $12.96
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
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Net investment income (d) $0.62 $0.58 $0.53 $0.31
Net realized and unrealized gain (loss) on investments 0.32 (0.47) 0.11 (0.03)(g)
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Total from investment operations $0.94 $0.11 $0.64 $0.28
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
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From net investment income $(0.63) $(0.63) $(0.66) $(0.32)
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Net asset value, end of period $12.69 $12.38 $12.90 $12.92
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Total return (%) (r)(s) 7.76 0.80 5.00 2.16(n)
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.36 1.42 1.45 1.37(a)
Expenses after expense reductions (f) 1.19 1.26 1.36 1.35(a)
Net investment income 4.94 4.65 4.48 4.84(a)
Portfolio turnover 45 55 40 73
Net assets at end of period (000 omitted) $27,069 $9,992 $4,039 $256
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Financial Highlights - continued
CLASS R4 YEARS ENDED 4/30
--------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $12.38 $12.91 $12.85
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income (d) $0.65 $0.56 $0.05
Net realized and unrealized gain (loss) on investments 0.32 (0.43) 0.07(g)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations $0.97 $0.13 $0.12
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net investment income $(0.66) $(0.66) $(0.06)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.69 $12.38 $12.91
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Total return (%) (r)(s) 8.03 1.01 0.91(n)
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.02 1.09 1.19(a)
Expenses after expense reductions (f) 0.94 1.00 1.10(a)
Net investment income 5.19 5.08 4.93(a)
Portfolio turnover 45 55 40
Net assets at end of period (000 omitted) $38,827 $4,170 $50
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 4/30
--------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $12.38 $12.91 $12.85
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income (d) $0.68 $0.66 $0.06
Net realized and unrealized gain (loss) on investments 0.34 (0.49) 0.06(g)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations $1.02 $0.17 $0.12
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net investment income $(0.70) $(0.70) $(0.06)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.70 $12.38 $12.91
- ---------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 8.43 1.32 0.93(n)
- ---------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.73 0.77 0.90(a)
Expenses after expense reductions (f) 0.64 0.68 0.81(a)
Net investment income 5.84 5.19 5.14(a)
Portfolio turnover 45 55 40
Net assets at end of period (000 omitted) $69,694 $51 $50
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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.
(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, December 31, 2002 (Class R), October 31, 2003 (Class R3),
and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance
would be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS 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. The fund
can invest in foreign securities, including securities of emerging market
issuers. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - 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. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. Swaps are generally valued at
an evaluated bid as reported by an independent pricing service. 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. Values
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. The values of foreign securities and other assets and liabilities
expressed in foreign currencies are converted to U.S. dollars using the mean of
bid and asked prices for rates reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign securities may often be valued at fair value.
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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159
permits entities to elect to measure certain financial assets and liabilities
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected will be reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after November
15, 2007. Management is evaluating the application of the Statement to the fund
and its impact on the fund's financial statements, if any, has not been
determined.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include future contracts and swap agreements.
FUTURES CONTRACT - 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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds a credit default swap in which one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The fund may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
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.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended April 30, 2007, 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.
The tax character of distributions declared to shareholders is as follows:
4/30/07 4/30/06
Ordinary income (including
any short-term capital gains) $67,363,124 $70,873,547
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $1,297,593,363
------------------------------------------------------------
Gross appreciation 16,004,764
Gross depreciation (17,833,237)
------------------------------------------------------------
Net unrealized appreciation (depreciation) $(1,828,473)
Undistributed ordinary income 5,313,714
Capital loss carryforwards (51,406,320)
Post-October capital loss deferral (545,434)
Other temporary differences (5,651,324)
As of April 30, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
4/30/09 $(11,366,948)
4/30/10 (4,472,574)
4/30/11 (26,201,916)
4/30/15 (9,364,882)
--------------------------------------
$(51,406,320)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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. Class 529A, Class 529B, and Class 529C shares closed on
March 31, 2007.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with 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 the following annual
rates:
First $1.1 billion of average daily net assets 0.39%
Average daily net assets in excess of $1.1 billion 0.38%
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters, MFS has agreed to reduce the management fee
to 0.30% of the fund's average daily net assets for the period March 1, 2004
through February 28, 2009. For the year ended April 30, 2007, this waiver
amounted to $1,143,129 and is reflected as a reduction of total expenses in the
Statement of Operations. The management fee incurred for the year ended April
30, 2007 was equivalent to an annual effective rate of 0.30% of the fund's
average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $98,192 and $366 for the year ended April 30,
2007, as its portion of the initial sales charge on sales of Class A and Class
529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.30% $2,601,473
Class B 0.75% 0.25% 1.00% 1.00% 1,971,763
Class C 0.75% 0.25% 1.00% 1.00% 793,879
Class R 0.25% 0.25% 0.50% 0.50% 209,952
Class R1 0.50% 0.25% 0.75% 0.75% 20,569
Class R2 0.25% 0.25% 0.50% 0.50% 8,096
Class R3 0.25% 0.25% 0.50% 0.50% 92,312
Class R4 -- 0.25% 0.25% 0.25% 55,702
Class 529A 0.25% 0.25% 0.50% 0.35% 1,616
Class 529B 0.75% 0.25% 1.00% 1.00% 1,701
Class 529C 0.75% 0.25% 1.00% 1.00% 2,345
- --------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $5,759,408
(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 April 30, 2007 based on each class' average daily net assets. Assets attributable to Class A
shares sold prior to March 1, 1991 are subject to a service fee of 0.15% annually. 0.05% of the Class
A distribution fee is currently being paid by the fund and 0.10% of Class 529A distribution fee was
being paid prior to the closure of the share class. Payment of the remaining 0.05% of the Class A
distribution fee is not yet in effect and will be implemented on such date as the fund's Board of
Trustees may determine.
Certain Class A 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 April 30,
2007, were as follows:
AMOUNT
Class A $22,611
Class B 291,898
Class C 13,985
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an annual
fee of up to 0.35% of the average daily net assets attributable to each 529
share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily net assets of the fund's 529
share classes. The fee may only be increased with the approval of the Board of
Trustees who oversees the fund. The services provided by MFD, or a third party
with which MFD contracts, include recordkeeping and tax reporting and account
services, as well as services designed to maintain the program's compliance
with the Internal Revenue Code and other regulatory requirements. Class 529A,
Class 529B, and Class 529C shares closed March 31, 2007. Program manager fees
for the year ended April 30, 2007, were as follows:
AMOUNT
Class 529A $1,154
Class 529B 425
Class 529C 586
-------------------------------------------
Total Program Manager Fees $2,165
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended April 30, 2007, the fee was $1,025,888, which
equated to 0.0794% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $725,583. The fund may also pay shareholder servicing related costs
directly 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. The fund's annual
fixed amount is $17,500.
The administrative services fee incurred for the year ended April 30, 2007 was
equivalent to an annual effective rate of 0.0182% 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 April 30, 2007,
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:
BEGINNING
OF PERIOD ANNUAL
THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
- --------------------------------------------------------------------------------
Class R1 0.45% 0.35% 0.35% $12,047
Class R2 0.40% 0.25% 0.25% 6,129
Class R3 0.25% 0.15% 0.15% 43,973
Class R4 0.15% 0.15% 0.15% 33,422
Class R5 0.10% 0.10% 0.10% 14,774
- --------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $110,345
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of the
retirement plan administration and services fee equal to 0.10% for Class
R1, 0.15% for Class R2, and 0.10% for Class R3 shares. This agreement was
discontinued on March 31, 2007. On April 1, 2007, the annual retirement
plan administration and services fee for Class R1, Class R2, and Class R3
shares was lowered to 0.35%, 0.25%, and 0.15%, respectively. For the year
ended April 30, 2007, this waiver amounted to $20,808 and is reflected as a
reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired independent
trustees which resulted in a pension expense of $5,197. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $4,065. Both amounts are included in
independent trustees' compensation for the year ended April 30, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $99,507 at April 30, 2007, and is
included in payable for independent trustees' compensation.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended April 30, 2007, the fee paid to Tarantino LLC was
$8,254. MFS has agreed to reimburse the fund for a portion of the payments made
by the funds to Tarantino LLC in the amount of $6,557, 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 $33,498,029 $69,220,540
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $535,594,052 $542,299,642
- -------------------------------------------------------------------------------
(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
4/30/07 4/30/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 18,639,614 $233,613,667 20,091,208 $256,435,636
Class B 2,168,881 27,059,079 2,857,304 36,362,052
Class C 1,457,116 18,193,597 1,519,007 19,310,927
Class I 1,224,745 15,403,274 892,036 11,424,813
Class R 2,038,452 25,586,455 2,351,402 29,875,902
Class R1 417,589 5,232,778 169,258 2,146,714
Class R2 320,893 4,028,413 95,575 1,201,608
Class R3 3,225,362 40,508,120 695,039 8,782,935
Class R4 5,025,829 62,990,729 362,812 4,566,302
Class R5 5,775,853 72,879,893 -- --
Class 529A (c) 5,608 70,616 17,645 225,078
Class 529B (c) 2,990 37,252 812 10,285
Class 529C (c) 5,290 65,995 3,239 41,333
- -----------------------------------------------------------------------------------------------------
40,308,222 $505,669,868 29,055,337 $370,383,585
Shares issued to shareholders in
reinvestment of distributions
Class A 3,155,228 $39,555,451 3,364,696 $42,854,267
Class B 573,715 7,164,418 768,738 9,769,391
Class C 195,113 2,436,063 199,942 2,535,501
Class I 195,788 2,457,055 191,822 2,444,155
Class R 155,906 1,950,948 133,037 1,687,826
Class R1 9,941 124,434 3,152 39,616
Class R2 6,353 79,638 1,201 15,094
Class R3 73,099 918,638 22,893 290,174
Class R4 93,216 1,174,379 3,925 49,143
Class R5 64,705 821,559 221 2,815
Class 529A (c) 1,743 21,826 1,854 23,628
Class 529B (c) 563 7,017 575 7,299
Class 529C (c) 775 9,662 1,027 13,030
- -----------------------------------------------------------------------------------------------------
4,526,145 $56,721,088 4,693,083 $59,731,939
Shares reacquired
Class A (28,617,596) $(358,268,389) (22,828,815) $(290,435,943)
Class B (8,376,957) (104,488,165) (8,824,386) (111,996,875)
Class C (1,845,623) (23,019,306) (1,685,730) (21,353,028)
Class I (930,032) (11,655,683) (1,149,209) (14,664,605)
Class R (2,650,149) (33,192,977) (798,431) (10,137,097)
Class R1 (295,901) (3,715,515) (22,358) (283,408)
Class R2 (172,716) (2,168,121) (27,213) (340,281)
Class R3 (1,972,028) (24,826,178) (223,755) (2,833,014)
Class R4 (2,395,784) (30,207,342) (33,848) (423,997)
Class R5 (355,964) (4,517,980) -- --
Class 529A (c) (47,586) (605,624) (16,163) (207,708)
Class 529B (c) (17,216) (218,085) (1,394) (18,045)
Class 529C (c) (29,273) (369,030) (6,207) (79,080)
- -----------------------------------------------------------------------------------------------------
(47,706,825) $(597,252,395) (35,617,509) $(452,773,081)
Net change
Class A (6,822,754) $(85,099,271) 627,089 $8,853,960
Class B (5,634,361) (70,264,668) (5,198,344) (65,865,432)
Class C (193,394) (2,389,646) 33,219 493,400
Class I 490,501 6,204,646 (65,351) (795,637)
Class R (455,791) (5,655,574) 1,686,008 21,426,631
Class R1 131,629 1,641,697 150,052 1,902,922
Class R2 154,530 1,939,930 69,563 876,421
Class R3 1,326,433 16,600,580 494,177 6,240,095
Class R4 2,723,261 33,957,766 332,889 4,191,448
Class R5 5,484,594 69,183,472 221 2,815
Class 529A (c) (40,235) (513,182) 3,336 40,998
Class 529B (c) (13,663) (173,816) (7) (461)
Class 529C (c) (23,208) (293,373) (1,941) (24,717)
- -----------------------------------------------------------------------------------------------------
(2,872,458) $(34,861,439) (1,869,089) $(22,657,557)
(c) Class 529A, Class 529B, and Class 529C shares closed on March 31, 2007.
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30% for the committed line of credit and 0.35% for the uncommitted
line of credit. 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
April 30, 2007, the fund's commitment fee and interest expense were $5,068 and
$0, 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 Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Bond Fund (one of the portfolios
comprising MFS Series Trust IX (the "Trust")) as of April 30, 2007, 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 five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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 April 30, 2007, 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 Bond Fund as of
April 30, 2007, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 13, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of June 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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 Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
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 Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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 Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) 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 Officer compliance services), Principal
(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 Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) 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, Gutow, 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, 2007, the Trustees served as board members of 97 funds within
the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- ----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR Effective May 1, 2007, the custodian changed to:
MFS Fund Distributors, Inc. JPMorgan Chase Bank
500 Boylston Street, Boston, MA 02116-3741 One Chase Manhattan Plaza
New York, NY 10081
PORTFOLIO MANAGERS
Richard Hawkins INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Robert Persons Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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 2007 income
tax forms in January 2008.
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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) LIMITED MATURITY 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 19
- --------------------------------------------------------------
STATEMENT OF OPERATIONS 22
- --------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 23
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS 24
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 32
- --------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 46
- --------------------------------------------------------------
TRUSTEES AND OFFICERS 47
- --------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 53
- --------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 53
- --------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 53
- --------------------------------------------------------------
FEDERAL TAX INFORMATION 53
- --------------------------------------------------------------
MFS(R) PRIVACY NOTICE 54
- --------------------------------------------------------------
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
- ------------------------------------------------------------------------------
4/30/07
MQL-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks and
troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. 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
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
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
PORTOLIO STRUCTURE(i)
Bonds 87.0%
Cash & Other Net Assets 13.0%
FIXED INCOME SECTORS (i)
High Grade Corporates 47.8%
------------------------------------------------
Mortgage-Backed Securities 17.0%
------------------------------------------------
U.S. Government Agencies 8.4%
------------------------------------------------
Asset-Backed Securities 7.3%
------------------------------------------------
Commercial Mortgage-Backed
Securities 7.3%
------------------------------------------------
Non-U.S. Government Bonds 3.6%
------------------------------------------------
Emerging Market Bonds 3.1%
------------------------------------------------
Residential Mortgage-Backed Securities 2.3%
------------------------------------------------
High Yield Corporates 0.8%
------------------------------------------------
U.S. Treasury Securities (10.6)%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 45.5%
------------------------------------------------
AA 6.9%
------------------------------------------------
A 16.1%
------------------------------------------------
BBB 29.9%
------------------------------------------------
BB 0.7%
------------------------------------------------
B 0.5%
------------------------------------------------
Not Rated 0.4%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 1.6
------------------------------------------------
Average Life (i)(m) 2.5 yrs
------------------------------------------------
Average Maturity (i)(m) 10.5 yrs
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) A+
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable, which may result in the investment in a sector of less than
0%.
(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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended April 30, 2007, Class A shares of the MFS Limited
Maturity Fund provided a total return of 5.65%, at net asset value. This
compares with a return of 5.33% for the fund's benchmark, the Lehman Brothers
1-3 Year U.S. Government/Credit Bond Index.
CONTRIBUTORS TO PERFORMANCE
The portfolio benefited from underweighting U.S. Treasury securities and
overweighting corporate bonds as the credit sector outperformed both
Treasuries and the benchmark. An overweighted position in the financial
services sector was particularly favorable. The portfolio's allocation to
corporate bonds also boosted the yield of the portfolio, compared with that of
the benchmark, as corporate securities generated higher income than
Treasuries.
DETRACTORS FROM PERFORMANCE
The portfolio's holdings in U.S. Treasury and government agency securities
held back relative performance as these bonds typically underperformed the
broad benchmark during the reporting period. Positioning in mortgage-backed
securities also dampened investment results.
Respectfully,
James Calmas
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
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 4/30/07
The following chart illustrates a representative class of the fund's
historical performance 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. 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
MFS Limited Lehman Brothers
Maturity 1-3 Year U.S.
Fund Government/Credit
- Class A Bond Index
4/97 $ 9,750 $10,000
4/98 10,332 10,717
4/99 10,772 11,364
4/00 11,064 11,769
4/01 12,123 12,949
4/02 12,793 13,800
4/03 13,506 14,681
4/04 13,722 14,926
4/05 13,933 15,140
4/06 14,256 15,480
4/07 15,062 16,306
TOTAL RETURNS THROUGH 4/30/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -------------------------------------------------------------------------
A 2/26/92 5.65% 3.32% 4.44%
- -------------------------------------------------------------------------
B 9/07/93 4.70% 2.52% 3.62%
- -------------------------------------------------------------------------
C 7/01/94 4.60% 2.44% 3.53%
- -------------------------------------------------------------------------
I 1/02/97 5.65% 3.44% 4.56%
- -------------------------------------------------------------------------
R 12/31/02 5.23% 3.09% 4.33%
- -------------------------------------------------------------------------
R1 4/01/05 4.66% 2.43% 3.57%
- -------------------------------------------------------------------------
R2 4/01/05 5.03% 2.58% 3.64%
- -------------------------------------------------------------------------
R3 10/31/03 5.07% 2.72% 3.72%
- -------------------------------------------------------------------------
R4 4/01/05 5.39% 3.21% 4.39%
- -------------------------------------------------------------------------
R5 4/01/05 5.71% 3.34% 4.46%
- -------------------------------------------------------------------------
529A 7/31/02 5.12% 2.96% 4.26%
- -------------------------------------------------------------------------
529B 7/31/02 4.47% 2.25% 3.48%
- -------------------------------------------------------------------------
529C 7/31/02 4.34% 2.22% 3.42%
- -------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -------------------------------------------------------------------------
Lehman Brothers 1-3 Year U.S.
Government/Credit Bond Index (f) 5.33% 3.39% 5.01%
- -------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -------------------------------------------------------------------------
A 3.01% 2.80% 4.18%
With Initial Sales Charge (2.50%)
- -------------------------------------------------------------------------
B 0.70% 2.18% 3.62%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -------------------------------------------------------------------------
C 3.60% 2.44% 3.53%
With CDSC (1% for 12 months) (x)
- -------------------------------------------------------------------------
529A 2.49% 2.44% 4.00%
With Initial Sales Charge (2.50%)
- -------------------------------------------------------------------------
529B 0.47% 1.91% 3.48%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -------------------------------------------------------------------------
529C 3.34% 2.22% 3.42%
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.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Lehman Brothers 1-3 Year U.S. Government/Credit Bond Index - measures the
short term investment-grade corporate and U.S. government fixed income
markets. Securities in the index have a maturity from 1 year up to (but not
including) 3 years.
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 and certain
other retirement plans. 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. Class 529 shares are only available in conjunction
with qualified tuition programs, such as the MFS 529 Savings Plan. There also
is an additional fee, which is detailed in the program description, on
qualified tuition programs. If this fee was reflected, the performance for
Class 529 shares would have been lower. This annual fee is waived for Oregon
residents and for those accounts with assets of $25,000 or more.
Performance for classes R, R4, R5 and 529A shares includes the performance of
the fund's class A shares for periods prior to their offering. Performance for
classes R1, R2, R3 and 529B shares includes the performance of the fund's
class B shares for periods prior to their offering. Performance for class 529C
shares includes the performance of the fund's class C 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.
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,
November 1, 2006 through April 30, 2007.
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 November 1, 2006 through
April 30, 2007.
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 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
- --------------------------------------------------------------------------------
Actual 0.63% $1,000.00 $1,026.10 $3.16
A -----------------------------------------------------------------------
Hypothetical (h) 0.63% $1,000.00 $1,021.67 $3.16
- --------------------------------------------------------------------------------
Actual 1.40% $1,000.00 $1,022.30 $7.02
B -----------------------------------------------------------------------
Hypothetical (h) 1.40% $1,000.00 $1,017.85 $7.00
- --------------------------------------------------------------------------------
Actual 1.48% $1,000.00 $1,021.80 $7.42
C -----------------------------------------------------------------------
Hypothetical (h) 1.48% $1,000.00 $1,017.46 $7.40
- --------------------------------------------------------------------------------
Actual 0.48% $1,000.00 $1,026.90 $2.41
I -----------------------------------------------------------------------
Hypothetical (h) 0.48% $1,000.00 $1,022.41 $2.41
- --------------------------------------------------------------------------------
Actual 0.88% $1,000.00 $1,024.80 $4.42
R -----------------------------------------------------------------------
Hypothetical (h) 0.88% $1,000.00 $1,020.43 $4.41
- --------------------------------------------------------------------------------
Actual 1.58% $1,000.00 $1,021.30 $7.92
R1 -----------------------------------------------------------------------
Hypothetical (h) 1.58% $1,000.00 $1,016.96 $7.90
- --------------------------------------------------------------------------------
Actual 1.23% $1,000.00 $1,023.10 $6.17
R2 -----------------------------------------------------------------------
Hypothetical (h) 1.23% $1,000.00 $1,018.70 $6.16
- --------------------------------------------------------------------------------
Actual 1.03% $1,000.00 $1,022.50 $5.17
R3 -----------------------------------------------------------------------
Hypothetical (h) 1.03% $1,000.00 $1,019.69 $5.16
- --------------------------------------------------------------------------------
Actual 0.88% $1,000.00 $1,024.80 $4.42
R4 -----------------------------------------------------------------------
Hypothetical (h) 0.88% $1,000.00 $1,020.43 $4.41
- --------------------------------------------------------------------------------
Actual 0.58% $1,000.00 $1,026.40 $2.91
R5 -----------------------------------------------------------------------
Hypothetical (h) 0.58% $1,000.00 $1,021.92 $2.91
- --------------------------------------------------------------------------------
Actual 0.98% $1,000.00 $1,022.70 $4.91
529A -----------------------------------------------------------------------
Hypothetical (h) 0.98% $1,000.00 $1,019.93 $4.91
- --------------------------------------------------------------------------------
Actual 1.60% $1,000.00 $1,021.20 $8.02
529B -----------------------------------------------------------------------
Hypothetical (h) 1.60% $1,000.00 $1,016.86 $8.00
- --------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $1,020.50 $8.67
529C -----------------------------------------------------------------------
Hypothetical (h) 1.73% $1,000.00 $1,016.22 $8.65
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 97.0%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -----------------------------------------------------------------------------------------------------
Airlines - 0.1%
- -----------------------------------------------------------------------------------------------------
American Airlines Corp., 3.857%, 2010 $ 1,023,807 $ 988,582
- -----------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 16.9%
- -----------------------------------------------------------------------------------------------------
Accredited Mortgage Loan Trust, FRN, 5.53%, 2035 $ 1,226,795 $ 1,227,071
Bayview Commercial Asset Trust, FRN, 5.63%, 2035 (n) 2,764,936 2,771,716
Bayview Commercial Asset Trust, FRN, 5.59%, 2036 (z) 2,111,044 2,115,236
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 (i)(z) 10,412,626 947,252
Bayview Financial Acquisition Trust, FRN, 5.638%, 2036 2,370,000 2,364,817
Bayview Financial Acquisition Trust, FRN, 5.483%, 2041 2,325,000 2,317,612
Bayview Financial Revolving Mortgage Loan Trust, FRN,
6.12%, 2040 (z) 1,402,996 1,402,993
Brascan Real Estate, FRN, 6.9581%, 2040 (z) 1,526,000 1,516,539
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011 (z) 2,930,325 2,959,628
Commercial Mortgage Asset Trust, FRN, 1.1263%, 2032 (i)(n) 29,364,776 1,077,599
Commercial Mortgage Pass-Through Certificates, FRN,
5.51%, 2017 (n) 3,400,000 3,400,789
Continental Airlines, Inc., FRN, 5.81%, 2011 1,209,523 1,213,073
Countrywide Asset-Backed Certificates, FRN, 4.575%, 2035 1,298,963 1,291,246
Credit-Based Asset Servicing & Securitization LLC, FRN,
5.303%, 2035 4,216,085 4,196,807
Credit-Based Asset Servicing & Securitization LLC, FRN,
5.731%, 2037 4,000,000 3,995,000
Credit-Based Asset Servicing & Securitization Trust, 5.737%, 2037 2,830,000 2,832,600
DEPFA Bank PLC, 3.625%, 2008 6,100,000 5,973,718
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 1,629,101 1,632,761
E*TRADE RV & Marine Trust, 3.62%, 2018 3,411,000 3,312,159
Falcon Franchise Loan LLC, 7.382%, 2010 (n) 386,484 394,583
Gramercy Real Estate CDO Ltd., FRN, 5.675%, 2035 (n) 2,337,207 2,337,207
IKON Receivables Funding LLC, 3.27%, 2011 137,018 136,685
IMPAC CMB Trust, FRN, 5.96%, 2033 307,455 307,570
IMPAC CMB Trust, FRN, 5.96%, 2033 794,613 794,826
IMPAC CMB Trust, FRN, 5.69%, 2034 1,035,840 1,036,375
IMPAC CMB Trust, FRN, 5.78%, 2034 1,090,358 1,091,374
IMPAC Secured Assets Corp., FRN, 5.67%, 2036 1,984,008 1,987,898
Interstar Millennium Trust, FRN, 5.555%, 2036 1,825,714 1,828,655
JPMorgan Chase Commercial Mortgage Securities Corp.,
4.851%, 2042 3,504,086 3,471,395
JPMorgan Chase Commercial Mortgage Securities Corp.,
5.298%, 2047 5,000,000 5,004,901
JPMorgan Chase Commercial Mortgage Securities Corp., FRN,
5.5103%, 2037 5,000,000 5,030,733
JPMorgan Mortgage Acquisition Corp., FRN, 5.532%, 2036 3,700,000 3,686,775
Lehman Brothers Commercial Conduit Mortgage Trust,
6.48%, 2030 2,298,059 2,303,428
Lehman Brothers Commercial Conduit Mortgage Trust, FRN,
0.7075%, 2035 (i) 66,187,993 825,761
Long Beach Auto Receivables Trust, FRN, 2.841%, 2010 2,078,089 2,041,325
Medallion Trust, FRN, 5.585%, 2031 213,460 213,573
Merrill Lynch Mortgage Investors, Inc., FRN, 6.9833%, 2030 2,180,000 2,192,147
Merrill Lynch Mortgage Investors, Inc., FRN, 5.45%, 2037 3,360,000 3,348,911
Merrill Lynch/Countrywide Commercial Mortgage Trust,
5.878%, 2046 4,970,000 5,084,812
Morgan Stanley Capital I, Inc., FRN, 1.1019%, 2031 (i)(n) 33,404,157 500,528
Mortgage Capital Funding, Inc., FRN, 0.806%, 2031 (i) 19,057,954 95,265
Nationslink Funding Corp., 6.476%, 2030 1,638,410 1,649,492
Nationslink Funding Corp., FRN, 0.6851%, 2030 (i) 26,881,830 317,071
New Century Home Equity Loan Trust, FRN, 4.532%, 2035 2,600,000 2,566,412
Nomura Asset Acceptance Corp., FRN, 4.423%, 2034 726,612 719,150
Option One Mortgage Loan Trust, FRN, 5.611%, 2037 1,990,000 1,988,977
Ownit Mortgage Loan Asset-Backed Certificates, FRN, 5.29%, 2036 5,096,147 5,100,015
Popular ABS Mortgage Pass-Through Trust, FRN, 4.62%, 2035 2,975,957 2,936,371
Putnam Structured Product Funding, CDO, FRN, 5.77%, 2008 (z) 1,403,390 1,405,495
RMAC PLC, FRN, 5.69%, 2035 (n) 744,640 745,384
RMAC PLC, FRN, 5.54%, 2036 (n) 600,601 600,695
Structured Asset Securities Corp., FRN, 4.67%, 2035 1,856,951 1,838,405
Structured Asset Securities Corp., FRN, 5.56%, 2035 (n) 3,474,607 3,477,254
Superannuation Members Home Loans Global Trust, FRN,
5.57%, 2029 908,261 909,422
Thornburg Mortgage Securities Trust, FRN, 5.66%, 2043 5,800,588 5,803,997
TIAA Real Estate CDO Ltd., 7.17%, 2032 (n) 1,219,231 1,218,808
Wachovia Bank Commercial Mortgage Trust, 5.275%, 2048 6,000,000 6,005,756
Washington Mutual, Inc., FRN, 3.177%, 2033 172,686 172,033
------------
$127,718,080
- -----------------------------------------------------------------------------------------------------
Automotive - 1.9%
- -----------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holdings, FRN, 5.89%, 2008 $ 1,700,000 $ 1,708,677
DaimlerChrysler Services North America LLC, 4.75%, 2008 2,050,000 2,040,191
Ford Motor Credit Co., 5.8%, 2009 3,785,000 3,721,870
Johnson Controls, Inc., 5.25%, 2011 7,050,000 7,067,562
------------
$ 14,538,300
- -----------------------------------------------------------------------------------------------------
Broadcasting - 0.9%
- -----------------------------------------------------------------------------------------------------
CBS Corp., 6.625%, 2011 $ 2,650,000 $ 2,767,157
Clear Channel Communications, Inc., 4.625%, 2008 2,350,000 2,325,626
Clear Channel Communications, Inc., 7.65%, 2010 1,710,000 1,805,640
------------
$ 6,898,423
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.1%
- -----------------------------------------------------------------------------------------------------
AMVESCAP PLC, 4.5%, 2009 $ 4,481,000 $ 4,403,627
Goldman Sachs Group, Inc., 7.35%, 2009 3,900,000 4,103,490
Goldman Sachs Group, Inc., 5%, 2011 870,000 865,508
Lehman Brothers E-Capital Trust I, FRN, 6.14%, 2065 2,524,000 2,553,382
Lehman Brothers Holdings, Inc., 3.95%, 2009 300,000 292,740
Morgan Stanley, 5.625%, 2012 3,660,000 3,715,372
------------
$ 15,934,119
- -----------------------------------------------------------------------------------------------------
Building - 2.1%
- -----------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.625%, 2010 $ 2,670,000 $ 2,825,394
CRH America, Inc., 6.95%, 2012 2,250,000 2,392,378
Hanson PLC, 7.875%, 2010 5,480,000 5,922,905
Lafarge S.A., 6.15%, 2011 4,410,000 4,554,767
------------
$ 15,695,444
- -----------------------------------------------------------------------------------------------------
Cable TV - 2.2%
- -----------------------------------------------------------------------------------------------------
Comcast Corp., 5.45%, 2010 $ 5,100,000 $ 5,152,678
Cox Communications, Inc., 4.625%, 2010 5,320,000 5,246,648
Time Warner Cable, Inc., 5.4%, 2012 (z) 2,900,000 2,908,053
Time Warner Entertainment Co. LP, 7.25%, 2008 3,100,000 3,175,439
------------
$ 16,482,818
- -----------------------------------------------------------------------------------------------------
Chemicals - 0.7%
- -----------------------------------------------------------------------------------------------------
Chevron Phillips Chemical Co. LLC, 5.375%, 2007 $ 5,005,000 $ 5,003,438
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.3%
- -----------------------------------------------------------------------------------------------------
Fortune Brands, Inc., 5.125%, 2011 $ 4,272,000 $ 4,232,334
Western Union Co., 5.4%, 2011 5,500,000 5,502,046
------------
$ 9,734,380
- -----------------------------------------------------------------------------------------------------
Defense Electronics - 0.5%
- -----------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 4.75%, 2010 (n) $ 3,932,000 $ 3,882,901
- -----------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0.8%
- -----------------------------------------------------------------------------------------------------
Export-Import Banks of Korea, 4.125%, 2009 (n) $ 2,300,000 $ 2,258,980
Ras Laffan Liquefied Natural Gas Co. Ltd., 8.294%, 2014 (n) 3,570,000 3,979,529
------------
$ 6,238,509
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 0.5%
- -----------------------------------------------------------------------------------------------------
EnCana Corp., 4.6%, 2009 $ 2,850,000 $ 2,812,038
Ocean Energy, Inc., 4.375%, 2007 1,155,000 1,149,538
------------
$ 3,961,576
- -----------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- -----------------------------------------------------------------------------------------------------
TNK-BP Ltd., 6.875%, 2011 (n) $ 2,060,000 $ 2,119,740
- -----------------------------------------------------------------------------------------------------
Entertainment - 0.3%
- -----------------------------------------------------------------------------------------------------
Time Warner, Inc., 5.5%, 2011 $ 2,000,000 $ 2,016,208
- -----------------------------------------------------------------------------------------------------
Financial Institutions - 4.2%
- -----------------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 $ 2,957,000 $ 2,913,627
Capital One Financial Corp., 5.7%, 2011 3,130,000 3,157,798
CIT Group, Inc., 5.6%, 2011 5,000,000 5,040,895
Countrywide Home Loans, Inc., 4.125%, 2009 4,400,000 4,283,391
Countrywide Home Loans, Inc., 4%, 2011 3,000,000 2,849,055
General Motors Acceptance Corp., 5.625%, 2009 3,360,000 3,312,782
International Lease Finance Corp., 5%, 2010 2,341,000 2,335,658
International Lease Finance Corp., 5.3%, 2012 3,340,000 3,348,509
ORIX Corp., 5.48%, 2011 4,100,000 4,123,448
------------
$ 31,365,163
- -----------------------------------------------------------------------------------------------------
Food & Beverages - 2.9%
- -----------------------------------------------------------------------------------------------------
Brown-Forman Corp., 5.2%, 2012 $ 3,420,000 $ 3,409,600
Cadbury Schweppes PLC, 3.875%, 2008 (n) 4,790,000 4,696,221
Diageo Capital PLC, 5.125%, 2012 7,130,000 7,106,364
Kraft Foods, Inc., 4%, 2008 3,600,000 3,533,170
Miller Brewing Co., 4.25%, 2008 (n) 3,365,000 3,319,145
------------
$ 22,064,500
- -----------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.3%
- -----------------------------------------------------------------------------------------------------
CVS Corp., 5.75%, 2011 $ 2,240,000 $ 2,282,262
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.3%
- -----------------------------------------------------------------------------------------------------
Carnival Corp., 3.75%, 2007 $ 2,600,000 $ 2,577,908
- -----------------------------------------------------------------------------------------------------
Industrial - 0.3%
- -----------------------------------------------------------------------------------------------------
Steelcase, Inc., 6.5%, 2011 $ 2,114,000 $ 2,171,594
- -----------------------------------------------------------------------------------------------------
Insurance - 1.2%
- -----------------------------------------------------------------------------------------------------
ASIF Global Financing XVIII, 3.85%, 2007 (n) $ 2,500,000 $ 2,478,265
Hartford Financial Services Group, Inc., 4.7%, 2007 1,750,000 1,745,408
John Hancock Global Funding II, 3.5%, 2009 (n) 1,710,000 1,659,418
Prudential Insurance Co., 7.65%, 2007 (n) 3,380,000 3,393,537
------------
$ 9,276,628
- -----------------------------------------------------------------------------------------------------
Insurance - Health - 0.9%
- -----------------------------------------------------------------------------------------------------
Aetna, Inc., 7.875%, 2011 $ 3,915,000 $ 4,277,552
Aetna, Inc., 5.75%, 2011 2,350,000 2,401,000
------------
$ 6,678,552
- -----------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.9%
- -----------------------------------------------------------------------------------------------------
Safeco Corp., 4.2%, 2008 $ 5,040,000 $ 4,993,345
St. Paul Cos., 8.125%, 2010 1,910,000 2,064,013
------------
$ 7,057,358
- -----------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 2.5%
- -----------------------------------------------------------------------------------------------------
Eksportfinans A.S.A, 5.125%, 2011 $ 3,780,000 $ 3,812,894
KfW Bankengruppe, 3.25%, 2007 6,400,000 6,371,725
KfW Bankengruppe, 4.875%, 2009 2,800,000 2,804,505
Landesbank Baden-Wurttemberg, 5.125%, 2007 1,000,000 999,611
Province of Ontario, 5%, 2011 5,000,000 5,030,430
------------
$ 19,019,165
- -----------------------------------------------------------------------------------------------------
International Market Sovereign - 1.0%
- -----------------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, 3.2%, 2009 $ 8,000,000 $ 7,719,264
- -----------------------------------------------------------------------------------------------------
Major Banks - 5.9%
- -----------------------------------------------------------------------------------------------------
BAC Capital Trust XIV, 5.63% to 2012, FRN to 2043 $ 3,700,000 $ 3,714,386
BANK ONE Corp., 7.875%, 2010 5,066,000 5,491,980
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049(n) 5,324,000 5,509,195
National Westminster Bank PLC, 7.75% to 2007, FRN to 2049 1,110,000 1,119,728
Popular North America, Inc., 3.875%, 2008 3,000,000 2,938,686
Popular North America, Inc., 4.7%, 2009 2,950,000 2,914,739
Royal Bank of Scotland Group PLC, 9.118%, 2049 5,727,000 6,322,356
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049(n) 7,367,000 7,437,068
Wachovia Capital Trust III, 5.8% to 2011, FRN to 2042 2,250,000 2,283,525
Wachovia Corp., 6.4%, 2008 4,300,000 4,335,595
Wachovia Corp., 6.3%, 2008 2,770,000 2,799,096
------------
$ 44,866,354
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.8%
- -----------------------------------------------------------------------------------------------------
Cardinal Health, Inc., FRN, 5.6194%, 2009 (n) $ 2,800,000 $ 2,800,470
Hospira, Inc., 5.55%, 2012 3,140,000 3,157,141
------------
$ 5,957,611
- -----------------------------------------------------------------------------------------------------
Mortgage Backed - 16.9%
- -----------------------------------------------------------------------------------------------------
Fannie Mae, 3.92%, 2008 $ 2,025,000 $ 2,011,064
Fannie Mae, 5.5%, 2014 - 2019 13,391,681 13,446,806
Fannie Mae, 7%, 2015 - 2016 2,434,573 2,513,157
Fannie Mae, 4%, 2016 3,427,382 3,359,069
Fannie Mae, 6.5%, 2016 - 2017 4,939,936 5,062,466
Fannie Mae, 6%, 2017 6,044,361 6,149,952
Fannie Mae, 4.5%, 2018 3,055,941 2,966,726
Fannie Mae, 5%, 2018 5,898,828 5,829,983
Fannie Mae, FRN, 3.723%, 2033 3,521,212 3,532,782
Fannie Mae, FRN, 6.915%, 2033 1,196,700 1,222,919
Fannie Mae, FRN, 6.96%, 2033 510,896 518,890
Freddie Mac, 7.5%, 2015 886,123 919,872
Freddie Mac, 6%, 2016 - 2017 5,243,561 5,336,888
Freddie Mac, 5.5%, 2017 - 2025 15,177,882 15,185,690
Freddie Mac, 5%, 2018 - 2025 45,490,621 45,176,149
Freddie Mac, 3%, 2021 3,635,149 3,602,626
Freddie Mac, 4.5%, 2023 1,212,399 1,203,387
Freddie Mac, FRN, 5.62%, 2026 4,108,842 4,116,814
Freddie Mac, FRN, 5.77%, 2031 4,722,262 4,708,848
Ginnie Mae, 7.5%, 2008 - 2011 235,056 242,575
Ginnie Mae, FRN, 5.5%, 2032 554,437 561,069
------------
$127,667,732
- -----------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.2%
- -----------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.75%, 2011 $ 4,500,000 $ 4,875,188
Enterprise Products Partners LP, 4.95%, 2010 3,800,000 3,772,952
Kinder Morgan Energy Partners LP, 5.35%, 2007 4,380,000 4,376,772
Kinder Morgan Finance, 5.35%, 2011 3,264,000 3,240,604
------------
$ 16,265,516
- -----------------------------------------------------------------------------------------------------
Network & Telecom - 3.5%
- -----------------------------------------------------------------------------------------------------
CenturyTel, Inc., 8.375%, 2010 $ 150,000 $ 164,284
GTE Corp., 7.51%, 2009 2,200,000 2,287,967
SBC Communications, Inc., 4.125%, 2009 5,830,000 5,702,702
Telecom Italia Capital, 4%, 2008 4,100,000 4,025,425
Telecom Italia Capital, 4%, 2010 1,100,000 1,066,701
Telecom Italia Capital, 4.875%, 2010 2,227,000 2,198,804
Telecomunicaciones de Puerto Rico, Inc., 6.8%, 2009 2,850,000 2,917,591
Telefonica Europe B.V., 7.75%, 2010 5,460,000 5,881,649
TELUS Corp., 7.5%, 2007 2,000,000 2,003,146
------------
$ 26,248,269
- -----------------------------------------------------------------------------------------------------
Oil Services - 0.3%
- -----------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $ 2,184,000 $ 2,211,307
- -----------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 2.3%
- -----------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN,
7.2549%, 2011 (n) $ 3,040,000 $ 3,040,000
Bosphorus Financial Services Ltd., FRN, 7.16%, 2012 (z) 1,700,000 1,717,156
General American Transportation Corp., 6.75%, 2009 1,500,000 1,533,855
Swedbank AB, FRN, 9%, 2049 (z) 5,470,000 5,982,003
Turanalem Finance B.V., 10%, 2007 2,725,000 2,732,003
VTB Capital, FRN, 6.1%, 2007 (n) 2,001,000 2,003,028
------------
$ 17,008,045
- -----------------------------------------------------------------------------------------------------
Real Estate - 2.6%
- -----------------------------------------------------------------------------------------------------
Kimco Realty Corp., REIT, 4.62%, 2010 $ 3,790,000 $ 3,724,342
PPF Funding, Inc., REIT, 5.35%, 2012 (z) 3,660,000 3,657,167
ProLogis, REIT, 5.5%, 2012 3,440,000 3,478,463
Simon Property Group LP, REIT, 7.125%, 2009 1,900,000 1,956,757
Simon Property Group LP, REIT, 4.6%, 2010 2,258,000 2,221,276
Vornado Realty Trust, REIT, 5.625%, 2007 4,800,000 4,798,786
------------
$ 19,836,791
- -----------------------------------------------------------------------------------------------------
Restaurants - 0.4%
- -----------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 2,910,000 $ 3,263,344
- -----------------------------------------------------------------------------------------------------
Retailers - 1.3%
- -----------------------------------------------------------------------------------------------------
Federated Retail Holdings, Inc., 5.35%, 2012 $ 1,510,000 $ 1,509,243
Home Depot, Inc., 5.2%, 2011 2,240,000 2,243,669
J.C. Penney Corp., Inc., 8%, 2010 2,690,000 2,878,851
May Department Stores Co., 5.95%, 2008 2,937,000 2,964,614
------------
$ 9,596,377
- -----------------------------------------------------------------------------------------------------
Supermarkets - 1.1%
- -----------------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $ 3,110,000 $ 3,130,215
Safeway, Inc., 6.5%, 2008 2,650,000 2,693,288
Safeway, Inc., 4.95%, 2010 984,000 973,150
Safeway, Inc., 6.5%, 2011 1,250,000 1,299,014
------------
$ 8,095,667
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.1%
- -----------------------------------------------------------------------------------------------------
Sprint Capital Corp., 7.625%, 2011 $ 3,750,000 $ 4,024,095
Vodafone Airtouch PLC, 7.75%, 2010 3,700,000 3,943,697
------------
$ 7,967,792
- -----------------------------------------------------------------------------------------------------
Tobacco - 0.4%
- -----------------------------------------------------------------------------------------------------
Philip Morris Capital Corp., 7.5%, 2009 $ 3,040,000 $ 3,165,856
- -----------------------------------------------------------------------------------------------------
U.S. Government Agencies - 8.3%
- -----------------------------------------------------------------------------------------------------
Fannie Mae, 3.25%, 2007 $ 5,000,000 $ 4,946,585
Fannie Mae, 6.625%, 2007 7,000,000 7,042,882
Fannie Mae, 4.25%, 2009 6,500,000 6,430,197
Farmer Mac, 5.5%, 2011 (n) 2,600,000 2,656,248
Federal Home Loan Bank, 4.625%, 2008 7,400,000 7,369,838
Freddie Mac, 4.25%, 2009 15,000,000 14,816,820
Freddie Mac, 4.875%, 2009 8,000,000 7,998,040
Overseas Private Investment Corp., 0%, 2007 801,573 864,801
Small Business Administration, 5.1%, 2016 2,828,486 2,845,371
Small Business Administration, 5.37%, 2016 957,981 970,913
Small Business Administration, 5.46%, 2016 2,858,311 2,900,784
Small Business Administration, 5.68%, 2016 1,909,068 1,948,287
Small Business Administration, 5.94%, 2016 1,963,446 2,018,069
------------
$ 62,808,835
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 0.4%
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2.625%, 2008 (f) $ 2,990,000 $ 2,922,025
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.4%
- -----------------------------------------------------------------------------------------------------
Dominion Resources, Inc., FRN, 5.687%, 2008 $ 1,880,000 $ 1,884,446
Empresa Nacional de Electricidad S.A., 8.5%, 2009 2,325,000 2,455,807
Exelon Generation Co. LLC, 6.95%, 2011 4,700,000 4,953,640
FPL Group Capital, Inc., 5.551%, 2008 3,927,900 3,932,079
HQI Transelec Chile S.A., 7.875%, 2011 2,670,000 2,866,272
MidAmerican Energy Holdings Co., 4.625%, 2007 4,140,000 4,125,075
MidAmerican Energy Holdings Co., 3.5%, 2008 1,076,000 1,056,767
NiSource Finance Corp., 7.875%, 2010 1,850,000 2,007,359
Oncor Electric Delivery Co., 5%, 2007 3,826,000 3,818,030
Progress Energy, Inc., 7.1%, 2011 795,000 849,125
TXU Energy Co., 6.125%, 2008 1,425,000 1,432,334
Virginia Electric & Power Co., 4.1%, 2008 4,100,000 4,024,125
------------
$ 33,405,059
- -----------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $739,067,948) $732,711,492
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.2%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -----------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.313%, due 5/01/07,
at Amortized Cost and Value (y) $16,792,000 $ 16,792,000
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $755,859,948) (k) $749,503,492
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.8% 5,720,255
- -----------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $755,223,747
- -----------------------------------------------------------------------------------------------------
FUTURES CONTRACTS OUTSTANDING AT 4/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Note 5 yr (Short) 788 $83,392,563 Jun-07 $(181,313)
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------
6/20/09 USD3,390,000 Goldman Sachs 1.35% (fixed rate) (1) $ 1,403
6/20/09 USD3,310,000 Goldman Sachs (2) 1.3% (fixed rate) (6,415)
-------
$(5,012)
=======
(1) Fund to pay notional amount upon a defined credit default event by Residential Capital Corp., 6.5%,
4/17/13.
(2) Fund to receive notional amount upon a defined credit default event by GMAC, 6.875%, 8/28/12.
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under
these derivative contracts.
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par
amount shown is the notional principal and does not reflect the cost of the security.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted
by the Board of Trustees, aggregating $711,088,586 and 94.87% of market value. All of these security
values were provided by an independent pricing service using an evaluated bid.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities
may be sold in the ordinary course of business in transactions exempt from registration, normally to
qualified institutional buyers. At period end, the aggregate value of these securities was
$67,758,308, representing 9.0% of net assets.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal
restrictions on resale. These securities generally may be resold in transactions exempt from
registration or to the public if the securities are subsequently registered. Disposal of these
securities may involve time-consuming negotiations and prompt sale at an acceptable price may be
difficult. The fund holds the following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Bayview Commercial Asset Trust, FRN, 5.59%, 2036 2/23/06 $2,111,044 $2,115,236
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 5/16/06 935,552 947,252
Bayview Financial Revolving Mortgage Loan
Trust, FRN, 6.12%, 2040 3/01/06 1,402,996 1,402,993
Bosphorus Financial Services Ltd., FRN,
7.16%, 2012 3/08/05 1,700,000 1,717,156
Brascan Real Estate, FRN, 6.9581%, 2040 9/14/04 1,526,000 1,516,539
Brazilian Merchant Voucher Receivables
Ltd., 5.911%, 2011 7/02/03 - 3/08/07 2,937,353 2,959,628
PPF Funding, Inc., REIT, 5.35%, 2012 4/04/07 - 4/12/07 3,650,014 3,657,167
Putnam Structured Product Funding, CDO,
FRN, 5.77%, 2008 9/23/03 1,403,390 1,405,495
Swedbank AB, FRN, 9%, 2049 4/16/07 5,997,636 5,982,003
Time Warner Cable, Inc., 5.4%, 2012 4/04/07 2,894,635 2,908,053
- -----------------------------------------------------------------------------------------------------------
Total Restricted Securities $24,611,522 3.3%
====================
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
REIT Real Estate Investment Trust
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07
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, $755,859,948) $749,503,492
Cash 8,314
Receivable for fund shares sold 891,614
Interest receivable 7,372,207
Unrealized appreciation on credit default swaps 1,403
Other assets 12,112
- ------------------------------------------------------------------------------------------------------
Total assets $757,789,142
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $562,605
Payable for daily variation margin on open futures contracts 246,250
Payable for fund shares reacquired 1,317,313
Unrealized depreciation on credit default swaps 6,415
Payable to affiliates
Management fee 20,623
Shareholder servicing costs 150,964
Distribution and service fees 41,754
Administrative services fee 1,539
Program manager fees 253
Retirement plan administration and services fees 43
Payable for independent trustees' compensation 16,651
Accrued expenses and other liabilities 200,985
- ------------------------------------------------------------------------------------------------------
Total liabilities $2,565,395
- ------------------------------------------------------------------------------------------------------
Net assets $755,223,747
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $867,713,779
Unrealized appreciation (depreciation) on investments (6,542,781)
Accumulated net realized gain (loss) on investments (106,241,025)
Undistributed net investment income 293,774
- ------------------------------------------------------------------------------------------------------
Net assets $755,223,747
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 117,694,181
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $388,086,328
Shares outstanding 60,380,029
- ------------------------------------------------------------------------------------------------------
Net asset value per share $6.43
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/97.50Xnet asset value per share) $6.59
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $119,975,685
Shares outstanding 18,747,964
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.40
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $81,986,198
Shares outstanding 12,770,277
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.42
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $151,567,617
Shares outstanding 23,676,393
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.40
- ------------------------------------------------------------------------------------------------------
Class R shares
- ------------------------------------------------------------------------------------------------------
Net assets $2,230,106
Shares outstanding 346,771
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.43
- ------------------------------------------------------------------------------------------------------
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $267,138
Shares outstanding 41,745
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.40
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $175,564
Shares outstanding 27,445
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.40
- ------------------------------------------------------------------------------------------------------
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,154,090
Shares outstanding 179,673
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.42
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $494,239
Shares outstanding 76,920
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.43
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $54,339
Shares outstanding 8,455
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.43
- ------------------------------------------------------------------------------------------------------
Class 529A shares
- ------------------------------------------------------------------------------------------------------
Net assets $4,467,061
Shares outstanding 695,433
- ------------------------------------------------------------------------------------------------------
Net asset value per share $6.42
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/97.50Xnet asset value per share) $6.58
- ------------------------------------------------------------------------------------------------------
Class 529B shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,046,297
Shares outstanding 163,681
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.39
- ------------------------------------------------------------------------------------------------------
Class 529C shares
- ------------------------------------------------------------------------------------------------------
Net assets $3,719,085
Shares outstanding 579,395
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.42
- ------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A and Class 529A shares are reduced. A contingent
deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class 529B, and
Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 4/30/07
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Interest income $34,380,268
Other 13,612
- ------------------------------------------------------------------------------------------------------
Total investment income $34,393,880
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,743,739
Distribution and service fees 2,388,956
Program manager fees 16,726
Shareholder servicing costs 982,260
Administrative services fee 131,007
Retirement plan administration and services fees 3,588
Independent trustees' compensation 21,689
Custodian fee 306,694
Shareholder communications 101,008
Auditing fees 41,370
Legal fees 11,445
Miscellaneous 148,113
- ------------------------------------------------------------------------------------------------------
Total expenses $6,896,595
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (78,796)
Reduction of expenses by investment adviser and distributor (1,039,879)
- ------------------------------------------------------------------------------------------------------
Net expenses $5,777,920
- ------------------------------------------------------------------------------------------------------
Net investment income $28,615,960
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(2,274,487)
Futures contracts (404,130)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(2,678,617)
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $9,843,508
Futures contracts (498,050)
Swap transactions (5,012)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $9,340,446
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $6,661,829
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $35,277,789
- ------------------------------------------------------------------------------------------------------
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 4/30
---------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $28,615,960 $26,222,108
Net realized gain (loss) on investments (2,678,617) (3,997,679)
Net unrealized gain (loss) on investments 9,340,446 (6,534,607)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $35,277,789 $15,689,822
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(16,547,169) $(15,873,387)
Class B (4,410,648) (4,345,303)
Class C (3,093,007) (3,512,376)
Class I (6,703,500) (5,173,448)
Class R (122,088) (109,634)
Class R1 (9,568) (3,298)
Class R2 (5,908) (2,348)
Class R3 (24,145) (8,623)
Class R4 (17,817) (3,428)
Class R5 (2,525) (2,135)
Class 529A (147,483) (88,680)
Class 529B (27,828) (21,532)
Class 529C (94,533) (58,744)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(31,206,219) $(29,202,936)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $83,674,840 $(151,457,311)
- -------------------------------------------------------------------------------------------------------
Total change in net assets $87,746,410 $(164,970,425)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 667,477,337 832,447,762
At end of period (including undistributed net investment
income of $293,774 and accumulated distributions in excess
of net investment income of $480,061) $755,223,747 $667,477,337
- -------------------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.38 $6.50 $6.68 $6.87 $6.84
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.28 $0.24 $0.22 $0.22 $0.27
Net realized and unrealized gain (loss)
on investments 0.07 (0.09) (0.12) (0.11) 0.10
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.35 $0.15 $0.10 $0.11 $0.37
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.30) $(0.27) $(0.28) $(0.30) $(0.34)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.43 $6.38 $6.50 $6.68 $6.87
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.65 2.32 1.54 1.60 5.58
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.80 0.82 0.80 0.82 0.80
Expenses after expense reductions (f) 0.65 0.67 0.65 0.75 0.75
Net investment income 4.38 3.74 3.39 3.31 3.92
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $388,086 $345,689 $422,096 $509,115 $490,000
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.36 $6.47 $6.66 $6.84 $6.81
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.23 $0.19 $0.17 $0.17 $0.21
Net realized and unrealized gain (loss)
on investments 0.06 (0.08) (0.13) (0.11) 0.11
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.29 $0.11 $0.04 $0.06 $0.32
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.25) $(0.22) $(0.23) $(0.24) $(0.29)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.40 $6.36 $6.47 $6.66 $6.84
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.70 1.69 0.60 0.95 4.76
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.57 1.59 1.57 1.61 1.59
Expenses after expense reductions (f) 1.42 1.44 1.42 1.54 1.54
Net investment income 3.62 2.97 2.62 2.53 3.14
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $119,976 $103,406 $151,997 $198,356 $244,736
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.38 $6.49 $6.67 $6.86 $6.83
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.19 $0.17 $0.17 $0.20
Net realized and unrealized gain (loss)
on investments 0.07 (0.09) (0.13) (0.12) 0.11
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.29 $0.10 $0.04 $0.05 $0.31
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.25) $(0.21) $(0.22) $(0.24) $(0.28)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.42 $6.38 $6.49 $6.67 $6.86
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.60 1.61 0.67 0.73 4.68
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.66 1.67 1.65 1.67 1.65
Expenses after expense reductions (f) 1.51 1.52 1.50 1.60 1.60
Net investment income 3.53 2.89 2.55 2.45 3.01
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $81,986 $81,144 $140,467 $209,163 $203,259
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.36 $6.48 $6.66 $6.84 $6.82
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.29 $0.25 $0.23 $0.23 $0.25
Net realized and unrealized gain (loss)
on investments 0.06 (0.09) (0.12) (0.10) 0.12
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.35 $0.16 $0.11 $0.13 $0.37
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.31) $(0.28) $(0.29) $(0.31) $(0.35)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.40 $6.36 $6.48 $6.66 $6.84
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.65 2.46 1.68 1.89 5.59
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.65 0.67 0.66 0.66 0.65
Expenses after expense reductions (f) 0.50 0.52 0.51 0.59 0.60
Net investment income 4.51 3.90 3.53 3.45 3.81
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $151,568 $127,926 $110,059 $80,206 $29,075
- ------------------------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $6.39 $6.50 $6.68 $6.87 $6.86
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.26 $0.23 $0.21 $0.21 $0.08
Net realized and unrealized gain (loss)
on investments 0.07 (0.09) (0.13) (0.12) 0.03
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.33 $0.14 $0.08 $0.09 $0.11
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.29) $(0.25) $(0.26) $(0.28) $(0.10)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.43 $6.39 $6.50 $6.68 $6.87
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.23 2.22 1.28 1.34 1.65(n)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.16 1.17 1.17 1.17 1.15(a)
Expenses after expense reductions (f) 0.91 0.92 0.92 1.00 1.00(a)
Net investment income 4.10 3.50 3.14 3.06 3.33(a)
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $2,230 $2,781 $2,649 $736 $85
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $6.35 $6.47 $6.46
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.18 $0.01
Net realized and unrealized gain (loss) on investments 0.07 (0.10) 0.02(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.29 $0.08 $0.03
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.20) $(0.02)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.40 $6.35 $6.47
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 4.66 1.30 0.39(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.84 1.87 2.07(a)
Expenses after expense reductions (f) 1.60 1.66 1.92(a)
Net investment income 3.42 2.79 2.28(a)
Portfolio turnover 33 25 35
Net assets at end of period (000 omitted) $267 $123 $50
- --------------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 4/30
------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $6.35 $6.47 $6.46
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.24 $0.20 $0.01
Net realized and unrealized gain (loss) on investments 0.07 (0.10) 0.02(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.31 $0.10 $0.03
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.22) $(0.02)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.40 $6.35 $6.47
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.03 1.63 0.42(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.54 1.57 1.77(a)
Expenses after expense reductions (f) 1.25 1.32 1.62(a)
Net investment income 3.77 3.16 2.65(a)
Portfolio turnover 33 25 35
Net assets at end of period (000 omitted) $176 $120 $50
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 4/30
-------------------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $6.38 $6.50 $6.68 $6.77
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.22 $0.19 $0.09
Net realized and unrealized gain (loss) on investments 0.07 (0.10) (0.12) (0.05)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.32 $0.12 $0.07 $0.04
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $(0.24) $(0.25) $(0.13)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.42 $6.38 $6.50 $6.68
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.07 1.87 1.03 0.58(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.38 1.41 1.42 1.38(a)
Expenses after expense reductions (f) 1.05 1.09 1.17 1.21(a)
Net investment income 3.98 3.36 2.88 2.70(a)
Portfolio turnover 33 25 35 43
Net assets at end of period (000 omitted) $1,154 $269 $156 $98
- ----------------------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $6.38 $6.50 $6.49
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.27 $0.22 $0.02
Net realized and unrealized gain (loss) on investments 0.07 (0.09) 0.01(g)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.34 $0.13 $0.03
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.29) $(0.25) $(0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.43 $6.38 $6.50
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.39 2.06 0.46(n)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.05 1.07 1.27(a)
Expenses after expense reductions (f) 0.90 0.92 1.12(a)
Net investment income 4.13 3.60 3.13(a)
Portfolio turnover 33 25 35
Net assets at end of period (000 omitted) $494 $260 $50
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 4/30
------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $6.38 $6.50 $6.49
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.28 $0.24 $0.02
Net realized and unrealized gain (loss) on investments 0.08 (0.09) 0.01(g)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.36 $0.15 $0.03
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.31) $(0.27) $(0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.43 $6.38 $6.50
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.71 2.37 0.48(n)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.76 0.77 0.97(a)
Expenses after expense reductions (f) 0.61 0.62 0.82(a)
Net investment income 4.41 3.80 3.45(a)
Portfolio turnover 33 25 35
Net assets at end of period (000 omitted) $54 $51 $50
- ---------------------------------------------------------------------------------------------------------------------------
CLASS 529A YEARS ENDED 4/30
----------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $6.38 $6.50 $6.68 $6.87 $6.80
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.22 $0.20 $0.20 $0.15
Net realized and unrealized gain (loss)
on investments 0.07 (0.09) (0.12) (0.11) 0.16
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.32 $0.13 $0.08 $0.09 $0.31
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $(0.25) $(0.26) $(0.28) $(0.24)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.42 $6.38 $6.50 $6.68 $6.87
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.12 1.96 1.18 1.28 4.58(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.26 1.27 1.27 1.27 1.25(a)
Expenses after expense reductions (f) 1.00 1.02 1.02 1.10 1.10(a)
Net investment income 4.02 3.41 3.03 2.97 3.23(a)
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $4,467 $2,868 $2,300 $1,651 $1,011
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 4/30
----------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $6.35 $6.47 $6.65 $6.83 $6.77
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.21 $0.17 $0.15 $0.15 $0.13
Net realized and unrealized gain (loss)
on investments 0.07 (0.09) (0.12) (0.10) 0.13
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.28 $0.08 $0.03 $0.05 $0.26
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.20) $(0.21) $(0.23) $(0.20)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.39 $6.35 $6.47 $6.65 $6.83
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.47 1.26 0.48 0.68 3.90(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.78 1.86 1.84 1.89 1.90(a)
Expenses after expense reductions (f) 1.63 1.71 1.69 1.82 1.85(a)
Net investment income 3.39 2.71 2.35 2.24 2.63(a)
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $1,046 $682 $704 $718 $524
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 4/30
----------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $6.38 $6.49 $6.67 $6.86 $6.79
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.21 $0.17 $0.15 $0.15 $0.12
Net realized and unrealized gain (loss)
on investments 0.06 (0.08) (0.12) (0.11) 0.15
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.27 $0.09 $0.03 $0.04 $0.27
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.23) $(0.20) $(0.21) $(0.23) $(0.20)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.42 $6.38 $6.49 $6.67 $6.86
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.34 1.35 0.42 0.52 4.00(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 1.92 1.91 1.92 1.90(a)
Expenses after expense reductions (f) 1.75 1.77 1.76 1.85 1.85(a)
Net investment income 3.27 2.66 2.29 2.22 2.51(a)
Portfolio turnover 33 25 35 43 53
Net assets at end of period (000 omitted) $3,719 $2,157 $1,820 $1,432 $734
- -----------------------------------------------------------------------------------------------------------------------------
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.
(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, July 31, 2002 (Classes 529A, 529B, and 529C), December 31, 2002 (Class R),
October 31, 2003 (Class R3), and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Limited Maturity 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. The fund can
invest in foreign securities, including securities of emerging market issuers.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the effects
of changes in each country's legal, political, and economic environment. The
markets of emerging markets countries are generally more volatile than the
markets of developed countries with more mature economies. All of the risks of
investing in foreign securities previously described are heightened when
investing in emerging markets countries.
INVESTMENT VALUATIONS - 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. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. 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 such futures contracts are primarily traded.
Swaps are generally valued at an evaluated bid as reported by an independent
pricing service. 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. Values 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. The values of foreign securities and
other assets and liabilities expressed in foreign currencies are converted to
U.S. dollars using the mean of bid and asked prices for rates reported by an
independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures approved
by the Board. If the adviser determines that reliable market quotations are not
readily available, investments are valued at fair value as determined in good
faith by the adviser in accordance with such procedures under the oversight of
the Board of Trustees. Under the fund's valuation policies and procedures,
market quotations are not considered to be readily available for many types of
debt instruments and certain types of derivatives. These investments are
generally valued at fair value based on information from independent pricing
services. In addition, investments may be valued at fair value if the adviser
determines that an investment's value has been materially affected by events
occurring after the close of the exchange or market on which the investment is
principally traded (such as foreign exchange or market) and prior to the
determination of the fund's net asset value, or after the halting of trading of
a specific security where trading does not resume prior to the close of the
exchange or market on which the security is principally traded. Events that
occur on a frequent basis after foreign markets close (such as developments in
foreign markets and significant movements in the U.S. markets) and prior to the
determination of the fund's net asset value may be deemed to have a material
affect on the value of securities traded in foreign markets. Accordingly, the
fund's foreign securities may often be valued at fair value. 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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159 permits
entities to elect to measure certain financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected will be reported in earnings at each subsequent reporting date. FAS
159 is effective for fiscal years beginning after November 15, 2007. Management
is evaluating the application of the Statement to the fund and its impact on the
fund's financial statements, if any, has not been determined.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund and other funds managed by Massachusetts
Financial Services Company (MFS), may utilize a joint trading account for the
purpose of entering into one or more repurchase agreements.
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 futures contracts and swap agreements.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at a
fixed price on a future date. In entering such contracts, the fund is required
to deposit with the broker either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the fund each day, depending on the daily fluctuations in the value
of the contract, and are recorded for financial statement purposes as unrealized
gains or losses by the fund. 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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an exchange
of cash payments between the fund and another party. Net cash payments are
exchanged at specified intervals and are recorded as a realized gain or loss in
the Statement of Operations. The value of the swap is adjusted daily and the
change in value, including accruals of periodic amounts of interest to be paid
or received, is recorded as unrealized appreciation or depreciation in the
Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to be
held in segregated accounts with the fund's custodian in connection with these
agreements. Risk of loss may exceed amounts recognized on the Statement of
Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of an
event of default, thereby reducing the credit risk to which such party is
exposed. The fund holds a credit default swap in which one party makes a stream
of payments based on a fixed percentage applied to the notional amount to
another party in exchange for the right to receive a specified return in the
event of a default by a third party, such as a corporate issuer or foreign
issuer, on its obligation. The fund may enter into credit default swaps to limit
or to reduce its risk exposure to defaults of corporate and sovereign issuers or
to create direct or synthetic short or long exposure to corporate debt
securities or certain sovereign debt securities to which it is not otherwise
exposed.
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.
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. Any proceeds received
from litigation involving portfolio holdings are reflected in the Statement of
Operations in realized gain/loss if the security has been disposed of by the
fund or in unrealized gain/loss if the security is still held by the fund. Any
other proceeds from litigation not related to portfolio holdings are reflected
as other income in the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended April 30, 2007, 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 expiration of capital loss
carryforwards and amortization and accretion of debt securities.
The tax character of distributions declared to shareholders is as follows:
4/30/07 4/30/06
Ordinary income (including any
short-term capital gains) $31,206,219 $29,202,936
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF APRIL 30, 2007
Cost of investments $761,991,033
----------------------------------------------------------
Gross appreciation 1,294,714
Gross depreciation (13,782,255)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(12,487,541)
Undistributed ordinary income $3,140,705
Capital loss carryforwards (94,527,086)
Post-October capital loss deferral (5,764,068)
Other temporary differences (2,852,042)
As of April 30, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
April 30, 2008 $(9,838,280)
April 30, 2009 (2,874,797)
April 30, 2011 (18,880,791)
April 30, 2012 (15,641,631)
April 30, 2013 (18,655,874)
April 30, 2014 (16,764,678)
April 30, 2015 (11,871,035)
----------------------------------------------
$(94,527,086)
The availability of a portion of the capital loss carryforwards, which were
acquired on November 17, 2006 in connection with the MFS Government Limited
Maturity Fund merger, may be limited in a given year.
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management has
evaluated the application of the Interpretation to the fund, and has determined
that there is no impact 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 0.40%
of the fund's average daily net assets. As part of a settlement agreement with
the New York Attorney General concerning market timing and related matters,
MFS has agreed to reduce the management fee to 0.25% of the fund's average
daily net assets for the period March 1, 2004 through February 28, 2009. For
the year ended April 30, 2007, this waiver amounted to $1,028,902 and is
reflected as a reduction of total expenses in the Statement of Operations.
The management fee incurred for the year ended April 30, 2007 was equivalent
to an annual effective rate of 0.25% of the fund's average daily
net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $18,713 and $831 for the year ended
April 30, 2007, as its portion of the initial sales charge on sales of Class A
and Class 529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN (d) RATE (e) FEE
Class A 0.10% 0.25% 0.35% 0.15% $522,547
Class B 0.75% 0.25% 1.00% 0.92% 1,008,534
Class C 0.75% 0.25% 1.00% 1.00% 793,791
Class R 0.25% 0.25% 0.50% 0.40% 13,630
Class R1 0.50% 0.25% 0.75% 0.75% 1,887
Class R2 0.25% 0.25% 0.50% 0.50% 712
Class R3 0.25% 0.25% 0.50% 0.40% 2,750
Class R4 -- 0.25% 0.25% 0.25% 984
Class 529A 0.25% 0.25% 0.50% 0.25% 11,756
Class 529B 0.75% 0.25% 1.00% 0.87% 6,454
Class 529C 0.75% 0.25% 1.00% 1.00% 25,911
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,388,956
(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 April
30, 2007 based on each class' average daily net assets. 0.15% of the Class A service fee is currently being paid
by the fund. Payment of the remaining 0.10% of the Class A service fee is not yet in effect and will be
implemented on such date as the fund's Board of Trustees may determine. Payment of the 0.10% annual Class A
distribution fee is not yet in effect and will be implemented on such date as the fund's Board of Trustees may
determine. 0.10% of the Class 529A service fee is currently being waived under a written waiver arrangement
through September 1, 2007. For the year ended April 30, 2007, this waiver amounted to $3,359 and is reflected as
a reduction of total expenses in the Statement of Operations. 0.10% of the Class 529A distribution fee is
currently being paid by the fund. Payment of the remaining 0.15% of the Class 529A distribution fee is not yet
in effect and will be implemented on such date as the fund's Board of Trustees may determine. For one year from
the date of sale of Class B and Class 529B shares, assets attributable to such Class B and Class 529B shares are
subject to the 0.25% annual Class B and Class 529B service fee. On assets attributable to all other Class B and
Class 529B shares, 0.15% of the Class B and Class 529B service fee is currently in effect and the remaining
portion of the Class B and Class 529B service fee is not in effect but may be implemented on such date as the
fund's Board of Trustees may determine. 0.10% of the Class R and 0.10% of the Class R3 distribution fee is
currently being waived under a written waiver arrangement through September 1, 2007. For the year ended April
30, 2007, this waiver amounted to $3,276 and is reflected as a reduction of total expenses in the Statement of
Operations.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 12
months of purchase. Class B and Class 529B shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within six
years of purchase. All contingent deferred sales charges are paid to MFD and
during the year ended April 30, 2007, were as follows:
AMOUNT
Class A $2,248
Class B $271,815
Class C $6,244
Class 529B $77
Class 529C $15
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an
annual fee of up to 0.35% of the average daily net assets attributable to each
529 share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily net assets of the fund's 529
share classes. The fee may only be increased with the approval of the Board of
Trustees who oversees the fund. The services provided by MFD, or a third party
with which MFD contracts, include recordkeeping and tax reporting and account
services, as well as services designed to maintain the program's compliance
with the Internal Revenue Code and other regulatory requirements. Program
manager fees for the year ended April 30, 2007, were as follows:
AMOUNT
Class 529A $8,397
Class 529B 1,851
Class 529C 6,478
--------------------------------------------------
Total Program Manager Fees $16,726
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board of
Trustees. For the year ended April 30, 2007, the fee was $533,102 which equated
to 0.0777% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket expenses, sub-accounting and other
shareholder servicing costs which may be paid to affiliated and unaffiliated
service providers. For the year ended April 30, 2007, these out-of-pocket
expenses, sub-accounting and other shareholder servicing costs amounted to
$353,922. The fund may also pay shareholder servicing related costs directly 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. The fund's annual
fixed amount is $17,500.
The administrative services fee incurred for the year ended April 30, 2007 was
equivalent to an annual effective rate of 0.0191% 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 April 30,
2007, 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:
BEGINNING OF
PERIOD THROUGH EFFECTIVE ANNUAL TOTAL
3/31/07 4/01/07 EFFECTIVE RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $1,110
Class R2 0.40% 0.25% 0.25% 549
Class R3 0.25% 0.15% 0.15% 1,285
Class R4 0.15% 0.15% 0.15% 591
Class R5 0.10% 0.10% 0.10% 53
- ------------------------------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $3,588
(g) Prior to April 1, 2007, MFS had 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 was discontinued on March 31, 2007. On April 1,
2007, the annual retirement plan administration and services fee for Class R1, Class R2, and
Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively. For the year ended April
30, 2007, this waiver amounted to $881 and is reflected as a reduction of total expenses in the
Statement of Operations.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and
additional compensation to Board and Committee chairpersons. The fund does not
pay compensation directly to trustees or officers of the fund who are also
officers of the investment adviser, all of whom receive remuneration for their
services to the fund from MFS. Certain officers and trustees of the fund are
officers or directors of MFS, MFD, and MFSC. The fund has an unfunded, defined
benefit plan for certain retired independent trustees which resulted in a
pension expense of $1,552. This amount is included in independent trustees'
compensation for the year ended April 30, 2007. The liability for deferred
retirement benefits payable to certain retired independent trustees amounted
to $14,175 at April 30, 2007, and is included in payable for independent
trustees' compensation.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended April 30, 2007, the fee paid to Tarantino LLC
was $4,490. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $3,461, 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 $3,386,945 $114,963,848
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $214,590,861 $213,914,626
- -------------------------------------------------------------------------------
(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
4/30/07 4/30/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 13,531,277 $86,737,799 14,723,093 $94,861,584
Class B 736,783 4,700,017 1,525,257 9,800,819
Class C 1,351,585 8,643,594 1,369,519 8,819,201
Class I 3,310,021 21,119,186 2,511,344 16,146,646
Class R 158,472 1,014,921 126,373 816,389
Class R1 80,630 513,766 16,339 105,229
Class R2 23,216 148,048 10,830 69,168
Class R3 279,121 1,788,949 36,787 237,196
Class R4 99,424 637,345 34,080 217,885
Class R5 28 178 -- --
Class 529A 402,015 2,573,156 256,856 1,649,035
Class 529B 66,856 427,510 8,098 51,802
Class 529C 354,777 2,270,342 174,448 1,121,570
- ----------------------------------------------------------------------------------------------------------
20,394,205 $130,574,811 20,793,024 $133,896,524
Shares issued in connection with
acquisition of MFS Government Limited
Maturity Fund
Class A 18,443,722 $118,408,695 -- $--
Class B 10,336,717 66,051,623 -- --
Class C 4,527,797 29,023,181 -- --
Class I 37,462 239,380 -- --
- ----------------------------------------------------------------------------------------------------------
33,345,698 $213,722,879 -- $--
Shares issued to shareholders in
reinvestment of distributions
Class A 2,020,990 $12,950,984 1,952,407 $12,571,053
Class B 508,852 3,247,764 494,971 3,175,692
Class C 277,501 1,776,509 281,857 1,814,463
Class I 1,050,241 6,702,989 806,946 5,173,255
Class R 15,996 102,533 14,859 95,726
Class R1 1,495 9,538 510 3,267
Class R2 919 5,860 367 2,348
Class R3 3,748 24,030 1,331 8,550
Class R4 2,776 17,793 532 3,413
Class R5 394 2,524 332 2,135
Class 529A 22,952 147,036 13,677 87,971
Class 529B 4,344 27,686 3,350 21,448
Class 529C 14,720 94,258 9,090 58,422
- ----------------------------------------------------------------------------------------------------------
3,924,928 $25,109,504 3,580,229 $23,017,743
Shares reacquired
Class A (27,770,368) $(177,667,009) (27,456,168) $(176,901,133)
Class B (9,098,848) (58,042,032) (9,231,319) (59,248,303)
Class C (6,110,502) (39,087,109) (10,558,576) (68,042,256)
Class I (840,119) (5,348,739) (196,823) (1,259,758)
Class R (263,158) (1,688,124) (112,984) (728,035)
Class R1 (59,661) (380,618) (5,326) (34,336)
Class R2 (15,647) (99,850) -- --
Class R3 (145,393) (932,323) (19,898) (128,295)
Class R4 (65,962) (423,544) (1,657) (10,606)
Class R5 (28) (180) -- --
Class 529A (179,085) (1,146,475) (175,003) (1,127,743)
Class 529B (14,871) (94,861) (12,954) (83,000)
Class 529C (128,447) (821,490) (125,531) (808,113)
- ----------------------------------------------------------------------------------------------------------
(44,692,089) $(285,732,354) (47,896,239) $(308,371,578)
Net change
Class A 6,225,621 $40,430,469 (10,780,668) $(69,468,496)
Class B 2,483,504 15,957,372 (7,211,091) (46,271,792)
Class C 46,381 356,175 (8,907,200) (57,408,592)
Class I 3,557,605 22,712,816 3,121,467 20,060,143
Class R (88,690) (570,670) 28,248 184,080
Class R1 22,464 142,686 11,523 74,160
Class R2 8,488 54,058 11,197 71,516
Class R3 137,476 880,656 18,220 117,451
Class R4 36,238 231,594 32,955 210,692
Class R5 394 2,522 332 2,135
Class 529A 245,882 1,573,717 95,530 609,263
Class 529B 56,329 360,335 (1,506) (9,750)
Class 529C 241,050 1,543,110 58,007 371,879
- ----------------------------------------------------------------------------------------------------------
12,972,742 $83,674,840 (23,522,986) $(151,457,311)
Effective May 1, 2006, the sale of Class B shares of the fund have been
suspended except in certain circumstances. Please see the fund's prospectus
for details.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-of-funds do not invest in the underlying MFS funds for the
purpose of exercising management or control. At the end of the period, the MFS
Conservative Allocation Fund was the owner of record of approximately 19% of the
value of outstanding voting shares. In addition, the MFS Lifetime 2010 Fund and
the MFS Lifetime Retirement Income Fund were each the owners of record of less
than 1% of the value of outstanding voting shares.
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30% for the committed line of credit and 0.35% for the
uncommitted line of credit. 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 April 30, 2007, the fund's commitment fee and interest expense were
$2,416 and $0, respectively, and are included in miscellaneous expense on the
Statement of Operations.
(7) ACQUISITIONS
On November 20, 2006, the fund acquired all of the assets and liabilities of
MFS Government Limited Maturity Fund as of the close of business on November
17, 2006. The acquisition was accomplished by a tax-free exchange of
33,345,698 shares of the fund (valued at $213,722,879) for all of the assets
and liabilities of MFS Government Limited Maturity Fund. MFS Government
Limited Maturity Fund then distributed the shares that it received from the
fund to its shareholders. MFS Government Limited Maturity Fund's net assets on
that date were $213,722,879, including $2,066,339 of unrealized depreciation,
$5,943 of accumulated net investment loss, and $44,340,025 of accumulated net
realized loss on investments. The aggregate net assets of the fund after the
acquisition were $801,912,388.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust IX and the Shareholders of
MFS Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Limited Maturity Fund (one of the
portfolios comprising MFS Series Trust IX (the "Trust")) as of April 30, 2007,
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 five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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 April 30, 2007, by correspondence with the custodian.
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 Limited Maturity
Fund as of April 30, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 13, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of June 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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 Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
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 Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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 Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) 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 Officer compliance services), Principal
(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 Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) 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, Gutow, 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, 2007, the Trustees served as board members of 97 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR Effective May 1, 2007, the custodian changed to:
MFS Fund Distributors, Inc. JPMorgan Chase Bank
500 Boylston Street, Boston, MA 02116-3741 One Chase Manhattan Plaza
New York, NY 10081
PORTFOLIO MANAGER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
James Calmas Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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 2007 income
tax forms in January 2008.
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
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) MUNICIPAL LIMITED MATURITY FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------
MANAGEMENT REVIEW 3
- ------------------------------------------------------------------
PERFORMANCE SUMMARY 5
- ------------------------------------------------------------------
EXPENSE TABLE 7
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 9
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 22
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 24
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 25
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 26
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 29
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 39
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 40
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 46
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 46
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 46
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 46
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 47
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
4/30/07
MTL-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. 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
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
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 100.0%
TOP FIVE INDUSTRIES (i)
Healthcare Revenue - Hospitals 13.1%
------------------------------------------------
State & Local Agencies 11.3%
------------------------------------------------
General Obligations - General Purpose 10.6%
------------------------------------------------
Utilities - Municipal Owned 8.6%
------------------------------------------------
Water & Sewer Utility Revenue 8.1%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 55.1%
------------------------------------------------
AA 10.9%
------------------------------------------------
A 17.2%
------------------------------------------------
BBB 16.5%
------------------------------------------------
BB 0.1%
------------------------------------------------
Not Rated 0.2%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 3.7
------------------------------------------------
Average Life (i)(m) 4.9 yrs
------------------------------------------------
Average Maturity (i)(m) 7.3 yrs
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) AA
------------------------------------------------
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 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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended April 30, 2007, Class A shares of the MFS Municipal
Limited Maturity Fund provided a total return of 3.83%, at net asset value. In
comparison, the fund's benchmarks, the Lehman Brothers 3-Year Municipal Bond
Index (3-Year Index) and the Lehman Brothers 5-Year Municipal Bond Index
(5-Year Index), returned 3.97% and 4.21%, respectively.
FACTORS THAT AFFECTED PERFORMANCE
Relative to the 3-Year Index, the fund's longer duration(d) stance was a
detractor from performance. In the area of credit quality, the fund's
overweighted positioning in higher-quality "AAA"-rated(s) bonds also held back
relative results as lower-quality bonds outperformed higher-quality bonds over
the investment period.
On the positive side, positioning along the middle portion of the yield
curve(y) (represented by bonds with durations of 4- to 8- years), helped
performance relative to the 3-Year Index. Our overweighting in "BBB"-rated
securities, which outperformed the overall benchmark, and strong security
selection in the credit enhanced and general obligation sectors also boosted
results.
Relative to the 5-Year Index, our positioning on the short end of the yield
curve (represented by bonds with durations of 0- to 4- years) detracted from
relative performance. Our underweighting in the transportation sector also held
back results.
During the reporting period, security selection in the general obligation and
credit enhanced sectors contributed to performance relative to the 5-Year
Index.
Respectfully,
Geoffrey Schechter
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.
(s) Bonds rated "BBB", "Baa", or higher are considered investment grade; bonds
rated "BB", "Ba", or below are considered non-investment grade. The primary
source for bond quality ratings is Moody's Investors Service. If not
available, ratings by Standard & Poor's are used, else ratings by Fitch,
Inc. For securities which are not rated by any of the three agencies, the
security is considered Not Rated.
(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 or
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 4/30/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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
MFS Municipal Lehman Brothers Lehman Brothers
Limited Maturity 5-Year Municipal 3-Year Municipal
Fund - Class A Bond Index Bond Index
- ------------------------------------------------------------------------------
4/97 $ 9,750 $10,000 $10,000
4/98 10,239 10,674 10,554
4/99 10,716 11,367 11,162
4/00 10,756 11,408 11,336
4/01 11,551 12,443 12,215
4/02 12,176 13,296 12,957
4/03 12,959 14,345 13,710
4/04 13,134 14,592 13,912
4/05 13,456 15,099 14,136
4/06 13,644 15,280 14,337
4/07 14,166 15,923 14,906
TOTAL RETURNS THROUGH 4/30/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 3/17/92 3.83% 3.07% 3.81%
----------------------------------------------------------------------
B 9/07/93 3.06% 2.29% 3.02%
----------------------------------------------------------------------
C 7/01/94 2.96% 2.23% 2.94%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- -----------------------------------------------------------------------------
Lehman Brothers 5-Year Municipal
Bond Index (f) 4.21% 3.67% 4.76%
- ---------------------------------------------------------------------------
Lehman Brothers 3-Year Municipal
Bond Index (f) 3.97% 2.84% 4.07%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A 1.24% 2.55% 3.54%
With Initial Sales Charge (2.50%)
----------------------------------------------------------------------
B -0.94% 1.93% 3.02%
With CDSC (Declining over six years
from 4% to 0%) (x)
- --------------------------------------------------------------------------
C 1.96% 2.23% 2.94%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITIONS
Lehman Brothers 3-Year Municipal Bond Index - a market-value-weighted index
representative of the medium-term (2 to 4 years) tax-exempt bond market.
Lehman Brothers 5-Year Municipal Bond Index - a market-value-weighted index
representative of the medium-term (4 to 6 years) tax-exempt bond market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
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.
A portion of income may be subject to state, federal, and/or alternative
minimum tax. Capital gains, if any, are subject to a capital gains tax.
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,
November 1, 2006 through April 30, 2007.
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 November 1, 2006 through April 30,
2007.
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 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
- --------------------------------------------------------------------------------
A Actual 0.67% $1,000.00 $1,011.60 $3.34
------------------------------------------------------------------------
Hypothetical (h) 0.67% $1,000.00 $1,021.47 $3.36
- --------------------------------------------------------------------------------
B Actual 1.44% $1,000.00 $1,007.80 $7.17
------------------------------------------------------------------------
Hypothetical (h) 1.44% $1,000.00 $1,017.65 $7.20
- --------------------------------------------------------------------------------
C Actual 1.53% $1,000.00 $1,007.30 $7.61
------------------------------------------------------------------------
Hypothetical (h) 1.53% $1,000.00 $1,017.21 $7.65
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset
classes.
Municipal Bonds - 98.6%
- ----------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Airport & Port Revenue - 5.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Atlanta, GA, Airport Rev., "A", FSA, 5.375%, 2015 $1,000,000 $ 1,080,950
Chicago, IL (O'Hare International Airport Rev.), "A-2", FSA, 5.25%, 2013 1,500,000 1,593,285
Cleveland, OH, Airport Systems Rev., "A", FSA, 5.5%, 2008 250,000 252,865
Dallas Fort Worth, TX, International Airport, "A", AMBAC, 6%, 2013 1,000,000 1,112,790
Delaware River Port Authority Pennsylvania & New Jersey Refunding (Port District Project),
"A", FSA, 5.25%, 2009 550,000 564,030
Long Beach, CA, Harbor Rev., "A", FGIC, 5%, 2015 1,000,000 1,060,140
Massachusetts Port Authority Rev., "A", 5.25%, 2007 375,000 375,712
Massachusetts Port Authority Rev., "A", 5.75%, 2010 175,000 185,654
Minneapolis & St. Paul, MN, Metropolitan Airport, "D", FGIC, 5.25%, 2009 500,000 511,780
New York, NY, Industrial Development Agency (Terminal One Group Assn.), 5.5%, 2014 1,000,000 1,080,830
Rhode Island Economic Development Corp. Airport Rev., "A", FGIC, 5%, 2012 750,000 784,268
Richland Lexington, SC, Columbia Metropolitan Airport Rev., "A", FSA, 5%, 2009 200,000 204,110
------------
$ 8,806,414
- ----------------------------------------------------------------------------------------------------------------------------------
General Obligations - General Purpose - 10.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Broward County, FL, "B", 5%, 2008 $ 500,000 $ 504,245
Columbus, OH, 5.25%, 2011 705,000 743,049
Commonwealth of Massachusetts Consolidated Loan, "A", 6%, 2010 (c) 310,000 331,480
Commonwealth of Massachusetts Consolidated Loan, "A", 5%, 2016 1,000,000 1,074,930
Du Page County, IL (ARS Jail Project), 5%, 2009 870,000 888,157
Hawkins County, TN, AMBAC, 4.5%, 2008 425,000 428,332
New York, NY, "A", 5.25%, 2012 265,000 282,636
New York, NY, "B", 5.75%, 2011 375,000 400,774
New York, NY, "C", 5.25%, 2009 250,000 257,985
New York, NY, "G", 5.5%, 2009 780,000 809,071
New York, NY, "K", 5%, 2010 370,000 383,168
New York, NY, "N", 5%, 2013 1,030,000 1,094,540
Oakland, CA, "A", FGIC, 5%, 2010 820,000 849,668
Pawtucket, RI, "A", AMBAC, 5%, 2009 1,000,000 1,024,410
Saraland, AL, Warrants, MBIA, 4.5%, 2009 865,000 875,735
St. Clair County, IL, FGIC, 5.625%, 2012 500,000 530,305
State of California, 5%, 2011 2,250,000 2,351,272
State of Hawaii, "CY", FSA, 5.25%, 2008 500,000 505,535
State of Tennessee, "A", FGIC, 5.25%, 2008 500,000 505,645
State of Washington, "B", FSA, 5%, 2008 500,000 504,180
State of Wisconsin, 5.125%, 2011 400,000 422,552
State of Wisconsin, "1", MBIA, 5%, 2017 500,000 533,385
Taylor, MI, Building Authority, AMBAC, 5.5%, 2010 500,000 524,475
Titus County, TX, Hospital District, FGIC, 5%, 2013 510,000 543,895
------------
$ 16,369,424
- ----------------------------------------------------------------------------------------------------------------------------------
General Obligations - Improvement - 1.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Kauai County, HI, "A", FGIC, 6.25%, 2010 (c) $ 375,000 $ 404,554
New Orleans, LA, Certificate Indebtedness, FSA, 5.5%, 2010 500,000 527,310
Oak Ridge, TN, AMBAC, 5%, 2012 300,000 313,182
Pittsburgh, PA, "N", FSA, 5.25%, 2015 1,000,000 1,098,880
State of Mississippi, ETM, 6.2%, 2008 (c) 415,000 422,740
------------
$ 2,766,666
- ----------------------------------------------------------------------------------------------------------------------------------
General Obligations - Schools - 7.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Bastrop, TX, Independent School District Capital Appreciation, "N", PSF, 0%, 2020 $1,000,000 $ 548,100
Bloomington, MN, Independent School District, "B", 5.25%, 2010 (j) 500,000 519,620
Byron Center, MI, Public Schools, Q-SBLF, 5%, 2011 600,000 627,354
Clackamas County, OR, School District, 6%, 2010 (c) 315,000 336,319
Cook County, IL, Community Consolidated School, FSA, ETM, 0%, 2008 (c) 500,000 471,605
Deer Park, TX, Independent School District, PSF, 0%, 2009 1,000,000 933,930
DeSoto, TX, Independent School District School Building, "N", PSF, 0%, 2021 3,860,000 1,986,433
Ennis, TX, Independent School District Capital Appreciation, "N", PSF, 0%, 2021 2,865,000 1,475,532
Fayette County, GA, School District, FSA, 0% to 2010, 4.15% to 2014 710,000 619,290
Fayette County, GA, School District, FSA, 0% to 2010, 4.35% to 2016 355,000 310,391
Ferndale, MI, School District, Q-SBLF, 5.5%, 2013 1,115,000 1,195,971
Florida Board of Education, Lottery Rev., "B", FGIC, 5.5%, 2010 (c) 150,000 159,544
Manistee, MI, Public Schools, FGIC, 5.15%, 2009 (c) 100,000 102,821
Northside, TX, Independent School District, PSF, 5.5%, 2016 850,000 900,422
Norwin, PA, School District, FGIC, 6%, 2010 (c) 250,000 265,012
Round Rock, TX, Independent School District, PSF, 6.5%, 2010 (c) 500,000 542,715
Round Rock, TX, Independent School District, PSF, 5.375%, 2012 570,000 612,853
Westerville, OH, City School District, MBIA, 5.5%, 2011 (c) 300,000 320,373
------------
$ 11,928,285
- ----------------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Hospitals - 12.9%
- ----------------------------------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority Rev. (Catholic Healthcare West),
"I", 4.95%, 2026 (a) $3,000,000 $ 3,150,990
Colorado Health Facilities Authority Rev. (Catholic Health Initiatives),
"A", ETM, 5%, 2008 (c) 500,000 505,430
Colorado Health Facilities Authority Rev. (Parkview Medical Center), 5%, 2010 550,000 562,298
Colorado Health Facilities Authority Rev. (Parkview Medical Center), 5%, 2011 575,000 588,880
DCH Health Care Authority, AL, Facilities Rev., 4%, 2008 500,000 500,930
Illinois Health Facilities Authority Rev. (Children's Memorial Hospital),
"A", AMBAC, 5.75%, 2009 (c) 250,000 263,180
Indiana Health Facility Financing Authority Rev. (Ascension Health), "F", 5.5%, 2008 500,000 513,215
Indiana Health Facility Financing Authority Rev. (Holy Cross Health Systems Corp.),
MBIA, 5.375%, 2008 1,000,000 1,024,020
Iowa Finance Authority Health Care Facilities (Genesis Medical Center), 6%, 2010 210,000 222,088
Joplin, MO, Industrial Development Authority, Health Facilities Rev.
(Freeman Health Systems), 5.5%, 2013 700,000 746,620
Kent, MI, Hospital Finance Authority Rev. (Spectrum Health), "A", 5.25%, 2009 750,000 767,077
Kentucky Economic Development Finance Authority (Norton Healthcare),
"A", ETM, 6.125%, 2010 (c) 55,000 56,996
Kentucky Economic Development Finance Authority, Unrefunded (Norton Healthcare), "A", 6.125%, 2010 105,000 108,548
Lakewood, OH, Hospital Improvement Rev. (Lakewood Hospital Assn.), 5.5%, 2009 1,000,000 1,023,250
Martin County, FL, Health Facilities Authority, Hospital Rev. (Martin Memorial Medical Center),
"B", 5.25%, 2008 800,000 812,216
Massachusetts Health & Educational Facilities Authority Rev. (Baystate Medical Center),
"F", 5%, 2009 235,000 238,638
Massachusetts Health & Educational Facilities Authority Rev. (Covenant Health System), 5%, 2007 40,000 40,036
Michigan Hospital Finance Authority Rev. (Genesys Health System), "A", ETM, 5.5%, 2007 (c) 750,000 755,625
Mississippi Hospital Equipment & Facilities Authority Rev.
(Southwest Mississippi Regional Medical Center), 5%, 2014 500,000 516,490
New Hampshire Health & Education Facilities (Covenant Health), 5%, 2014 1,030,000 1,065,834
New Hampshire Health & Education Facilities (Exeter Hospital), 4.6%, 2007 395,000 395,466
Oklahoma Development Finance Authority (Unity Health Center), 5%, 2013 875,000 915,959
Philadelphia, PA, Hospital & Higher Education (Children's Hospital), "E", MBIA, 5%, 2032 (a) 750,000 751,208
Rhode Island Health & Education Building, Hospital Financing (Lifespan Obligated Group), 5.75%, 2010 250,000 262,770
South Miami, FL, Health Facilities Baptist Authority, Hospital Rev.
(Baptist Health South Florida Group), 5%, 2021 790,000 828,149
Springfield, TN, Health & Higher Educational Facilities Hospital Rev.
(Northcrest Medical Center), 5.25%, 2013 485,000 487,541
Steubenville, OH Hospital Rev. (Trinity Hospital), 5.75%, 2010 220,000 232,225
Tarrant County, TX, Cultural Education Facilities Finance Corp. Rev. (Texas Health Resources),
5%, 2019 500,000 527,270
Tyler, TX, Health Facilities Development Corp. (Mother Frances Hospital), 5%, 2007 500,000 500,445
Waco, TX, Health Facilities Development Corp. (Ascension Health), "A", 5.5%, 2009 250,000 259,985
Wisconsin Health & Educational Facilities Authority Rev. (Fort Healthcare, Inc.), 5.25%, 2012 610,000 631,917
Wisconsin Health & Educational Facilities Authority Rev. (Fort Healthcare, Inc.), 5.25%, 2013 645,000 670,858
Wisconsin Health & Educational Facilities Authority Rev. (Wheaton Franciscan Services), 5%, 2007 260,000 260,593
------------
$ 20,186,747
- ----------------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Long Term Care - 0.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Colorado Health Facilities Authority Rev. (Evangelical Lutheran), "B", 3.75%, 2034 (a) $ 735,000 $ 729,186
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Chemicals - 0.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Brazos River, TX, Harbor Navigation District (Dow Chemical Co.), "B-2", 4.75%, 2033 $ 330,000 $ 330,056
Michigan Strategic Fund Ltd. Rev. (Dow Chemical Co.), 4.6%, 2014 (a) 350,000 351,890
------------
$ 681,946
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 2.1%
- ----------------------------------------------------------------------------------------------------------------------------------
California Statewide Community Development Authority, Solid Waste Facilities Rev.
(Republic Services, Inc.), "A", 4.95%, 2012 $ 250,000 $ 257,600
Michigan Solid Waste Disposal Rev. (Waste Management, Inc.), 4.5%, 2013 1,000,000 1,001,100
New Jersey Economic Development Authority (Waste Management, Inc.), "A", 5.3%, 2015 (a) 1,000,000 1,049,230
Ohio Solid Waste Rev. (Republic Services, Inc.), 4.25%, 2033 (a) 1,000,000 983,510
------------
$ 3,291,440
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 1.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Cartersville, GA, Development Authority Rev. (Anheuser Busch), 5.1%, 2012 $ 375,000 $ 390,997
Fort Bend County, TX, Industrial Development (Frito Lay, Inc.), 3.5%, 2011 1,000,000 994,060
Port Corpus Christi, TX, Nueces County General Rev. (Union Pacific Corp.), 5.35%, 2010 610,000 615,649
Utah County, UT, Environmental Improvement Rev. (Marathon Oil), 5.05%, 2017 (a) 300,000 315,591
------------
$ 2,316,297
- ----------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 2.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Courtland, AL, Industrial Development Board Environmental
Improvement Rev. (International Paper Co.), "A", 5%, 2013 $ 750,000 $ 779,475
Delta County, MI, Economic Development Corp., Environmental Improvements Rev.
(Mead Westvaco Escanaba), "B", 6.45%, 2012 (c) 1,500,000 1,668,495
Erie County, PA, Industrial Development Authority, Pollution Control
(International Paper Co.), "A", 5.25%, 2010 250,000 257,822
Erie County, PA, Industrial Development Authority, Pollution Control
(International Paper Co.), "A", 5.3%, 2012 570,000 596,254
------------
$ 3,302,046
- ----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 0.7%
- ----------------------------------------------------------------------------------------------------------------------------------
George L. Smith II, GA, World Congress Center Authority Rev. (Domed Stadium), MBIA, 6%, 2011 $1,000,000 $ 1,071,290
- ----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 1.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Dayton Montgomery County, OH, Port Dayton, "A", 4.75%, 2015 $ 605,000 $ 613,609
Gallery Certificate Trust, PA, Parking Rev., 4.5%, 2013 (n) 435,000 434,317
Illinois Development Finance Authority Rev. (Elgin School District), FSA, 0%, 2010 500,000 451,160
Indiana Bond Bank Common School Fund, AMBAC, 5.75%, 2013 685,000 710,831
------------
$ 2,209,917
- ----------------------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 0.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Missouri Housing Development Commission, Multi-family Housing, "II", 4.35%, 2007 $ 140,000 $ 140,050
Philadelphia, PA, Housing Authority, "A", FSA, 5%, 2008 500,000 510,090
------------
$ 650,140
- ----------------------------------------------------------------------------------------------------------------------------------
Parking - 0.5%
- ----------------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA, Public Parking Authority Rev., "A", FGIC, 5%, 2016 $ 690,000 $ 742,778
- ----------------------------------------------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Jefferson Parish, LA, School Board, "N", AMBAC, 5.5%, 2009 $1,245,000 $ 1,284,180
Spokane, WA, Public Facilities District Hotel, "A", MBIA, 5.75%, 2012 425,000 458,210
Wyandotte County-Kansas City, KS, Sales Tax Second Lien Area B, 4.75%, 2016 695,000 718,262
------------
$ 2,460,652
- ----------------------------------------------------------------------------------------------------------------------------------
Single Family Housing Revenue - Local - 0.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Sedgwick & Shawnee County, KS, Mortgage Backed Securities, "B-4", GNMA, 4.25%, 2023 $1,000,000 $ 999,110
- ----------------------------------------------------------------------------------------------------------------------------------
Single Family Housing - State - 2.4%
- ----------------------------------------------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "C-2", 8.4%, 2021 $ 25,000 $ 25,672
Colorado Housing & Finance Authority Rev., Single Family Program, "A-3", 7.25%, 2010 35,000 35,136
Colorado Housing & Finance Authority Rev., Single Family Program, "A-3", 6.3%, 2012 50,000 51,430
Colorado Housing & Finance Authority Rev., Single Family Program, "B-3", 6.7%, 2016 30,000 30,079
Massachusetts Housing Finance Agency, "A", MBIA, 5.35%, 2010 230,000 232,880
Missouri Housing Development Commission, Single Family Mortgage Rev.
(Home Loan Program), "B", GNMA, 6.05%, 2037 525,000 567,430
New Hampshire Housing Finance Authority, Single Family Rev., Mortgage Acquisition,
"F", 3.7%, 2010 415,000 409,186
Oklahoma Housing Finance Agency Single Family Rev., Mortgage Homeownership, GNMA, 7.6%, 2015 50,000 50,342
South Dakota Housing Development Authority, Homeownership Mortgage, "A", 4.15%, 2007 5,000 5,000
South Dakota Housing Development Authority, Homeownership Mortgage, "D", 4.9%, 2008 390,000 392,441
Tennessee Housing Development Agency (Homeownership Program), 5.65%, 2009 1,885,000 1,948,279
------------
$ 3,747,875
- ----------------------------------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 1.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Central Wayne County, MI, Sanitation Rev., "VII", 4.75%, 2007 $ 500,000 $ 499,745
Massachusetts Development Finance Agency, Resource Recovery Rev. (Semass Systems),
"B", MBIA, 5.625%, 2012 400,000 431,248
Niagara County, NY, Industrial Development Agency, Solid Waste Disposal Rev.,
(American Ref-fuel), "C", 5.625%, 2024 (a) 300,000 315,777
Tacoma, WA, Solid Waste Utility Rev., AMBAC, 5%, 2010 400,000 417,128
------------
$ 1,663,898
- ----------------------------------------------------------------------------------------------------------------------------------
State & Agency - Other - 1.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Kentucky Property & Buildings Commerce Rev. (Project Number 69), "A", FSA, 5.5%, 2011 $ 500,000 $ 534,820
New York Dormitory Authority Rev. (City University), MBIA, 5.25%, 2011 1,270,000 1,348,232
Puerto Rico Commonwealth Government Development Bank, "B", 5%, 2007 1,000,000 1,006,190
------------
$ 2,889,242
- ----------------------------------------------------------------------------------------------------------------------------------
State & Local Agencies - 11.1%
- ----------------------------------------------------------------------------------------------------------------------------------
Alabama Public School & College, "C", FSA, 4.5%, 2009 $1,000,000 $ 1,015,240
Allen County, IN (Jail Building Corp.), ETM, 5.75%, 2009 (c) 235,000 246,061
Columbia, SC, COP, Tourism Development Fee Pledge, "N", AMBAC, 5.25%, 2016 1,000,000 1,079,130
Columbus, IN, Multi-School Building Corp., First Mortgage, FSA, 5%, 2010 725,000 748,664
District of Columbia, COP, AMBAC, 5.25%, 2008 1,500,000 1,514,775
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., "B" Enhanced,
5.5%, 2007 (c) 1,120,000 1,121,602
Hamilton Heights School Building Corp. First Mortgage, "N", FSA, 5%, 2014 1,875,000 2,008,144
Hampton, VA, Museum Rev., 5%, 2014 760,000 797,666
New Jersey Economic Development Authority, "A", MBIA, 5%, 2009 500,000 513,775
New York Dormitory Authority Rev. (School Districts Financing Program), "A", MBIA, 5.25%, 2009 1,000,000 1,036,810
New York Tobacco Settlement Financing Corp., "A-1", 5.25%, 2012 1,000,000 1,001,250
New York Tobacco Settlement Financing Corp., "B-1", 5.25%, 2013 1,000,000 1,016,410
New York Urban Development Corp. Rev., "A", 5.125%, 2015 675,000 725,760
North Lawrence, IN (First Mortgage), FSA, 5%, 2008 500,000 504,185
Ohio Building Authority (Adult Correctional Building), "A", 5.75%, 2008 425,000 432,642
Ohio Building Authority (Adult Correctional Building), "A", FSA, 5%, 2009 1,290,000 1,320,625
Ohio Building Authority (State Facilities Administration Building), "A", 5.375%, 2009 (c) 1,000,000 1,048,360
Oregon Department of Administrative Services, "A", AMBAC, 5.5%, 2008 500,000 508,660
Phoenix, AZ (Civic Improvement Corp.), AMBAC, 5.5%, 2007 250,000 250,648
Suffolk County, NY, Judicial Facilities (John P. Cohalan Complex), AMBAC, 5.75%, 2011 160,000 169,306
Virginia, MN, Housing & Redevelopment Authority, Healthcare Facility Lease Rev., 5.25%, 2012 85,000 87,822
Virginia, MN, Housing & Redevelopment Authority, Healthcare Facility Lease Rev., 5.25%, 2013 215,000 222,796
------------
$ 17,370,331
- ----------------------------------------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Connecticut Higher Education Supplemental Loan Authority Rev. (Family Education Loan Program),
"A", MBIA, 4.125%, 2013 $ 870,000 $ 873,202
Massachusetts Educational Financing Authority, "E", AMBAC, 4.5%, 2009 85,000 85,400
------------
$ 958,602
- ----------------------------------------------------------------------------------------------------------------------------------
Tax - Other - 2.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Denver, CO, City & County Excise Tax, "A", FSA, 5.25%, 2008 $ 250,000 $ 255,060
Harris County-Houston, TX (Sport Capital Appreciation), "N", MBIA, 0%, 2040 (a) 600,000 561,222
New Jersey Economic Development Authority Rev., Cigarette Tax, 5.375%, 2015 2,730,000 2,931,556
Virgin Islands Public Finance Authority Rev., Matching Fund Loan Note, "A", 5%, 2013 200,000 210,626
Virgin Islands Public Finance Authority Rev., Matching Fund Loan Note, "A", 5%, 2014 250,000 264,245
------------
$ 4,222,709
- ----------------------------------------------------------------------------------------------------------------------------------
Tax Assessment - 1.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Dyer, IN, Redevelopment Authority, Economic Development Lease Rent, CIFG, 5%, 2011 $ 570,000 $ 592,771
Louisiana Citizens Property, "B", AMBAC, 5.25%, 2014 1,000,000 1,080,840
Omaha, NE, Special Obligations (Riverfront Redevelopment), "A", 4.125%, 2008 285,000 285,681
------------
$ 1,959,292
- ----------------------------------------------------------------------------------------------------------------------------------
Tobacco - 2.3%
- ----------------------------------------------------------------------------------------------------------------------------------
District of Columbia Tobacco Settlement, Asset Backed Bonds, 5.2%, 2008 $ 450,000 $ 455,724
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A", 5%, 2008 (c) 600,000 601,338
New Jersey Tobacco Settlement Financing Corp., 4.375%, 2008 (c) 80,000 80,174
New Jersey Tobacco Settlement Financing Corp., "1A", 4.5%, 2023 1,500,000 1,477,800
South Carolina Tobacco Settlement Authority Rev., "B", 6%, 2022 225,000 237,807
Virginia Tobacco Settlement Financing Corp., 5.25%, 2012 (c) 685,000 717,024
------------
$ 3,569,867
- ----------------------------------------------------------------------------------------------------------------------------------
Transportation - Special Tax - 0.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Colorado Department of Transportation Rev., AMBAC, 6%, 2008 $ 235,000 $ 240,952
Du Page County, IL, Transportation Rev., FSA, 5.5%, 2011 1,000,000 1,060,000
------------
$ 1,300,952
- ----------------------------------------------------------------------------------------------------------------------------------
Universities - Colleges - 2.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Alabama Private Colleges (Tuskegee University), "N", ASSD GTY, 5%, 2015 $1,000,000 $ 1,067,260
Illinois Educational Facilities Authority Rev. (Art Institute Chicago), "A", 4.3%, 2030 (a) 500,000 507,690
Massachusetts Development Finance Agency Rev. (Hampshire College), 5.15%, 2014 150,000 154,081
Massachusetts Development Finance Agency Rev. (Massachusetts College of Pharmacy), "C", 5%, 2007 475,000 475,451
Massachusetts Development Finance Agency Rev. (Western New England College), ETM, 4%, 2008 (c) 295,000 294,652
Massachusetts Health & Educational (Massachusetts Institute of Technology), "K", 5.25%, 2012 375,000 402,427
Southeast Missouri State University, System Facilities Rev., MBIA, 5.625%, 2010 250,000 263,440
Texas Public Finance Authority Rev., Southern University Financing Systems, MBIA, 5%, 2007 500,000 503,205
University of Texas, Permanent University Fund, "A", 5%, 2009 580,000 595,248
------------
$ 4,263,454
- ----------------------------------------------------------------------------------------------------------------------------------
Universities - Dormitories - 0.7%
- ----------------------------------------------------------------------------------------------------------------------------------
New York Dormitory Authority Rev., FGIC, 5.25%, 2029 (a) $1,000,000 $ 1,070,100
- ----------------------------------------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
District of Columbia Rev. (Gonzaga College High School), FSA, 5%, 2012 $ 390,000 $ 398,947
New Hampshire Health & Education (Derryfield School), 6.5%, 2010 100,000 102,333
------------
$ 501,280
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 3.8%
- ----------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Poll (Southern California Edison Co.),
"A", XLCA, 4.1%, 2028 (a) $ 500,000 $ 505,745
Chesapeake, VA, Industrial Development Authority Rev. (Virginia Electric & Power Co.), 5.25%, 2008 250,000 250,897
Clark County, NV, Pollution Control Rev. (Southern California Edison Co.), 3.25%, 2031 (a) 500,000 492,905
Farmington, NM, Pollution Control Rev. (El Paso Electric Co.), "A", FGIC, 4%, 2032 (a) 695,000 693,666
Farmington, NM, Pollution Control Rev. (Southern California Edison Co.), "A", FGIC, 3.55%, 2029 (a) 535,000 531,191
Hillsborough County, FL, Industrial Development Authority, Pollution Control Rev.
(Tampa Electric Co.), 4%, 2025 (a) 500,000 499,485
Jefferson County, AR, Pollution Control Rev. (Entergy Arkansas, Inc., Project), 4.6%, 2017 820,000 827,913
Madison, WI, Industrial Development Rev. (Madison Gas & Electric Co.), "B", 4.875%, 2027 (a) 420,000 435,086
New Hampshire Business Finance Authority, Pollution Control Rev. (United Illuminating Co.), AMBAC,
3.65%, 2027 (a) 1,000,000 985,580
Peninsula Ports Authority, VA, Coal Terminal Rev. (Dominion Terminal Associates), 3.3%, 2033 (a) 775,000 766,669
------------
$ 5,989,137
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 8.5%
- ----------------------------------------------------------------------------------------------------------------------------------
California Department Water Resources, Power Supply Rev., "A", 5.5%, 2010 $ 600,000 $ 631,044
Clallam County, WA, Public Utilities District, Electric Rev., FSA, 5%, 2008 400,000 403,292
Clark County, WA, Public Utilities District 1, AMBAC, 5.25%, 2008 1,380,000 1,393,593
Cowlitz County, WA, Public Utilities District 1, AMBAC, ETM, 5.25%, 2008 (c) 195,000 199,023
Cowlitz County, WA, Public Utilities District 1, Unrefunded, AMBAC, 5.25%, 2008 305,000 311,015
Dalton, GA, Utilities Rev., FSA, 6%, 2012 500,000 548,345
Delaware Municipal Electric Corp., AMBAC, 5%, 2008 500,000 507,525
Energy Northwest, Washington, Wind Project Rev., MBIA, 5%, 2012 560,000 592,542
Energy Northwest, Washington, Wind Project Rev., MBIA, 5%, 2013 280,000 298,763
Kissimmee, FL, Utility Authority Electric, AMBAC, 5%, 2011 500,000 525,800
Long Island Power Authority, NY, Electric Systems Rev., "A", 5%, 2009 1,100,000 1,125,212
Lower Colorado River Authority, TX, Rev., "A", MBIA, ETM, 5%, 2011 (c) 30,000 31,448
Lower Colorado River Authority, TX, Rev., "F", FSA, 5.5%, 2008 600,000 610,596
Lower Colorado River Authority, TX, Rev., "N", MBIA, 5%, 2011 470,000 492,156
Massachusetts Development Finance Agency (Devens Electrical Systems), 5.125%, 2011 135,000 136,172
Muscatine, IA, Electric Rev., "A", AMBAC, 5.5%, 2010 1,000,000 1,044,390
North Carolina Eastern Municipal Power Agency, "A", 5.5%, 2010 750,000 779,625
North Carolina Municipal Power Agency, Catawba Electric Rev., "A", 5.5%, 2013 500,000 534,755
Puerto Rico Electric Power Authority Revenue, MBIA, 5%, 2019 870,000 955,730
Salt River, AZ, Agricultural Improvement (Salt River), "A", 5%, 2011 500,000 522,565
South Carolina Public Service Authority, "A", FSA, 4.5%, 2008 500,000 502,695
Southern California Public Power Authority (San Juan), "A", FSA, 5.375%, 2012 595,000 638,596
Tacoma, WA, Electric Systems Rev., "A", FSA, 5.5%, 2011 500,000 530,000
------------
$ 13,314,882
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities - Other - 0.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Edmond, OK, Public Works Authority, Sales Tax & Utility System Rev., AMBAC, 4.5%, 2008 $ 500,000 $ 504,540
- ----------------------------------------------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 8.0%
- ----------------------------------------------------------------------------------------------------------------------------------
Allentown, PA, Water Rev., Guaranteed, AMBAC, 5%, 2011 $ 925,000 $ 974,682
Atlanta, GA, Water & Waste Rev., "A", FGIC, 5.5%, 2014 1,235,000 1,350,596
Harrison County, MS, Wastewater Treatment Facilities, "A", FGIC, ETM, 5.5%, 2011 (c) 400,000 425,368
Houston, TX, Utilities Systems Rev., MBIA, 5.25%, 2014 1,485,000 1,616,779
Kansas, Development Finance Authority Rev., Water Pollution Control Revolving Fund, 5%, 2008 500,000 506,435
King County, WA, Sewer Rev., FGIC, 5.25%, 2012 750,000 797,662
Luzerne County, PA, Industrial Development Authority, Water Facility Rev.
(Pennsylvania-American Water Co.), AMBAC, 3.6%, 2033 (a) 1,000,000 987,860
Mississippi Development Bank Special Obligation, "N", AMBAC, 5%, 2015 1,000,000 1,081,250
Nueces River Authority, Texas Water Supply Rev. (Corpus Christi Project), FSA, 5%, 2013 540,000 576,385
Philadelphia, PA, Water & Wastewater, FSA, 5.625%, 2008 595,000 607,519
Phoenix, AZ, Civic Improvement Corp., FGIC, 4.5%, 2007 200,000 200,202
Phoenix, AZ, Civic Improvement Corp., Wastewater Systems Rev., FGIC, 5.25%, 2009 255,000 263,178
Seattle, WA, Water Systems Rev., "B", 5%, 2008 475,000 481,660
Sebring, FL, Water & Wastewater, FGIC, 5.25%, 2013 690,000 742,316
Truckee Meadows, NV, Water Authority, "A", FSA, 5.5%, 2011 1,000,000 1,067,580
Utah Water Finance Agency Rev., "A", AMBAC, 5%, 2012 500,000 530,085
Wilsonville, OR, Water Systems Rev., MBIA, 5%, 2010 300,000 311,592
------------
$ 12,521,149
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST, $152,789,791) $154,359,648
- ----------------------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 1.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Bell County, TX, Health Facilities Development Corp. Rev. (Scott & White Memorial Hospital),
4.02%, due 5/01/07 $1,300,000 $ 1,300,000
Harris County, TX, Health Facilities Development Rev. (University of Texas Medical Center),
4.02%, due 5/01/07 500,000 500,000
Lincoln County, WY, Pollution Control Rev. (Exxon Mobil Corp.), 4.06%, due 5/01/07 200,000 200,000
Lincoln County, WY, Pollution Control Rev. (Exxon Mobil Corp.), "C", 4.12%, due 5/01/07 300,000 300,000
New York, NY, Municipal Water Finance Authority, Water & Sewer Systems Rev., "C", 3.93%, due 5/01/07 100,000 100,000
Sublette County, WY, Pollution Control Rev. (Exxon Mobil Corp.), 3.92%, due 5/01/07 100,000 100,000
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE DEMAND NOTES, AT IDENTIFIED COST $ 2,500,000
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $155,289,791) (k) $156,859,648
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (0.2)% (271,822)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $156,587,826
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Mandatory put date is earlier than stated maturity date.
(c) Refunded bond.
(j) Crossover refunded bond.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of Trustees,
aggregating $154,359,648 and 98.41% of market value. All of these security values were provided by an independent pricing
service using an evaluated bid.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary
course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the
aggregate value of these securities was $434,317 representing 0.3% of net assets.
The following abbreviations are used in this report and are defined:
BMA Bond Market Assn.
COP Certificate of Participation
ETM Escrowed to Maturity
Insurers
- -------------------------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corp.
ASSD GTY Assured Guaranty Insurance Co.
CIFG CDC IXIS Financial Guaranty
FGIC Financial Guaranty Insurance Co.
FSA Financial Security Assurance Inc.
GNMA Government National Mortgage Assn.
MBIA MBIA Insurance Corp.
PSF Permanent School Fund
Q-SBLF Qualified School Board Loan Fund
XLCA XL Capital Insurance Co.
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- -------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
10/17/17 USD 3,500,000 Citigroup 7-Day BMA 3.714% (fixed rate) $(8,804)
=======
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any
commitments under these derivative contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07
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, $155,289,791) $156,859,648
Cash 32,830
Receivable for investments sold 310,063
Receivable for fund shares sold 125,434
Interest receivable 2,197,223
Other assets 2,728
- ----------------------------------------------------------------------------------------------------
Total assets $159,527,926
LIABILITIES
- ----------------------------------------------------------------------------------------------------
Distributions payable $120,133
Payable for investments purchased 2,305,271
Payable for fund shares reacquired 351,103
Unrealized depreciation on interest rate swap agreements 8,804
Payable to affiliates
Management fee 4,285
Shareholder servicing costs 28,022
Distribution and service fees 15,409
Administrative services fee 396
Payable for independent trustees' compensation 8,978
Accrued expenses and other liabilities 97,699
- ----------------------------------------------------------------------------------------------------
Total liabilities $2,940,100
- ----------------------------------------------------------------------------------------------------
Net assets $156,587,826
- ----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ----------------------------------------------------------------------------------------------------
Paid-in capital $158,285,386
Unrealized appreciation (depreciation) on investments 1,561,053
Accumulated net realized gain (loss) on investments (3,505,731)
Undistributed net investment income 247,118
- ----------------------------------------------------------------------------------------------------
Net assets $156,587,826
- ----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 20,326,784
- ----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ----------------------------------------------------------------------------------------------------
Net assets $116,561,570
Shares outstanding 15,130,238
- ----------------------------------------------------------------------------------------------------
Net asset value per share $7.70
- ----------------------------------------------------------------------------------------------------
Offering price per share (100/97.50Xnet asset value per share) $7.90
- ----------------------------------------------------------------------------------------------------
Class B shares
- ----------------------------------------------------------------------------------------------------
Net assets $15,392,738
Shares outstanding 2,000,970
- ----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.69
- ----------------------------------------------------------------------------------------------------
Class C shares
- ----------------------------------------------------------------------------------------------------
Net assets $24,633,518
Shares outstanding 3,195,576
- ----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.71
- ----------------------------------------------------------------------------------------------------
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 4/30/07
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 $7,509,421
Other 1,699
- ----------------------------------------------------------------------------------------------------
Total Investment Income $7,511,120
- ----------------------------------------------------------------------------------------------------
Expenses
Management fee $708,567
Distribution and service fees 667,088
Shareholder servicing costs 236,569
Administrative services fee 40,317
Independent trustees' compensation 9,977
Custodian fee 80,615
Shareholder communications 25,409
Auditing fees 38,778
Legal fees 3,286
Miscellaneous 97,952
- ----------------------------------------------------------------------------------------------------
Total expenses $1,908,558
- ----------------------------------------------------------------------------------------------------
Fees paid indirectly (17,848)
Reduction of expenses by investment adviser (266,620)
- ----------------------------------------------------------------------------------------------------
Net expenses $1,624,090
- ----------------------------------------------------------------------------------------------------
Net investment income $5,887,030
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(216,038)
Swap transactions (266,263)
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(482,301)
- ----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $1,159,109
Swap transactions (214,793)
- ----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $944,316
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $462,015
- ----------------------------------------------------------------------------------------------------
Change in net assets from operations $6,349,045
- ----------------------------------------------------------------------------------------------------
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 4/30
-----------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income $5,887,030 $6,845,630
Net realized gain (loss) on investments (482,301) (515,263)
Net unrealized gain (loss) on investments 944,316 (3,543,346)
- --------------------------------------------------------------------------------------------
Change in net assets from operations $6,349,045 $2,787,021
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------
From net investment income
Class A $(4,142,886) $(5,203,991)
Class B (473,641) (654,643)
Class C (720,773) (893,004)
- --------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(5,337,300) $(6,751,638)
- --------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(53,503,666) $(41,523,669)
- --------------------------------------------------------------------------------------------
Total change in net assets $(52,491,921) $(45,488,286)
- --------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------
At beginning of period 209,079,747 254,568,033
At end of period (including undistributed net investment
income of $247,118 and accumulated distributions in excess
of net investment income of $156,303) $156,587,826 $209,079,747
- --------------------------------------------------------------------------------------------
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. 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.
CLASS A YEARS ENDED 4/30
---------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $7.66 $7.79 $7.83 $7.94 $7.69
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.27(z) $0.24 $0.23 $0.22 $0.23
Net realized and unrealized gain (loss) on investments 0.02(z) (0.13) (0.04) (0.11) 0.26
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.29 $0.11 $0.19 $0.11 $0.49
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.25) $(0.24) $(0.23) $(0.22) $(0.24)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.70 $7.66 $7.79 $7.83 $7.94
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 3.83 1.40 2.45 1.35 6.43
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.85 0.86 0.82 0.82 0.84
Expenses after expense reductions (f) 0.70 0.71 0.67 0.71 0.74
Net investment income 3.55(z) 3.11 3.00 2.73 2.90
Portfolio turnover 9 13 17 18 12
Net assets at end of period (000 omitted) $116,562 $149,936 $177,889 $171,824 $165,598
- -----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 4/30
---------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $7.65 $7.78 $7.82 $7.93 $7.68
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.21(z) $0.18 $0.18 $0.15 $0.16
Net realized and unrealized gain (loss) on investments 0.02(z) (0.13) (0.05) (0.10) 0.27
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.23 $0.05 $0.13 $0.05 $0.43
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.19) $(0.18) $(0.17) $(0.16) $(0.18)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.69 $7.65 $7.78 $7.82 $7.93
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 3.06 0.66 1.65 0.58 5.61
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.61 1.61 1.58 1.61 1.63
Expenses after expense reductions (f) 1.46 1.46 1.43 1.50 1.53
Net investment income 2.79(z) 2.36 2.25 1.94 2.10
Portfolio turnover 9 13 17 18 12
Net assets at end of period (000 omitted) $15,393 $23,575 $32,702 $41,733 $38,360
- -----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 4/30
---------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $7.67 $7.80 $7.83 $7.94 $7.69
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.21(z) $0.18 $0.17 $0.15 $0.16
Net realized and unrealized gain (loss) on investments 0.01(z) (0.14) (0.04) (0.11) 0.26
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.22 $0.04 $0.13 $0.04 $0.42
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.18) $(0.17) $(0.16) $(0.15) $(0.17)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.71 $7.67 $7.80 $7.83 $7.94
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 2.96 0.54 1.71 0.49 5.52
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.70 1.71 1.67 1.67 1.69
Expenses after expense reductions (f) 1.55 1.56 1.52 1.56 1.59
Net investment income 2.70(z) 2.26 2.21 1.87 2.02
Portfolio turnover 9 13 17 18 12
Net assets at end of period (000 omitted) $24,634 $35,569 $43,977 $55,263 $51,184
- -----------------------------------------------------------------------------------------------------------------------------------
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.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(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.
(z) The fund applied a change in estimate for amortization of premium on certain debt securities in the current year that resulted
in an increase of less than $0.01 per share to net investment income, a decrease of less than $0.01 per share to net realized
and unrealized gain (loss) on investments, and an increase of 0.06% to the net investment income ratio for each class for the
year ended April 30, 2007. The change in estimate had no impact on net assets, net asset value per share or total return of
each class.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Municipal Limited Maturity 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. Municipal
securities backed by current or anticipated revenues from a specific project or
specific assets can be negatively affected by the discontinuance of the
taxation supporting the projects or assets or the inability to collect revenues
for the project or from the assets. If the Internal Revenue Service determines
an issuer of a municipal security has not complied with applicable tax
requirements, the security could decline in value, interest from the security
could become taxable and the fund may be required to issue Forms 1099-DIV.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. Swaps are generally valued at
an evaluated bid as reported by an independent pricing service. 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. Values
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.
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 and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign securities may often be valued at fair value.
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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159
permits entities to elect to measure certain financial assets and liabilities
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected will be reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after November
15, 2007. Management is evaluating the application of the Statement to the fund
and its impact on the fund's financial statements, if any, has not been
determined.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include swap agreements.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed. The fund holds interest rate swap agreements which involve the
periodic exchange of cash flows, such as the exchange of fixed rate interest
payments for floating rate interest payments based on a notional principal
amount. The interest rates may be based on a specific financial index or the
exchange of two distinct floating rate payments. The fund may enter into an
interest rate swap in order to manage its exposure to interest rate
fluctuations.
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.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All premium and
original issue discount is amortized or accreted for tax reporting purposes as
required by federal income tax regulations.
The fund may receive proceeds from litigation settlements. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
As a result of a change in estimate for the amortization of premium and
accretion of discount on debt securities, interest has been increased with a
corresponding reduction to net unrealized appreciation (depreciation) in the
amount of $114,545.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the fund. This amount, for the year ended April 30, 2007, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable and tax-exempt income, including realized
capital gains. Accordingly, no provision for federal income tax is required in
the financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from 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.
The tax character of distributions declared to shareholders is as follows:
4/30/07 4/30/06
Tax-exempt income $5,337,300 $6,751,638
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $155,139,903
-------------------------------------------------------------
Gross appreciation $1,999,248
Gross depreciation (279,503)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $1,719,745
Undistributed tax-exempt income $673,630
Capital loss carryforwards (3,499,249)
Post-October capital loss deferral (156,370)
Other temporary differences (435,316)
As of April 30, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
4/30/08 $(383,520)
4/30/09 (516,819)
4/30/11 (159,222)
4/30/12 (277,860)
4/30/13 (789,744)
4/30/14 (625,131)
4/30/15 (746,953)
--------------------------------------------------
$(3,499,249)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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 0.40% of
the fund's average daily net assets. As part of a settlement agreement with the
New York Attorney General concerning market timing and related matters, MFS has
agreed to reduce the management fee to 0.25% of the fund's average daily net
assets for the period March 1, 2004 through February 28, 2009. For the year
ended April 30, 2007, this waiver amounted to $265,712 and is reflected as a
reduction of total expenses in the Statement of Operations.
The management fee incurred for the year ended April 30, 2007 was equivalent to
an annual effective rate of 0.25% of the fund's average daily net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $5,530 for the year ended April 30, 2007, 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% $191,755
Class B 0.75% 0.25% 1.00% 0.91% 173,062
Class C 0.75% 0.25% 1.00% 1.00% 302,271
- --------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $667,088
(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 April 30, 2007 based on each class' average daily net assets. 0.15% of the Class A service fee
is currently being paid by the fund. Payment of the remaining 0.10% of the Class A service fee is not
yet in effect and will be implemented on such date as the fund's Board of Trustees may determine.
Payment of the 0.10% annual Class A distribution fee is not yet in effect and will be implemented on
such date as the fund's Board of Trustees may determine. For one year from the date of sale of Class
B shares, assets attributable to such Class B shares are subject to the 0.25% annual Class B service
fee. On assets attributable to all other Class B shares, 0.15% of the Class B service fee is
currently in effect and the remaining portion of the Class B service fee is not in effect but may be
implemented on such date as the fund's Board of Trustees may determine.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the year ended April 30,
2007, were as follows:
AMOUNT
Class A $2,208
Class B $78,583
Class C $2,154
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended April 30, 2007, the fee was $143,054, which
equated to 0.0808% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $80,125. The fund may also pay shareholder servicing related costs
directly 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. The fund's annual
fixed amount is $17,500.
The administrative services fee incurred for the year ended April 30, 2007 was
equivalent to an annual effective rate of 0.0228% of the fund's average daily
net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC. The fund has an unfunded, defined benefit plan
for certain retired independent trustees which resulted in a pension expense of
$411. This amount is included in independent trustees' compensation for the
year ended April 30, 2007. The liability for deferred retirement benefits
payable to certain retired independent trustees amounted to $8,070 at April 30,
2007, and is included in payable for independent trustees' compensation.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the year ended April 30, 2007, the fee paid to Tarantino LLC was
$1,132. MFS has agreed to reimburse the fund for a portion of the payments made
by the funds to Tarantino LLC in the amount of $908, which is shown as a
reduction of total expenses in the Statement of Operations. Additionally, MFS
has agreed to bear all expenses associated with office space, other
administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$15,551,498 and $63,017,120, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
4/30/07 4/30/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 2,793,311 $21,515,998 6,104,516 $47,257,249
Class B 38,653 296,625 155,719 1,202,304
Class C 234,405 1,803,662 671,442 5,210,773
- ---------------------------------------------------------------------------------------------------
3,066,369 $23,616,285 6,931,677 $53,670,326
Shares issued to shareholders in
reinvestment of distributions
Class A 402,418 $3,099,656 508,658 $3,933,594
Class B 36,457 280,449 47,060 363,434
Class C 46,496 358,449 56,873 440,156
- ---------------------------------------------------------------------------------------------------
485,371 $3,738,554 612,591 $4,737,184
Shares reacquired
Class A (7,633,112) $(58,688,130) (9,873,897) $(76,311,859)
Class B (1,155,329) (8,877,165) (1,324,049) (10,229,791)
Class C (1,724,503) (13,293,210) (1,729,415) (13,389,529)
- ---------------------------------------------------------------------------------------------------
(10,512,944) $(80,858,505) (12,927,361) $(99,931,179)
Net change
Class A (4,437,383) $(34,072,476) (3,260,723) $(25,121,016)
Class B (1,080,219) (8,300,091) (1,121,270) (8,664,053)
Class C (1,443,602) (11,131,099) (1,001,100) (7,738,600)
- ---------------------------------------------------------------------------------------------------
(6,961,204) $(53,503,666) (5,383,093) $(41,523,669)
Effective May 1, 2006, the sale of Class B shares of the fund have been
suspended except in certain circumstances. Please see the fund's prospectus for
details.
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30% for the committed line of credit and 0.35% for the uncommitted
line of credit. 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
April 30, 2007, the fund's commitment fee and interest expense were $585 and
$0, 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 Municipal Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Municipal Limited Maturity Fund (one of
the portfolios comprising MFS Series Trust IX (the "Trust")) as of April 30,
2007, 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 five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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 April 30, 2007, 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 Municipal
Limited Maturity Fund as of April 30, 2007, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 13, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of June 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer (since
2006); 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) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since April
2001); Portman Limited (mining),
Director (since 2005); 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; Atlantic
Coast Tan (tanning salons), Vice
Chairman (since 2002)
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 Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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 Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
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 Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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 Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm), Associate
(prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) 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 Officer compliance services), Principal
(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 Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) 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, Gutow, 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, 2007, the Trustees served as board members of 97 funds within
the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- ------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR Effective May 1, 2007, the custodian changed to:
MFS Fund Distributors, Inc. JPMorgan Chase Bank
500 Boylston Street, Boston, MA 02116-3741 One Chase Manhattan Plaza
New York, NY 10081
PORTFOLIO MANAGER
Geoffrey Schechter INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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 2007 income
tax forms in January 2008. The following information is provided pursuant to
provisions of the Internal Revenue Code.
Of the dividends paid from net investment income during the fiscal year, 100%
is designated as exempt interest dividends for federal income tax purposes. If
the fund has earned income on private activity bonds, a portion of the
dividends paid may be considered a tax preference item for purposes of
computing a shareholder's alternative minimum tax.
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(R) 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(R) 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(R), MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) INTERMEDIATE INVESTMENT GRADE 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 22
- --------------------------------------------------------------
STATEMENT OF OPERATIONS 25
- --------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 26
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS 27
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 35
- --------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 47
- --------------------------------------------------------------
TRUSTEES AND OFFICERS 48
- --------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 54
- --------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 54
- --------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 54
- --------------------------------------------------------------
FEDERAL TAX INFORMATION 54
- --------------------------------------------------------------
MFS(R) PRIVACY NOTICE 55
- --------------------------------------------------------------
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
- ------------------------------------------------------------------------------
4/30/07
IBF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. 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
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
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 94.6%
Cash & Other Net Assets 5.4%
FIXED INCOME SECTORS (i)
High Grade Corporates 54.5%
------------------------------------------------
Asset-Backed Securities 9.9%
------------------------------------------------
Mortgage-Backed Securities 8.2%
------------------------------------------------
Commercial Mortgage-Backed Securities 7.8%
------------------------------------------------
U.S. Government Agencies 5.2%
------------------------------------------------
Non-U.S. Government Bonds 3.7%
------------------------------------------------
Emerging Market Bonds 3.6%
------------------------------------------------
Residential Mortgage-Backed Securities 1.6%
------------------------------------------------
High Yield Corporates 0.8%
------------------------------------------------
U.S. Treasury Securities -0.7%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 39.3%
------------------------------------------------
AA 8.8%
------------------------------------------------
A 15.8%
------------------------------------------------
BBB 34.4%
------------------------------------------------
BB 0.8%
------------------------------------------------
B 0.4%
------------------------------------------------
CCC 0.1%
------------------------------------------------
Not Rated 0.4%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 3.3
------------------------------------------------
Average Life (i)(m) 4.6 yrs
------------------------------------------------
Average Maturity (i)(m) 13.4 yrs
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) A+
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable, which may result in the investment in a sector of less than
0%.
(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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended April 30, 2007, Class A shares of the MFS
Intermediate Investment Grade Bond Fund provided a total return of 6.55%,
at net asset value. This compares with a return of 6.59% for the fund's
benchmark, the Lehman Brothers Intermediate U.S. Government/Credit
Bond Index.
DETRACTORS FROM PERFORMANCE
The portfolio's holdings in asset-backed securities held back performance
relative to the benchmark as these bonds typically underperformed the overall
benchmark over the reporting period. Some of the portfolio's holdings in
mortgage-backed securities also detracted from relative results.
CONTRIBUTORS TO PERFORMANCE
The portfolio benefited from underweighting U.S. Treasury securities and
overweighting corporate bonds as the credit sector outperformed both
Treasuries and the benchmark. An overweighted position and security selection
of bonds in the financial services sector were particularly favorable. The
portfolio's allocation to corporate bonds also boosted the yield of the
portfolio, compared with that of the benchmark, as corporate securities
generated higher income than Treasuries.
Respectfully,
James Calmas
Portfolio Manager
The views expressed in this report are those of the portfolio manager only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
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 4/30/07
The following chart illustrates a representative class of the fund's
historical performance 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. THE PERFORMANCE SHOWN DOES NOT REFLECT THE
DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS
OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
For the period from the commencement of the fund's investment operations,
December 31, 1998, through the stated period end.
MFS Intermediate Lehman Brothers
Investment Grade Intermediate U.S.
Bond Fund Government/Credit
- Class A Bond Index
1/99 $ 9,525 $10,000
4/99 9,567 10,012
4/00 9,722 10,168
4/01 10,950 11,400
4/02 11,767 12,218
4/03 13,014 13,533
4/04 13,309 13,808
4/05 13,752 14,259
4/06 13,900 14,398
4/07 14,810 15,348
TOTAL RETURNS THROUGH 4/30/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life(t)
- ----------------------------------------------------------------------------
A 12/31/98 6.55% 4.71% 5.44%
- ----------------------------------------------------------------------------
B 3/01/02 5.54% 3.82% 4.89%
- ----------------------------------------------------------------------------
C 3/01/02 5.65% 3.84% 4.90%
- ----------------------------------------------------------------------------
I 12/31/98 6.71% 4.86% 5.54%
- ----------------------------------------------------------------------------
R 12/31/02 6.18% 4.39% 5.25%
- ----------------------------------------------------------------------------
R1 4/01/05 5.55% 4.31% 5.20%
- ----------------------------------------------------------------------------
R2 4/01/05 5.91% 4.45% 5.29%
- ----------------------------------------------------------------------------
R3 10/31/03 5.91% 4.30% 5.20%
- ----------------------------------------------------------------------------
R4 4/01/05 6.18% 4.60% 5.38%
- ----------------------------------------------------------------------------
R5 4/01/05 6.60% 4.75% 5.47%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- ----------------------------------------------------------------------------
Lehman Brothers Intermediate U.S.
Government/Credit Bond Index (f) 6.59% 4.66% 5.26%
- ----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ----------------------------------------------------------------------------
A 1.49% 3.69% 4.83%
With Initial Sales Charge (4.75%)
- ----------------------------------------------------------------------------
B 1.54% 3.48% 4.89%
With CDSC (Declining over six years from
4% to 0%) (x)
- ----------------------------------------------------------------------------
C 4.65% 3.84% 4.90%
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 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,
December 31, 1998, through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Lehman Brothers Intermediate U.S. Government/Credit Bond Index - measures
investment grade debt obligations of the U.S. Treasury and U.S. government
agencies, as well as U.S. corporate and foreign debentures and secured notes
with maturity from 1 year up to (but not including) 10 years.
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 and certain
other retirement plans. 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.
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,
November 1, 2006 through April 30, 2007.
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 November 1, 2006 through
April 30, 2007.
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 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
- --------------------------------------------------------------------------------
Actual 0.64% $1,000.00 $1,026.40 $3.22
A ------------------------------------------------------------------------
Hypothetical (h) 0.64% $1,000.00 $1,021.62 $3.21
- --------------------------------------------------------------------------------
Actual 1.49% $1,000.00 $1,023.10 $7.47
B -------------------------------------------------------------------------
Hypothetical (h) 1.49% $1,000.00 $1,017.41 $7.45
- --------------------------------------------------------------------------------
Actual 1.49% $1,000.00 $1,022.10 $7.47
C ------------------------------------------------------------------------
Hypothetical (h) 1.49% $1,000.00 $1,017.41 $7.45
- --------------------------------------------------------------------------------
Actual 0.49% $1,000.00 $1,028.20 $2.46
I ------------------------------------------------------------------------
Hypothetical (h) 0.49% $1,000.00 $1,022.36 $2.46
- --------------------------------------------------------------------------------
Actual 0.99% $1,000.00 $1,025.70 $4.97
R ------------------------------------------------------------------------
Hypothetical (h) 0.99% $1,000.00 $1,019.89 $4.96
- --------------------------------------------------------------------------------
Actual 1.59% $1,000.00 $1,022.60 $7.97
R1 ------------------------------------------------------------------------
Hypothetical (h) 1.59% $1,000.00 $1,016.91 $7.95
- --------------------------------------------------------------------------------
Actual 1.24% $1,000.00 $1,024.40 $6.22
R2 ------------------------------------------------------------------------
Hypothetical (h) 1.24% $1,000.00 $1,018.65 $6.21
- --------------------------------------------------------------------------------
Actual 1.14% $1,000.00 $1,023.90 $5.72
R3 ------------------------------------------------------------------------
Hypothetical (h) 1.14% $1,000.00 $1,019.14 $5.71
- --------------------------------------------------------------------------------
Actual 0.89% $1,000.00 $1,025.10 $4.47
R4 ------------------------------------------------------------------------
Hypothetical (h) 0.89% $1,000.00 $1,020.38 $4.46
- --------------------------------------------------------------------------------
Actual 0.59% $1,000.00 $1,027.70 $2.97
R5 ------------------------------------------------------------------------
Hypothetical (h) 0.59% $1,000.00 $1,021.87 $2.96
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Bonds - 97.1%
- ----------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------
Airlines - 0.1%
- ----------------------------------------------------------------------------------------------------------------
American Airlines Corp., 3.857%, 2010 $ 284,391 $ 274,608
- ----------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 19.3%
- ----------------------------------------------------------------------------------------------------------------
Accredited Mortgage Loan Trust, FRN, 5.53%, 2035 $ 432,019 $ 432,116
Banc of America Commercial Mortgage, Inc., "A4", FRN, 5.3534%, 2047 1,400,000 1,393,792
Bayview Commercial Asset Trust, FRN, 5.63%, 2035 (n) 1,414,503 1,417,971
Bayview Commercial Asset Trust, FRN, 5.59%, 2036 (z) 998,763 1,000,746
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 (i)(z) 5,864,896 533,538
Bayview Financial Acquisition Trust, FRN, 5.402%, 2035 1,552,000 1,543,512
Bayview Financial Acquisition Trust, FRN, 5.638%, 2036 1,500,000 1,496,719
Bayview Financial Acquisition Trust, FRN, 5.483%, 2041 1,668,000 1,662,699
Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 (z) 734,717 734,715
Bear Stearns Commercial Mortgage Securities, Inc., 4.945%, 2041 1,500,000 1,483,654
Brascan Real Estate, FRN, 6.9581%, 2040 (z) 418,000 415,408
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011 (z) 1,651,097 1,667,608
Capital One Auto Finance Trust, 3.18%, 2010 582,863 578,766
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.3997%, 2044 1,810,000 1,813,285
Commercial Mortgage Acceptance Corp., 7.03%, 2031 954,209 979,454
Commercial Mortgage Asset Trust, FRN, 1.1263%, 2032 (i)(n) 4,755,429 174,510
Commercial Mortgage Pass-Through Certificates, FRN, 5.51%, 2017 (n) 1,500,000 1,500,348
Countrywide Asset-Backed Certificates, FRN, 4.575%, 2035 382,925 380,650
Countrywide Asset-Backed Certificates, FRN, 5.43%, 2036 1,107,000 1,103,929
Countrywide Asset-Backed Certificates, FRN, 5.689%, 2046 3,720,000 3,719,228
Credit-Based Asset Servicing & Securitization LLC, FRN, 5.303%, 2035 2,768,871 2,756,211
Credit-Based Asset Servicing & Securitization LLC, FRN, 5.731%, 2037 2,300,000 2,297,125
Credit-Based Asset Servicing & Securitization Trust, 5.737%, 2037 1,920,000 1,921,764
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (n) 57,639 57,771
DEPFA Bank PLC, 3.625%, 2008 1,250,000 1,224,122
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 277,688 278,312
DLJ Commercial Mortgage Corp., 7.95%, 2010 1,000,000 1,075,487
E*TRADE RV & Marine Trust, 3.62%, 2018 912,000 885,573
Falcon Franchise Loan LLC, 7.382%, 2010 (n) 104,866 107,064
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 (i)(z) 895,286 125,895
First Union National Bank Commercial Mortgage Trust, FRN,
1.1842%, 2043 (i)(n) 7,654,847 228,330
GMAC Mortgage Corp. Loan Trust, FRN, 5.805%, 2036 3,720,000 3,728,688
Gramercy Real Estate CDO Ltd., FRN, 5.675%, 2035 (n) 1,260,000 1,260,000
IKON Receivables Funding LLC, 3.27%, 2011 36,995 36,905
IMPAC CMB Trust, FRN, 5.69%, 2034 545,179 545,460
IMPAC CMB Trust, FRN, 5.78%, 2034 272,589 272,843
IMPAC Secured Assets Corp., FRN, 5.67%, 2036 1,354,932 1,357,589
JPMorgan Chase Commercial Mortgage Securities Corp., 4.865%, 2046 2,195,695 2,161,478
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 4.936%, 2042 1,731,853 1,684,689
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.5421%, 2043 1,830,177 1,823,403
JPMorgan Mortgage Acquisition Corp., FRN, 5.532%, 2036 2,100,000 2,092,494
Lehman Brothers Commercial Conduit Mortgage Trust, 6.48%, 2030 656,588 658,122
Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 0.7075%, 2035 (i) 6,434,872 80,281
Long Beach Auto Receivables Trust, FRN, 2.841%, 2010 491,286 482,594
Merrill Lynch Mortgage Investors, Inc., FRN, 6.9833%, 2030 170,000 170,947
Merrill Lynch Mortgage Investors, Inc., FRN, 5.45%, 2037 3,976,000 3,962,878
Merrill Lynch Mortgage Trust, FRN, 5.8432%, 2039 2,367,000 2,418,010
Morgan Stanley Capital I, Inc., FRN, 1.1019%, 2031 (i)(n) 3,943,290 59,086
Mortgage Capital Funding, Inc., FRN, 0.806%, 2031 (i) 1,324,292 6,620
Multi-Family Capital Access One, Inc., 6.65%, 2024 488,965 494,282
Nationslink Funding Corp., 6.476%, 2030 348,598 350,956
New Century Home Equity Loan Trust, FRN, 4.532%, 2035 2,000,000 1,974,163
Nomura Asset Acceptance Corp., FRN, 4.423%, 2034 535,434 529,936
Option One Mortgage Loan Trust, FRN, 5.611%, 2037 1,280,000 1,279,342
Ownit Mortgage Loan Asset-Backed Certificates, FRN, 5.29%, 2036 2,588,328 2,590,293
Popular ABS Mortgage Pass-Through Trust, FRN, 4.62%, 2035 1,051,457 1,037,471
Putnam Structured Product Funding, CDO, FRN, 5.77%, 2008 (z) 228,814 229,157
Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 2,100,000 2,063,113
Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 3,000,000 2,980,137
RMAC PLC, FRN, 5.54%, 2036 (n) 200,200 200,232
Structured Asset Securities Corp., FRN, 4.67%, 2035 1,706,012 1,688,974
Structured Asset Securities Corp., FRN, 5.56%, 2035 (n) 1,524,610 1,525,771
Superannuation Members Home Loans Global Trust, FRN, 5.57%, 2029 908,261 909,422
Thornburg Mortgage Securities Trust, FRN, 5.66%, 2043 117,089 117,158
TIAA Real Estate CDO Ltd., 7.17%, 2032 (n) 186,597 186,532
Timberstar Trust, 5.668%, 2036 (z) 1,100,000 1,113,234
Wachovia Bank Commercial Mortgage Trust, 4.935%, 2042 1,150,000 1,120,628
Wachovia Bank Commercial Mortgage Trust, 5.275%, 2048 1,900,000 1,901,823
Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 1,150,000 1,130,636
Wachovia Bank Commercial Mortgage Trust, FRN, 5.118%, 2042 1,400,000 1,380,407
Wachovia Bank Commercial Mortgage Trust, FRN, 5.4906%, 2044 1,470,000 1,467,064
Washington Mutual, Inc., FRN, 3.177%, 2033 28,258 28,151
------------
$ 84,091,271
- ----------------------------------------------------------------------------------------------------------------
Automotive - 1.5%
- ----------------------------------------------------------------------------------------------------------------
DaimlerChrysler North America Holdings, FRN, 5.89%, 2008 $ 1,200,000 $ 1,206,125
DaimlerChrysler Services North America LLC, 4.75%, 2008 750,000 746,411
Ford Motor Credit Co., 5.8%, 2009 1,906,000 1,874,210
General Motors Corp., 7.2%, 2011 293,000 279,815
Johnson Controls, Inc., 5.25%, 2011 2,530,000 2,536,302
------------
$ 6,642,863
- ----------------------------------------------------------------------------------------------------------------
Broadcasting - 1.1%
- ----------------------------------------------------------------------------------------------------------------
CBS Corp., 6.625%, 2011 $ 1,380,000 $ 1,441,010
Clear Channel Communications, Inc., 4.625%, 2008 1,030,000 1,019,317
Clear Channel Communications, Inc., 7.65%, 2010 1,250,000 1,319,912
News America, Inc., 4.75%, 2010 1,000,000 989,730
------------
$ 4,769,969
- ----------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.4%
- ----------------------------------------------------------------------------------------------------------------
AMVESCAP PLC, 4.5%, 2009 $ 2,222,000 $ 2,183,633
Goldman Sachs Group, Inc., 5%, 2011 870,000 865,508
Goldman Sachs Group, Inc., 5.7%, 2012 1,650,000 1,682,431
Lehman Brothers E-Capital Trust I, FRN, 6.14%, 2065 1,098,000 1,110,782
Merrill Lynch & Co., Inc., 6.05%, 2016 2,000,000 2,061,594
Morgan Stanley, 5.625%, 2012 2,080,000 2,111,468
Morgan Stanley, 5.75%, 2016 536,000 543,306
------------
$ 10,558,722
- ----------------------------------------------------------------------------------------------------------------
Building - 2.5%
- ----------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.625%, 2010 $ 1,830,000 $ 1,936,506
CRH America, Inc., 6.95%, 2012 1,250,000 1,329,099
Hanson PLC, 7.875%, 2010 2,000,000 2,161,644
Hanson PLC, 6.125%, 2016 1,330,000 1,371,140
Lafarge S.A., 6.15%, 2011 2,030,000 2,096,639
Owens Corning, Inc., 6.5%, 2016 (n) 2,000,000 2,038,330
------------
$ 10,933,358
- ----------------------------------------------------------------------------------------------------------------
Cable TV - 1.3%
- ----------------------------------------------------------------------------------------------------------------
Comcast Cable Communications, Inc., 6.75%, 2011 $ 4,000 $ 4,214
Comcast Corp., 5.45%, 2010 300,000 303,099
Comcast Corp., 5.85%, 2015 1,000,000 1,019,468
Cox Communications, Inc., 4.625%, 2010 1,900,000 1,873,803
Cox Communications, Inc., 4.625%, 2013 600,000 573,626
TCI Communications, Inc., 9.8%, 2012 150,000 177,858
Time Warner Cable, Inc., 5.4%, 2012 (z) 1,000,000 1,002,777
Time Warner Entertainment Co. LP, 7.25%, 2008 750,000 768,251
------------
$ 5,723,096
- ----------------------------------------------------------------------------------------------------------------
Chemicals - 1.0%
- ----------------------------------------------------------------------------------------------------------------
Chevron Phillips Chemical Co. LLC, 5.375%, 2007 $ 1,900,000 $ 1,899,407
Yara International A.S.A., 5.25%, 2014 (n) 2,700,000 2,612,650
------------
$ 4,512,057
- ----------------------------------------------------------------------------------------------------------------
Conglomerates - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Kennametal, Inc., 7.2%, 2012 $ 525,000 $ 563,807
- ----------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.1%
- ----------------------------------------------------------------------------------------------------------------
Fortune Brands, Inc., 5.125%, 2011 $ 2,144,000 $ 2,124,093
Western Union Co., 5.4%, 2011 2,700,000 2,701,004
------------
$ 4,825,097
- ----------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.6%
- ----------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 6.4%, 2011 (n) $ 2,260,000 $ 2,365,169
- ----------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0.8%
- ----------------------------------------------------------------------------------------------------------------
Corporacion Nacional del Cobre de Chile, 6.375%, 2012 (n) $ 250,000 $ 263,478
Export-Import Banks of Korea, 5.25%, 2014 (n) 800,000 796,334
Pemex Project Funding Master Trust, 7.375%, 2014 375,000 419,250
Ras Laffan Liquefied Natural Gas Co. Ltd., 8.294%, 2014 (n) 230,000 256,384
Ras Laffan Liquefied Natural Gas Co. Ltd., 5.298%, 2020 (n) 2,000,000 1,928,960
------------
$ 3,664,406
- ----------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Republic of South Africa, 9.125%, 2009 $ 750,000 $ 805,313
State of Israel, 5.125%, 2014 1,000,000 987,420
------------
$ 1,792,733
- ----------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.1%
- ----------------------------------------------------------------------------------------------------------------
Anadarko Petroleum Corp., 5.95%, 2016 $ 1,670,000 $ 1,682,971
EnCana Corp., 4.6%, 2009 1,290,000 1,272,817
Ocean Energy, Inc., 4.375%, 2007 45,000 44,787
Ocean Energy, Inc., 7.25%, 2011 1,710,000 1,833,973
------------
$ 4,834,548
- ----------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ----------------------------------------------------------------------------------------------------------------
TNK-BP Finance S.A., 7.5%, 2016 (n) $ 790,000 $ 836,413
TNK-BP Finance S.A., 7.5%, 2016 350,000 370,563
------------
$ 1,206,976
- ----------------------------------------------------------------------------------------------------------------
Entertainment - 0.7%
- ----------------------------------------------------------------------------------------------------------------
Time Warner, Inc., 5.5%, 2011 $ 3,000,000 $ 3,024,312
Time Warner, Inc., 6.875%, 2012 100,000 106,490
------------
$ 3,130,802
- ----------------------------------------------------------------------------------------------------------------
Financial Institutions - 3.1%
- ----------------------------------------------------------------------------------------------------------------
Capital One Bank, 4.25%, 2008 $ 100,000 $ 98,533
Capital One Financial Corp., 5.7%, 2011 1,790,000 1,805,897
CIT Group, Inc., 6.1% to 2017, FRN to 2067 300,000 289,009
Countrywide Financial Corp., 6.25%, 2016 2,500,000 2,525,527
Countrywide Home Loans, Inc., 4.125%, 2009 1,700,000 1,654,947
General Motors Acceptance Corp., 5.625%, 2009 1,650,000 1,626,813
Household Finance Corp., 7%, 2012 170,000 182,632
HSBC Finance Corp., 6.75%, 2011 20,000 21,093
International Lease Finance Corp., 5%, 2010 868,000 866,019
International Lease Finance Corp., 5.3%, 2012 2,390,000 2,396,089
ORIX Corp., 5.48%, 2011 2,040,000 2,051,667
------------
$ 13,518,226
- ----------------------------------------------------------------------------------------------------------------
Food & Beverages - 2.7%
- ----------------------------------------------------------------------------------------------------------------
Brown-Forman Corp., 5.2%, 2012 $ 2,240,000 $ 2,233,188
Cadbury Schweppes PLC, 3.875%, 2008 (n) 2,810,000 2,754,986
Diageo Finance B.V., 5.5%, 2013 3,000,000 3,017,982
General Mills, Inc., 6%, 2012 482,000 498,512
Kraft Foods, Inc., 4%, 2008 850,000 834,221
Miller Brewing Co., 4.25%, 2008 (n) 1,410,000 1,390,786
Miller Brewing Co., 5.5%, 2013 (n) 1,000,000 1,003,873
------------
$ 11,733,548
- ----------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.2%
- ----------------------------------------------------------------------------------------------------------------
CVS Corp., 5.75%, 2011 $ 840,000 $ 855,848
- ----------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.0%
- ----------------------------------------------------------------------------------------------------------------
MeadWestvaco Corp., 6.85%, 2012 $ 1,845,000 $ 1,940,475
Stora Enso Oyj, 6.404%, 2016 (n) 2,500,000 2,563,840
------------
$ 4,504,315
- ----------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Carnival Corp., 3.75%, 2007 $ 500,000 $ 495,751
MGM Mirage, Inc., 8.5%, 2010 3,000 3,218
Wyndham Worldwide Corp., 6%, 2016 (n) 1,310,000 1,299,593
------------
$ 1,798,562
- ----------------------------------------------------------------------------------------------------------------
Industrial - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Steelcase, Inc., 6.5%, 2011 $ 1,095,000 $ 1,124,832
- ----------------------------------------------------------------------------------------------------------------
Insurance - 1.2%
- ----------------------------------------------------------------------------------------------------------------
ASIF Global Financing XVIII, 3.85%, 2007 (n) $ 1,000,000 $ 991,306
Hartford Financial Services Group, Inc., 4.7%, 2007 150,000 149,606
ING Groep N.V., 5.775% to 2015, FRN to 2049 2,285,000 2,276,452
John Hancock Global Funding II, 3.5%, 2009 (n) 1,250,000 1,213,025
MetLife, Inc., 5.375%, 2012 300,000 303,386
Prudential Insurance Co., 7.65%, 2007 (n) 335,000 336,342
------------
$ 5,270,117
- ----------------------------------------------------------------------------------------------------------------
Insurance - Health - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Aetna, Inc., 5.75%, 2011 $ 1,520,000 $ 1,552,987
- ----------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.4%
- ----------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 1,970,000 $ 1,956,783
Chubb Corp., 6.375% to 2017, FRN to 2067 1,910,000 1,933,031
Fund American Cos., Inc., 5.875%, 2013 1,249,000 1,251,446
Safeco Corp., 4.2%, 2008 930,000 921,391
------------
$ 6,062,651
- ----------------------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 3.2%
- ----------------------------------------------------------------------------------------------------------------
Eksportfinans A.S.A, 5.125%, 2011 $ 2,600,000 $ 2,622,625
Hydro-Quebec, 6.3%, 2011 265,000 278,037
KfW Bankengruppe, 3.25%, 2007 1,600,000 1,592,931
KfW Bankengruppe, 4.625%, 2008 2,391,000 2,375,898
KfW Bankengruppe, 5.25%, 2009 4,900,000 4,935,505
KfW Bankengruppe, 4.875%, 2009 1,900,000 1,903,057
Landesbank Baden-Wurttemberg, 5.125%, 2007 300,000 299,883
------------
$ 14,007,936
- ----------------------------------------------------------------------------------------------------------------
International Market Sovereign - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Bayerische Landesbank Girozentrale, 3.2%, 2009 $ 2,000,000 $ 1,929,816
- ----------------------------------------------------------------------------------------------------------------
Major Banks - 6.2%
- ----------------------------------------------------------------------------------------------------------------
BAC Capital Trust XIV, 5.63% to 2012, FRN to 2043 $ 2,050,000 $ 2,057,970
BANK ONE Corp., 7.875%, 2010 2,165,000 2,347,046
Barclays Bank PLC, 8.55% to 2011, FRN to 2049 (n) 1,170,000 1,311,940
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) 2,000,000 1,927,222
DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049 (n) 1,135,000 1,229,744
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (n) 1,750,000 1,790,665
JPMorgan Chase & Co., 5.125%, 2014 1,500,000 1,483,139
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049 (n) 2,005,000 2,074,744
National Westminster Bank PLC, 7.75% to 2007, FRN to 2049 550,000 554,820
PNC Funding Corp., 5.625%, 2017 1,720,000 1,734,931
Popular North America, Inc., 3.875%, 2008 750,000 734,672
Popular North America, Inc., 4.7%, 2009 1,200,000 1,185,656
Royal Bank of Scotland Group PLC, 9.118%, 2049 3,170,000 3,499,541
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049 (n) 1,844,000 1,861,538
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (n) 717,000 805,185
Wachovia Capital Trust III, 5.8% to 2011, FRN to 2042 1,260,000 1,278,774
Wachovia Corp., 6.3%, 2008 700,000 707,353
Wachovia Corp., 7.8%, 2010 250,000 268,900
Wells Fargo Bank NA, 6.45%, 2011 200,000 209,427
------------
$ 27,063,267
- ----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.1%
- ----------------------------------------------------------------------------------------------------------------
Cardinal Health, Inc., FRN, 5.6194%, 2009 (n) $ 1,600,000 $ 1,600,269
Hospira, Inc., 5.55%, 2012 1,780,000 1,789,717
McKesson Corp., 5.7%, 2017 1,350,000 1,347,885
------------
$ 4,737,871
- ----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Vale Overseas Ltd., 6.25%, 2017 $ 1,090,000 $ 1,117,799
- ----------------------------------------------------------------------------------------------------------------
Mortgage Backed - 8.1%
- ----------------------------------------------------------------------------------------------------------------
Fannie Mae, 6.022%, 2010 $ 3,500,000 $ 3,618,284
Fannie Mae, 4.506%, 2011 2,245,195 2,212,220
Fannie Mae, 4.845%, 2013 754,551 745,720
Fannie Mae, 5.369%, 2013 1,165,223 1,176,377
Fannie Mae, 4.666%, 2014 913,550 896,128
Fannie Mae, 4.839%, 2014 1,386,009 1,371,521
Fannie Mae, 5.412%, 2014 852,209 873,262
Fannie Mae, 4.62%, 2015 484,116 472,880
Fannie Mae, 4.925%, 2015 1,069,863 1,062,571
Fannie Mae, 7%, 2015 1,196 1,234
Fannie Mae, 5.5%, 2016 - 2033 850,989 851,525
Fannie Mae, 6%, 2017 127,484 129,711
Fannie Mae, 6.5%, 2017 72,336 74,126
Fannie Mae, 4.5%, 2018 694,532 674,256
Fannie Mae, 5%, 2018 1,333,648 1,318,083
Freddie Mac, 5.5%, 2017 - 2034 6,667,469 6,649,161
Freddie Mac, 6%, 2017 77,673 79,057
Freddie Mac, 5%, 2018 - 2024 12,461,427 12,345,172
Freddie Mac, 3%, 2021 630,093 624,455
Ginnie Mae, 6%, 2034 324,920 329,737
------------
$ 35,505,480
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.2%
- ----------------------------------------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.75%, 2011 $ 2,100,000 $ 2,275,088
Duke Capital LLC, 6.25%, 2013 1,000,000 1,028,747
Enterprise Products Partners LP, 4.95%, 2010 1,700,000 1,687,899
Kinder Morgan Energy Partners LP, 5.35%, 2007 120,000 119,912
Kinder Morgan Energy Partners LP, 6.75%, 2011 110,000 115,766
Kinder Morgan Energy Partners LP, 6%, 2017 1,870,000 1,900,122
Kinder Morgan Finance, 5.35%, 2011 1,596,000 1,584,560
Kinder Morgan, Inc., 6.8%, 2008 1,000,000 1,013,303
------------
$ 9,725,397
- ----------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.7%
- ----------------------------------------------------------------------------------------------------------------
AT&T, Inc., 5.1%, 2014 $ 2,000,000 $ 1,963,796
CenturyTel, Inc., 8.375%, 2010 80,000 87,618
Deutsche Telekom International Finance B.V., 5.25%, 2013 200,000 198,104
France Telecom S.A., 7.75%, 2011 300,000 326,798
GTE Corp., 7.51%, 2009 600,000 623,991
Telecom Italia Capital, 4%, 2010 1,000,000 969,728
Telecom Italia Capital, 4.875%, 2010 1,023,000 1,010,048
Telecom Italia Capital, 5.25%, 2013 1,500,000 1,469,165
Telefonica Europe B.V., 7.75%, 2010 2,130,000 2,294,489
TELUS Corp., 7.5%, 2007 850,000 851,337
Verizon New York, Inc., 6.875%, 2012 1,875,000 1,980,728
------------
$ 11,775,802
- ----------------------------------------------------------------------------------------------------------------
Oil Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $ 1,140,000 $ 1,154,253
- ----------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 4.5%
- ----------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN, 7.2549%, 2011 (n) $ 1,615,000 $ 1,615,000
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 750,000 752,250
Bosphorus Financial Services Ltd., FRN, 7.16%, 2012 (z) 600,000 606,055
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049 (n) 1,209,000 1,173,127
Citigroup, Inc., 5%, 2014 324,000 337,759
Fifth Third Bancorp, 5.45%, 2017 2,000,000 1,992,730
Kazkommerts International B.V., 8.5%, 2013 (n) 752,000 795,240
Mizuho Financial Group, Inc., 5.79%, 2014 (n) 1,017,000 1,038,046
Nordea Bank AB, 5.424% to 2015, FRN to 2049 (n) 1,978,000 1,943,391
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 1,453,000 1,445,967
Swedbank AB, FRN, 9%, 2049 (z) 3,120,000 3,412,038
Turanalem Finance B.V., 10%, 2007 550,000 551,414
UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 3,000,000 3,100,809
UFJ Finance Aruba AEC, 6.75%, 2013 980,000 1,056,277
------------
$ 19,820,103
- ----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.4%
- ----------------------------------------------------------------------------------------------------------------
Allergan, Inc., 5.75%, 2016 $ 2,000,000 $ 2,044,632
Teva Pharmaceutical Finance LLC, 5.55%, 2016 1,463,000 1,444,941
Wyeth, 5.45%, 2017 2,500,000 2,501,730
------------
$ 5,991,303
- ----------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Union Pacific Corp., 6.125%, 2012 $ 1,000,000 $ 1,033,050
- ----------------------------------------------------------------------------------------------------------------
Real Estate - 3.4%
- ----------------------------------------------------------------------------------------------------------------
Kimco Realty Corp., REIT, 4.62%, 2010 $ 2,160,000 $ 2,122,580
Kimco Realty Corp., REIT, 6%, 2012 1,649,000 1,708,930
Liberty Property Ltd. Partnership, REIT, 5.5%, 2016 2,000,000 1,989,886
PPF Funding, Inc., REIT, 5.35%, 2012 (z) 2,080,000 2,078,390
ProLogis, REIT, 5.5%, 2012 1,980,000 2,002,138
Simon Property Group LP, REIT, 6.375%, 2007 125,000 125,567
Simon Property Group LP, REIT, 7.125%, 2009 1,100,000 1,132,859
Simon Property Group LP, REIT, 4.6%, 2010 909,000 894,216
Simon Property Group LP, REIT, 6.1%, 2016 1,000,000 1,042,842
Vornado Realty Trust, REIT, 5.625%, 2007 730,000 729,815
Vornado Realty Trust, REIT, 4.5%, 2009 1,000,000 980,773
------------
$ 14,807,996
- ----------------------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- ----------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 1,250,000 $ 1,401,780
- ----------------------------------------------------------------------------------------------------------------
Retailers - 2.1%
- ----------------------------------------------------------------------------------------------------------------
Federated Retail Holdings, Inc., 5.35%, 2012 $ 980,000 $ 979,509
Home Depot, Inc., 5.4%, 2016 4,000,000 3,917,316
J.C. Penney Corp., Inc., 8%, 2010 1,420,000 1,519,691
Limited Brands, Inc., 5.25%, 2014 1,500,000 1,435,460
May Department Stores Co., 5.95%, 2008 1,406,000 1,419,219
------------
$ 9,271,195
- ----------------------------------------------------------------------------------------------------------------
Supermarkets - 0.8%
- ----------------------------------------------------------------------------------------------------------------
Kroger Co., 7.8%, 2007 $ 815,000 $ 820,297
Safeway, Inc., 6.5%, 2008 1,620,000 1,646,463
Safeway, Inc., 4.95%, 2010 486,000 480,641
Safeway, Inc., 6.5%, 2011 630,000 654,703
------------
$ 3,602,104
- ----------------------------------------------------------------------------------------------------------------
Supranational - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Central American Bank, 4.875%, 2012 (n) $ 2,000,000 $ 1,949,814
Corporacion Andina de Fomento, 6.875%, 2012 200,000 213,464
------------
$ 2,163,278
- ----------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.7%
- ----------------------------------------------------------------------------------------------------------------
Sprint Capital Corp., 7.625%, 2011 $ 2,000,000 $ 2,146,184
Vodafone Airtouch PLC, 7.75%, 2010 1,000,000 1,065,864
------------
$ 3,212,048
- ----------------------------------------------------------------------------------------------------------------
Telephone Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Embarq Corp., 7.082%, 2016 $ 1,140,000 $ 1,177,778
- ----------------------------------------------------------------------------------------------------------------
Tobacco - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Philip Morris Capital Corp., 7.5%, 2009 $ 1,300,000 $ 1,353,820
Reynolds American, Inc., 7.25%, 2012 125,000 132,192
------------
$ 1,486,012
- ----------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.0%
- ----------------------------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $ 100,000 $ 118,917
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 5.1%
- ----------------------------------------------------------------------------------------------------------------
Aid-Egypt, 4.45%, 2015 $ 658,000 $ 636,523
Aid-Israel, 6.6%, 2008 4,123 4,130
Fannie Mae, 7.25%, 2010 2,425,000 2,573,461
Fannie Mae, 5.25%, 2012 1,000,000 1,012,483
Fannie Mae, 6.125%, 2012 315,000 332,378
Federal Home Loan Bank, 5.25%, 2014 6,000,000 6,123,270
Freddie Mac, 4.125%, 2010 3,110,000 3,049,000
Freddie Mac, 6.875%, 2010 1,038,000 1,104,751
Small Business Administration, 5.37%, 2016 736,244 746,183
Small Business Administration, 5.94%, 2016 838,754 862,088
Small Business Administration, 4.93%, 2024 792,590 787,014
Small Business Administration, 5.18%, 2024 2,464,002 2,475,369
Small Business Administration, 4.76%, 2025 1,575,072 1,530,888
Small Business Administration, 5.39%, 2025 1,079,205 1,091,693
------------
$ 22,329,231
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 3.4%
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 6.5%, 2010 $ 1,759,000 $ 1,847,981
U.S. Treasury Notes, 4.25%, 2010 (f) 13,100,000 12,999,196
------------
$ 14,847,177
- ----------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.5%
- ----------------------------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 $ 225,000 $ 255,460
Dominion Resources, Inc., FRN, 5.687%, 2008 2,120,000 2,125,014
Empresa Nacional de Electricidad S.A., 8.35%, 2013 273,000 309,516
Exelon Generation Co. LLC, 6.95%, 2011 2,225,000 2,345,074
FirstEnergy Corp., 6.45%, 2011 1,540,000 1,615,177
FPL Group Capital, Inc., 5.551%, 2008 1,868,200 1,870,188
HQI Transelec Chile S.A., 7.875%, 2011 1,185,000 1,272,109
MidAmerican Energy Holdings Co., 4.625%, 2007 310,000 308,882
MidAmerican Energy Holdings Co., 3.5%, 2008 119,000 116,873
National Grid PLC, 6.3%, 2016 2,000,000 2,099,744
NiSource Finance Corp., 7.875%, 2010 950,000 1,030,806
Oncor Electric Delivery Co., 5%, 2007 325,000 324,323
Progress Energy, Inc., 7.1%, 2011 423,000 451,799
Progress Energy, Inc., 5.625%, 2016 1,264,000 1,277,305
System Energy Resources, Inc., 5.129%, 2014 (n) 770,820 754,501
TXU Energy Co., 6.125%, 2008 375,000 376,930
TXU Energy Co., 7%, 2013 1,745,000 1,816,952
Virginia Electric & Power Co., 4.1%, 2008 1,226,000 1,203,312
------------
$ 19,553,965
- ----------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $426,409,729) $424,144,126
- ----------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.6%
- ----------------------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.313%, due 5/01/07,
at Amortized Cost and Value (y) $ 6,742,000 $ 6,742,000
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $433,151,729) (k) $430,886,126
- ----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.3% 5,764,114
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $436,650,240
- ----------------------------------------------------------------------------------------------------------------
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount
shown is the notional principal and does not reflect the cost of the security.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the
Board of Trustees, aggregating $413,010,445 and 95.85% of market value. An independent pricing service
provided an evaluated bid for 95.77% of the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be
sold in the ordinary course of business in transactions exempt from registration, normally to qualified
institutional buyers. At period end, the aggregate value of these securities was $53,437,727, representing
12.2% of net assets.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal
restrictions on resale. These securities generally may be resold in transactions exempt from registration
or to the public if the securities are subsequently registered. Disposal of these securities may involve
time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the
following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
Bayview Commercial Asset Trust, FRN, 5.59%, 2036 2/23/06 $998,763 $1,000,746
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 5/16/06 526,948 533,538
Bayview Financial Revolving Mortgage Loan
Trust, FRN, 6.12%, 2040 3/01/06 734,717 734,715
Bosphorus Financial Services Ltd., FRN, 7.16%, 2012 3/08/05 600,000 606,055
Brascan Real Estate, FRN, 6.9581%, 2040 9/14/04 418,000 415,408
Brazilian Merchant Voucher Receivables
Ltd., 5.911%, 2011 7/02/03 - 3/08/07 $1,658,199 $1,667,608
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 1/29/03 170,071 125,895
PPF Funding, Inc., REIT, 5.35%, 2012 4/04/07 - 4/12/07 2,074,961 2,078,390
Putnam Structured Product Funding, CDO,
FRN, 5.77%, 2008 9/23/03 228,814 229,157
Swedbank AB, FRN, 9%, 2049 4/16/07 3,420,955 3,412,038
Timberstar Trust, 5.668%, 2036 10/13/06 1,100,000 1,113,234
Time Warner Cable, Inc., 5.4%, 2012 4/04/07 998,150 1,002,777
- ----------------------------------------------------------------------------------------------------------------
Total Restricted Securities $12,919,561 3.0%
=======================
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported
at period end.
REIT Real Estate Investment Trust
FUTURES CONTRACTS OUTSTANDING AT 4/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 5 year (Short) 76 $ 8,042,938 Jun-07 $14,171
U.S. Treasury Note 10 year (Short) 93 10,074,516 Jun-07 (91)
- ----------------------------------------------------------------------------------------------------------------
$14,080
=======
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
6/20/09 USD 1,650,000 Goldman Sachs (1) 1.3% (fixed rate) $(3,198)
International
6/20/09 USD 1,940,000 Goldman Sachs 1.35% (fixed rate) (2) 803
International
3/20/17 USD 2,000,000 JPMorgan Chase Bank 0.49% (fixed rate) (3) (15,391)
--------
$(17,786)
========
(1) Fund to receive notional amount upon a defined credit default event by GMAC, 6.875%, 8/28/12.
(2) Fund to pay notional amount upon a defined credit default event by Residential Capital Corp., 6.5%, 4/17/13.
(3) Fund to pay notional amount upon a defined credit default event by Burlington Northern Santa Fe Corp.,
6.75%, 7/15/11.
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under
these derivative contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07
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, $433,151,729) $430,886,126
Cash 18,935
Receivable for fund shares sold 1,504,785
Interest receivable 4,794,265
Unrealized appreciation on credit default swaps 803
Other assets 6,027
- -------------------------------------------------------------------------------------------------------
Total assets $437,210,941
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Distributions payable $268,885
Payable for daily variation margin on open futures contracts 68,797
Payable for fund shares reacquired 59,742
Unrealized depreciation on credit default swaps 18,589
Payable to affiliates
Management fee 14,242
Shareholder servicing costs 28,633
Distribution and service fees 2,705
Administrative services fee 927
Retirement plan administration and services fees 23
Payable for independent trustees' compensation 1,408
Accrued expenses and other liabilities 96,750
- -------------------------------------------------------------------------------------------------------
Total liabilities $560,701
- -------------------------------------------------------------------------------------------------------
Net assets $436,650,240
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $449,353,006
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (2,269,309)
Accumulated net realized gain (loss) on investments (10,786,310)
Undistributed net investment income 352,853
- -------------------------------------------------------------------------------------------------------
Net assets $436,650,240
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 44,199,248
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $83,046,176
Shares outstanding 8,404,265
- -------------------------------------------------------------------------------------------------------
Net asset value per share $9.88
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25 X net asset
value per share) $10.37
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $8,164,434
Shares outstanding 826,306
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.88
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,634,692
Shares outstanding 367,378
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.89
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $340,479,393
Shares outstanding 34,467,193
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.88
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $134,688
Shares outstanding 13,633
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.88
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $74,719
Shares outstanding 7,558
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.89
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $227,339
Shares outstanding 22,994
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.89
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $611,782
Shares outstanding 61,894
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.88
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $222,509
Shares outstanding 22,514
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.88
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $54,508
Shares outstanding 5,513
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.89
- -------------------------------------------------------------------------------------------------------
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 4/30/07
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Interest income $21,356,663
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,018,993
Distribution and service fees 414,773
Shareholder servicing costs 406,876
Administrative services fee 80,671
Retirement plan administration and services fees 2,473
Independent trustees' compensation 11,697
Custodian fee 188,238
Shareholder communications 24,412
Auditing fees 42,731
Legal fees 7,670
Miscellaneous 95,567
- ------------------------------------------------------------------------------------------------------
Total expenses $3,294,101
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (39,409)
Reduction of expenses by investment adviser and distributor (966,039)
- ------------------------------------------------------------------------------------------------------
Net expenses $2,288,653
- ------------------------------------------------------------------------------------------------------
Net investment income $19,068,010
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(726,226)
Futures contracts (457,287)
Swap transactions 8,236
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(1,175,277)
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $8,305,201
Futures contracts (272,110)
Swap transactions (17,786)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $8,015,305
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $6,840,028
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $25,908,038
- ------------------------------------------------------------------------------------------------------
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 4/30
------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income $19,068,010 $14,408,602
Net realized gain (loss) on investments (1,175,277) (1,335,495)
Net unrealized gain (loss) on investments 8,015,305 (9,154,463)
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $25,908,038 $3,918,644
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------
From net investment income
Class A $(3,845,839) $(3,027,257)
Class B (375,266) (416,868)
Class C (184,052) (171,233)
Class I (15,826,266) (12,037,599)
Class R (10,860) (11,534)
Class R1 (2,562) (1,806)
Class R2 (8,967) (3,325)
Class R3 (20,671) (3,578)
Class R4 (7,781) (2,945)
Class R5 (2,626) (2,270)
- ------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(20,284,890) $(15,678,415)
- ------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $51,755,439 $71,335,670
- ------------------------------------------------------------------------------------------------------
Total change in net assets $57,378,587 $59,575,899
- ------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------
At beginning of period 379,271,653 319,695,754
At end of period (including undistributed net investment
income of $352,853 and $102,721, respectively) $436,650,240 $379,271,653
- ------------------------------------------------------------------------------------------------------
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.
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.
CLASS A YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.74 $10.07 $10.19 $10.43 $9.92
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.45 $0.40 $0.37 $0.34 $0.35
Net realized and unrealized gain (loss)
on investments 0.17 (0.29) (0.04) (0.11) 0.68
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.62 $0.11 $0.33 $0.23 $1.03
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.48) $(0.44) $(0.45) $(0.46) $(0.51)
From net realized gain on investments -- -- -- (0.01) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.48) $(0.44) $(0.45) $(0.47) $(0.52)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.88 $9.74 $10.07 $10.19 $10.43
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 6.55 1.07 3.33 2.27 10.59
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.06 1.12 1.10 1.16 1.41
Expenses after expense reductions (f) 0.66 0.70 0.70 0.74 0.75
Net investment income 4.64 4.04 3.59 3.26 3.48
Portfolio turnover 32 30 34 40 79
Net assets at end of period (000 omitted) $83,046 $71,199 $64,090 $49,065 $36,151
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.75 $10.07 $10.19 $10.43 $9.92
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.37 $0.32 $0.28 $0.25 $0.27
Net realized and unrealized gain (loss)
on investments 0.16 (0.29) (0.03) (0.10) 0.67
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.53 $0.03 $0.25 $0.15 $0.94
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.40) $(0.35) $(0.37) $(0.38) $(0.42)
From net realized gain on investments -- -- -- (0.01) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.40) $(0.35) $(0.37) $(0.39) $(0.43)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.88 $9.75 $10.07 $10.19 $10.43
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.54 0.32 2.45 1.41 9.66
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.71 1.77 1.75 1.81 2.06
Expenses after expense reductions (f) 1.51 1.55 1.55 1.59 1.60
Net investment income 3.75 3.17 2.75 2.40 2.63
Portfolio turnover 32 30 34 40 79
Net assets at end of period (000 omitted) $8,164 $9,966 $13,029 $13,927 $15,603
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 4/30
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.75 $10.08 $10.20 $10.43 $9.92
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.38 $0.32 $0.28 $0.25 $0.26
Net realized and unrealized gain (loss)
on investments 0.16 (0.30) (0.03) (0.09) 0.68
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.54 $0.02 $0.25 $0.16 $0.94
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.40) $(0.35) $(0.37) $(0.38) $(0.42)
From net realized gain on investments -- -- -- (0.01) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.40) $(0.35) $(0.37) $(0.39) $(0.43)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.89 $9.75 $10.08 $10.20 $10.43
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.65 0.22 2.46 1.51 9.63
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.72 1.77 1.75 1.81 2.06
Expenses after expense reductions (f) 1.52 1.55 1.55 1.59 1.60
Net investment income 3.81 3.17 2.78 2.40 2.60
Portfolio turnover 32 30 34 40 79
Net assets at end of period (000 omitted) $3,635 $4,232 $5,435 $6,553 $4,671
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 4/30
------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.74 $10.07 $10.19 $10.42 $9.92
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.47 $0.42 $0.38 $0.35 $0.34
Net realized and unrealized gain (loss)
on investments 0.17 (0.30) (0.03) (0.09) 0.69
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.64 $0.12 $0.35 $0.26 $1.03
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.50) $(0.45) $(0.47) $(0.48) $(0.52)
From net realized gain on investments -- -- -- (0.01) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.50) $(0.45) $(0.47) $(0.49) $(0.53)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.88 $9.74 $10.07 $10.19 $10.42
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.71 1.22 3.48 2.52 10.65
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.71 0.77 0.75 0.81 1.06
Expenses after expense reductions (f) 0.51 0.55 0.55 0.59 0.60
Net investment income 4.79 4.20 3.73 3.42 3.58
Portfolio turnover 32 30 34 40 79
Net assets at end of period (000 omitted) $340,479 $293,001 $236,598 $165,586 $47,031
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 4/30
-----------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $9.74 $10.07 $10.19 $10.43 $10.35
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.43 $0.36 $0.32 $0.31 $0.10
Net realized and unrealized gain (loss)
on investments 0.16 (0.29) (0.02) (0.11) 0.13(g)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.59 $0.07 $0.30 $0.20 $0.23
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.45) $(0.40) $(0.42) $(0.43) $(0.15)
From net realized gain on investments -- -- -- (0.01) --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.45) $(0.40) $(0.42) $(0.44) $(0.15)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.88 $9.74 $10.07 $10.19 $10.43
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.18 0.72 2.97 1.92 2.26(n)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.22 1.27 1.25 1.31 1.56(a)
Expenses after expense reductions (f) 1.02 1.05 1.05 1.09 1.10(a)
Net investment income 4.28 3.67 3.24 2.96 3.06(a)
Portfolio turnover 32 30 34 40 79
Net assets at end of period (000 omitted) $135 $292 $301 $325 $48
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.75 $10.07 $10.00
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.36 $0.30 $0.02
Net realized and unrealized gain (loss) on investments 0.17 (0.28) 0.08(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.53 $0.02 $0.10
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.39) $(0.34) $(0.03)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.89 $9.75 $10.07
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.55 0.18 0.97(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 1.97 2.03(a)
Expenses after expense reductions (f) 1.61 1.69 1.83(a)
Net investment income 3.70 3.05 2.52(a)
Portfolio turnover 32 30 34
Net assets at end of period (000 omitted) $75 $57 $51
- --------------------------------------------------------------------------------------------------------------------
CLASS R2 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.75 $10.07 $10.00
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.40 $0.33 $0.02
Net realized and unrealized gain (loss) on investments 0.17 (0.28) 0.08(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.57 $0.05 $0.10
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.43) $(0.37) $(0.03)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.89 $9.75 $10.07
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.91 0.51 1.00(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.60 1.67 1.73(a)
Expenses after expense reductions (f) 1.26 1.34 1.53(a)
Net investment income 4.04 3.48 2.81(a)
Portfolio turnover 32 30 34
Net assets at end of period (000 omitted) $227 $160 $51
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 4/30
-------------------------------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $9.75 $10.07 $10.19 $10.29
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.42 $0.35 $0.30 $0.14
Net realized and unrealized gain (loss) on
investments 0.15 (0.29) (0.03) (0.03)(g)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.57 $0.06 $0.27 $0.11
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.44) $(0.38) $(0.39) $(0.20)
From net realized gain on investments -- -- -- (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.44) $(0.38) $(0.39) $(0.21)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.88 $9.75 $10.07 $10.19
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.91 0.63 2.71 1.05(n)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.44 1.52 1.50 1.54(a)
Expenses after expense reductions (f) 1.15 1.23 1.30 1.32(a)
Net investment income 4.16 3.60 2.99 2.71(a)
Portfolio turnover 32 30 34 40
Net assets at end of period (000 omitted) $612 $179 $42 $40
- ------------------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.75 $10.07 $10.00
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.43 $0.38 $0.03
Net realized and unrealized gain (loss) on investments 0.16 (0.29) 0.07(g)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.59 $0.09 $0.10
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.46) $(0.41) $(0.03)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.88 $9.75 $10.07
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.18 0.93 1.04(n)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.11 1.17 1.22(a)
Expenses after expense reductions (f) 0.91 0.95 1.02(a)
Net investment income 4.39 3.84 3.32(a)
Portfolio turnover 32 30 34
Net assets at end of period (000 omitted) $223 $134 $51
- ------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 4/30
-------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.75 $10.07 $10.00
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.46 $0.41 $0.03
Net realized and unrealized gain (loss) on investments 0.17 (0.29) 0.08(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.63 $0.12 $0.11
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.49) $(0.44) $(0.04)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.89 $9.75 $10.07
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.60 1.23 1.06(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.81 0.87 0.93(a)
Expenses after expense reductions (f) 0.61 0.65 0.73(a)
Net investment income 4.69 4.08 3.63(a)
Portfolio turnover 32 30 34
Net assets at end of period (000 omitted) $55 $51 $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.
(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, December 31, 2002 (Class R), October 31, 2003 (Class R3), and April
1, 2005 (Classes R1, R2, R4, and R5) through the stated period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Intermediate Investment Grade 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. The fund
can invest in foreign securities, including securities of emerging market
issuers. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - 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. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. 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 such futures contracts are
primarily traded. Swaps are generally valued at an evaluated bid as reported
by an independent pricing service. 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. Values 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. The
values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and
asked prices for rates reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign securities may often be valued at fair value.
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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159
permits entities to elect to measure certain financial assets and liabilities
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected will be reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after November
15, 2007. Management is evaluating the application of the Statement to the fund
and its impact on the fund's financial statements, if any, has not been
determined.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts and swap agreements.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. 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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds a credit default swap in which one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The fund may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
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.
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. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended April 30, 2007, 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.
The tax character of distributions declared to shareholders is as follows:
4/30/07 4/30/06
Ordinary income (including any
short-term capital gains) $20,284,890 $15,678,415
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $436,181,204
---------------------------------------------------------
Gross appreciation 1,692,894
Gross depreciation (6,987,972)
---------------------------------------------------------
Net unrealized appreciation (depreciation) $(5,295,078)
Undistributed ordinary income 2,139,560
Capital loss carryforwards (6,960,191)
Post-October capital loss deferral (781,249)
Other temporary differences (1,805,808)
As of April 30, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
4/30/12 $(108,693)
4/30/13 (1,464,107)
4/30/14 (1,670,568)
4/30/15 (3,716,823)
------------------------------------------------
$(6,960,191)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact 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 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.
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters, MFS has agreed to reduce the management fee
to 0.30% of the fund's average daily net assets for the period March 1, 2004
through February 28, 2009. For the year ended April 30, 2007, this waiver
amounted to $807,597 and is reflected as a reduction of total expenses in the
Statement of Operations.
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 0.25% annually of the
fund's average daily net assets. This written agreement will continue through
August 31, 2007 unless changed or rescinded by the fund's Board of Trustees.
For the year ended April 30, 2007, the fund's actual operating expenses did not
exceed the limit and therefore, the investment adviser did not pay any portion
of the fund's expenses.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $2,850 for the year ended April 30, 2007, 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% $272,404
Class B 0.75% 0.25% 1.00% 1.00% 91,961
Class C 0.75% 0.25% 1.00% 1.00% 45,004
Class R 0.25% 0.25% 0.50% 0.50% 1,188
Class R1 0.50% 0.25% 0.75% 0.75% 481
Class R2 0.25% 0.25% 0.50% 0.50% 1,030
Class R3 0.25% 0.25% 0.50% 0.50% 2,292
Class R4 -- 0.25% 0.25% 0.25% 413
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $414,773
(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 April
30, 2007, 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 September 1, 2007. For the year ended April 30, 2007, this
waiver amounted to $77,830 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 September 1, 2007. For the year ended April 30, 2007, this waiver
amounted to $77,830 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 April 30,
2007, were as follows:
AMOUNT
Class A $12
Class B 22,514
Class C 336
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended April 30, 2007, the fee was $317,579, which
equated to 0.0786% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $82,434. The fund may also pay shareholder servicing related costs
directly 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. The fund's annual
fixed amount is $17,500.
The administrative services fee incurred for the year ended April 30, 2007,
was equivalent to an annual effective rate of 0.020% 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 April 30,
2007, 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:
BEGINNING OF PERIOD EFFECTIVE ANNUAL TOTAL
THROUGH 3/31/07 4/1/07 EFFECTIVE RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $ 282
Class R2 0.40% 0.25% 0.25% 796
Class R3 0.25% 0.15% 0.15% 1,094
Class R4 0.15% 0.15% 0.15% 248
Class R5 0.10% 0.10% 0.10% 53
- -----------------------------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $2,473
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of the retirement plan
administration and services fee equal to 0.10% for Class R1, 0.15% for Class R2, and 0.10% for
Class R3 shares. This agreement was discontinued on March 31, 2007. On April 1, 2007, the annual
retirement plan administration and services fee for Class R1, Class R2, and Class R3 shares was
lowered to 0.35%, 0.25%, and 0.15%, respectively. For the year ended April 30, 2007, the waiver
amounted to $747 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 April 30, 2007, the fee paid to Tarantino LLC
was $2,589. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $2,035, 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 $22,642,807 $25,766,450
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) 149,737,535 98,722,187
- -------------------------------------------------------------------------------
(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
4/30/07 4/30/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 3,049,895 $29,925,655 2,532,050 $25,221,246
Class B 235,850 2,311,574 162,015 1,614,979
Class C 176,201 1,727,945 93,708 933,302
Class I 4,082,998 40,136,545 5,598,689 55,612,350
Class R 3,839 37,696 29,405 293,878
Class R1 2,795 27,583 647 6,387
Class R2 23,240 228,095 13,836 137,626
Class R3 137,806 1,356,216 14,127 139,730
Class R4 22,804 224,204 11,514 113,179
Class R5 -- -- -- --
- -----------------------------------------------------------------------------------------------------------
7,735,428 $75,975,513 8,455,991 $84,072,677
Shares issued to shareholders in
reinvestment of distributions
Class A 97,702 $959,859 92,545 $919,873
Class B 29,623 290,941 33,549 333,795
Class C 13,020 128,012 12,544 124,889
Class I 1,610,841 15,826,195 1,212,643 12,037,588
Class R 1,083 10,633 1,149 11,415
Class R1 261 2,562 182 1,806
Class R2 911 8,967 336 3,325
Class R3 2,067 20,364 362 3,577
Class R4 791 7,781 293 2,903
Class R5 267 2,626 228 2,270
- -----------------------------------------------------------------------------------------------------------
1,756,566 $17,257,940 1,353,831 $13,441,441
Shares reacquired
Class A (2,050,784) $(20,137,266) (1,681,384) $(16,719,273)
Class B (461,692) (4,527,654) (466,569) (4,638,436)
Class C (255,817) (2,518,027) (211,511) (2,106,777)
Class I (1,307,607) (12,805,661) (236,604) (2,348,693)
Class R (21,307) (208,656) (30,416) (304,831)
Class R1 (1,341) (13,284) -- --
Class R2 (17,586) (173,277) (2,758) (27,112)
Class R3 (96,296) (948,884) (297) (2,896)
Class R4 (14,813) (145,305) (3,092) (30,430)
Class R5 -- -- -- --
- -----------------------------------------------------------------------------------------------------------
(4,227,243) $(41,478,014) (2,632,631) $(26,178,448)
Net change
Class A 1,096,813 $10,748,248 943,211 $9,421,846
Class B (196,219) (1,925,139) (271,005) (2,689,662)
Class C (66,596) (662,070) (105,259) (1,048,586)
Class I 4,386,232 43,157,079 6,574,728 65,301,245
Class R (16,385) (160,327) 138 462
Class R1 1,715 16,861 829 8,193
Class R2 6,565 63,785 11,414 113,839
Class R3 43,577 427,696 14,192 140,411
Class R4 8,782 86,680 8,715 85,652
Class R5 267 2,626 228 2,270
- -----------------------------------------------------------------------------------------------------------
5,264,751 $51,755,439 7,177,191 $71,335,670
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-of-funds do not invest in the underlying MFS funds for
the purpose of exercising management or control. At the end of the period, the
MFS Conservative Allocation Fund and MFS Moderate Allocation Fund were the
owners of record of approximately 25% and 51%, respectively, of the value of
outstanding voting shares. In addition, the MFS Lifetime Retirement Income
Fund, the MFS Lifetime 2010 Fund, and the MFS Lifetime 2020 Fund were each the
owners of record of less than 1% of the value of outstanding voting shares.
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30% for the committed line of credit and 0.35% for the uncommitted
line of credit. 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
April 30, 2007, the fund's commitment fee and interest expense were $1,693 and
$0, 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 Intermediate
Investment Grade Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Intermediate Investment Grade Bond Fund
(one of the portfolios comprising MFS Series Trust IX (the "Trust")) as of
April 30, 2007, 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 five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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 April 30, 2007, by
correspondence with the custodian. 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 Intermediate
Investment Grade Bond Fund as of April 30, 2007, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for each of the
five years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 13, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of June 1, 2007, 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 Company,
(born 10/20/63) Chief Executive Officer, President, Chief
Investment Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services Company,
(born 8/08/46) Chairman (since February 2004); MIT Sloan
School (education), Senior Lecturer (since
2006); 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 Enterprises
(born 5/01/36) of Trustees (diversified services company), Chairman,
Trustee and Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and compliance
(born 11/29/41) 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, Chief of
(born 3/11/37) Cardiac Surgery (2005); Harvard Medical
School, Professor of Cardiac Surgery;
Physician Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining products
(born 5/30/42) and service provider), Vice
Chairman/Director (since April 2001);
Portman Limited (mining), Director (since
2005); 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 consultant;
(born 9/27/41) Capitol Entertainment Management Company
(video franchise), Vice Chairman; Atlantic
Coast Tan (tanning salons), Vice Chairman
(since 2002)
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial services
(born 12/21/44) 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), Partner
(born 6/23/35)
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 9/23/38) planning specialists), President;
Wellfleet Investments (investor in health
care companies), Managing General Partner
(since 1993); Cambridge Nutraceuticals
(professional nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture Partners
(born 8/05/57) (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); PricewaterhouseCoopers
(born 5/18/41) 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 Company,
(born 12/01/58) 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 Company,
(born 12/30/64) Senior Vice President (since September
2004); PricewaterhouseCoopers LLP, Partner
(prior to September 2004)
Christopher R. Bohane(k) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 1/18/74) and Assistant Clerk Vice President and Senior Counsel (since
April 2003); Kirkpatrick & Lockhart LLP
(law firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services Company,
(born 11/21/63) and Assistant Clerk Special Counsel (since December 2004);
Dechert LLP (law firm), Counsel (prior to
December 2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services Company,
(born 8/10/68) Vice President (since June 2005); JP
Morgan Investor Services, Vice President
(prior to June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services Company,
(born 7/10/68) and Assistant Clerk Vice President and Senior 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 Treasurer July 2005 Massachusetts Financial Services Company,
(born 10/27/70) Vice President (since May 2005); JP Morgan
Investment Management Company, Vice
President (prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services Company,
(born 3/07/73) and Assistant Clerk Assistant Vice President 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 Treasurer April 1997 Massachusetts Financial Services Company,
(born 11/13/57) Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services Company,
(born 3/07/50) and Assistant Clerk Senior Vice President and 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 Secretary July 2005 Massachusetts Financial Services Company,
(born 11/05/70) and Assistant Clerk Counsel (since June 2004); Bingham
Vice President and Senior McCutchen LLP (law firm), Associate (prior
to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services Company,
(born 5/01/52) 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 compliance
(born 3/07/44) Compliance Officer services), Principal (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 Treasurer September 1990 Massachusetts Financial Services Company,
(born 6/12/60) 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, Gutow, 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, 2007, the Trustees served as board members of 97 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
Effective May 1, 2007, the custodian changed to:
DISTRIBUTOR JPMorgan Chase Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
INDEPENDENT REGISTERED PUBLIC
PORTFOLIO MANAGER ACCOUNTING FIRM
James Calmas Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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 2007 income
tax forms in January 2008.
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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
MFS(R) RESEARCH 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 24
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 27
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 28
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 30
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 44
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 57
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 58
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 64
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 64
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 64
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 64
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 65
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
4/30/07
RBF-ANN
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. 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
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 91.5%
Floating Rate Loans 0.3%
Cash & Other Net Assets 8.2%
FIXED INCOME SECTORS (i)
High Grade Corporates 33.9%
------------------------------------------------
U.S. Treasury Securities 18.4%
------------------------------------------------
Mortgage-Backed Securities 13.3%
------------------------------------------------
Commercial Mortgage-Backed Securities 12.4%
------------------------------------------------
High Yield Corporates 4.7%
------------------------------------------------
Emerging Market Bonds 3.2%
------------------------------------------------
U.S. Government Agencies 2.8%
------------------------------------------------
Asset-Backed Securities 1.6%
------------------------------------------------
Collateralized Debt Obligations 0.9%
------------------------------------------------
Floating Rate Loans 0.3%
------------------------------------------------
Residential Mortgage-Backed Securities 0.3%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 53.0%
------------------------------------------------
AA 7.0%
------------------------------------------------
A 8.0%
------------------------------------------------
BBB 24.9%
------------------------------------------------
BB 3.6%
------------------------------------------------
B 2.9%
------------------------------------------------
Not Rated 0.6%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 4.6
------------------------------------------------
Average Life (i)(m) 6.9 yrs
------------------------------------------------
Average Maturity (i)(m) 14.8 yrs
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) AA-
------------------------------------------------
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 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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended April 30, 2007, Class A shares of the MFS Research
Bond Fund provided a total return of 7.08%, at net asset value. This compares
with a return of 7.35% for the fund's benchmark, the Lehman Brothers U.S.
Aggregate Bond Index (the Lehman Index).
DETRACTORS FROM PERFORMANCE
The fund's overweighted position in U.S. Treasuries detracted from results
relative to the Lehman Index. The fund's holdings of asset-backed securities
were also a drag on performance. Our underweighted position in the strong-
performing mortgage-backed securities sector hurt relative results over the
reporting period. This positioning was due in large part to the negative
convexity(c) of the asset class.
CONTRIBUTORS TO PERFORMANCE
The fund's positioning in corporate bonds added to relative results. Other
areas that contributed to performance included our holdings of high yield bonds
and emerging market debt which the index does not own. The fund also benefited
from holding higher-yielding securities than the benchmark.
Respectfully,
Robert Persons Michael Roberge Jeffrey Wakelin
Portfolio Manager Portfolio Manager Portfolio Manager
(c) Convexity is a measure of the curvature of the price-yield curve. The
combination of duration and convexity provides a better approximation of a
bond's sensitivity to changes in interest rates. Duration provides a first
order approximation of how much a bond price will drop with rising interest
rates or rise with falling interest rates. Positive convexity implies an
additional positive impact for all interest rate movements; negative
convexity implies an additional negative impact.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
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 4/30/07
The following chart illustrates a representative class of the fund's historical
performance 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. 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 operations, January 4, 1999, through
the stated period end.)
MFS Research Lehman Brothers
Bond Fund U.S. Aggregate
- Class A Bond Index
------------ ---------------
1/99 $ 9,525 $10,000
4/99 9,497 9,981
4/00 9,621 10,106
4/01 10,919 11,358
4/02 11,803 12,248
4/03 13,288 13,531
4/04 13,701 13,777
4/05 14,400 14,502
4/06 14,501 14,606
4/07 15,527 15,679
TOTAL RETURNS THROUGH 4/30/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr Life(t)
- ------------------------------------------------------------------------------
A 1/04/99 7.08% 5.64% 6.05%
----------------------------------------------------------------------
B 12/29/00 6.17% 4.77% 5.38%
----------------------------------------------------------------------
C 12/29/00 6.07% 4.74% 5.37%
----------------------------------------------------------------------
I 1/04/99 7.13% 5.82% 6.18%
----------------------------------------------------------------------
W 5/01/06 7.02% 5.62% 6.04%
----------------------------------------------------------------------
R 12/31/02 6.71% 5.32% 5.86%
----------------------------------------------------------------------
R1 4/01/05 6.07% 5.21% 5.79%
----------------------------------------------------------------------
R2 4/01/05 6.33% 5.38% 5.90%
----------------------------------------------------------------------
R3 10/31/03 6.55% 5.20% 5.79%
----------------------------------------------------------------------
R4 4/01/05 6.71% 5.51% 5.97%
----------------------------------------------------------------------
R5 4/01/05 7.13% 5.66% 6.06%
----------------------------------------------------------------------
529A 7/31/02 6.60% 5.26% 5.82%
----------------------------------------------------------------------
529B 7/31/02 5.91% 4.53% 5.38%
----------------------------------------------------------------------
529C 7/31/02 5.91% 4.51% 5.37%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -----------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate Bond Index (f) 7.35% 5.06% 5.55%
- -----------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -----------------------------------------------------------------------------
A 1.99% 4.61% 5.43%
With Initial Sales Charge (4.75%)
----------------------------------------------------------------------
B 2.17% 4.43% 5.38%
With CDSC (Declining over six years
from 4% to 0%) (x)
----------------------------------------------------------------------
C 5.07% 4.74% 5.37%
With CDSC (1% for 12 months) (x)
----------------------------------------------------------------------
529A 1.54% 4.24% 5.21%
With Initial Sales Charge (4.75%)
----------------------------------------------------------------------
529B 1.91% 4.19% 5.38%
With CDSC (Declining over six years
from 4% to 0%) (x)
- --------------------------------------------------------------------------
529C 4.91% 4.51% 5.37%
With CDSC (1% for 12 months) (x)
- -----------------------------------------------------------------------------
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencement of the fund's investment operations,
January 4, 1999 through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Lehman Brothers U.S. Aggregate Bond Index - measures the U.S. investment grade,
fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class I and W shares are only available to certain eligible investors, and
Class R, R1, R2, R3, R4 and R5 shares are only available to certain retirement
plans. Class W shares are intended for purchase only through fee-based wrap
programs sponsored by financial intermediaries, such as brokerage firms and
investment advisers, which have entered into an agreement with the fund's
distributor to offer Class W shares to their wrap program clients. Class 529
shares are only available in conjunction with qualified tuition programs, such
as the MFS 529 Savings Plan. There also is an additional fee, which is detailed
in the program description, on qualified tuition programs. If this fee was
reflected, the performance for Class 529 shares would have been lower. This
annual fee is waived for Oregon residents and for those accounts with assets of
$25,000 or more.
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.
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,
November 1, 2006 through April 30, 2007.
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 November 1, 2006 through April 30,
2007.
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 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
- --------------------------------------------------------------------------------
A Actual 0.70% $1,000.00 $1,026.90 $3.52
------------------------------------------------------------------------
Hypothetical (h) 0.70% $1,000.00 $1,021.32 $3.51
- --------------------------------------------------------------------------------
B Actual 1.55% $1,000.00 $1,022.60 $7.77
------------------------------------------------------------------------
Hypothetical (h) 1.55% $1,000.00 $1,017.11 $7.75
- --------------------------------------------------------------------------------
C Actual 1.55% $1,000.00 $1,021.60 $7.77
------------------------------------------------------------------------
Hypothetical (h) 1.55% $1,000.00 $1,017.11 $7.75
- --------------------------------------------------------------------------------
I Actual 0.55% $1,000.00 $1,027.70 $2.77
------------------------------------------------------------------------
Hypothetical (h) 0.55% $1,000.00 $1,022.07 $2.76
- --------------------------------------------------------------------------------
W Actual 0.65% $1,000.00 $1,026.10 $3.27
------------------------------------------------------------------------
Hypothetical (h) 0.65% $1,000.00 $1,021.57 $3.26
- --------------------------------------------------------------------------------
R Actual 1.05% $1,000.00 $1,025.10 $5.27
------------------------------------------------------------------------
Hypothetical (h) 1.05% $1,000.00 $1,019.59 $5.26
- --------------------------------------------------------------------------------
R1 Actual 1.65% $1,000.00 $1,022.10 $8.27
------------------------------------------------------------------------
Hypothetical (h) 1.65% $1,000.00 $1,016.61 $8.25
- --------------------------------------------------------------------------------
R2 Actual 1.30% $1,000.00 $1,023.90 $6.52
----------------------------------------------------------------------------
Hypothetical (h) 1.30% $1,000.00 $1,018.35 $6.51
- --------------------------------------------------------------------------------
R3 Actual 1.20% $1,000.00 $1,024.40 $6.02
----------------------------------------------------------------------------
Hypothetical (h) 1.20% $1,000.00 $1,018.84 $6.01
- --------------------------------------------------------------------------------
R4 Actual 0.95% $1,000.00 $1,025.60 $4.77
----------------------------------------------------------------------------
Hypothetical (h) 0.95% $1,000.00 $1,020.08 $4.76
- --------------------------------------------------------------------------------
R5 Actual 0.64% $1,000.00 $1,027.20 $3.22
----------------------------------------------------------------------------
Hypothetical (h) 0.64% $1,000.00 $1,021.62 $3.21
- --------------------------------------------------------------------------------
529A Actual 1.05% $1,000.00 $1,025.10 $5.27
------------------------------------------------------------------------
Hypothetical (h) 1.05% $1,000.00 $1,019.59 $5.26
- --------------------------------------------------------------------------------
529B Actual 1.80% $1,000.00 $1,021.30 $9.02
------------------------------------------------------------------------
Hypothetical (h) 1.80% $1,000.00 $1,015.87 $9.00
- --------------------------------------------------------------------------------
529C Actual 1.80% $1,000.00 $1,021.30 $9.02
------------------------------------------------------------------------
Hypothetical (h) 1.80% $1,000.00 $1,015.87 $9.00
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset
classes.
Bonds - 96.5%
- --------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 15.1%
- --------------------------------------------------------------------------------------------------------------------------------
Anthracite CDO III Ltd., 6.077%, 2039 (z) $ 5,000,000 $ 4,943,991
ARCap REIT, Inc., 6.1%, 2045 (z) 4,149,000 4,165,855
ARCap REIT, Inc., "G", 6.1%, 2045 (n) 2,354,000 2,130,002
ARCap REIT, Inc., "H", 6.1%, 2045 (n) 1,200,897 1,074,662
Banc of America Commercial Mortgage, Inc., "AM", FRN, 5.3534%, 2047 4,770,000 4,730,989
Banc of America Commercial Mortgage, Inc., FRN, 4.857%, 2043 3,581,684 3,478,042
Banc of America Commercial Mortgage, Inc., FRN, 5.9651%, 2045 6,220,000 6,417,152
Bayview Commercial Asset Trust, 0.775%, 2035 (i)(z) 44,175,303 3,596,142
Bayview Commercial Asset Trust, FRN, 0.84%, 2036 (i)(z) 19,775,555 1,631,483
Bayview Commercial Asset Trust, FRN, 0.84%, 2036 (i)(z) 29,981,819 2,665,148
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 (i)(z) 23,151,002 2,106,081
Bayview Commercial Asset Trust, FRN, 1.1688%, 2036 (i)(z) 45,721,314 5,724,309
Bayview Commercial Asset Trust, FRN, 1.1396%, 2036 (i)(z) 21,896,172 3,028,241
Bayview Commercial Asset Trust, FRN, 1.2108%, 2037 (i)(z) 45,612,330 6,034,511
Bayview Financial Acquisition Trust, FRN, 5.402%, 2035 2,561,000 2,546,994
Bayview Financial Acquisition Trust, FRN, 5.483%, 2041 2,283,000 2,275,745
Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 (z) 4,250,000 4,249,990
Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 3,481,329 3,440,855
Capital One Auto Finance Trust, 3.18%, 2010 1,394,792 1,384,988
Capital Trust Realty CDO Ltd., 5.16%, 2035 (z) 4,660,000 4,611,216
Centex Home Equity Loan Trust, FRN, 4.14%, 2028 1,142,269 1,138,095
Citigroup Commercial Mortgage Trust, 5.462%, 2049 8,510,000 8,511,588
Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.648%, 2048 7,300,000 7,412,257
Citigroup/Deutsche Bank Commercial Mortgage Trust, "B", FRN, 5.447%, 2049 5,922,000 5,841,816
Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8817%, 2049 (z) 2,115,497 2,023,605
Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8817%, 2049 (z) 3,410,000 3,169,169
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.3997%, 2044 4,080,000 4,087,404
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.3997%, 2044 400,000 397,541
Commercial Mortgage Acceptance Corp., 7.03%, 2031 2,682,487 2,753,457
Commercial Mortgage Pass-Through Certificates, FRN, 5.9869%, 2046 6,900,000 7,132,502
Credit Suisse Commercial Mortgage Trust, 5.509%, 2039 6,345,305 6,360,251
Credit Suisse Mortgage Capital Certificate, 5.343%, 2039 7,330,000 7,265,550
Credit-Based Asset Servicing & Securitization LLC, FRN, 5.303%, 2035 3,149,403 3,135,003
Crest G-Star CDO, 6.95%, 2032 (z) 6,526,000 6,773,459
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (n) 732,397 734,082
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 522,389 523,563
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,635,000 1,770,668
E*TRADE RV & Marine Trust, 3.62%, 2018 994,000 965,197
Falcon Franchise Loan LLC, 7.382%, 2010 (n) 641,640 655,087
Falcon Franchise Loan LLC, FRN, 3.426%, 2023 (i)(n) 552,449 57,085
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 (i)(z) 8,184,410 1,150,892
First Union National Bank Commercial Mortgage Trust, FRN, 1.1842%, 2043 (i)(n) 22,637,471 675,235
First Union-Lehman Brothers Bank of America, FRN, 0.6911%, 2035 (i) 22,279,333 324,935
First Union-Lehman Brothers Commercial Mortgage Trust, FRN, 7.5%, 2029 951,027 1,053,989
GE Capital Commercial Mortgage Corp., 6.269%, 2035 2,042,000 2,129,759
Greenwich Capital Commercial Funding Corp., 4.569%, 2042 5,335,000 5,199,109
Greenwich Capital Commercial Funding Corp., FRN, 5.317%, 2036 5,908,072 5,927,123
Greenwich Capital Commercial Funding Corp., FRN, 5.224%, 2037 3,357,664 3,336,069
IKON Receivables Funding LLC, 3.27%, 2011 546,428 545,102
JPMorgan Chase Commercial Mortgage Securities Corp., 5.44%, 2045 (n) 9,725,939 9,729,558
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3805%, 2041 4,431,054 4,429,966
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.508%, 2042 (n) 4,130,000 3,997,110
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 4.936%, 2042 5,061,203 4,923,370
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.5421%, 2043 5,666,655 5,645,680
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.855%, 2043 6,330,000 6,539,079
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3866%, 2044 8,685,000 8,649,068
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 6,001,863 5,892,336
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.48%, 2047 6,606,000 6,522,482
KKR Financial CLO Ltd., "C", FRN, 6.7563%, 2021 (z) 7,023,814 7,023,814
LB-UBS Commercial Mortgage Trust, 5.413%, 2039 2,839,532 2,835,703
Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 0.7075%, 2035 (i) 27,521,329 343,356
Long Beach Auto Receivables Trust, FRN, 2.841%, 2010 1,987,979 1,952,809
Merrill Lynch Mortgage Trust, FRN, 5.107%, 2038 8,685,000 8,531,690
Merrill Lynch Mortgage Trust, FRN, 5.8432%, 2039 7,423,000 7,596,365
Merrill Lynch/Countrywide Commercial Mortgage Trust, FRN, 5.204%, 2049 8,600,000 8,452,368
Morgan Stanley Capital I, Inc., FRN, 7.4991%, 2030 630,000 636,918
Morgan Stanley Capital I, Inc., FRN, 1.1019%, 2031 (i)(n) 19,121,091 286,510
Mortgage Capital Funding, Inc., FRN, 0.806%, 2031 (i) 10,834,016 54,156
Multi-Family Capital Access One, Inc., 6.65%, 2024 1,139,776 1,152,171
Nationslink Funding Corp., FRN, 0.6851%, 2030 (i) 6,968,059 82,188
New Century Home Equity Loan Trust, FRN, 4.532%, 2035 3,000,000 2,961,244
Nomura Asset Acceptance Corp., FRN, 4.423%, 2034 1,460,276 1,445,279
Popular ABS Mortgage Pass-Through Trust, FRN, 4.62%, 2035 2,038,504 2,011,388
Preferred Term Securities IV Ltd., CDO, FRN, 7.6%, 2031 (z) 681,994 684,040
Preferred Term Securities XIX Ltd., CDO, FRN, 5.7049%, 2035 (z) 7,800,000 7,819,500
Prudential Securities Secured Financing Corp., FRN, 6.9872%, 2013 (z) 1,838,000 1,937,101
Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 2,727,000 2,679,099
Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 5,795,000 5,756,631
Salomon Brothers Mortgage Securities, Inc., FRN, 7.2786%, 2032 (z) 3,262,500 3,539,982
Structured Asset Securities Corp., FRN, 4.67%, 2035 4,385,187 4,341,391
Structured Asset Securities Corp., FRN, 5.56%, 2035 (n) 6,167,168 6,171,867
TIAA Real Estate CDO Ltd., 7.17%, 2032 (n) 552,171 551,980
TPREF Funding III Ltd., CDO, 5.34% to 2008, FRN to 2033 (z) 5,000,000 4,970,313
Wachovia Bank Commercial Mortgage Trust, 4.935%, 2042 4,100,000 3,995,281
Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 4,700,000 4,562,551
Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 6,014,804 5,913,523
Wachovia Bank Commercial Mortgage Trust, FRN, 5.118%, 2042 4,116,878 4,059,261
Wachovia Bank Commercial Mortgage Trust, FRN, 5.3713%, 2044 4,999,000 4,969,216
Wachovia Bank Commercial Mortgage Trust, FRN, 5.4906%, 2044 4,730,000 4,720,553
Wachovia Bank Commercial Mortgage Trust, FRN, 6.1638%, 2045 (n) 5,820,000 6,069,851
Wachovia Bank Commercial Mortgage Trust, FRN, 5.438%, 2048 4,971,000 4,896,318
--------------
$ 340,619,054
- --------------------------------------------------------------------------------------------------------------------------------
Automotive - 0.6%
- --------------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.375%, 2009 $ 2,010,000 $ 2,011,556
Ford Motor Credit Co., 5.7%, 2010 2,787,000 2,685,810
Ford Motor Credit Co. LLC, 9.75%, 2010 3,650,000 3,862,335
Johnson Controls, Inc., 5.5%, 2016 5,262,000 5,218,536
--------------
$ 13,778,237
- --------------------------------------------------------------------------------------------------------------------------------
Broadcasting - 1.3%
- --------------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 4,706,000 $ 4,835,415
CBS Corp., 6.625%, 2011 6,883,000 7,187,297
Clear Channel Communications, Inc., 7.65%, 2010 4,720,000 4,983,990
Clear Channel Communications, Inc., 6.25%, 2011 5,420,000 5,376,342
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 5,890,000 6,294,937
News America Holdings, 8.5%, 2025 120,000 145,386
--------------
$ 28,823,367
- --------------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.9%
- --------------------------------------------------------------------------------------------------------------------------------
AMVESCAP PLC, 4.5%, 2009 $ 6,704,000 $ 6,588,242
AMVESCAP PLC, 5.625%, 2012 5,090,000 5,119,909
Goldman Sachs Group, Inc., 5.625%, 2017 13,453,000 13,392,798
Lehman Brothers Holdings, Inc., 8.25%, 2007 1,596,000 1,601,168
Lehman Brothers Holdings, Inc., 5.5%, 2016 3,379,000 3,383,308
Merrill Lynch & Co., Inc., 6.05%, 2016 16,202,000 16,700,973
Morgan Stanley, 5.75%, 2016 15,720,000 15,934,264
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 3,101,000 3,284,325
--------------
$ 66,004,987
- --------------------------------------------------------------------------------------------------------------------------------
Building - 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 1,072,000 $ 1,083,685
American Standard Cos., Inc., 7.625%, 2010 3,915,000 4,142,853
--------------
$ 5,226,538
- --------------------------------------------------------------------------------------------------------------------------------
Business Services - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Xerox Corp., 6.4%, 2016 $ 6,345,000 $ 6,537,641
- --------------------------------------------------------------------------------------------------------------------------------
Cable TV - 1.9%
- --------------------------------------------------------------------------------------------------------------------------------
Comcast Corp., 6.45%, 2037 $ 10,123,000 $ 10,237,744
Cox Communications, Inc., 7.125%, 2012 8,510,000 9,190,340
Rogers Cable, Inc., 5.5%, 2014 7,406,000 7,331,940
TCI Communications, Inc., 9.8%, 2012 1,529,000 1,812,961
Time Warner Cable, Inc., 5.85%, 2017 (z) 8,550,000 8,601,368
Time Warner Entertainment Co. LP, 8.375%, 2033 5,077,000 6,196,869
--------------
$ 43,371,222
- --------------------------------------------------------------------------------------------------------------------------------
Chemicals - 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
Dow Chemical Co., 5.75%, 2008 $ 775,000 $ 779,376
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.9%
- --------------------------------------------------------------------------------------------------------------------------------
Fortune Brands, Inc., 5.125%, 2011 $ 9,390,000 $ 9,302,814
Western Union Co., 5.4%, 2011 10,130,000 10,133,768
--------------
$ 19,436,582
- --------------------------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.5%
- --------------------------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 4.75%, 2010 (n) $ 5,961,000 $ 5,886,565
BAE Systems Holdings, Inc., 6.4%, 2011 (n) 5,000,000 5,232,675
--------------
$ 11,119,240
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
Gazprom International S.A., 6.51%, 2022 (n) $ 4,420,000 $ 4,547,075
- --------------------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Republic of Argentina, FRN, 5.475%, 2012 $ 7,121,250 $ 6,802,811
- --------------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.7%
- --------------------------------------------------------------------------------------------------------------------------------
Anadarko Petroleum Corp., 5.95%, 2016 $ 5,100,000 $ 5,139,612
Apache Corp., 7.375%, 2047 37,000 43,345
Ocean Energy, Inc., 4.375%, 2007 798,000 794,226
Ocean Energy, Inc., 7.25%, 2011 3,356,000 3,599,307
XTO Energy, Inc., 5.65%, 2016 5,450,000 5,453,466
--------------
$ 15,029,956
- --------------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
TNK-BP Finance S.A., 7.5%, 2016 (n) $ 3,432,000 $ 3,633,630
TNK-BP Finance S.A., 7.5%, 2016 2,692,000 2,850,155
--------------
$ 6,483,785
- --------------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 $ 399,000 $ 454,864
- --------------------------------------------------------------------------------------------------------------------------------
Financial Institutions - 2.8%
- --------------------------------------------------------------------------------------------------------------------------------
Capital One Financial Co., 6.15%, 2016 $ 6,640,000 $ 6,739,600
CIT Group, Inc., 6.1% to 2017, FRN to 2067 1,060,000 1,021,166
Countrywide Financial Corp., 6.25%, 2016 10,640,000 10,748,645
General Motors Acceptance Corp., 6.75%, 2014 9,849,000 9,712,621
HSBC Finance Corp., 5.5%, 2016 12,782,000 12,763,249
International Lease Finance Corp., 5.625%, 2013 4,313,000 4,392,433
ORIX Corp., 5.48%, 2011 10,140,000 10,197,991
Residential Capital LLC, 6.875%, 2015 6,840,000 6,926,300
--------------
$ 62,502,005
- --------------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 1.7%
- --------------------------------------------------------------------------------------------------------------------------------
ARAMARK Corp., 8.5%, 2015 (n) $ 6,920,000 $ 7,240,050
Diageo Capital PLC, 5.5%, 2016 10,060,000 10,076,398
Kraft Foods, Inc., 6.25%, 2012 3,464,000 3,602,408
Miller Brewing Co., 5.5%, 2013 (n) 10,231,000 10,270,625
Tyson Foods, Inc., 6.85%, 2016 6,330,000 6,599,025
--------------
$ 37,788,506
- --------------------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
CVS Corp., 5.75%, 2011 $ 3,030,000 $ 3,087,167
CVS Corp., 6.125%, 2016 5,920,000 6,137,678
--------------
$ 9,224,845
- --------------------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Stora Enso Oyj, 7.25%, 2036 (n) $ 7,059,000 $ 7,246,078
- --------------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
Wyndham Worldwide Corp., 6%, 2016 (n) $ 4,015,000 $ 3,983,105
- --------------------------------------------------------------------------------------------------------------------------------
Industrial - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Steelcase, Inc., 6.5%, 2011 $ 7,557,000 $ 7,762,883
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - 1.0%
- --------------------------------------------------------------------------------------------------------------------------------
American International Group, Inc., 5.05%, 2015 $ 4,159,000 $ 4,087,070
American International Group, Inc., 6.25%, 2037 3,970,000 3,951,532
ING Groep N.V., 5.775% to 2015, FRN to 2049 5,685,000 5,663,732
UnumProvident Corp., 6.85%, 2015 (n) 7,254,000 7,582,135
--------------
$ 21,284,469
- --------------------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.0%
- --------------------------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 10,050,000 $ 9,982,575
Chubb Corp., 6.375% to 2017, FRN to 2067 5,870,000 5,940,780
Fund American Cos., Inc., 5.875%, 2013 7,510,000 7,524,705
--------------
$ 23,448,060
- --------------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011 $ 6,447,000 $ 6,777,409
- --------------------------------------------------------------------------------------------------------------------------------
Major Banks - 3.9%
- --------------------------------------------------------------------------------------------------------------------------------
BAC Capital Trust XIV, 5.63% to 2012, FRN to 2043 $ 10,870,000 $ 10,912,263
Bank of America Corp., 5.625%, 2016 15,190,000 15,488,499
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) 5,365,000 5,169,773
DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049 (n) 3,015,000 3,266,677
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (n) 3,328,000 3,405,333
JPMorgan Chase & Co., 5.125%, 2014 4,932,000 4,876,559
JPMorgan Chase & Co., 5.15%, 2015 4,280,000 4,211,049
MUFG Capital Finance 1 Ltd., 6.346% to 2016, FRN to 2049 10,546,000 10,771,041
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049 (n) 1,635,000 1,691,873
PNC Funding Corp., 5.625%, 2017 6,370,000 6,425,298
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049 (n) 2,349,000 2,371,341
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (n) 1,766,000 1,983,204
Wachovia Bank, NA, 5.6%, 2016 6,426,000 6,506,113
Wachovia Capital Trust III, 5.8% to 2011, FRN to 2042 8,022,000 8,141,528
Wachovia Corp., 6.605%, 2025 2,393,000 2,603,354
--------------
$ 87,823,905
- --------------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.0%
- --------------------------------------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc., 6.125%, 2015 $ 8,730,000 $ 8,759,202
Hospira, Inc., 5.55%, 2012 3,910,000 3,931,345
Hospira, Inc., 6.05%, 2017 3,900,000 3,940,143
McKesson Corp., 5.7%, 2017 4,870,000 4,862,369
--------------
$ 21,493,059
- --------------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.0%
- --------------------------------------------------------------------------------------------------------------------------------
International Steel Group, Inc., 6.5%, 2014 $ 9,552,000 $ 9,986,234
Peabody Energy Corp., 5.875%, 2016 6,805,000 6,515,788
Vale Overseas Ltd., 6.25%, 2017 5,925,000 6,076,111
--------------
$ 22,578,133
- --------------------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 13.2%
- --------------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 4.55%, 2011 $ 2,353,248 $ 2,304,101
Fannie Mae, 4.79%, 2012 2,966,537 2,900,521
Fannie Mae, 4.86%, 2012 - 2014 3,748,352 3,709,223
Fannie Mae, 5.12%, 2012 1,950,033 1,964,270
Fannie Mae, 4.517%, 2013 1,133,775 1,108,413
Fannie Mae, 4.543%, 2013 2,435,429 2,382,573
Fannie Mae, 4.845%, 2013 1,967,435 1,944,407
Fannie Mae, 4.62%, 2014 - 2015 4,088,151 3,994,180
Fannie Mae, 4.666%, 2014 1,423,310 1,396,168
Fannie Mae, 4.77%, 2014 1,867,882 1,833,790
Fannie Mae, 4.839%, 2014 3,542,722 3,505,690
Fannie Mae, 5.05%, 2014 1,272,155 1,272,591
Fannie Mae, 5.412%, 2014 1,849,771 1,895,468
Fannie Mae, 4.53%, 2015 1,227,479 1,189,826
Fannie Mae, 4.6%, 2015 1,984,972 1,932,676
Fannie Mae, 4.665%, 2015 1,249,054 1,222,675
Fannie Mae, 4.76%, 2015 2,154,124 2,117,659
Fannie Mae, 4.78%, 2015 2,733,852 2,692,316
Fannie Mae, 4.815%, 2015 1,848,000 1,814,466
Fannie Mae, 4.82%, 2015 1,564,904 1,544,616
Fannie Mae, 4.85%, 2015 1,521,624 1,503,803
Fannie Mae, 4.87%, 2015 1,283,019 1,269,164
Fannie Mae, 4.89%, 2015 397,292 393,107
Fannie Mae, 4.925%, 2015 4,388,351 4,358,443
Fannie Mae, 4.94%, 2015 2,591,000 2,542,031
Fannie Mae, 4.98%, 2015 1,674,054 1,666,144
Fannie Mae, 5%, 2016 - 2025 10,662,968 10,564,204
Fannie Mae, 5.09%, 2016 2,950,811 2,956,207
Fannie Mae, 5.423%, 2016 3,120,242 3,194,295
Fannie Mae, 4.996%, 2017 5,353,409 5,342,319
Fannie Mae, 5.5%, 2018 - 2037 113,466,583 112,680,757
Fannie Mae, 4.88%, 2020 1,019,392 1,008,929
Fannie Mae, 6.5%, 2031 - 2033 1,321,174 1,360,437
Fannie Mae, 6%, 2034 - 2037 17,840,223 17,981,745
Freddie Mac, 5%, 2018 - 2028 26,798,960 26,676,512
Freddie Mac, 5.5%, 2019 - 2036 35,199,612 34,935,378
Freddie Mac, 4%, 2023 - 2024 5,099,829 5,012,133
Freddie Mac, 6%, 2033 - 2036 13,949,275 14,107,520
Ginnie Mae, 6%, 2036 7,619,862 7,717,100
--------------
$ 297,995,857
- --------------------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.2%
- --------------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 11,526,000 $ 12,872,248
CenterPoint Energy, Inc., 5.95%, 2017 3,280,000 3,311,026
El Paso Performance-Linked Trust, 7.75%, 2011 (n) 7,175,000 7,641,375
Kinder Morgan Energy Partners LP, 6%, 2017 5,632,000 5,722,720
Kinder Morgan Energy Partners LP, 7.75%, 2032 1,797,000 2,045,189
Kinder Morgan Energy Partners LP, 5.8%, 2035 3,385,000 3,159,556
Magellan Midstream Partners LP, 5.65%, 2016 6,584,000 6,531,545
Spectra Energy Capital LLC, 8%, 2019 7,965,000 9,167,627
--------------
$ 50,451,286
- --------------------------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.3%
- --------------------------------------------------------------------------------------------------------------------------------
BellSouth Corp., 6.55%, 2034 $ 8,540,000 $ 8,901,660
CenturyTel, Inc., 8.375%, 2010 390,000 427,138
Deutsche Telekom B.V., 5.75%, 2016 6,632,000 6,658,999
Deutsche Telekom International Finance B.V., 5.25%, 2013 621,000 615,112
Telecom Italia Capital, 6.2%, 2011 9,689,000 9,996,199
Telecom Italia Capital, 5.25%, 2015 3,653,000 3,511,158
Telefonica Emisiones S.A.U., 7.045%, 2036 9,230,000 9,903,125
Verizon New York, Inc., 6.875%, 2012 10,105,000 10,674,801
--------------
$ 50,688,192
- --------------------------------------------------------------------------------------------------------------------------------
Oil Services - 0.2%
- --------------------------------------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $ 5,021,000 $ 5,083,778
- --------------------------------------------------------------------------------------------------------------------------------
Oils - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 6,690,000 $ 6,905,057
- --------------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 3.0%
- --------------------------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN, 7.2549%, 2011 (n) $ 6,954,000 $ 6,954,000
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 4,869,000 4,883,607
Citigroup, Inc., 5.625%, 2012 2,622,000 2,677,447
Citigroup, Inc., 5%, 2014 9,196,000 8,998,157
Fifth Third Bancorp, 5.45%, 2017 7,670,000 7,642,120
HSBK Europe B.V., 7.25%, 2017 (z) 3,117,000 3,109,207
Kazkommerts International B.V., 8.5%, 2013 5,066,000 5,357,295
Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) 6,640,000 6,820,230
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 5,348,000 5,322,116
Russian Standard Finance S.A., 7.5%, 2010 2,540,000 2,482,850
Russian Standard Finance S.A., 8.625%, 2011 (n) 5,200,000 5,258,500
UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 8,710,000 9,002,682
--------------
$ 68,508,211
- --------------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- --------------------------------------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013 $ 5,075,000 $ 5,525,406
Idearc, Inc., 8%, 2016 (n) 6,980,000 7,276,650
--------------
$ 12,802,056
- --------------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 5,229,000 $ 5,647,320
TFM S.A. de C.V., 12.5%, 2012 2,235,000 2,386,980
Union Pacific Corp., 7.25%, 2008 1,580,000 1,624,630
--------------
$ 9,658,930
- --------------------------------------------------------------------------------------------------------------------------------
Real Estate - 2.5%
- --------------------------------------------------------------------------------------------------------------------------------
Boston Properties, Inc., REIT, 5%, 2015 $ 3,697,000 $ 3,587,232
HRPT Properties Trust, REIT, 6.25%, 2016 9,473,000 9,859,811
Kimco Realty Corp., REIT, 6%, 2012 1,197,000 1,240,503
Kimco Realty Corp., REIT, 5.783%, 2016 7,659,000 7,795,744
Liberty Property Ltd. Partnership, REIT, 5.5%, 2016 6,840,000 6,805,410
ProLogis, REIT, 5.75%, 2016 8,794,000 8,958,703
ProLogis, REIT, 5.625%, 2016 3,050,000 3,078,518
Simon Property Group LP, REIT, 4.6%, 2010 3,579,000 3,520,791
Simon Property Group LP, REIT, 5.75%, 2015 1,506,000 1,533,457
Simon Property Group LP, REIT, 6.1%, 2016 4,269,000 4,451,892
Simon Property Group LP, REIT, 5.875%, 2017 2,870,000 2,948,423
Vornado Realty Trust, REIT, 5.625%, 2007 1,307,000 1,306,669
Vornado Realty Trust, REIT, 4.75%, 2010 798,000 781,322
--------------
$ 55,868,475
- --------------------------------------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 5,776,000 $ 6,477,345
- --------------------------------------------------------------------------------------------------------------------------------
Retailers - 1.4%
- --------------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.625%, 2010 $ 4,253,000 $ 4,529,445
Federated Retail Holdings, Inc., 5.35%, 2012 3,560,000 3,558,216
Home Depot, Inc., 5.4%, 2016 10,926,000 10,700,149
J.C. Penney Corp., Inc., 8%, 2010 880,000 941,780
J.C. Penney Corp., Inc., 5.75%, 2018 1,290,000 1,287,034
J.C. Penney Corp., Inc., 6.375%, 2036 1,290,000 1,285,768
Wal-Mart Stores, Inc., 5.375%, 2017 2,600,000 2,595,863
Wal-Mart Stores, Inc., 5.875%, 2027 6,000,000 6,045,348
--------------
$ 30,943,603
- --------------------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.95%, 2010 $ 2,201,000 $ 2,176,732
Safeway, Inc., 6.5%, 2011 6,230,000 6,474,285
--------------
$ 8,651,017
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.4%
- --------------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.95%, 2014 $ 8,570,000 $ 8,436,822
- --------------------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.5%
- --------------------------------------------------------------------------------------------------------------------------------
Embarq Corp., 7.082%, 2016 $ 10,640,000 $ 10,992,599
- --------------------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $ 625,000 $ 743,232
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 2.7%
- --------------------------------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, 4.5%, 2007 $ 24,125,000 $ 24,119,861
Small Business Administration, 5.34%, 2021 352,286 356,651
Small Business Administration, 6.34%, 2021 64,777 66,999
Small Business Administration, 6.35%, 2021 43,224 44,725
Small Business Administration, 6.44%, 2021 65,187 67,540
Small Business Administration, 6.07%, 2022 237,426 244,477
Small Business Administration, 4.35%, 2023 1,605,856 1,541,186
Small Business Administration, 4.89%, 2023 2,192,201 2,172,556
Small Business Administration, 4.98%, 2023 2,292,792 2,285,587
Small Business Administration, 4.34%, 2024 2,473,364 2,357,668
Small Business Administration, 4.86%, 2024 2,066,337 2,035,251
Small Business Administration, 4.93%, 2024 2,139,199 2,124,152
Small Business Administration, 5.19%, 2024 3,282,133 3,297,318
Small Business Administration, 5.52%, 2024 3,042,902 3,093,091
Small Business Administration, 4.57%, 2025 3,299,804 3,178,258
Small Business Administration, 4.76%, 2025 8,838,203 8,590,272
Small Business Administration, 5.35%, 2026 5,966,035 6,023,456
--------------
$ 61,599,048
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 23.6%
- --------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.25%, 2023 $ 4,506,000 $ 5,195,630
U.S. Treasury Bonds, 6%, 2026 840,000 953,728
U.S. Treasury Bonds, 6.75%, 2026 22,071,000 27,152,495
U.S. Treasury Bonds, 5.375%, 2031 96,309,000 103,155,992
U.S. Treasury Bonds, 4.5%, 2036 10,286,000 9,754,018
U.S. Treasury Notes, 6.125%, 2007 23,228,000 23,300,588
U.S. Treasury Notes, 3%, 2007 257,000 254,289
U.S. Treasury Notes, 5.5%, 2008 3,868,000 3,882,505
U.S. Treasury Notes, 5.625%, 2008 (f) 69,925,000 70,419,370
U.S. Treasury Notes, 3.125%, 2009 73,411,000 71,380,745
U.S. Treasury Notes, 4.875%, 2009 113,703,000 114,435,816
U.S. Treasury Notes, 6.5%, 2010 57,722,000 60,641,925
U.S. Treasury Notes, 4%, 2010 525,000 517,433
U.S. Treasury Notes, TIPS, 2%, 2014 28,310,309 28,070,323
U.S. Treasury Notes, TIPS, 2.375%, 2017 11,178,834 11,353,067
--------------
$ 530,467,924
- --------------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.4%
- --------------------------------------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013 $ 5,188,000 $ 5,881,931
Enersis S.A., 7.375%, 2014 4,290,000 4,657,713
Exelon Generation Co. LLC, 6.95%, 2011 13,424,000 14,148,440
FirstEnergy Corp., 6.45%, 2011 7,624,000 7,996,173
ISA Capital do Brasil S.A., 8.8%, 2017 (n) 123,000 132,532
MidAmerican Energy Holdings Co., 5.875%, 2012 1,182,000 1,220,498
MidAmerican Energy Holdings Co., 6.125%, 2036 5,170,000 5,255,010
NiSource Finance Corp., 7.875%, 2010 5,930,000 6,434,400
NRG Energy, Inc., 7.25%, 2014 4,575,000 4,735,125
Pacific Gas & Electric Co., 5.8%, 2037 3,790,000 3,734,647
Progress Energy, Inc., 5.625%, 2016 9,449,000 9,548,460
TXU Energy Co., 7%, 2013 10,065,000 10,480,010
Virginia Electric & Power Co., 4.1%, 2008 2,258,000 2,216,213
--------------
$ 76,441,152
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $2,168,510,157) $2,173,641,776
- --------------------------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 0.3% (g)(r)
- --------------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.3%
- --------------------------------------------------------------------------------------------------------------------------------
HCA, Inc., Term Loan B, 7.60%, 2013 (Identified Cost, $7,218,585) 7,153,201 $ 7,225,691
- --------------------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 2.9%
- --------------------------------------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.313%, due 5/01/07, at Amortized Cost and Value (y) $ 64,792,000 $ 64,792,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $2,240,520,742) (k) $2,245,659,467
- --------------------------------------------------------------------------------------------------------------------------------
VALUE ($)
- --------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.3% $ 7,314,454
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $2,252,973,921
- --------------------------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS OUTSTANDING AT 4/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Short) 894 $99,904,500 Jun-07 $1,435,652
U.S. Treasury Note 10 yr (Short) 200 21,665,625 Jun-07 (53,825)
- --------------------------------------------------------------------------------------------------
$1,381,827
==========
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
3/20/17 USD 5,630,000 JP Morgan Chase Bank 0.49% (fixed rate) (1) $(43,326)
3/20/17 USD 5,630,000 JP Morgan Chase Bank (2) 0.38% (fixed rate) 34,102
3/20/17 USD 5,630,000 Merrill Lynch International (3) 0.37% (fixed rate) 36,363
3/20/17 USD 5,480,000 Goldman Sachs International 0.52% (fixed rate) (1) (29,467)
3/20/17 USD 1,830,000 JP Morgan Chase Bank (4) 0.78% (fixed rate) 22,970
3/20/17 USD 1,830,000 JP Morgan Chase Bank (4) 0.8% (fixed rate) 20,180
3/20/17 USD 1,834,000 Merrill Lynch International (4) 0.81% (fixed rate) 18,868
3/20/17 USD 4,360,000 Goldman Sachs International (5) 0.4% (fixed rate) (55,604)
6/20/17 USD 4,000,000 Merrill Lynch International (6) 0.91% (fixed rate) (15,445)
--------
$(11,359)
========
(1) Fund to pay notional amount upon a defined credit default event by Burlington Northern Santa Fe Corp., 6.75%,
7/15/11.
(2) Fund to receive notional amount upon a defined credit default event by PPG Industries, Inc., 7.05%, 8/15/09.
(3) Fund to receive notional amount upon a defined credit default event by Rohm & Haas Co., 7.85%, 7/15/29.
(4) Fund to receive notional amount upon a defined credit default event by Waste Management, Inc., 7.375%, 8/01/10.
(5) Fund to receive notional amount upon a defined credit default event by Dover Corp., 6.25%, 6/01/08.
(6) Fund to receive notional amount upon a defined credit default event by New York Times Co., 4.61%, 9/26/12.
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these
derivative contracts.
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is
the notional principal and does not reflect the cost of the security.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of
Trustees, aggregating $2,090,042,626 and 93.07% of market value. An independent pricing service provided an
evaluated bid for 92.59% of the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in
the ordinary course of business in transactions exempt from registration, normally to qualified institutional
buyers. At period end, the aggregate value of these securities was $149,932,178, representing 6.7% of net assets.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or
optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be
subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined
periodically by reference to a base lending rate plus a premium.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on
resale. These securities generally may be resold in transactions exempt from registration or to the public if the
securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and
prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Anthracite CDO III Ltd., 6.077%, 2039 10/25/06 $4,998,438 $4,943,991
ARCap REIT, Inc., 6.1%, 2045 12/07/06 4,244,946 4,165,855
Bayview Commercial Asset Trust, 0.775%, 2035 10/06/05 3,463,223 3,596,142
Bayview Commercial Asset Trust, FRN, 0.84%, 2036 03/29/06 1,752,488 1,631,483
Bayview Commercial Asset Trust, FRN, 0.84%, 2036 02/28/06 2,688,010 2,665,148
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 05/16/06 2,080,067 2,106,081
Bayview Commercial Asset Trust, FRN, 1.1688%, 2036 09/11/06 5,802,114 5,724,309
Bayview Commercial Asset Trust, FRN, 1.1396%, 2036 10/25/06 2,752,460 3,028,241
Bayview Commercial Asset Trust, FRN, 1.2108%, 2037 01/26/07 5,994,003 6,034,511
Bayview Financial Revolving Mortgage Loan Trust, FRN, 6.12%, 2040 03/01/06 4,250,000 4,249,990
Capital Trust Realty CDO Ltd., 5.16%, 2035 04/07/06 4,486,160 4,611,216
Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8817%, 2049 03/14/07 2,098,776 2,023,605
Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8817%, 2049 03/14/07 3,358,151 3,169,169
Crest G-Star CDO, 6.95%, 2032 09/13/05 6,988,938 6,773,459
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 01/29/03 1,554,736 1,150,892
HSBK Europe B.V., 7.25%, 2017 04/25/07 3,091,067 3,109,207
KKR Financial CLO Ltd., "C", FRN, 6.7563%, 2021 04/27/07 7,023,814 7,023,814
Preferred Term Securities IV Ltd., CDO, FRN, 7.6%, 2031 09/13/05-10/07/05 693,263 684,040
Preferred Term Securities XIX Ltd., CDO, FRN, 5.7049%, 2035 09/08/05 7,800,000 7,819,500
Prudential Securities Secured Financing Corp., FRN, 6.9872%, 2013 12/06/04 2,068,037 1,937,101
Salomon Brothers Mortgage Securities, Inc., FRN, 7.2786%, 2032 01/07/05 3,748,179 3,539,982
Time Warner Cable, Inc., 5.85%, 2017 04/04/07 8,530,250 8,601,368
TPREF Funding III Ltd., CDO, 5.34% to 2008, FRN to 2033 04/18/06 4,934,550 4,970,313
----------------------------------------------------------
Total Restricted Securities $93,559,417 4.2%
========================
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
CLO Collateralized Loan Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported
at period end.
REIT Real Estate Investment Trust
TIPS Treasury Inflation Protected Security
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
4/30/07
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, $2,240,520,742) $2,245,659,467
Cash 438,274
Receivable for fund shares sold 5,457,321
Interest receivable 24,073,238
Receivable from investment adviser 156,351
Unrealized appreciation on credit default swaps 132,483
Other assets 28,446
- ------------------------------------------------------------------------------------------------------
Total assets $2,275,945,580
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $2,396,038
Payable for daily variation margin on open futures contracts 851,188
Payable for investments purchased 12,695,912
Payable for fund shares reacquired 6,012,937
Unrealized depreciation on credit default swaps 143,842
Payable to affiliates
Management fee 86,037
Shareholder servicing costs 434,671
Distribution and service fees 36,227
Administrative services fee 4,275
Program manager fees 60
Retirement plan administration and services fees 1,150
Payable for independent trustees' compensation 5,757
Accrued expenses and other liabilities 303,565
- ------------------------------------------------------------------------------------------------------
Total liabilities $22,971,659
- ------------------------------------------------------------------------------------------------------
Net assets $2,252,973,921
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $2,305,930,640
Unrealized appreciation (depreciation) on investments 6,509,193
Accumulated net realized gain (loss) on investments (58,802,088)
Accumulated distributions in excess of net investment income (663,824)
- ------------------------------------------------------------------------------------------------------
Net assets $2,252,973,921
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 224,412,175
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,059,522,133
Shares outstanding 105,557,893
- ------------------------------------------------------------------------------------------------------
Net asset value per share $10.04
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $10.54
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $67,970,315
Shares outstanding 6,759,373
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.06
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $67,112,063
Shares outstanding 6,674,665
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.05
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $958,286,635
Shares outstanding 95,446,151
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.04
- ------------------------------------------------------------------------------------------------------
Class W shares
- ------------------------------------------------------------------------------------------------------
Net assets $861,020
Shares outstanding 85,848
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.03
- ------------------------------------------------------------------------------------------------------
Class R shares
- ------------------------------------------------------------------------------------------------------
Net assets $26,862,201
Shares outstanding 2,676,586
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.04
- ------------------------------------------------------------------------------------------------------
Class R1 shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,655,093
Shares outstanding 164,572
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.06
- ------------------------------------------------------------------------------------------------------
Class R2 shares
- ------------------------------------------------------------------------------------------------------
Net assets $2,405,619
Shares outstanding 238,935
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.07
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R3 shares
- ------------------------------------------------------------------------------------------------------
Net assets $26,212,161
Shares outstanding 2,613,666
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.03
- ------------------------------------------------------------------------------------------------------
Class R4 shares
- ------------------------------------------------------------------------------------------------------
Net assets $28,761,446
Shares outstanding 2,866,815
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.03
- ------------------------------------------------------------------------------------------------------
Class R5 shares
- ------------------------------------------------------------------------------------------------------
Net assets $11,129,267
Shares outstanding 1,108,712
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.04
- ------------------------------------------------------------------------------------------------------
Class 529A shares
- ------------------------------------------------------------------------------------------------------
Net assets $1,212,843
Shares outstanding 121,159
- ------------------------------------------------------------------------------------------------------
Net asset value per share $10.01
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $10.51
- ------------------------------------------------------------------------------------------------------
Class 529B shares
- ------------------------------------------------------------------------------------------------------
Net assets $355,100
Shares outstanding 35,301
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.06
- ------------------------------------------------------------------------------------------------------
Class 529C shares
- ------------------------------------------------------------------------------------------------------
Net assets $628,025
Shares outstanding 62,499
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.05
- ------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering prices of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529B, and Class 529C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 4/30/07
This statement describes how much your fund earned in investment income and accrued in
expenses. It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------
Interest income $109,133,163
- --------------------------------------------------------------------------------------------
Expenses
Management fee $10,025,598
Distribution and service fees 5,227,336
Program manager fees 3,010
Shareholder servicing costs 2,652,976
Administrative services fee 354,438
Retirement plan administration and services fees 95,336
Independent trustees' compensation 45,840
Custodian fee 677,038
Shareholder communications 163,897
Auditing fees 55,025
Legal fees 40,365
Miscellaneous 300,452
- --------------------------------------------------------------------------------------------
Total expenses $19,641,311
- --------------------------------------------------------------------------------------------
Fees paid indirectly (161,318)
Reduction of expenses by investment adviser and distributor (5,339,204)
- --------------------------------------------------------------------------------------------
Net expenses $14,140,789
- --------------------------------------------------------------------------------------------
Net investment income $94,992,374
- --------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(7,255,575)
Futures contracts (5,801,050)
Swap transactions (275,573)
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(13,332,198
- --------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $52,296,359
Futures contracts 1,381,827
Swap transactions 125,346
- --------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $53,803,532
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $40,471,334
- --------------------------------------------------------------------------------------------
Change in net assets from operations $135,463,708
- --------------------------------------------------------------------------------------------
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 4/30
---------------------------------
2007 2006
CHANGE IN NET ASSETS FROM OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $94,992,374 $61,715,891
Net realized gain (loss) on investments (13,332,198) (5,433,979)
Net unrealized gain (loss) on investments 53,803,532 (48,232,908)
- -----------------------------------------------------------------------------------------------
Change in net assets from operations $135,463,708 $8,049,004
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
From net investment income
Class A $(50,750,761) $(42,621,778)
Class B (3,098,834) (3,641,506)
Class C (2,622,466) (2,542,152)
Class I (40,427,770) (29,581,609)
Class W (9,048) --
Class R (1,558,847) (1,686,963)
Class R1 (45,592) (11,815)
Class R2 (72,788) (4,865)
Class R3 (923,717) (409,963)
Class R4 (972,591) (168,281)
Class R5 (250,653) (7,035)
Class 529A (33,098) (27,760)
Class 529B (7,137) (5,680)
Class 529C (12,431) (12,001)
From net realized gain on investments
Class A -- (710,472)
Class B -- (69,937)
Class C -- (48,928)
Class I -- (464,183)
Class R -- (29,702)
Class R1 -- (274)
Class R2 -- (73)
Class R3 -- (7,961)
Class R4 -- (1,639)
Class R5 -- (43)
Class 529A -- (496)
Class 529B -- (114)
Class 529C -- (250)
- -----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(100,785,733) $(82,055,480)
- -----------------------------------------------------------------------------------------------
Statements of Changes in Net Assets - continued
YEARS ENDED 4/30
---------------------------------
2007 2006
Change in net assets from fund share transactions $481,309,737 $478,570,744
- -----------------------------------------------------------------------------------------------
Total change in net assets $515,987,712 $404,564,268
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
At beginning of period 1,736,986,209 1,332,421,941
At end of period (including accumulated distributions in
excess of net investment income of $663,824 and
$1,902,099, respectively) $2,252,973,921 $1,736,986,209
- -----------------------------------------------------------------------------------------------
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.
CLASS A YEARS ENDED 4/30
--------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.86 $10.33 $10.35 $10.62 $9.97
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.47 $0.41 $0.39 $0.40 $0.45
Net realized and unrealized gain (loss) on investments 0.21 (0.33) 0.13 (0.07) 0.77
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.68 $0.08 $0.52 $0.33 $1.22
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.50) $(0.54) $(0.52) $(0.54) $(0.56)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.50) $(0.55) $(0.54) $(0.60) $(0.57)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.04 $9.86 $10.33 $10.35 $10.62
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 7.08 0.70 5.10 3.11 12.58
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.06 1.09 1.07 1.08 1.16
Expenses after expense reductions (f) 0.70 0.70 0.70 0.70 0.70
Net investment income 4.75 4.05 3.77 3.81 4.44
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $1,059,522 $922,617 $671,506 $531,705 $221,872
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 4/30
-----------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.88 $10.34 $10.37 $10.64 $9.98
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.39 $0.33 $0.30 $0.31 $0.37
Net realized and unrealized gain (loss) on investments 0.21 (0.33) 0.12 (0.07) 0.77
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.60 $-- $0.42 $0.24 $1.14
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.42) $(0.45) $(0.43) $(0.45) $(0.47)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.42) $(0.46) $(0.45) $(0.51) $(0.48)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.06 $9.88 $10.34 $10.37 $10.64
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 6.17 (0.04) 4.11 2.24 11.72
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.71 1.74 1.72 1.73 1.81
Expenses after expense reductions (f) 1.55 1.55 1.55 1.55 1.55
Net investment income 3.92 3.21 2.93 2.92 3.62
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $67,970 $77,518 $83,473 $90,726 $98,653
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 4/30
-----------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.88 $10.34 $10.37 $10.64 $9.98
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.39 $0.32 $0.30 $0.31 $0.37
Net realized and unrealized gain (loss) on investments 0.20 (0.32) 0.12 (0.07) 0.77
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.59 $-- $0.42 $0.24 $1.14
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.42) $(0.45) $(0.43) $(0.45) $(0.47)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.42) $(0.46) $(0.45) $(0.51) $(0.48)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.05 $9.88 $10.34 $10.37 $10.64
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 6.07 (0.04) 4.11 2.24 11.72
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.71 1.74 1.72 1.73 1.81
Expenses after expense reductions (f) 1.55 1.55 1.55 1.55 1.55
Net investment income 3.90 3.20 2.93 2.93 3.62
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $67,112 $59,342 $53,915 $53,029 $41,768
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 4/30
------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $9.87 $10.33 $10.35 $10.62 $9.96
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.48 $0.42 $0.40 $0.42 $0.45
Net realized and unrealized gain (loss) on investments 0.21 (0.32) 0.13 (0.08) 0.80
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.69 $0.10 $0.53 $0.34 $1.25
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.52) $(0.55) $(0.53) $(0.55) $(0.58)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.52) $(0.56) $(0.55) $(0.61) $(0.59)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.04 $9.87 $10.33 $10.35 $10.62
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 7.13 0.96 5.26 3.27 12.86
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.71 0.74 0.72 0.73 0.81
Expenses after expense reductions (f) 0.55 0.55 0.55 0.55 0.55
Net investment income 4.89 4.20 3.95 3.93 4.52
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $958,287 $614,643 $486,212 $249,314 $259,920
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS W YEAR ENDED 4/30
---------------
2007
Net asset value, beginning of period $9.86
- --------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------
Net investment income (d) $0.39
Net realized and unrealized gain (loss) on investments 0.29
- --------------------------------------------------------------------------------
Total from investment operations $0.68
- --------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------
From net investment income $(0.51)
- --------------------------------------------------------------------------------
Net asset value, end of period $10.03
- --------------------------------------------------------------------------------
Total return (%) (r)(s) 7.02
- --------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.82
Expenses after expense reductions (f) 0.65
Net investment income 4.55
Portfolio turnover 56
Net assets at end of period (000 Omitted) $861
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R YEARS ENDED 4/30
-----------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $9.86 $10.32 $10.35 $10.62 $10.44
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.44 $0.38 $0.36 $0.37 $0.14
Net realized and unrealized gain (loss) on investments 0.21 (0.33) 0.11 (0.08) 0.22(g)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.65 $0.05 $0.47 $0.29 $0.36
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.47) $(0.50) $(0.48) $(0.50) $(0.18)
From net realized gain on investments -- (0.01) (0.02) (0.06) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.47) $(0.51) $(0.50) $(0.56) $(0.18)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.04 $9.86 $10.32 $10.35 $10.62
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.71 0.45 4.63 2.75 3.43(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.21 1.24 1.22 1.23 1.31(a)
Expenses after expense reductions (f) 1.05 1.05 1.05 1.05 1.05(a)
Net investment income 4.42 3.70 3.43 3.46 3.88(a)
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $26,862 $34,836 $32,330 $23,477 $9,880
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 4/30
-----------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.88 $10.35 $10.28
- --------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income (d) $0.38 $0.32 $0.03
Net realized and unrealized gain (loss) on investments 0.21 (0.34) 0.08
- --------------------------------------------------------------------------------------------
Total from investment operations $0.59 $(0.02) $0.11
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------
From net investment income $(0.41) $(0.44) $(0.04)
From net realized gain on investments -- (0.01) --
- --------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.41) $(0.45) $(0.04)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $10.06 $9.88 $10.35
- --------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.07 (0.28) 1.02(n)
- --------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 1.94 1.93(a)
Expenses after expense reductions (f) 1.65 1.67 1.76(a)
Net investment income 3.79 3.11 2.93(a)
Portfolio turnover 56 77 99
Net assets at end of period (000 Omitted) $1,655 $488 $50
- --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R2 YEARS ENDED 4/30
-----------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.90 $10.35 $10.28
- --------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income (d) $0.42 $0.35 $0.03
Net realized and unrealized gain (loss) on investments 0.19 (0.32) 0.08
- --------------------------------------------------------------------------------------------
Total from investment operations $0.61 $0.03 $0.11
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------
From net investment income $(0.44) $(0.47) $(0.04)
From net realized gain on investments -- (0.01) --
- --------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.44) $(0.48) $(0.04)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $10.07 $9.90 $10.35
- --------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.33 0.25 1.05(n)
- --------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.59 1.64 1.63(a)
Expenses after expense reductions (f) 1.30 1.34 1.46(a)
Net investment income 4.10 3.46 3.23(a)
Portfolio turnover 56 77 99
Net assets at end of period (000 Omitted) $2,406 $251 $51
- --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 4/30
-----------------------------------------
2007 2006 2005 2004(i)
Net asset value, beginning of period $9.85 $10.32 $10.35 $10.49
- -------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income (d) $0.42 $0.36 $0.32 $0.17
Net realized and unrealized gain (loss) on investments 0.21 (0.34) 0.12 (0.02)(g)
- -------------------------------------------------------------------------------------------------------
Total from investment operations $0.63 $0.02 $0.44 $0.15
- -------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income $(0.45) $(0.48) $(0.45) $(0.23)
From net realized gain on investments -- (0.01) (0.02) (0.06)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.45) $(0.49) $(0.47) $(0.29)
- -------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.03 $9.85 $10.32 $10.35
- -------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.55 0.16 4.34 1.44(n)
- -------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.45 1.49 1.48 1.47(a)
Expenses after expense reductions (f) 1.20 1.23 1.31 1.29(a)
Net investment income 4.25 3.54 3.25 3.24(a)
Portfolio turnover 56 77 99 170
Net assets at end of period (000 Omitted) $26,212 $14,923 $3,908 $40
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 YEARS ENDED 4/30
------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.86 $10.33 $10.26
- --------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income (d) $0.45 $0.37 $0.03
Net realized and unrealized gain (loss) on investments 0.20 (0.32) 0.08
- --------------------------------------------------------------------------------------------
Total from investment operations $0.65 $0.05 $0.11
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------
From net investment income $(0.48) $(0.51) $(0.04)
From net realized gain on investments -- (0.01) --
- --------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.48) $(0.52) $(0.04)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $10.03 $9.86 $10.33
- --------------------------------------------------------------------------------------------
Total return (%) (r)(s) 6.71 0.45 1.09(n)
- --------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.12 1.14 1.12(a)
Expenses after expense reductions (f) 0.95 0.95 0.95(a)
Net investment income 4.50 3.82 3.73(a)
Portfolio turnover 56 77 99
Net assets at end of period (000 Omitted) $28,761 $10,835 $51
- --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 4/30
------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $9.86 $10.33 $10.26
- --------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income (d) $0.47 $0.36 $0.03
Net realized and unrealized gain (loss) on investments 0.22 (0.28) 0.08
- --------------------------------------------------------------------------------------------
Total from investment operations $0.69 $0.08 $0.11
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------
From net investment income $(0.51) $(0.54) $(0.04)
From net realized gain on investments -- (0.01) --
- --------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.51) $(0.55) $(0.04)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $10.04 $9.86 $10.33
- --------------------------------------------------------------------------------------------
Total return (%) (r)(s) 7.13 0.76 1.12(n)
- --------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.82 0.84 0.82(a)
Expenses after expense reductions (f) 0.65 0.65 0.65(a)
Net investment income 4.75 4.02 4.04(a)
Portfolio turnover 56 77 99
Net assets at end of period (000 Omitted) $11,129 $358 $51
- --------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529A YEARS ENDED 4/30
--------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $9.84 $10.30 $10.33 $10.61 $9.98
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.42 $0.37 $0.36 $0.36 $0.29
Net realized and unrealized gain (loss) on investments 0.22 (0.32) 0.11 (0.07) 0.75(g)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations $0.64 $0.05 $0.47 $0.29 $1.04
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------
From net investment income $(0.47) $(0.50) $(0.48) $(0.51) $(0.40)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- ----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.47) $(0.51) $(0.50) $(0.57) $(0.41)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.01 $9.84 $10.30 $10.33 $10.61
- ----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 6.60 0.44 4.66 2.75 10.56(n)
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.32 1.34 1.47 1.33 1.41(a)
Expenses after expense reductions (f) 1.05 1.05 1.05 1.05 1.05(a)
Net investment income 4.41 3.71 3.44 3.44 3.99(a)
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $1,213 $637 $498 $229 $157
- ----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529B YEARS ENDED 4/30
--------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $9.88 $10.35 $10.36 $10.64 $10.00
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.35 $0.30 $0.28 $0.29 $0.23
Net realized and unrealized gain (loss) on investments 0.22 (0.33) 0.13 (0.09) 0.76(g)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations $0.57 $(0.03) $0.41 $0.20 $0.99
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------
From net investment income $(0.39) $(0.43) $(0.40) $(0.42) $(0.34)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- ----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.39) $(0.44) $(0.42) $(0.48) $(0.35)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.06 $9.88 $10.35 $10.36 $10.64
- ----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.91 (0.39) 3.97 1.89 10.00(n)
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.97 1.99 1.97 1.98 2.06(a)
Expenses after expense reductions (f) 1.80 1.80 1.80 1.80 1.80(a)
Net investment income 3.66 2.96 2.68 2.69 3.24(a)
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $355 $153 $130 $117 $41
- ----------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS 529C YEARS ENDED 4/30
--------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $9.87 $10.34 $10.36 $10.63 $10.00
- ----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.35 $0.30 $0.28 $0.28 $0.22
Net realized and unrealized gain (loss) on investments 0.22 (0.33) 0.12 (0.07) 0.76(g)
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations $0.57 $(0.03) $0.40 $0.21 $0.98
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------
From net investment income $(0.39) $(0.43) $(0.40) $(0.42) $(0.34)
From net realized gain on investments -- (0.01) (0.02) (0.06) (0.01)
- ----------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.39) $(0.44) $(0.42) $(0.48) $(0.35)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.05 $9.87 $10.34 $10.36 $10.63
- ----------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.91 (0.39) 3.91 1.98 9.89(n)
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.97 1.99 1.97 1.98 2.06(a)
Expenses after expense reductions (f) 1.80 1.80 1.80 1.80 1.80(a)
Net investment income 3.65 3.20 2.69 2.70 3.23(a)
Portfolio turnover 56 77 99 170 141
Net assets at end of period (000 Omitted) $628 $283 $249 $195 $57
- ----------------------------------------------------------------------------------------------------------------
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.
(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, July 31, 2002 (Classes 529A, 529B, and 529C), December 31, 2002
(Class R), October 31, 2003 (Class R3), and April 1, 2005 (Classes R1, R2, R4, and R5) through the stated
period end.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would
be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Research 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. The fund
can invest in foreign securities, including securities of emerging market
issuers. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - 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. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. 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 such futures contracts are primarily
traded. Swaps are generally valued at an evaluated bid as reported by an
independent pricing service. 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. Values 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. The values of foreign
securities and other assets and liabilities expressed in foreign currencies are
converted to U.S. dollars using the mean of bid and asked prices for rates
reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign securities may often be valued at fair value.
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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159
permits entities to elect to measure certain financial assets and liabilities
at fair value. Unrealized gains and losses on items for which the
fair value option has been elected will be reported in earnings at each
subsequent reporting date. FAS 159 is effective for fiscal years beginning
after November 15, 2007. Management is evaluating the application of the
Statement to the fund and its impact on the fund's financial statements, if
any, has not been determined.
REPURCHASE AGREEMENTS - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the trust to obtain those
securities in the event of a default under the repurchase agreement. The trust
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the trust
under each such repurchase agreement. The trust and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts and swap agreements.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. 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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds a credit default swap in which one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The fund may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The fund may invest in loans and loan
participations or other receivables. These investments may include standby
financing commitments, including revolving credit facilities, which obligate
the fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary.
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.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund earns certain fees in connection with its floating rate
loan purchasing activities. These fees are in addition to interest payments
earned and may include amendment fees, commitment fees, facility fees, consent
fees, and prepayment fees. These fees are recorded on an accrual basis as
income in the accompanying financial statements.
The fund may receive proceeds from litigation settlements. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended April 30, 2007, 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, wash sale loss deferrals, and derivative transactions.
The tax character of distributions declared to shareholders is as follows:
4/30/07 4/30/06
Ordinary income (including any
short-term capital gains) $100,785,733 $80,722,565
Long-term capital gain -- 1,332,915
- -----------------------------------------------------------------------
Total distributions $100,785,733 $82,055,480
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $2,251,457,550
-------------------------------------------------------------
Gross appreciation 14,472,037
Gross depreciation (20,270,120)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $(5,798,083)
Undistributed ordinary income 8,397,725
Capital loss carryforwards (41,538,272)
Post-October capital loss deferral (4,008,183)
Other temporary differences (10,009,906)
As of April 30, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
4/30/14 $(10,425,624)
4/30/15 (31,112,648)
---------------------------------------------------------
$(41,538,272)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the fund's financial statements.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B and Class 529B shares will convert to Class A and Class 529A
shares, respectively, approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with MFS to
provide overall investment 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 $3,007,679, which is shown as a reduction of total expenses in the
Statement of Operations. The management fee incurred for the year ended April
30, 2007 was equivalent to an annual effective rate of 0.35% of the fund's
average daily net assets.
The investment adviser has voluntarily agreed to pay a portion of the fund's
operating expenses, exclusive of management, distribution and service,
retirement plan administration and services, program manager, and certain other
fees and expenses, such that operating expenses do not exceed 0.20% annually of
the fund's average daily net assets. This agreement may be rescinded at any
time. For the year ended April 30, 2007, this reduction amounted to $286,797
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 $88,400 and $272 for the year ended April 30,
2007, as its portion of the initial sales charge on sales of Class A and Class
529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.15% $3,522,024
Class B 0.75% 0.25% 1.00% 1.00% 737,097
Class C 0.75% 0.25% 1.00% 1.00% 625,711
Class W 0.10% -- 0.10% 0.10% 184
Class R 0.25% 0.25% 0.50% 0.50% 165,854
Class R1 0.50% 0.25% 0.75% 0.75% 8,367
Class R2 0.25% 0.25% 0.50% 0.50% 8,248
Class R3 0.25% 0.25% 0.50% 0.50% 101,660
Class R4 -- 0.25% 0.25% 0.25% 50,740
Class 529A 0.25% 0.25% 0.50% 0.25% 2,472
Class 529B 0.75% 0.25% 1.00% 1.00% 1,815
Class 529C 0.75% 0.25% 1.00% 1.00% 3,164
- --------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $5,227,336
(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 April 30, 2007 based on each class' average daily net assets. 0.10% of the Class A and 0.10% of
the Class 529A service fee is currently being waived under a written waiver arrangement through
September 1, 2007. For the year ended April 30, 2007, this waiver amounted to $1,006,999 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 529A distribution fee
is currently being paid by the fund. Payment of the remaining 0.15% of the Class 529A distribution
fee is not yet in effect and will be implemented on such date as the fund's Board of Trustees may
determine. 0.10% of the Class A distribution fee is currently being waived under a written waiver
arrangement through September 1, 2007. For the year ended April 30, 2007, this waiver amounted to
$1,006,293 and is reflected as a reduction of total expenses in the Statement of Operations.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 12 months
of purchase. Class B and Class 529B shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within six years of
purchase. All contingent deferred sales charges are paid to MFD and during the
year ended April 30, 2007, were as follows:
AMOUNT
Class A $8,545
Class B $153,240
Class C $10,622
Class 529B $0
Class 529C $0
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an
annual fee of up to 0.35% of the average daily net assets attributable to each
529 share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily net assets of the fund's 529
share classes. The fee may only be increased with the approval of the Board of
Trustees who oversees the fund. The services provided by MFD, or a third party
with which MFD contracts, include recordkeeping and tax reporting and account
services, as well as services designed to maintain the program's compliance
with the Internal Revenue Code and other regulatory requirements. Program
manager fees for the year ended April 30, 2007, were as follows:
AMOUNT
Class 529A $1,765
Class 529B 454
Class 529C 791
-------------------------------------------
Total Program Manager Fees $3,010
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended April 30, 2007, the fee was $1,563,531, which
equated to 0.0779% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $993,238. The fund may also pay shareholder servicing related costs
directly 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. The fund's annual
fixed amount is $17,500.
The administrative services fee incurred for the year ended April 30, 2007 was
equivalent to an annual effective rate of 0.0177% 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 April 30, 2007,
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:
BEGINNING OF PERIOD EFFECTIVE ANNUAL TOTAL
THROUGH 3/31/07 4/1/07 EFFECTIVE RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $ 4,883
Class R2 0.40% 0.25% 0.25% 6,307
Class R3 0.25% 0.15% 0.15% 48,701
Class R4 0.15% 0.15% 0.15% 30,444
Class R5 0.10% 0.10% 0.10% 5,001
- --------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $95,336
(g) Prior to April 1, 2007, MFS had 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 was discontinued on March 31, 2007. On April 1, 2007, the annual
retirement plan administration and services fee for Class R1, Class R2, and
Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively. For
the year ended April 30, 2007, this waiver amounted to $21,360 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 April 30, 2007, the fee paid to Tarantino LLC was
$12,849. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $10,076, 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 $661,111,962 $496,717,218
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) $1,007,814,979 $582,411,215
- --------------------------------------------------------------------------------
(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
4/30/07 4/30/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 43,732,716 $435,446,444 47,392,972 $481,373,703
Class B 1,299,035 12,904,182 1,931,470 19,729,045
Class C 2,572,046 25,649,874 2,190,090 22,306,294
Class I 35,593,265 354,710,768 15,663,050 158,827,306
Class W 77,212 772,967 10,142 100,000
Class R 732,685 7,297,739 1,205,801 12,250,108
Class R1 269,817 2,694,761 49,012 498,509
Class R2 407,856 4,064,356 31,883 321,419
Class R3 2,864,984 28,537,384 1,796,015 18,192,040
Class R4 4,233,544 42,167,701 1,550,288 15,575,489
Class R5 1,171,428 11,767,503 31,189 316,100
Class 529A 62,026 622,331 19,768 200,915
Class 529B 22,220 224,252 4,167 42,352
Class 529C 40,059 403,077 9,913 101,639
- ---------------------------------------------------------------------------------------------------
93,078,893 $927,263,339 71,885,760 $729,834,919
Shares issued to shareholders in
reinvestment of distributions
Class A 3,660,706 $36,481,709 3,245,189 $32,911,939
Class B 243,204 2,426,279 289,686 2,947,457
Class C 169,159 1,687,975 173,482 1,763,984
Class I 3,133,769 31,235,084 2,691,086 27,306,760
Class W 886 8,852 -- --
Class R 121,170 1,206,738 124,504 1,263,594
Class R1 4,542 45,434 1,202 12,088
Class R2 7,235 72,603 473 4,784
Class R3 92,466 921,508 41,090 414,325
Class R4 96,941 966,833 16,839 168,371
Class R5 23,320 233,849 272 2,763
Class 529A 3,320 33,006 2,787 28,197
Class 529B 708 7,075 568 5,772
Class 529C 1,234 12,324 1,196 12,153
- ---------------------------------------------------------------------------------------------------
7,558,660 $75,339,269 6,588,374 $66,842,187
Shares reacquired
Class A (35,381,942) $(352,735,882) (22,123,912) $(223,968,492)
Class B (2,628,701) (26,182,078) (2,445,564) (24,890,354)
Class C (2,072,848) (20,655,386) (1,569,745) (15,958,033)
Class I (5,582,609) (55,462,565) (3,127,558) (31,702,434)
Class W (2,392) (24,012) -- --
Class R (1,710,011) (17,071,532) (929,242) (9,424,222)
Class R1 (159,171) (1,596,226) (5,710) (57,223)
Class R2 (201,536) (2,019,285) (11,858) (119,644)
Class R3 (1,858,073) (18,521,766) (701,528) (7,094,509)
Class R4 (2,562,780) (25,603,098) (472,910) (4,743,926)
Class R5 (122,391) (1,226,855) -- --
Class 529A (8,916) (88,441) (6,162) (62,645)
Class 529B (3,150) (31,644) (1,808) (18,701)
Class 529C (7,468) (74,101) (6,505) (66,179)
- ---------------------------------------------------------------------------------------------------
(52,301,988) $(521,292,871) (31,402,502) $(318,106,362)
Net change
Class A 12,011,480 $119,192,271 28,514,249 $290,317,150
Class B (1,086,462) (10,851,617) (224,408) (2,213,852)
Class C 668,357 6,682,463 793,827 8,112,245
Class I 33,144,425 330,483,287 15,226,578 154,431,632
Class W 75,706 757,807 10,142 100,000
Class R (856,156) (8,567,055) 401,063 4,089,480
Class R1 115,188 1,143,969 44,504 453,374
Class R2 213,555 2,117,674 20,498 206,559
Class R3 1,099,377 10,937,126 1,135,577 11,511,856
Class R4 1,767,705 17,531,436 1,094,217 10,999,934
Class R5 1,072,357 10,774,497 31,461 318,863
Class 529A 56,430 566,896 16,393 166,467
Class 529B 19,778 199,683 2,927 29,423
Class 529C 33,825 341,300 4,604 47,613
- ---------------------------------------------------------------------------------------------------
48,335,565 $481,309,737 47,071,632 $478,570,744
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-of-funds do not invest in the underlying MFS funds for
the purpose of exercising management or control. At the end of the period, the
MFS Conservative Allocation Fund, MFS Moderate Allocation Fund and MFS Growth
Allocation Fund were the owners of record of approximately 2%, 10% and 12%,
respectively, of the value of outstanding voting shares. In addition, the MFS
Lifetime Retirement Income Fund, MFS Lifetime 2010 Fund, MFS Lifetime 2020 Fund
and the MFS Lifetime 2030 Fund were each the owners of record of less than 1%
of the value of outstanding voting shares.
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30% for the committed line of credit and 0.35% for the uncommitted
line of credit. 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
April 30, 2007, the fund's commitment fee and interest expense were $8,908 and
$1,944, 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 Research Bond Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Research Bond Fund (one of the portfolios
comprising MFS Series Trust IX (the "Trust")) as of April 30, 2007, 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 five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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 April 30, 2007, 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 Research Bond
Fund as of April 30, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 13, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of June 1, 2007, 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); MIT Sloan School
(education), Senior Lecturer
(since 2006); 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) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Portman Limited
(mining), Director (since 2005);
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;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
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 Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
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 Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
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 Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
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 Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) 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 Officer compliance services), Principal
(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 Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) 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, Gutow, 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, 2007, the Trustees served as board members of 97 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- ------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR Effective May 1, 2007, the custodian changed to:
MFS Fund Distributors, Inc. JPMorgan Chase Bank
500 Boylston Street, Boston, MA 02116-3741 One Chase Manhattan Plaza
New York, NY 10081
PORTFOLIO MANAGERS
Robert Persons INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Michael Roberge Deloitte & Touche LLP
Jeffrey Wakelin 200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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 2007 income
tax forms in January 2008.
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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
MFS(R) Mutual Funds
ANNUAL REPORT 4/30/07
MFS(R) RESEARCH BOND FUND J
M F S(R)
INVESTMENT MANAGEMENT
RBJ-ANN 4/07
MFS(R) RESEARCH BOND FUND J
LETTER FROM THE CEO 1
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------
MANAGEMENT REVIEW 3
- ------------------------------------------------------------------
PERFORMANCE SUMMARY 4
- ------------------------------------------------------------------
EXPENSE TABLE 6
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 7
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 17
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 18
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 19
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 20
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 21
- ------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 27
- ------------------------------------------------------------------
TRUSTEES AND OFFICERS 28
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 31
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 31
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 31
- ------------------------------------------------------------------
FEDERAL TAX INFORMATION 31
- ------------------------------------------------------------------
MFS(R) PRIVACY NOTICE 32
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their
eyes on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007,
it had returned another 8% and continued to reach new highs. But the Dow's
upward rise has not been without hiccups. After hitting new records in
February, the Dow lost 5.8% between February 20 and March 5, as stocks were
sold off around the globe. As we have said before, markets are volatile, and
investors should make sure they have an investment plan that can carry them
through the peaks and troughs.
If you are focused on a long-term investment strategy, the short-term ups
and downs of the markets should not necessarily dictate portfolio action on
your part. Both the bond and stock markets are cyclical. In our view, investors
who remain committed to a long-term plan are more likely to achieve their
financial goals. We believe you should not let the headlines guide you in your
investment decisions and should be cautious about overreacting to short-term
volatility.
In any market environment, we believe individual investors are best served
by following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. 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
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
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 88.2%
Floating Rate Loans 0.3%
Cash & Other Net Assets 11.5%
FIXED INCOME SECTORS (i)
High Grade Corporates 34.5%
------------------------------------------------
Mortgage-Backed Securities 13.6%
------------------------------------------------
Commercial Mortgage-Backed Securities 12.9%
------------------------------------------------
U.S. Treasury Securities 11.5%
------------------------------------------------
High Yield Corporates 4.7%
------------------------------------------------
Emerging Market Bonds 4.0%
------------------------------------------------
U.S. Government Agencies 3.0%
------------------------------------------------
Asset-Backed Securities 2.0%
------------------------------------------------
Collaterized Debt Obligations 1.4%
------------------------------------------------
Residential Mortgage-Backed Securities 0.6%
------------------------------------------------
Floating Rate Loans 0.3%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 53.6%
------------------------------------------------
AA 6.2%
------------------------------------------------
A 7.6%
------------------------------------------------
BBB 25.2%
------------------------------------------------
BB 3.2%
------------------------------------------------
B 3.4%
------------------------------------------------
Not Rated 0.8%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 4.7
------------------------------------------------
Average Life (i)(m) 7.3 yrs
------------------------------------------------
Average Maturity (i)(m) 16.4 yrs
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) AA-
------------------------------------------------
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 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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended April 30, 2007, Class B shares of the MFS Research
Bond Fund J provided a total return of 6.03%, at net asset value. This compares
with a return of 7.35% for the fund's benchmark, the Lehman Brothers U.S.
Aggregate Bond Index (the Lehman Index).
DETRACTORS FROM PERFORMANCE
The fund's overweighted position in U.S. Treasuries detracted from results
relative to the Lehman Index. The fund's holdings of asset-backed securities
were also a drag on performance. Having an underweighted position in the
strong-performing mortgage-backed securities sector hurt relative results over
the reporting period. This positioning was due in large part to the negative
convexity(c) of the asset class.
CONTRIBUTORS TO PERFORMANCE
The fund's positioning in corporate bonds added to relative results. Other
areas that contributed to performance included our holdings of high yield bonds
and emerging market debt which the index does not own. The fund also benefited
from holding higher-yielding securities than the benchmark.
Respectfully
Robert Persons Michael Roberge Jeffrey Wakelin
Portfolio Managers Portfolio Manager Portfolio Manager
(c) Convexity is a measure of the curvature of the price-yield curve. The
combination of duration and convexity provides a better approximation of a
bond's sensitivity to changes in interest rates. Duration provides a first
order approximation of how much a bond price will drop with rising interest
rates or rise with falling interest rates. Positive convexity implies an
additional positive impact for all interest rate movements; negative
convexity implies an additional negative impact.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
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 4/30/07
The following chart illustrates the fund's historical performance in comparison
to its benchmark. Performance results include the deduction of the maximum
applicable sales charge and reflect the percentage change in net asset value,
including reinvestment of dividends and capital gains distributions. Benchmark
comparisons are unmanaged; 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. 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 investment operations, October 17,
2002, through the stated period end.
MFS Research Lehman Brothers
Bond Fund J U.S. Aggregate
- Class A Bond Index
------------ ---------------
10/02 $10,000 $10,000
4/03 10,808 10,536
4/04 11,034 10,728
4/05 11,532 11,292
4/06 11,513 11,372
4/07 12,013 12,209
TOTAL RETURNS THROUGH 4/30/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr Life (t)
- -------------------------------------------------------------------------------
B 10/17/02 6.03% 4.49%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmark
- -------------------------------------------------------------------------------
Lehman Brothers U.S. Aggregate Bond Index (f) 7.35% 4.48%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -------------------------------------------------------------------------------
B 2.03% 4.12%
With CDSC (Declining over six years
from 4% to 0%) (x)
- -------------------------------------------------------------------------------
CDSC -- Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(t) For the period from the commencement of the fund's investment operations,
October 17, 2002, through the stated period end.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITION
Lehman Brothers U.S. Aggregate Bond Index - measures the U.S. investment grade,
fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset-backed securities.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Prior to December 22, 2003, the Research Bond Fund J (the "fund") was a "fund
of funds" and invested all of its assets in Class I shares of the MFS Research
Bond Fund, an open-end investment company that has the same investment
objective as the fund.
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.
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,
NOVEMBER 1, 2006 THROUGH APRIL 30, 2007.
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 November 1, 2006 through April 30,
2007.
ACTUAL EXPENSES
The first line 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 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 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)
Expense Account Value Account Value 11/01/06-
Ratio 11/01/06 4/30/07 4/30/07
- --------------------------------------------------------------------------------
Actual 1.63% $1,000.00 $1,021.40 $8.17
- --------------------------------------------------------------------------------
Hypothetical (h) 1.63% $1,000.00 $1,016.71 $8.15
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to the fund's annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based
asset classes.
Bonds - 99.1%
- ------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------------
Airlines - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.875%, 2018 $ 312,674 $ 325,181
- ------------------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 16.7%
- ------------------------------------------------------------------------------------------------------------------------
ARCap REIT, Inc., "H", 6.1%, 2045 (n) $ 138,945 $ 124,339
Banc of America Commercial Mortgage, Inc., "AM", FRN, 5.3534%, 2047 657,557 652,179
Banc of America Commercial Mortgage, Inc., FRN, 4.857%, 2043 492,321 478,075
Banc of America Commercial Mortgage, Inc., FRN, 5.9651%, 2045 710,000 732,504
Bayview Commercial Asset Trust, 0.775%, 2035 (i)(z) 6,464,679 526,265
Bayview Commercial Asset Trust, FRN, 0.84%, 2013 (i)(z) 2,580,765 212,913
Bayview Commercial Asset Trust, FRN, 0.84%, 2036 (i)(z) 3,844,506 341,746
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 (i)(z) 2,770,875 252,071
Bayview Financial Acquisition Trust, FRN, 5.402%, 2035 331,000 329,190
Bayview Financial Acquisition Trust, FRN, 5.483%, 2041 307,000 306,024
Bear Stearns Commercial Mortgage Securities, Inc., FRN, 5.116%, 2041 401,050 396,387
Capital One Auto Finance Trust, 3.18%, 2010 353,798 351,311
Citigroup Commercial Mortgage Trust, 5.462%, 2049 680,000 680,127
Citigroup/Deutsche Bank Commercial Mortgage Trust, 5.648%, 2048 700,000 710,764
Citigroup/Deutsche Bank Commercial Mortgage Trust, "B", FRN, 5.447%, 2049 300,000 295,938
Citigroup/Deutsche Bank Commercial Mortgage Trust, "H", FRN, 5.8817%, 2049 (z) 167,056 159,800
Citigroup/Deutsche Bank Commercial Mortgage Trust, "J", FRN, 5.8817%, 2049 (z) 260,000 241,638
Citigroup/Deutsche Bank Commercial Mortgage Trust, FRN, 5.3997%, 2044 580,000 581,053
Credit-Based Asset Servicing & Securitization LLC, FRN, 5.303%, 2035 407,489 405,626
Crest G-Star CDO, 6.95%, 2032 (z) 974,000 1,010,933
CRIIMI MAE Commercial Mortgage Trust, 7%, 2033 (n) 185,597 186,024
Deutsche Mortgage & Asset Receiving Corp., 6.538%, 2031 132,280 132,578
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 415,000 449,436
E*TRADE RV & Marine Trust, 3.62%, 2018 141,000 136,914
Falcon Franchise Loan LLC, 7.382%, 2010 (n) 88,895 90,758
Falcon Franchise Loan LLC, FRN, 3.426%, 2023 (i)(n) 139,843 14,450
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 (i)(z) 2,074,080 291,657
First Union National Bank Commercial Mortgage Trust, FRN, 1.1842%, 2043 (i)(n) 5,737,656 171,144
First Union-Lehman Brothers Bank of America, FRN, 0.6911%, 2035 (i) 5,647,111 82,361
First Union-Lehman Brothers Commercial Mortgage Trust, FRN, 7.5%, 2029 202,000 223,869
Greenwich Capital Commercial Funding Corp., 4.569%, 2042 400,000 389,811
Greenwich Capital Commercial Funding Corp., FRN, 5.317%, 2036 400,000 401,290
Greenwich Capital Commercial Funding Corp., FRN, 5.224%, 2037 474,453 471,402
IKON Receivables Funding LLC, 3.27%, 2011 138,662 138,326
JPMorgan Chase Commercial Mortgage Securities Corp., 5.44%, 2045 (n) 337,785 337,911
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3805%, 2041 400,000 399,902
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.508%, 2042 (n) 540,000 522,625
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 4.936%, 2042 649,533 631,844
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.5421%, 2043 826,928 823,867
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.855%, 2043 710,000 733,451
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.3866%, 2044 380,000 378,428
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.038%, 2046 881,125 865,045
KKR Financial CLO Ltd., "C", FRN, 6.756%, 2021 (z) 787,476 787,476
Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 0.7075%, 2035 (i) 6,976,158 87,035
Long Beach Auto Receivables Trust, FRN, 2.841%, 2010 390,066 383,165
Merrill Lynch Mortgage Trust, FRN, 5.107%, 2038 380,000 373,292
Merrill Lynch Mortgage Trust, FRN, 5.8432%, 2039 860,000 880,085
Merrill Lynch/Countrywide Commercial Mortgage Trust, FRN, 5.204%, 2049 695,000 683,069
Morgan Stanley Capital I, Inc., FRN, 7.4991%, 2030 160,000 161,757
Morgan Stanley Capital I, Inc., FRN, 1.1019%, 2031 (i)(n) 4,846,649 72,622
Mortgage Capital Funding, Inc., FRN, 0.806%, 2031 (i) 2,746,416 13,729
Multi-Family Capital Access One, Inc., 6.65%, 2024 288,978 292,121
Nationslink Funding Corp., FRN, 0.6851%, 2030 (i) 1,766,033 20,830
New Century Home Equity Loan Trust, FRN, 4.532%, 2035 500,000 493,541
Popular ABS Mortgage Pass-Through Trust, FRN, 4.62%, 2035 242,364 239,140
Preferred Term Securities IV Ltd., CDO, FRN, 7.6%, 2031 (z) 107,683 108,006
Preferred Term Securities XIX Ltd., CDO, FRN, 5.7049%, 2035 (z) 1,425,000 1,428,563
Residential Asset Mortgage Products, Inc., FRN, 4.9708%, 2034 185,000 181,750
Residential Funding Mortgage Securities, Inc., FRN, 5.32%, 2035 845,000 839,405
Structured Asset Securities Corp., FRN, 5.56%, 2035 (n) 455,385 455,732
TIAA Real Estate CDO Ltd., 7.17%, 2032 (n) 109,223 109,185
Wachovia Bank Commercial Mortgage Trust, 4.935%, 2042 570,000 555,442
Wachovia Bank Commercial Mortgage Trust, FRN, 4.847%, 2041 700,000 679,529
Wachovia Bank Commercial Mortgage Trust, FRN, 5.083%, 2042 879,362 864,555
Wachovia Bank Commercial Mortgage Trust, FRN, 5.118%, 2042 565,886 557,966
Wachovia Bank Commercial Mortgage Trust, FRN, 5.3713%, 2044 677,000 672,967
Wachovia Bank Commercial Mortgage Trust, FRN, 5.4906%, 2044 670,000 668,662
------------
$ 28,271,600
- ------------------------------------------------------------------------------------------------------------------------
Automotive - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.375%, 2009 $ 220,000 $ 220,170
Ford Motor Credit Co., 5.7%, 2010 136,000 131,062
Ford Motor Credit Co. LLC, 9.75%, 2010 290,000 306,870
Johnson Controls, Inc., 5.5%, 2016 436,000 432,399
------------
$ 1,090,501
- ------------------------------------------------------------------------------------------------------------------------
Broadcasting - 1.3%
- ------------------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 421,000 $ 432,578
CBS Corp., 6.625%, 2011 598,000 624,438
Clear Channel Communications, Inc., 7.65%, 2010 99,000 104,537
Clear Channel Communications, Inc., 6.25%, 2011 400,000 396,778
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 545,000 582,469
News America Holdings, 8.5%, 2025 30,000 36,346
------------
$ 2,177,146
- ------------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 3.1%
- ------------------------------------------------------------------------------------------------------------------------
AMVESCAP PLC, 4.5%, 2009 $ 518,000 $ 509,056
AMVESCAP PLC, 5.625%, 2012 390,000 392,292
Goldman Sachs Group, Inc., 5.625%, 2017 750,000 746,644
Lehman Brothers Holdings, Inc., 8.25%, 2007 404,000 405,308
Lehman Brothers Holdings, Inc., 5.5%, 2016 186,000 186,237
Merrill Lynch & Co., Inc., 6.05%, 2016 1,199,000 1,235,926
Morgan Stanley, 5.75%, 2016 1,220,000 1,236,629
Morgan Stanley Dean Witter, Inc., 6.6%, 2012 424,000 449,066
------------
$ 5,161,158
- ------------------------------------------------------------------------------------------------------------------------
Building - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 3,000 $ 3,033
American Standard Cos., Inc., 7.625%, 2010 100,000 105,820
------------
$ 108,853
- ------------------------------------------------------------------------------------------------------------------------
Business Services - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Xerox Corp., 6.4%, 2016 $ 545,000 $ 561,547
- ------------------------------------------------------------------------------------------------------------------------
Cable TV - 2.1%
- ------------------------------------------------------------------------------------------------------------------------
Comcast Corp., 6.45%, 2037 $ 739,000 $ 747,377
Cox Communications, Inc., 7.125%, 2012 630,000 680,366
Rogers Cable, Inc., 5.5%, 2014 656,000 649,440
TCI Communications, Inc., 9.8%, 2012 181,000 214,615
Time Warner Cable, Inc., 5.85%, 2017 (z) 650,000 653,905
Time Warner Entertainment Co. LP, 8.375%, 2033 443,000 540,716
------------
$ 3,486,419
- ------------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.9%
- ------------------------------------------------------------------------------------------------------------------------
Fortune Brands, Inc., 5.125%, 2011 $ 680,000 $ 673,686
Western Union Co., 5.4%, 2011 900,000 900,335
------------
$ 1,574,021
- ------------------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 4.75%, 2010 (n) $ 502,000 $ 495,732
BAE Systems Holdings, Inc., 6.4%, 2011 (n) 372,000 389,311
------------
$ 885,043
- ------------------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Gazprom International S.A., 6.51%, 2022 (n) $ 290,000 $ 298,338
- ------------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Republic of Argentina, FRN, 5.475%, 2012 $ 624,750 $ 596,813
- ------------------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.8%
- ------------------------------------------------------------------------------------------------------------------------
Anadarko Petroleum Corp., 5.95%, 2016 $ 390,000 $ 393,029
Apache Corp., 7.375%, 2047 10,000 11,715
Ocean Energy, Inc., 4.375%, 2007 202,000 201,045
Ocean Energy, Inc., 7.25%, 2011 241,000 258,472
XTO Energy, Inc., 5.65%, 2016 529,000 529,336
------------
$ 1,393,597
- ------------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
TNK-BP Finance S.A., 7.5%, 2016 (n) $ 394,000 $ 417,148
TNK-BP Finance S.A., 7.5%, 2016 106,000 112,228
------------
$ 529,376
- ------------------------------------------------------------------------------------------------------------------------
Entertainment - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 $ 101,000 $ 115,141
- ------------------------------------------------------------------------------------------------------------------------
Financial Institutions - 2.7%
- ------------------------------------------------------------------------------------------------------------------------
Capital One Financial Co., 6.15%, 2016 $ 510,000 $ 517,650
CIT Group, Inc., 6.1% to 2017, FRN to 2067 80,000 77,069
Countrywide Financial Corp., 6.25%, 2016 816,000 824,332
General Motors Acceptance Corp., 6.75%, 2014 739,000 728,767
HSBC Finance Corp., 5.5%, 2016 978,000 976,565
ORIX Corp., 5.48%, 2011 880,000 885,033
Residential Capital LLC, 6.875%, 2015 540,000 546,813
------------
$ 4,556,229
- ------------------------------------------------------------------------------------------------------------------------
Food & Beverages - 1.2%
- ------------------------------------------------------------------------------------------------------------------------
ARAMARK Corp., 8.5%, 2015 (n) $ 540,000 $ 564,975
Kraft Foods, Inc., 6.25%, 2012 251,000 261,029
Miller Brewing Co., 5.5%, 2013 (n) 816,000 819,160
Tyson Foods, Inc., 6.6%, 2016 370,000 385,725
------------
$ 2,030,889
- ------------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
CVS Corp., 5.75%, 2011 $ 350,000 $ 356,603
CVS Corp., 6.125%, 2016 520,000 539,120
------------
$ 895,723
- ------------------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Stora Enso Oyj, 7.25%, 2036 (n) $ 504,000 $ 517,357
- ------------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.2%
- ------------------------------------------------------------------------------------------------------------------------
Wyndham Worldwide Corp., 6%, 2016 (n) $ 355,000 $ 352,180
- ------------------------------------------------------------------------------------------------------------------------
Industrial - 0.4%
- ------------------------------------------------------------------------------------------------------------------------
Steelcase, Inc., 6.5%, 2011 $ 620,000 $ 636,891
- ------------------------------------------------------------------------------------------------------------------------
Insurance - 0.9%
- ------------------------------------------------------------------------------------------------------------------------
American International Group, Inc., 5.05%, 2015 $ 335,000 $ 329,206
American International Group, Inc., 6.25%, 2037 200,000 199,070
ING Groep N.V., 5.775% to 2015, FRN to 2049 423,000 421,418
UnumProvident Corp., 6.85%, 2015 (n) 548,000 572,789
------------
$ 1,522,483
- ------------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Chubb Corp., 6.375% to 2017, FRN to 2067 $ 450,000 $ 455,426
Fund American Cos., Inc., 5.875%, 2013 585,000 586,145
------------
$ 1,041,571
- ------------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011 $ 500,000 $ 525,625
- ------------------------------------------------------------------------------------------------------------------------
Major Banks - 4.0%
- ------------------------------------------------------------------------------------------------------------------------
BAC Capital Trust XIV, 5.63% to 2012, FRN to 2043 $ 810,000 $ 813,149
Bank of America Corp., 5.625%, 2016 1,120,000 1,142,009
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) 619,000 596,475
DBS Capital Funding Corp., 7.657% to 2011, FRN to 2049 (n) 338,000 366,215
HBOS Capital Funding LP, 6.071% to 2014, FRN to 2049 (n) 254,000 259,902
JPMorgan Chase & Co., 5.125%, 2014 344,000 340,133
JPMorgan Chase & Co., 5.15%, 2015 400,000 393,556
MUFG Capital Finance 1 Ltd., 6.346% to 2016, FRN to 2049 812,000 829,327
Natexis AMBS Co. LLC, 8.44% to 2008, FRN to 2049 (n) 195,000 201,783
PNC Funding Corp., 5.625%, 2017 490,000 494,254
Socgen Real Estate LLC, 7.64% to 2007, FRN to 2049 (n) 148,000 149,408
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (n) 258,000 289,732
Wachovia Capital Trust III, 5.8% to 2011, FRN to 2042 475,000 482,078
Wachovia Corp., 6.605%, 2025 387,000 421,019
------------
$ 6,779,040
- ------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.0%
- ------------------------------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc., 6.125%, 2015 $ 675,000 $ 677,258
Hospira, Inc., 5.55%, 2012 300,000 301,638
Hospira, Inc., 6.05%, 2017 290,000 292,985
McKesson Corp., 5.7%, 2017 360,000 359,436
------------
$ 1,631,317
- ------------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.0%
- ------------------------------------------------------------------------------------------------------------------------
International Steel Group, Inc., 6.5%, 2014 $ 722,000 $ 754,822
Peabody Energy Corp., 5.875%, 2016 510,000 488,325
Vale Overseas Ltd., 6.25%, 2017 512,000 525,058
------------
$ 1,768,205
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 13.5%
- ------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 4.55%, 2011 $ 345,065 $ 337,859
Fannie Mae, 5.12%, 2012 285,680 287,766
Fannie Mae, 4.518%, 2014 291,392 283,540
Fannie Mae, 4.62%, 2014 181,770 177,650
Fannie Mae, 4.666%, 2014 649,534 637,147
Fannie Mae, 4.86%, 2014 181,831 179,234
Fannie Mae, 4.56%, 2015 233,040 226,745
Fannie Mae, 4.665%, 2015 156,606 153,298
Fannie Mae, 4.69%, 2015 130,921 128,382
Fannie Mae, 4.7%, 2015 180,690 177,247
Fannie Mae, 4.74%, 2015 200,000 195,600
Fannie Mae, 4.78%, 2015 221,637 218,270
Fannie Mae, 4.815%, 2015 271,000 266,082
Fannie Mae, 4.82%, 2015 229,989 227,007
Fannie Mae, 4.87%, 2015 177,559 175,642
Fannie Mae, 4.89%, 2015 126,427 125,233
Fannie Mae, 4.925%, 2015 497,999 494,605
Fannie Mae, 5%, 2016 - 2025 585,458 580,859
Fannie Mae, 4.996%, 2017 624,388 623,095
Fannie Mae, 5.5%, 2018 - 2037 8,621,677 8,564,127
Fannie Mae, 4.88%, 2020 180,743 178,888
Fannie Mae, 6.5%, 2033 157,628 162,142
Fannie Mae, 6%, 2034 - 2037 837,593 844,863
Freddie Mac, 5%, 2018 - 2028 2,760,472 2,746,318
Freddie Mac, 4%, 2024 116,010 114,039
Freddie Mac, 5.5%, 2025 - 2035 2,525,330 2,503,198
Freddie Mac, 6%, 2034 - 2035 1,548,376 1,567,816
Ginnie Mae, 6%, 2036 636,800 644,926
------------
$ 22,821,578
- ------------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.0%
- ------------------------------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 $ 866,000 $ 967,150
CenterPoint Energy, Inc., 5.95%, 2017 250,000 252,365
Kinder Morgan Energy Partners LP, 6%, 2017 420,000 426,765
Kinder Morgan Energy Partners LP, 7.75%, 2032 236,000 268,595
Kinder Morgan Energy Partners LP, 5.8%, 2035 295,000 275,353
Magellan Midstream Partners LP, 5.65%, 2016 492,000 488,080
Spectra Energy Capital LLC, 8%, 2019 571,000 657,215
------------
$ 3,335,523
- ------------------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.2%
- ------------------------------------------------------------------------------------------------------------------------
BellSouth Corp., 6.55%, 2034 $ 640,000 $ 667,103
CenturyTel, Inc., 8.375%, 2010 30,000 32,857
Deutsche Telekom B.V., 5.75%, 2016 476,000 477,938
Telecom Italia Capital, 6.2%, 2011 726,000 749,019
Telecom Italia Capital, 5.25%, 2015 278,000 267,206
Telefonica Emisiones S.A.U., 7.045%, 2036 619,000 664,142
Verizon New York, Inc., 6.875%, 2012 781,000 825,039
------------
$ 3,683,304
- ------------------------------------------------------------------------------------------------------------------------
Oil Services - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Halliburton Co., 5.5%, 2010 $ 423,000 $ 428,289
- ------------------------------------------------------------------------------------------------------------------------
Oils - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $1,000,000 $ 1,032,146
- ------------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 3.4%
- ------------------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN, 7.2549%, 2011 (n) $ 589,000 $ 589,000
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 713,000 715,139
Citigroup, Inc., 5.625%, 2012 190,000 194,018
Citigroup, Inc., 5%, 2014 828,000 810,186
Fifth Third Bancorp, 5.45%, 2017 620,000 617,746
HSBK Europe B.V., 7.25%, 2017 (z) 205,000 204,488
Kazkommerts International B.V., 8.5%, 2013 428,000 452,610
Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) 480,000 493,029
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 465,000 462,749
Russian Standard Finance S.A., 7.5%, 2010 178,000 173,995
Russian Standard Finance S.A., 8.625%, 2011 (n) 400,000 404,500
UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 660,000 682,178
------------
$ 5,799,638
- ------------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013 $ 335,000 $ 364,731
Idearc, Inc., 8%, 2016 (n) 615,000 641,138
------------
$ 1,005,869
- ------------------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.6%
- ------------------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 326,000 $ 352,080
TFM S.A. de C.V., 12.5%, 2012 380,000 405,840
Union Pacific Corp., 7.25%, 2008 175,000 179,943
------------
$ 937,863
- ------------------------------------------------------------------------------------------------------------------------
Real Estate - 2.7%
- ------------------------------------------------------------------------------------------------------------------------
Boston Properties, Inc., REIT, 5%, 2015 $ 253,000 $ 245,488
HRPT Properties Trust, REIT, 6.25%, 2016 716,000 745,236
Kimco Realty Corp., REIT, 6%, 2012 150,000 155,451
Kimco Realty Corp., REIT, 5.783%, 2016 648,000 659,569
Liberty Property Ltd. Partnership, REIT, 5.5%, 2016 580,000 577,067
ProLogis, REIT, 5.75%, 2016 654,000 666,249
ProLogis, REIT, 5.625%, 2016 220,000 222,057
Simon Property Group LP, REIT, 4.6%, 2010 517,000 508,592
Simon Property Group LP, REIT, 5.75%, 2015 331,000 337,035
Simon Property Group LP, REIT, 6.1%, 2016 312,000 325,367
Vornado Realty Trust, REIT, 5.625%, 2007 200,000 199,949
------------
$ 4,642,060
- ------------------------------------------------------------------------------------------------------------------------
Restaurants - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 417,000 $ 467,634
- ------------------------------------------------------------------------------------------------------------------------
Retailers - 1.4%
- ------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.625%, 2010 $ 262,000 $ 279,030
Federated Retail Holdings, Inc., 5.35%, 2012 240,000 239,880
Home Depot, Inc., 5.4%, 2016 948,000 928,404
J.C. Penney Corp., Inc., 8%, 2010 70,000 74,914
J.C. Penney Corp., Inc., 5.75%, 2018 100,000 99,770
J.C. Penney Corp., Inc., 6.375%, 2036 100,000 99,672
Wal-Mart Stores, Inc., 5.375%, 2017 150,000 149,761
Wal-Mart Stores, Inc., 5.875%, 2027 450,000 453,401
------------
$ 2,324,832
- ------------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.95%, 2010 $ 309,000 $ 305,593
Safeway, Inc., 6.5%, 2011 227,000 235,901
------------
$ 541,494
- ------------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.4%
- ------------------------------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.95%, 2014 $ 655,000 $ 644,821
- ------------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.5%
- ------------------------------------------------------------------------------------------------------------------------
Embarq Corp., 7.082%, 2016 $ 800,000 $ 826,511
- ------------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
FedEx Corp., 9.65%, 2012 $ 83,000 $ 98,701
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 3.0%
- ------------------------------------------------------------------------------------------------------------------------
Small Business Administration, 5.34%, 2021 $ 89,544 $ 90,654
Small Business Administration, 6.34%, 2021 16,194 16,750
Small Business Administration, 6.35%, 2021 10,806 11,181
Small Business Administration, 6.44%, 2021 16,297 16,885
Small Business Administration, 6.07%, 2022 60,100 61,885
Small Business Administration, 4.35%, 2023 407,055 390,663
Small Business Administration, 4.89%, 2023 556,110 551,126
Small Business Administration, 4.98%, 2023 581,652 579,824
Small Business Administration, 4.34%, 2024 509,491 485,659
Small Business Administration, 4.86%, 2024 262,865 258,910
Small Business Administration, 4.93%, 2024 519,939 516,281
Small Business Administration, 5.19%, 2024 512,598 514,970
Small Business Administration, 5.52%, 2024 503,381 511,684
Small Business Administration, 4.76%, 2025 635,603 617,773
Small Business Administration, 5.35%, 2026 417,622 421,642
------------
$ 5,045,887
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 22.6%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 8.125%, 2019 $ 5,000 $ 6,545
U.S. Treasury Bonds, 6%, 2026 630,000 715,296
U.S. Treasury Bonds, 6.75%, 2026 7,818,000 9,617,969
U.S. Treasury Bonds, 6.25%, 2030 375,000 446,250
U.S. Treasury Bonds, 5.375%, 2031 4,249,000 4,551,078
U.S. Treasury Bonds, 4.5%, 2036 3,498,000 3,317,087
U.S. Treasury Notes, 5.625%, 2008 (f) 1,792,000 1,804,669
U.S. Treasury Notes, 3.125%, 2009 2,432,000 2,364,741
U.S. Treasury Notes, 4.875%, 2009 9,824,000 9,887,316
U.S. Treasury Notes, 6.5%, 2010 2,377,000 2,497,243
U.S. Treasury Notes, TIPS, 2%, 2014 2,100,975 2,083,165
U.S. Treasury Notes, TIPS, 2.375%, 2017 857,582 870,948
------------
$ 38,162,307
- ------------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.0%
- ------------------------------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013 $ 675,000 $ 765,286
Enersis S.A., 7.375%, 2014 588,000 638,400
Exelon Generation Co. LLC, 6.95%, 2011 1,093,000 1,151,978
FirstEnergy Corp., 6.45%, 2011 705,000 739,415
MidAmerican Energy Holdings Co., 5.875%, 2012 150,000 154,886
MidAmerican Energy Holdings Co., 6.125%, 2036 240,000 243,946
NiSource Finance Corp., 7.875%, 2010 500,000 542,530
NRG Energy, Inc., 7.25%, 2014 405,000 419,175
Pacific Gas & Electric Co., 5.8%, 2037 280,000 275,911
Progress Energy, Inc., 5.625%, 2016 652,000 658,863
TXU Energy Co., 7%, 2013 830,000 864,223
Virginia Electric & Power Co., 4.1%, 2008 346,000 339,597
------------
$ 6,794,210
- ------------------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $167,829,668) $167,424,911
- ------------------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 0.3% (g)(r)
- ------------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.3%
- ------------------------------------------------------------------------------------------------------------------------
HCA, Inc., Term Loan B, 7.6%, 2013 (Identified Cost, $546,177) $ 541,230 $ 546,715
- ------------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Abbey National North America LLC, 5.313%, due 5/01/07, at Amortized Cost and Value (y) $ 101,000 $ 101,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $168,476,845) (k) $168,072,626
- ------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.5% 840,003
- ------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $168,912,629
- ------------------------------------------------------------------------------------------------------------------------
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is
the notional principal and does not reflect the cost of the security.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of
Trustees, aggregating $161,638,170 and 96.17% of market value. An independent pricing service provided an evaluated
bid for 95.73% of the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in
the ordinary course of business in transactions exempt from registration, normally to qualified institutional
buyers. At period end, the aggregate value of these securities was $11,680,850, representing 6.9% of net assets.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or
optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be
subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined
periodically by reference to a base lending rate plus a premium.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on
resale. These securities generally may be resold in transactions exempt from registration or to the public if the
securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and
prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:
ACQUISITION ACQUISITION CURRENT TOTAL % OF
RESTRICTED SECURITIES DATE COST MARKET VALUE NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Bayview Commercial Asset Trust, 0.775%, 2035 10/06/05 $ 506,340 $ 526,265
Bayview Commercial Asset Trust, FRN, 0.84%, 2013 3/29/06 228,704 212,913
Bayview Commercial Asset Trust, FRN, 0.84%, 2036 2/28/06 344,678 341,746
Bayview Commercial Asset Trust, FRN, 0.8788%, 2036 5/16/06 248,957 252,071
Citigroup/Deutsche Bank Commercial Mortgage Trust,
"H", FRN, 5.8817%, 2049 3/14/07 165,736 159,800
Citigroup/Deutsche Bank Commercial Mortgage Trust,
"J", FRN, 5.8817%, 2049 3/14/07 256,047 241,638
Crest G-Star CDO, 6.95%, 2032 9/13/05 1,043,093 1,010,933
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 12/19/03 318,263 291,657
HSBK Europe B.V., 7.25%, 2017 4/25/07 203,294 204,488
KKR Financial CLO Ltd., "C", FRN, 6.756%, 2021 4/27/07 787,476 787,476
Preferred Term Securities IV Ltd., CDO, FRN, 7.6%, 2031 9/13/05 109,547 108,006
Preferred Term Securities XIX Ltd., CDO, FRN, 5.7049%, 2035 9/08/05 1,425,000 1,428,563
Time Warner Cable, Inc., 5.85%, 2017 4/04/07 648,498 653,905
- -----------------------------------------------------------------------------------------------------------------------
Total Restricted Securities $6,219,461 3.7%
=========================
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
CLO Collateralized Loan Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
REIT Real Estate Investment Trust
TIPS Treasury Inflation Protected Security
FUTURES CONTRACTS OUTSTANDING AT 4/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Short) 111 $12,404,250 Jun-07 $178,252
U.S. Treasury Note 10 yr (Short) 63 6,824,672 Jun-07 (16,955)
- ------------------------------------------------------------------------------------------------------------------
$161,297
========
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
3/20/17 USD 420,000 JPMorgan Chase Bank 0.49% (fixed rate) (1) $(3,232)
3/20/17 USD 420,000 JPMorgan Chase Bank (2) 0.38% (fixed rate) 2,544
3/20/17 USD 420,000 Merrill Lynch International (3) 0.37% (fixed rate) 2,713
3/20/17 USD 410,000 Goldman Sachs International 0.52% (fixed rate) (1) (2,205)
3/20/17 USD 135,000 JPMorgan Chase Bank (4) 0.78% (fixed rate) 1,694
3/20/17 USD 135,000 JPMorgan Chase Bank (4) 0.80% (fixed rate) 1,489
3/20/17 USD 138,000 Merrill Lynch International (4) 0.81% (fixed rate) 1,420
3/20/17 USD 320,000 Goldman Sachs International (5) 0.40% (fixed rate) (4,081)
6/20/17 USD 400,000 Merrill Lynch International (6) 0.91% (fixed rate) (1,545)
-------
$(1,203)
=======
(1) Fund to pay notional amount upon a defined credit default event by Burlington Northern Santa Fe Corp.,
6.75%, 7/15/11.
(2) Fund to receive notional amount upon a defined credit default event by PPG Industries, Inc., 7.05%, 8/15/09.
(3) Fund to receive notional amount upon a defined credit default event by Rohm & Haas Co., 7.85%, 7/15/29.
(4) Fund to receive notional amount upon a defined credit default event by Waste Management, Inc., 7.375%, 8/1/10.
(5) Fund to receive notional amount upon a defined credit default event by Dover Corp., 6.25%, 6/1/08.
(6) Fund to receive notional amount upon a defined credit default event by the New York Times Co., 4.61%, 9/26/12.
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these
derivative contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07
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, $168,476,845) $168,072,626
Cash 2,400
Receivable for fund shares sold 1,245,571
Interest receivable 1,887,524
Unrealized appreciation on credit default swaps 9,860
Other assets 2,920
- ----------------------------------------------------------------------------------------------
Total assets $171,220,901
- ----------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------
Distributions payable $550,969
Payable for daily variation margin on open futures contracts 124,172
Payable for investments purchased 990,770
Payable for fund shares reacquired 526,517
Unrealized depreciation on credit default swaps 11,063
Payable to affiliates
Management fee 6,482
Shareholder servicing costs 909
Distribution and service fees 18,520
Administrative services fee 420
Payable for independent trustees' compensation 897
Accrued expenses and other liabilities 77,553
- ----------------------------------------------------------------------------------------------
Total liabilities $2,308,272
- ----------------------------------------------------------------------------------------------
Net assets $168,912,629
- ----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------
Paid-in capital $179,118,690
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (244,125)
Accumulated net realized gain (loss) on investments and
translation of assets and liabilities in foreign currencies (10,037,181)
Undistributed net investment income 75,245
- ----------------------------------------------------------------------------------------------
Net assets $168,912,629
- ----------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 17,336,188
- ----------------------------------------------------------------------------------------------
Class B Net asset value and offering price per share $9.74
- ----------------------------------------------------------------------------------------------
A contingent deferred sales charge may be imposed on redemptions of Class B shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 4/30/07
This statement describes how much your fund earned in investment income and accrued in
expenses. It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------
Interest income $10,003,364
- ----------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------
Management fee $916,015
Distribution and service fees 1,832,031
Shareholder servicing costs 147,831
Administrative services fee 41,376
Independent trustees' compensation 9,546
Custodian fee 93,157
Shareholder communications 85,774
Auditing fees 41,012
Legal fees 13,445
Miscellaneous 23,859
- ----------------------------------------------------------------------------------------------
Total expenses $3,204,046
- ----------------------------------------------------------------------------------------------
Fees paid indirectly (27,268)
Reduction of expenses by investment adviser (275,741)
- ----------------------------------------------------------------------------------------------
Net expenses $2,901,037
- ----------------------------------------------------------------------------------------------
Net investment income $7,102,327
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(1,294,738)
Futures contracts (729,566)
Swap transactions (36,420)
- ----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(2,060,724)
- ----------------------------------------------------------------------------------------------
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)
- ----------------------------------------------------------------------------------------------
Investments $5,603,659
Futures contracts 161,297
Swap transactions 17,290
- ----------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $5,782,246
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $3,721,522
- ----------------------------------------------------------------------------------------------
Change in net assets from operations $10,823,849
- ----------------------------------------------------------------------------------------------
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 4/30
----------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income $7,102,327 $6,665,468
Net realized gain (loss) on investments (2,060,724) (1,675,266)
Net unrealized gain (loss) on investments 5,782,246 (5,727,848)
- ----------------------------------------------------------------------------------------------
Change in net assets from operations $10,823,849 $(737,646)
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------
From net investment income $(7,665,374) $(9,362,310)
- ----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(35,551,842) $56,402,220
- ----------------------------------------------------------------------------------------------
Total change in net assets $(32,393,367) $46,302,264
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
At beginning of period 201,305,996 155,003,732
At end of period (including undistributed net investment
income of $75,245 and accumulated distributions in excess
of net investment income of $16,994) $168,912,629 $201,305,996
- ----------------------------------------------------------------------------------------------
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.
YEARS ENDED 4/30
------------------------------------------------------------
CLASS B 2007 2006 2005 2004 2003(c)
Net asset value, beginning of period $9.58 $10.03 $10.27 $10.56 $10.00
- ------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.37 $0.32 $0.31 $0.46 $0.28
Net realized and unrealized gain (loss) on investments 0.20 (0.33) 0.15 (0.24) 0.52
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.57 $(0.01) $0.46 $0.22 $0.80
- ------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.41) $(0.44) $(0.43) $(0.48) $(0.24)
From net realized gain on investments -- -- (0.27) (0.03) --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.41) $(0.44) $(0.70) $(0.51) $(0.24)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.74 $9.58 $10.03 $10.27 $10.56
- ------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 6.03 (0.17) 4.51 2.09 8.08(n)
- ------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.75 1.73 1.73 1.65 1.75(a)(k)
Expenses after expense reductions (f) 1.60 1.58 1.58 1.24 1.05(a)(k)
Net investment income 3.88 3.18 3.04 4.33 4.48(a)
Portfolio turnover 71 95 140 179 141(x)
Net assets at end of period (000 Omitted) $168,913 $201,306 $155,004 $166,897 $174,780
- ------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(c) For the period from the commencement of the fund's investment operations, October 17, 2002, 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.
(k) Reflects direct fund expenses only.
(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.
(x) Portfolio turnover rate reflects that of the Portfolio in which the fund invests.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Research Bond Fund J (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. The fund
can invest in foreign securities, including securities of emerging market
issuers. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - 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. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. 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 such futures contracts are primarily
traded. Swaps are generally valued at an evaluated bid as reported by an
independent pricing service. 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. Values 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. The values of foreign
securities and other assets and liabilities expressed in foreign currencies are
converted to U.S. dollars using the mean of bid and asked prices for rates
reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign securities may often be valued at fair value.
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.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159
permits entities to elect to measure certain financial assets and liabilities
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected will be reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after November
15, 2007. Management is evaluating the application of the Statement to the fund
and its impact on the fund's financial statements, if any, has not been
determined.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund and other funds managed by
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
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.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. Gains
and losses attributable to foreign currency exchange rates on sales of
securities are recorded for financial statement purposes as net realized gains
and losses on investments. Gains and losses attributable to foreign exchange
rate movements on income and expenses are recorded for financial statement
purposes as foreign currency transaction gains and losses. That portion of both
realized and unrealized gains and losses on investments that results from
fluctuations in foreign currency exchange rates is not separately disclosed.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts and swap agreements.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. 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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds a credit default swap in which one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The fund may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The fund may invest in loans and loan
participations or other receivables. These investments may include standby
financing commitments, including revolving credit facilities, which obligate
the fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary.
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.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations.
The fund earns certain fees in connection with its floating rate loan
purchasing activities. These fees are in addition to interest payments earned
and may include amendment fees, commitment fees, facility fees, consent fees,
and prepayment fees. These fees are recorded on an accrual basis as income in
the accompanying financial statements.
The fund may receive proceeds from litigation settlements. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended April 30, 2007, 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 derivative transactions.
The tax character of distributions declared to shareholders is as follows:
4/30/07 4/30/06
Ordinary income $7,665,374 9,362,310
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $169,219,359
---------------------------------------------------------------
Gross appreciation 1,063,894
Gross depreciation (2,210,627)
---------------------------------------------------------------
Net unrealized appreciation (depreciation) $(1,146,733)
Undistributed ordinary income 625,812
Capital loss carryforwards (8,846,567)
Post-October capital loss deferral (253,611)
Other temporary differences (584,962)
As of April 30, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
4/30/13 $(1,678,843)
4/30/14 (1,444,482)
4/30/15 (5,723,242)
-------------------------------------
$(8,846,567)
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. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the fund's financial statements.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with 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 $274,805, which is shown as a reduction of total expenses in the Statement
of Operations. The management fee incurred for the year ended April 30, 2007
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, and
certain other fees and expenses, such that operating expenses do not exceed
0.25% annually of the fund's average daily net assets. This written agreement
will continue through August 31, 2007 unless changed or rescinded by the fund's
Board of Trustees. For the year ended April 30, 2007, the fund's actual
operating expenses did not exceed the limit and therefore, the investment
adviser did not pay any portion of the fund's expenses.
DISTRIBUTOR - 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 MFS Fund
Distributors, Inc. (MFD) for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of certain
share classes. One component of the plan is a distribution fee paid to MFD and
another component of the plan is a service fee paid to MFD. MFD may
subsequently pay all, or a portion, of the distribution and/or service fees to
financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class B 0.75% 0.25% 1.00% 1.00% $1,832,031
(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 April 30, 2007 based on each class' average daily net assets.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within five years of purchase. All contingent
deferred sales charges are paid to MFD and during the year ended April 30,
2007, were as follows:
AMOUNT
Class B $4,845,987
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 daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended April 30, 2007, the fee was $147,666, which
equated to 0.0806% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $56. The fund may also pay shareholder servicing related costs
directly 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. The fund's annual
fixed amount is $17,500.
The administrative services fee incurred for the year ended April 30, 2007 was
equivalent to an annual effective rate of 0.0226% of the fund's average daily
net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC.
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 April 30, 2007, the fee paid to Tarantino LLC was
$1,168. MFS has agreed to reimburse the fund for a portion of the payments made
by the funds to Tarantino LLC in the amount of $936, 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 $56,266,552 $69,506,070
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) $70,463,503 $76,687,665
- --------------------------------------------------------------------------------
(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
4/30/07 4/30/06
SHARES AMOUNT SHARES AMOUNT
Shares sold 10,345,114 $99,832,512 12,174,091 $121,263,178
Shares reacquired (14,024,166) (135,384,354) (6,616,690) (64,860,958)
--------------------------- --------------------------
Net change (3,679,052) $(35,551,842) 5,557,401 $56,402,220
(6) LINE OF CREDIT
The fund and other funds managed by MFS 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 funds managed by MFS 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 0.30% for the committed line of credit and 0.35% for the uncommitted
line of credit. 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
April 30, 2007, the fund's commitment fee and interest expense were $681 and
$117, 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 Research
Bond Fund J:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Research Bond Fund J (one of the
portfolios comprising MFS Series Trust IX (the "Trust")) as of April 30, 2007,
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 four years in the period then
ended and for the period October 17, 2002 (commencement of operations) to April
30, 2003. 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 April 30, 2007, 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 Research Bond
Fund J as of April 30, 2007, 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 four years in the
period then ended and for the period October 17, 2002 (commencement of
operations) to April 30, 2003, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 13, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of June 1, 2007, 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.
POSITION(s) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATIONS DURING 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 Company, Chief Executive
(born 10/20/63) Officer, President, Chief Investment Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services Company, Chairman (since
(born 8/08/46) February 2004); MIT Sloan School (education), Senior
Lecturer (since 2006); 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 Enterprises (diversified services
(born 5/01/36) of Trustees company), Chairman, Trustee and Chief Executive Officer
(until November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and compliance matters (since July
(born 11/29/41) 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, Chief of Cardiac Surgery
(born 3/11/37) (2005); Harvard Medical School, Professor of Cardiac
Surgery; Physician Director of Medical Device Technology for
Partners HealthCare
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining products and service provider),
(born 5/30/42) Vice Chairman/Director (since April 2001); Portman Limited
(mining), Director (since 2005); 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 consultant; Capitol
(born 9/27/41) Entertainment Management Company (video franchise), Vice
Chairman; Atlantic Coast Tan (tanning salons), Vice Chairman
(since 2002)
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial services and insurance),
(born 12/21/44) 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), Partner
(born 6/23/35)
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning specialists),
(born 9/23/38) 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 Partners (venture capital),
(born 8/05/57) 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); PricewaterhouseCoopers LLP
(born 5/18/41) (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 Company, Executive Vice
(born 12/01/58) 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 Company, Senior Vice
(born 12/30/64) President (since September 2004); PricewaterhouseCoopers
LLP, Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant Secretary July 2005 Massachusetts Financial Services Company, Vice President
(born 1/18/74) and Assistant Clerk and Senior Counsel (since April 2003); Kirkpatrick &
Lockhart LLP (law firm), Associate (prior to April 2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services Company, Special Counsel
(born 11/21/63) and Assistant Clerk (since December 2004); Dechert LLP (law firm), Counsel
(prior to December 2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services Company, Vice President
(born 8/10/68) (since June 2005); JP Morgan Investor Services, Vice
President (prior to June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services Company, Vice President and
(born 7/10/68) and Assistant Clerk Senior 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 Treasurer July 2005 Massachusetts Financial Services Company, Vice President
(born 10/27/70) (since May 2005); JP Morgan Investment Management Company,
Vice President (prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services Company, Assistant Vice
(born 3/07/73) and Assistant Clerk President 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 Treasurer April 1997 Massachusetts Financial Services Company, Senior Vice
(born 11/13/57) President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services Company, Senior Vice
(born 3/07/50) and Assistant Clerk President and 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 Secretary July 2005 Massachusetts Financial Services Company, Vice President and
(born 11/05/70) and Assistant Clerk Senior Counsel (since June 2004); Bingham McCutchen LLP (law
firm), Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services Company, Executive Vice
(born 5/01/52) 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 compliance services), Principal
(born 3/07/44) Compliance 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 Treasurer September 1990 Massachusetts Financial Services Company, Senior Vice
(born 6/12/60) 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,
Gutow, 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, 2007, the
Trustees served as board members of 97 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available without charge upon
request by calling 1-800-225-2606.
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
DISTRIBUTOR Effective May 1, 2007, the custodian changed to:
MFS Fund Distributors, Inc. JPMorgan Chase Bank
500 Boylston Street, Boston, MA 02116-3741 One Chase Manhattan Plaza
New York, NY 10081
PORTFOLIO MANAGER
Robert Persons INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Michael Roberge Deloitte & Touche LLP
Jeffrey Wakelin 200 Berkeley Street, Boston, MA 02116
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
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 2007 income
tax forms in January 2008. The following information is provided pursuant to
provisions of the Internal Revenue Code.
For non-U.S. persons only, the fund designates 99.70% of ordinary income
dividends paid during the fiscal year as interest-related dividends.
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(R) 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(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) 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.
A copy of the Code of Ethics is filed as an exhibit to 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 each series of the Registrant (collectively, the
"Funds"). The tables below set forth the audit fees billed to the Funds as well
as fees for non-audit services provided to the Funds and/or to the Funds'
investment adviser, Massachusetts Financial Services Company ("MFS") and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Funds ("MFS Related Entities").
For the fiscal years ended April 30, 2007 and 2006, audit fees billed to the
Funds by Deloitte were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2007 2006
---- ----
MFS Bond Fund 52,041 47,153
MFS Intermediate Investment 40,683 36,575
Grade Bond Fund
MFS Limited Maturity Fund 39,217 35,210
MFS Municipal Limited Maturity 37,098 33,237
Fund
MFS Research Bond Fund 52,872 47,228
MFS Research Bond Fund J 39,754 35,710
TOTAL 261,665 235,113
For the fiscal years ended April 30, 2007 and 2006, fees billed by Deloitte for
audit-related, tax and other services provided to the Funds 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: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Bond Fund 0 0 6,349 8,725 379 657
To MFS Intermediate 0 0 6,164 8,550 379 539
Investment Grade Bond
Fund
To MFS Limited Maturity 0 0 6,269 8,650 379 595
Fund
To MFS Municipal 0 0 5,795 8,200 379 532
Limited Maturity Fund
To MFS Research Bond 0 0 6,269 8,650 379 648
Fund
To MFS Research Bond 0 0 5,374 7,800 379 521
Fund J
TOTAL FEES BILLED BY DELOITTE 0 0 36,220 50,575 2,274 3,492
TO ABOVE FUNDS
To MFS and MFS Related 702,225 1,025,525 0 0 482,535 469,401
Entities of MFS Bond
Fund*
To MFS and MFS Related 702,225 1,025,525 0 0 482,535 469,401
Entities of MFS
Intermediate Investment
Grade Bond Fund*
To MFS and MFS Related 702,225 1,025,525 0 0 482,535 469,401
Entities of MFS Limited
Maturity Fund*
To MFS and MFS Related 702,225 1,025,525 0 0 482,535 469,401
Entities of MFS Municipal
Limited Maturity Fund*
To MFS and MFS Related 702,225 1,025,525 0 0 482,535 469,401
Entities of MFS Research
Bond Fund*
To MFS and MFS Related 702,225 1,025,525 0 0 482,535 469,401
Entities of MFS Research
Bond Fund J*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Bond Fund, MFS and 1,349,361 1,611,903
MFS Related Entities#
To MFS Intermediate 1,349,176 1,611,610
Investment Grade Bond
Fund, MFS and MFS
Related Entities#
To MFS Limited Maturity 1,349,281 1,611,766
Fund, MFS and MFS
Related Entities#
To MFS Municipal 1,348,807 1,611,253
Limited Maturity Fund,
MFS and MFS Related
Entities#
To MFS Research Bond 1,349,281 1,611,819
Fund, MFS and MFS
Related Entities#
To MFS Research Bond 1,348,386 1,610,842
Fund J, MFS and MFS
Related Entities#
* 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 Funds (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 Funds 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, 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 Funds 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 between 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 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) 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 report on 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: June 13, 2007
-------------
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: June 13, 2007
-------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: June 13, 2007
-------------
* Print name and title of each signing officer under his or her signature.