UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2794
- --------------------------------------------------------------------------------
MFS SERIES TRUST III
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
- --------------------------------------------------------------------------------
(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
- --------------------------------------------------------------------------------
Date of fiscal year end: January 31
- --------------------------------------------------------------------------------
Date of reporting period: July 31, 2007
- --------------------------------------------------------------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) HIGH INCOME FUND
LETTER FROM THE CEO 1
- -----------------------------------------------------------
PORTFOLIO COMPOSITION 2
- -----------------------------------------------------------
EXPENSE TABLE 3
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 19
- -----------------------------------------------------------
STATEMENT OF OPERATIONS 22
- -----------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 24
- -----------------------------------------------------------
FINANCIAL HIGHLIGHTS 25
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 38
- -----------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 53
- -----------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 58
- -----------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 58
- -----------------------------------------------------------
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
- ------------------------------------------------------------------------------
7/31/07
MFH-SEM
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%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be 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)
September 14, 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 91.6%
Floating Rate Loans 8.0%
Common Stocks 2.0%
Preferred Stocks 0.2%
Warrants (o) 0.0%
Cash & Other Net Assets (1.8)%
TOP FIVE INDUSTRIES (i)
Medical & Health Technology & Services 8.0%
------------------------------------------------
Automotive 6.5%
------------------------------------------------
Broadcasting 6.1%
------------------------------------------------
Gaming & Lodging 6.0%
------------------------------------------------
Printing & Publishing 4.7%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 0.4%
------------------------------------------------
BBB 3.0%
------------------------------------------------
BB 27.4%
------------------------------------------------
B 52.2%
------------------------------------------------
CCC 16.2%
------------------------------------------------
Not Rated 0.8%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 4.7
------------------------------------------------
Average Life (i)(m) 7.8 yrs.
------------------------------------------------
Average Maturity (i)(m) 8.0 yrs.
------------------------------------------------
Average Credit Quality of
Rated Securities (long-term) (a) B+
------------------------------------------------
Average Credit Quality of
Rated Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this 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.
(o) Less than 0.1%.
(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 07/31/07.
From time to time "Cash & Other Net Assets" may be negative due to timing of
cash receipts.
Percentages are based on net assets as of 07/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
EXPENSE TABLE
Fund Expenses Borne by the Shareholders During the Period,
February 1, 2007 through July 31, 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 (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to help
you understand your ongoing costs (in dollars) of investing in the fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period February 1, 2007 through July 31,
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). 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
Beginning Ending Paid During
Annualized Account Account Period (p)
Share Expense Value Value 2/01/07-
Class Ratio 2/01/07 7/31/07 7/31/07
- ----------------------------------------------------------------------------
Actual 0.96% $1,000.00 $ 979.00 $4.71
A -------------------------------------------------------------------
Hypothetical (h) 0.96% $1,000.00 $1,020.03 $4.81
- ----------------------------------------------------------------------------
Actual 1.66% $1,000.00 $ 975.70 $8.13
B -------------------------------------------------------------------
Hypothetical (h) 1.66% $1,000.00 $1,016.56 $8.30
- ----------------------------------------------------------------------------
Actual 1.66% $1,000.00 $ 975.80 $8.13
C -------------------------------------------------------------------
Hypothetical (h) 1.66% $1,000.00 $1,016.56 $8.30
- ----------------------------------------------------------------------------
Actual 0.66% $1,000.00 $ 980.50 $3.24
I -------------------------------------------------------------------
Hypothetical (h) 0.66% $1,000.00 $1,021.52 $3.31
- ----------------------------------------------------------------------------
Actual 1.16% $1,000.00 $ 978.10 $5.69
R -------------------------------------------------------------------
Hypothetical (h) 1.16% $1,000.00 $1,019.04 $5.81
- ----------------------------------------------------------------------------
Actual 1.76% $1,000.00 $ 975.20 $8.62
R1 -------------------------------------------------------------------
Hypothetical (h) 1.76% $1,000.00 $1,016.07 $8.80
- ----------------------------------------------------------------------------
Actual 1.41% $1,000.00 $ 976.90 $6.91
R2 -------------------------------------------------------------------
Hypothetical (h) 1.41% $1,000.00 $1,017.80 $7.05
- ----------------------------------------------------------------------------
Actual 1.31% $1,000.00 $ 977.40 $6.42
R3 -------------------------------------------------------------------
Hypothetical (h) 1.31% $1,000.00 $1,018.30 $6.56
- ----------------------------------------------------------------------------
Actual 1.07% $1,000.00 $ 978.50 $5.25
R4 -------------------------------------------------------------------
Hypothetical (h) 1.07% $1,000.00 $1,019.49 $5.36
- ----------------------------------------------------------------------------
Actual 0.76% $1,000.00 $ 980.00 $3.73
R5 -------------------------------------------------------------------
Hypothetical (h) 0.76% $1,000.00 $1,021.03 $3.81
- ----------------------------------------------------------------------------
Actual 1.26% $1,000.00 $ 977.60 $6.18
529A -------------------------------------------------------------------
Hypothetical (h) 1.26% $1,000.00 $1,018.55 $6.31
- ----------------------------------------------------------------------------
Actual 1.91% $1,000.00 $ 974.40 $9.35
529B -------------------------------------------------------------------
Hypothetical (h) 1.91% $1,000.00 $1,015.32 $9.54
- ----------------------------------------------------------------------------
Actual 1.91% $1,000.00 $ 974.50 $9.35
529C -------------------------------------------------------------------
Hypothetical (h) 1.91% $1,000.00 $1,015.32 $9.54
- ----------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads). If
these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
7/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Bonds - 84.8%
- -------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -------------------------------------------------------------------------------------------------------
Aerospace - 1.7%
- -------------------------------------------------------------------------------------------------------
Bombardier, Inc., 8%, 2014 (n) $ 5,864,000 $ 5,805,360
Hawker Beechcraft Acquisition Corp., 9.75%, 2017 (n) 8,310,000 8,226,900
Vought Aircraft Industries, Inc., 8%, 2011 5,455,000 5,073,150
--------------
$ 19,105,410
- -------------------------------------------------------------------------------------------------------
Airlines - 0.8%
- -------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.9%, 2017 $ 1,121,341 $ 1,087,701
Continental Airlines, Inc., 6.748%, 2017 2,433,144 2,360,149
Continental Airlines, Inc., 6.795%, 2018 5,579,917 5,356,721
--------------
$ 8,804,571
- -------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.6%
- -------------------------------------------------------------------------------------------------------
Levi Strauss & Co., 12.25%, 2012 $ 2,985,000 $ 3,179,025
Levi Strauss & Co., 9.75%, 2015 3,510,000 3,545,100
--------------
$ 6,724,125
- -------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 2.2%
- -------------------------------------------------------------------------------------------------------
Airlie LCDO Ltd., CDO, FRN, 7.26%, 2011 (z) $ 2,326,000 $ 2,292,273
Anthracite Ltd., CDO, 6%, 2037 (z) 5,148,000 4,392,692
Asset Securitization Corp., FRN, 8.356%, 2029 (z) 2,000,000 2,123,609
Babson CLO Ltd., "D", FRN, 6.86%, 2018 (n) 2,385,000 2,218,050
CWCapital Cobalt CDO Ltd., "E2", 6%, 2045 (z) 1,000,000 912,800
CWCapital Cobalt CDO Ltd., "F", FRN, 6.66%, 2050 (z) 610,000 582,184
CWCapital Cobalt CDO Ltd., "G", FRN, 6.86%, 2050 (z) 1,890,000 1,769,229
Falcon Franchise Loan LLC, 4.046%, 2025 (i)(z) 14,286,740 1,855,847
First Union National Bank Commercial Mortgage Corp., 6.75%, 2032 2,000,000 2,020,040
Lehman Brothers Commercial Conduit Mortgage Trust, FRN,
0.877%, 2030 (i) 33,991,431 778,710
Morgan Stanley Capital I, Inc., 1.41%, 2039 (i)(n) 23,489,233 1,236,855
TIERS Beach Street Synthetic, CLO, FRN, 9.36%, 2011 (z) 2,750,000 2,722,500
Wachovia Credit, CDO, FRN, 6.71%, 2026 (z) 1,320,000 1,238,160
--------------
$ 24,142,949
- -------------------------------------------------------------------------------------------------------
Automotive - 5.1%
- -------------------------------------------------------------------------------------------------------
Ford Motor Co., 7.45%, 2031 $ 3,210,000 $ 2,471,700
Ford Motor Credit Co., 9.75%, 2010 19,345,000 19,535,742
Ford Motor Credit Co., 8.625%, 2010 3,855,000 3,746,366
Ford Motor Credit Co., 7%, 2013 1,394,000 1,254,441
Ford Motor Credit Co., 8%, 2016 5,090,000 4,691,051
Ford Motor Credit Co., FRN, 8.11%, 2012 3,270,000 3,122,333
General Motors Corp., 8.375%, 2033 12,238,000 10,065,755
Goodyear Tire & Rubber Co., 9%, 2015 4,111,000 4,213,775
TRW Automotive, Inc., 7%, 2014 (n) 6,545,000 6,119,575
TRW Automotive, Inc., 7.25%, 2017 (n) 635,000 571,500
--------------
$ 55,792,238
- -------------------------------------------------------------------------------------------------------
Broadcasting - 5.5%
- -------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 7,190,000 $ 7,010,250
Bonten Media Acquisition Co., 9%, 2015 (n)(p) 4,420,000 4,022,200
CanWest MediaWorks LP, 9.25%, 2015 (n) 3,290,000 3,191,300
Clear Channel Communications, Inc., 5.5%, 2014 10,940,000 8,580,559
Intelsat Bermuda Ltd., 11.25%, 2016 8,440,000 8,819,800
Intelsat Bermuda Ltd., FRN, 8.886%, 2015 2,800,000 2,814,000
Intelsat Ltd., 0% to 2010, 9.25% to 2015 4,765,000 3,740,525
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 2,330,000 2,335,825
ION Media Networks, Inc., FRN, 11.61%, 2013 (n) 5,400,000 5,454,000
LBI Media, Inc., 8.5%, 2017 (z) 3,205,000 3,108,850
Univision Communications, Inc., 9.75%, 2015 (n)(p) 12,295,000 11,188,450
--------------
$ 60,265,759
- -------------------------------------------------------------------------------------------------------
Building - 1.4%
- -------------------------------------------------------------------------------------------------------
Builders FirstSource, Inc., FRN, 9.61%, 2012 $ 380,000 $ 374,300
Interface, Inc., 10.375%, 2010 3,391,000 3,526,640
Interface, Inc., 9.5%, 2014 600,000 624,000
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 4,757,000 2,901,770
Nortek Holdings, Inc., 8.5%, 2014 4,265,000 3,667,900
Ply Gem Industries, Inc., 9%, 2012 5,015,000 3,999,463
--------------
$ 15,094,073
- -------------------------------------------------------------------------------------------------------
Business Services - 1.1%
- -------------------------------------------------------------------------------------------------------
Nortel Networks Ltd., 10.75%, 2016 (n) $ 2,600,000 $ 2,717,000
SunGard Data Systems, Inc., 10.25%, 2015 9,285,000 9,285,000
--------------
$ 12,002,000
- -------------------------------------------------------------------------------------------------------
Cable TV - 2.6%
- -------------------------------------------------------------------------------------------------------
CCH I Holdings LLC, 11%, 2015 $ 6,735,000 $ 6,735,000
CCH II Holdings LLC, 10.25%, 2010 4,530,000 4,609,275
CCO Holdings LLC, 8.75%, 2013 6,870,000 6,801,300
CSC Holdings, Inc., 6.75%, 2012 6,715,000 6,093,862
NTL Cable PLC, 9.125%, 2016 4,173,000 4,214,730
--------------
$ 28,454,167
- -------------------------------------------------------------------------------------------------------
Chemicals - 3.3%
- -------------------------------------------------------------------------------------------------------
Equistar Chemicals LP, 10.125%, 2008 $ 2,654,000 $ 2,746,890
Innophos, Inc., 8.875%, 2014 5,530,000 5,557,650
KI Holdings, Inc., 0% to 2009, 9.875% to 2014 7,030,000 5,922,775
Koppers, Inc., 9.875%, 2013 4,665,000 4,944,900
Momentive Performance Materials, Inc., 11.5%, 2016 (n) 6,140,000 5,817,650
Mosaic Co., 7.625%, 2016 (n) 6,365,000 6,396,825
Nalco Co., 8.875%, 2013 5,730,000 5,644,050
--------------
$ 37,030,740
- -------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.4%
- -------------------------------------------------------------------------------------------------------
ACCO Brands Corp., 7.625%, 2015 $ 5,120,000 $ 4,787,200
Corrections Corp. of America, 6.25%, 2013 3,710,000 3,496,675
GEO Group, Inc., 8.25%, 2013 4,290,000 4,225,650
Jarden Corp., 7.5%, 2017 4,535,000 4,081,500
Kar Holdings, Inc., 10%, 2015 (n) 8,300,000 7,304,000
Realogy Corp., 10.5%, 2014 (n) 1,845,000 1,706,625
Realogy Corp., 12.375%, 2015 (n) 7,250,000 5,800,000
Service Corp. International, 7.375%, 2014 2,385,000 2,319,413
Service Corp. International, 6.75%, 2015 (n) 1,410,000 1,297,200
Service Corp. International, 7%, 2017 7,550,000 6,870,500
Visant Holding Corp., 8.75%, 2013 6,400,000 6,336,000
--------------
$ 48,224,763
- -------------------------------------------------------------------------------------------------------
Containers - 1.3%
- -------------------------------------------------------------------------------------------------------
Graham Packaging Co. LP, 9.875%, 2014 $ 3,335,000 $ 3,134,900
Greif, Inc., 6.75%, 2017 3,415,000 3,252,788
Owens-Brockway Glass Container, Inc., 8.25%, 2013 7,925,000 7,964,625
--------------
$ 14,352,313
- -------------------------------------------------------------------------------------------------------
Defense Electronics - 0.9%
- -------------------------------------------------------------------------------------------------------
L-3 Communications Corp., 6.125%, 2014 $ 6,250,000 $ 5,796,875
L-3 Communications Corp., 5.875%, 2015 4,045,000 3,680,950
--------------
$ 9,477,825
- -------------------------------------------------------------------------------------------------------
Electronics - 1.9%
- -------------------------------------------------------------------------------------------------------
Avago Technologies Finance, 11.875%, 2015 $ 2,340,000 $ 2,562,300
Flextronics International Ltd., 6.25%, 2014 1,780,000 1,602,000
Freescale Semiconductor, Inc., 10.125%, 2016 (n) 13,070,000 11,501,600
NXP B.V./NXP Funding LLC, 7.875%, 2014 2,300,000 2,127,500
Spansion LLC, 11.25%, 2016 (n) 3,855,000 3,623,700
--------------
$ 21,417,100
- -------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 1.0%
- -------------------------------------------------------------------------------------------------------
Republic of Argentina, 5.475%, 2012 $ 6,302,250 $ 5,742,610
Republic of Venezuela, 7%, 2018 2,952,000 2,659,752
Republic of Venezuela, 6%, 2020 3,230,000 2,608,225
--------------
$ 11,010,587
- -------------------------------------------------------------------------------------------------------
Energy - Independent - 4.1%
- -------------------------------------------------------------------------------------------------------
Chaparral Energy, Inc., 8.875%, 2017 (n) $ 4,895,000 $ 4,454,450
Chesapeake Energy Corp., 7%, 2014 3,702,000 3,641,842
Chesapeake Energy Corp., 6.375%, 2015 6,610,000 6,205,137
Cimarex Energy Co., 7.125%, 2017 3,775,000 3,567,375
Forest Oil Corp., 7.25%, 2019 (n) 3,155,000 2,942,038
Hilcorp Energy I LP, 7.75%, 2015 (n) 1,940,000 1,813,900
Hilcorp Energy I LP, 9%, 2016 (n) 5,610,000 5,581,950
Mariner Energy, Inc., 8%, 2017 3,890,000 3,656,600
Newfield Exploration Co., 6.625%, 2014 3,625,000 3,461,875
Plains Exploration & Production Co., 7%, 2017 5,965,000 5,323,763
Quicksilver Resources, Inc., 7.125%, 2016 5,380,000 4,989,950
--------------
$ 45,638,880
- -------------------------------------------------------------------------------------------------------
Entertainment - 0.4%
- -------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 8%, 2014 $ 905,000 $ 825,812
AMC Entertainment, Inc., 11%, 2016 3,110,000 3,211,075
--------------
$ 4,036,887
- -------------------------------------------------------------------------------------------------------
Financial Institutions - 2.5%
- -------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875%, 2011 $10,778,000 $ 10,022,451
General Motors Acceptance Corp., 6.75%, 2014 15,845,000 14,240,963
General Motors Acceptance Corp., 8%, 2031 3,205,000 3,009,755
--------------
$ 27,273,169
- -------------------------------------------------------------------------------------------------------
Food & Beverages - 1.6%
- -------------------------------------------------------------------------------------------------------
ARAMARK Corp., 8.5%, 2015 (n) $ 8,035,000 $ 7,572,988
B&G Foods Holding Corp., 8%, 2011 3,570,000 3,462,900
Del Monte Corp., 6.75%, 2015 3,920,000 3,547,600
Michael Foods, Inc., 8%, 2013 3,105,000 3,011,850
--------------
$ 17,595,338
- -------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.7%
- -------------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8%, 2010 $ 1,295,000 $ 1,295,000
Buckeye Technologies, Inc., 8.5%, 2013 7,725,000 7,763,625
Jefferson Smurfit Corp., 8.25%, 2012 4,872,000 4,689,300
JSG Funding PLC, 7.75%, 2015 525,000 501,375
MDP Acquisitions PLC, 9.625%, 2012 384,000 401,280
Millar Western Forest Products, 7.75%, 2013 4,650,000 3,882,750
--------------
$ 18,533,330
- -------------------------------------------------------------------------------------------------------
Gaming & Lodging - 5.8%
- -------------------------------------------------------------------------------------------------------
Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (n) $ 3,265,000 $ 2,816,062
Great Canadian Gaming Corp., 7.25%, 2015 (n) 665,000 638,400
Greektown Holdings, 10.75%, 2013 (n) 1,305,000 1,337,625
Harrah's Entertainment, Inc., 5.75%, 2017 13,380,000 9,499,800
Harrah's Operating Co., Inc., 5.375%, 2013 615,000 461,250
Majestic Star Casino LLC, 9.75%, 2011 4,150,000 3,901,000
Mandalay Resort Group, 9.375%, 2010 3,525,000 3,604,313
MGM Mirage, Inc., 8.5%, 2010 3,075,000 3,105,750
MGM Mirage, Inc., 8.375%, 2011 8,120,000 8,221,500
MGM Mirage, Inc., 6.75%, 2013 4,020,000 3,708,450
MGM Mirage, Inc., 5.875%, 2014 3,010,000 2,633,750
Pinnacle Entertainment, Inc., 8.25%, 2012 3,795,000 3,832,950
Station Casinos, Inc., 6.5%, 2014 9,025,000 7,648,688
Wimar Opco LLC, 9.625%, 2014 (n) 6,495,000 5,455,800
Wynn Las Vegas LLC, 6.625%, 2014 7,670,000 7,113,925
--------------
$ 63,979,263
- -------------------------------------------------------------------------------------------------------
Industrial - 1.1%
- -------------------------------------------------------------------------------------------------------
Blount, Inc., 8.875%, 2012 $ 5,055,000 $ 4,751,700
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 7,525,000 7,750,750
--------------
$ 12,502,450
- -------------------------------------------------------------------------------------------------------
Insurance - Health - 0.2%
- -------------------------------------------------------------------------------------------------------
Centene Corp., 7.25%, 2014 $ 2,735,000 $ 2,598,250
- -------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.3%
- -------------------------------------------------------------------------------------------------------
USI Holdings Corp., 9.75%, 2015 (n) $ 3,460,000 $ 3,287,000
- -------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.9%
- -------------------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 2,460,000 $ 2,423,100
Case New Holland, Inc., 7.125%, 2014 7,460,000 7,292,150
--------------
$ 9,715,250
- -------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 6.7%
- -------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc., 7.5%, 2017 $ 5,210,000 $ 4,741,100
Community Health Systems, Inc., 8.875%, 2015 (n) 7,610,000 7,391,212
Cooper Cos., Inc., 7.125%, 2015 5,600,000 5,390,000
DaVita, Inc., 6.625%, 2013 2,665,000 2,545,075
DaVita, Inc., 7.25%, 2015 9,005,000 8,532,237
HCA, Inc., 6.375%, 2015 7,870,000 6,099,250
HCA, Inc., 9.25%, 2016 (n) 16,355,000 16,232,338
HealthSouth Corp., 10.75%, 2016 2,890,000 2,918,900
Omnicare, Inc., 6.875%, 2015 2,570,000 2,319,425
Psychiatric Solutions, Inc., 7.75%, 2015 5,500,000 5,225,000
U.S. Oncology, Inc., 10.75%, 2014 6,330,000 6,393,300
Universal Hospital Services, Inc., 8.5%, 2015 (n)(p) 3,330,000 3,005,325
Universal Hospital Services, Inc., FRN, 8.759%, 2015 (n) 1,015,000 946,488
VWR Funding, Inc., 10.25%, 2015 (n)(p) 2,835,000 2,657,813
--------------
$ 74,397,463
- -------------------------------------------------------------------------------------------------------
Metals & Mining - 4.3%
- -------------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 9,290,000 $ 8,453,900
Chaparral Steel Co., 10%, 2013 4,545,000 5,010,862
FMG Finance Ltd., 10.625%, 2016 (n) 6,395,000 7,322,275
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 4,615,000 4,834,213
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 10,615,000 11,145,750
Peabody Energy Corp., 5.875%, 2016 4,440,000 3,929,400
Peabody Energy Corp., 7.375%, 2016 3,600,000 3,519,000
PNA Group, Inc., 10.75%, 2016 (n) 3,145,000 3,365,150
--------------
$ 47,580,550
- -------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.8%
- -------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.125%, 2016 $ 5,550,000 $ 5,137,080
Inergy LP, 6.875%, 2014 3,625,000 3,371,250
--------------
$ 8,508,330
- -------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.1%
- -------------------------------------------------------------------------------------------------------
Atlas Pipeline Partners LP, 8.125%, 2015 $ 5,495,000 $ 5,412,575
El Paso Performance-Linked Trust, CLN, 7.75%, 2011 (n) 4,675,000 4,803,562
Transcontinental Gas Pipe Line Corp., 7%, 2011 2,705,000 2,792,913
Williams Cos., Inc., 7.125%, 2011 2,608,000 2,608,000
Williams Cos., Inc., 8.75%, 2032 3,535,000 3,906,175
Williams Partners LP, 7.25%, 2017 4,285,000 4,156,450
--------------
$ 23,679,675
- -------------------------------------------------------------------------------------------------------
Network & Telecom - 3.0%
- -------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 5,965,000 $ 5,666,750
Citizens Communications Co., 9.25%, 2011 4,461,000 4,650,592
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 3,965,000 3,925,350
Qwest Capital Funding, Inc., 7.25%, 2011 3,620,000 3,524,975
Qwest Corp., 7.875%, 2011 715,000 725,725
Qwest Corp., 8.875%, 2012 5,210,000 5,477,013
Time Warner Telecom Holdings, Inc., 9.25%, 2014 2,490,000 2,546,025
Windstream Corp., 8.625%, 2016 5,515,000 5,583,938
Windstream Corp., 7%, 2019 1,270,000 1,143,000
--------------
$ 33,243,368
- -------------------------------------------------------------------------------------------------------
Oil Services - 1.6%
- -------------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 6,565,000 $ 5,974,150
Bristow Group, Inc., 7.5%, 2017 (n) 1,240,000 1,227,600
Compagnie Generale de Geophysique - Veritas, 7.75%, 2017 5,715,000 5,572,125
GulfMark Offshore, Inc., 7.75%, 2014 1,340,000 1,313,200
Hanover Compressor Co., 9%, 2014 3,785,000 4,172,963
--------------
$ 18,260,038
- -------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.3%
- -------------------------------------------------------------------------------------------------------
Warner Chilcott Corp., 8.75%, 2015 $ 3,059,000 $ 2,982,525
- -------------------------------------------------------------------------------------------------------
Printing & Publishing - 3.7%
- -------------------------------------------------------------------------------------------------------
American Media Operations, Inc., 10.25%, 2009 $ 6,080,000 $ 5,532,800
Dex Media, Inc., 0% to 2008, 9% to 2013 10,320,000 9,288,000
Dex Media, Inc., 0% to 2008, 9% to 2013 6,115,000 5,503,500
Idearc, Inc., 8%, 2016 12,015,000 11,384,213
Nielsen Finance LLC, 0% to 2011, 12.5% to 2016(n) 4,690,000 3,071,950
R.H. Donnelley Corp., 8.875%, 2016 6,230,000 6,058,675
--------------
$ 40,839,138
- -------------------------------------------------------------------------------------------------------
Retailers - 1.5%
- -------------------------------------------------------------------------------------------------------
Buhrmann U.S., Inc., 7.875%, 2015 $ 4,260,000 $ 3,940,500
Couche-Tard, Inc., 7.5%, 2013 2,845,000 2,802,325
Neiman Marcus Group, Inc., 9%, 2015 (p) 3,785,000 3,945,863
Neiman Marcus Group, Inc., 10.375%, 2015 2,220,000 2,336,550
Rite Aid Corp., 9.5%, 2017 (n) 3,595,000 3,181,575
--------------
$ 16,206,813
- -------------------------------------------------------------------------------------------------------
Specialty Stores - 1.2%
- -------------------------------------------------------------------------------------------------------
Claire's Stores, Inc., 9.25%, 2015 (n) $ 4,260,000 $ 3,748,800
Claire's Stores, Inc., 10.5%, 2017 (n) 2,385,000 1,884,150
Michaels Stores, Inc., 11.375%, 2016 (n) 3,900,000 3,763,500
Payless ShoeSource, Inc., 8.25%, 2013 4,195,000 4,069,150
--------------
$ 13,465,600
- -------------------------------------------------------------------------------------------------------
Supermarkets - 0.6%
- -------------------------------------------------------------------------------------------------------
Jitney Jungle Stores of America, Inc., 10.375%, 2007 (d) $ 500,000 $ 0
Stater Brothers Holdings, Inc., 7.75%, 2015 (n) 3,545,000 3,296,850
SUPERVALU, Inc., 7.5%, 2014 3,815,000 3,643,325
--------------
$ 6,940,175
- -------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.0%
- -------------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 $ 2,365,000 $ 2,480,294
MetroPCS Wireless, Inc., 9.25%, 2014 (n) 1,000,000 980,000
MetroPCS Wireless, Inc., 9.25%, 2014 (n) 1,695,000 1,661,100
Wind Acquisition Finance S.A., 10.75%, 2015 (n) 5,350,000 5,510,500
--------------
$ 10,631,894
- -------------------------------------------------------------------------------------------------------
Transportation - Services - 1.0%
- -------------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 $ 7,055,000 $ 7,055,000
Stena AB, 7%, 2016 3,685,000 3,629,725
--------------
$ 10,684,725
- -------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.6%
- -------------------------------------------------------------------------------------------------------
AES Corp., 9.375%, 2010 $ 5,130,000 $ 5,258,250
Edison Mission Energy, 7%, 2017 (n) 13,435,000 12,125,087
Edison Mission Energy, 7.625%, 2027 (n) 905,000 789,612
Intergen N.V., 9%, 2017 (z) 2,730,000 2,689,050
Mirant Americas Generation LLC, 8.3%, 2011 2,900,000 2,842,000
Mirant North American LLC, 7.375%, 2013 4,870,000 4,845,650
NRG Energy, Inc., 7.375%, 2016 15,520,000 14,976,800
Reliant Energy, Inc., 7.875%, 2017 7,475,000 7,101,250
--------------
$ 50,627,699
- -------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $979,437,833) $ 935,106,430
- -------------------------------------------------------------------------------------------------------
Common Stocks - 2.0%
- -------------------------------------------------------------------------------------------------------
Cable TV - 0.5%
- -------------------------------------------------------------------------------------------------------
Comcast Corp., "A" (a) 108,400 $ 2,847,668
Time Warner Cable, Inc. (a) 59,500 2,274,090
--------------
$ 5,121,758
- -------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.1%
- -------------------------------------------------------------------------------------------------------
Central Garden & Pet Co. (a) 47,600 $ 598,808
- -------------------------------------------------------------------------------------------------------
Electronics - 0.1%
- -------------------------------------------------------------------------------------------------------
Intel Corp. 48,900 $ 1,155,018
- -------------------------------------------------------------------------------------------------------
Energy - Independent - 0.3%
- -------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp. 33,600 $ 1,143,744
Foundation Coal Holdings, Inc. 75,000 2,613,750
--------------
$ 3,757,494
- -------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.1%
- -------------------------------------------------------------------------------------------------------
Chevron Corp. 14,300 $ 1,219,218
- -------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.1%
- -------------------------------------------------------------------------------------------------------
Louisiana-Pacific Corp. 52,900 $ 979,708
- -------------------------------------------------------------------------------------------------------
Major Banks - 0.1%
- -------------------------------------------------------------------------------------------------------
Bank of America Corp. 11,900 $ 564,298
JPMorgan Chase & Co. 12,000 528,120
--------------
$ 1,092,418
- -------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.1%
- -------------------------------------------------------------------------------------------------------
Omnicare, Inc. 36,100 $ 1,197,076
- -------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0%
- -------------------------------------------------------------------------------------------------------
Oxford Automotive, Inc. (a) 1,087 $ 0
- -------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.1%
- -------------------------------------------------------------------------------------------------------
Williams Cos., Inc. 48,000 $ 1,548,000
- -------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
- -------------------------------------------------------------------------------------------------------
Johnson & Johnson 19,300 $ 1,167,650
- -------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.0%
- -------------------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc. (a) 206,408 $ 0
- -------------------------------------------------------------------------------------------------------
Real Estate - 0.2%
- -------------------------------------------------------------------------------------------------------
Host Hotels & Resorts, Inc., REIT 102,500 $ 2,164,800
- -------------------------------------------------------------------------------------------------------
Telephone Services - 0.2%
- -------------------------------------------------------------------------------------------------------
Windstream Corp. 137,000 $ 1,885,120
- -------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $22,378,385) $ 21,887,068
- -------------------------------------------------------------------------------------------------------
Floating Rate Loans - 7.9% (g)(r)
- -------------------------------------------------------------------------------------------------------
Automotive - 1.3%
- -------------------------------------------------------------------------------------------------------
Ford Motor Co., Term Loan B, 8.36%, 2013 $ 8,713,183 $ 8,190,394
Goodyear Tire & Rubber, Second Lien Term Loan, 2014 (o) 3,365,959 3,216,594
Mark IV Industries, Inc., Second Lien Term Loan, 11.1%, 2011 3,476,611 3,349,134
--------------
$ 14,756,122
- -------------------------------------------------------------------------------------------------------
Broadcasting - 0.4%
- -------------------------------------------------------------------------------------------------------
Gray Television, Inc., Term Loan B, 6.86%, 2014 $ 2,672,254 $ 2,530,290
Univison Communications, Inc., Term Loan B, 2014 (o) 1,471,862 1,352,567
Univison Communications, Inc., Term Loan B, 2014 (o) 94,620 86,951
--------------
$ 3,969,808
- -------------------------------------------------------------------------------------------------------
Building - 0.1%
- -------------------------------------------------------------------------------------------------------
Building Materials Corp. Second Lien Term Loan, 11.13%, 2014 (o) $ 1,809,234 $ 1,610,218
- -------------------------------------------------------------------------------------------------------
Cable TV - 0.9%
- -------------------------------------------------------------------------------------------------------
Charter Communications, Inc., Term Loan, 7.36%, 2013 $ 2,787,162 $ 2,646,195
CSC Holdings, Inc., Term Loan B, 7.07%, 2013 4,070,767 3,896,910
MCC Iowa LLC Mediacom, Term Loan A, 6.84%, 2012 3,664,936 3,520,631
--------------
$ 10,063,736
- -------------------------------------------------------------------------------------------------------
Chemicals - 0.5%
- -------------------------------------------------------------------------------------------------------
Celanese AG, Term Loan, 7.11%, 2014 $ 5,803,643 $ 5,484,443
- -------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.1%
- -------------------------------------------------------------------------------------------------------
Jarden Corp., Term Loan B, 2008 (o) $ 1,429,293 $ 1,390,583
- -------------------------------------------------------------------------------------------------------
Containers - 0.4%
- -------------------------------------------------------------------------------------------------------
Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 $ 1,061,576 $ 1,064,230
Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 3,317,424 3,257,296
--------------
$ 4,321,526
- -------------------------------------------------------------------------------------------------------
Food & Beverages - 0.7%
- -------------------------------------------------------------------------------------------------------
Dean Foods, Term Loan B, 6.86%, 2014 $ 4,488,948 $ 4,307,987
Dole Food Co., Inc., Letter of Credit, 2.13%, 2013 378,107 355,232
Dole Food Co., Inc., Term Loan B, 7.54%, 2013 840,106 789,280
Dole Food Co., Inc., Term Loan C, 7.45%, 2013 2,800,354 2,630,934
--------------
$ 8,083,433
- -------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.5%
- -------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., Term Loan, 7.11%, 2012 $ 5,928,113 $ 5,573,658
Georgia-Pacific Corp., Term Loan B-2, 7.11%, 2013 389,547 366,256
--------------
$ 5,939,914
- -------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.0%
- -------------------------------------------------------------------------------------------------------
Community Health Systems, Term Loan B, 2014 (o) $ 215,966 $ 205,275
Community Health, Term Loan, 2014 (o) 3,260,589 3,099,190
HCA, Inc., Term Loan B, 7.61%, 2013 (o) 7,816,050 7,513,932
--------------
$ 10,818,397
- -------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.2%
- -------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., Term Loan B, 6.82%, 2014 $ 1,922,462 $ 1,833,548
- -------------------------------------------------------------------------------------------------------
Pollution Control - 0.4%
- -------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., Letter of Credit, 5.32%, 2012 $ 1,626,831 $ 1,569,892
Allied Waste North America, Inc., Term Loan B, 7.09%, 2020 2,841,649 2,746,937
--------------
$ 4,316,829
- -------------------------------------------------------------------------------------------------------
Printing & Publishing - 1.0%
- -------------------------------------------------------------------------------------------------------
Idearc, Inc., Term Loan B, 7.36%, 2014 $ 6,075,423 $ 5,788,530
Nielsen Finance LLC, Term Loan B, 7.61%, 2013 5,021,442 4,868,705
--------------
$ 10,657,235
- -------------------------------------------------------------------------------------------------------
Specialty Stores - 0.4%
- -------------------------------------------------------------------------------------------------------
Michaels Stores, Term Loan B, 7.63%, 2013 $ 4,766,659 $ 4,427,038
- -------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $90,615,319) $ 87,672,830
- -------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.2%
- -------------------------------------------------------------------------------------------------------
Broadcasting - 0.2%
- -------------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc., "B", 10.75% (p) 2,034 $ 2,206,890
- -------------------------------------------------------------------------------------------------------
Real Estate - 0.0%
- -------------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", REIT, 8.75%, 8.75% 4,500 $ 112,050
- -------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $2,123,831) $ 2,318,940
- -------------------------------------------------------------------------------------------------------
Warrants - 0.0%
- -------------------------------------------------------------------------------------------------------
STRIKE FIRST
PRICE EXERCISE
- -------------------------------------------------------------------------------------------------------
Network & Telecom - 0.0%
- -------------------------------------------------------------------------------------------------------
Knology, Inc. (Identified Cost, $0) (a)(z) $0.10 11/22/97 2,475 $ 8,858
- -------------------------------------------------------------------------------------------------------
Money Market Funds (v) - 3.3%
- -------------------------------------------------------------------------------------------------------
MFS Institutional Money Market Portfolio, 5.35%,
at Cost and Net Asset Value $36,413,890 $ 36,413,890
- -------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,130,969,258) (k) $1,083,408,016
- -------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.8% 19,632,893
- -------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,103,040,909
- -------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(d) Non-income producing security - in default.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the fund receives interest on notional principal (Par amount).
Par amount shown is the notional principal and does not reflect the cost of the security.
(k) As of July 31, 2007, the fund held securities fair valued in accordance with the policies adopted
by the Board of Trustees, aggregating $909,229,871 and 83.92% of market value. An independent
pricing service provided an evaluated bid for 82.29% 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 $220,989,240, representing 20.0% of net assets.
(o) All or a portion of this position has not settled. Upon settlement date, interest rates will be
determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result
of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with
certainty. These loans may be subject to restrictions on resale. Floating rate loans generally
have rates of interest which are determined periodically by reference to a base lending rate plus
a premium.
(v) Affiliated fund that is available only to investment companies managed by MFS. The rate quoted is
the annualized seven-day yield of the fund at period end.
(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
- ----------------------------------------------------------------------------------------------------------
Airlie LCDO Ltd., CDO, FRN, 7.25%, 2011 10/13/06 $2,326,000 $ 2,292,273
Anthracite Ltd., CDO, 6%, 2037 5/14/02 4,052,961 4,392,692
Asset Securitization Corp., FRN, 8.356%, 2029 1/25/05 1,752,918 2,123,609
CWCapital Cobalt CDO Ltd., "E2", 6%, 2045 3/20/06 958,147 912,800
CWCapital Cobalt CDO Ltd., "F", FRN, 6.66%, 2050 4/12/06 610,000 582,184
CWCapital Cobalt CDO Ltd., "G", FRN, 6.86%, 2050 4/12/06 1,890,000 1,769,229
Falcon Franchise Loan LLC, 3.777%, 2025 1/29/03 2,949,251 1,855,847
Intergen N.V., 9%, 2017 7/23/07 2,707,863 2,689,050
Knology, Inc. 10/16/97 5,980 8,858
LBI Media, Inc., 8.5%, 2017 7/18/07 3,152,200 3,108,850
TIERS Beach Street Synthetic, CLO, FRN, 9.36%, 2011 5/17/06 2,750,000 2,722,500
Wachovia Credit, CDO, FRN, 6.71%, 2026 6/08/06 1,320,000 1,238,160
- ----------------------------------------------------------------------------------------------------------
Total Restricted Securities $23,696,052 2.15%
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
CLN Credit-Linked Note
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
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in
U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
GBP British Pound
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 7/31/07
Appreciation and Depreciation in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO SETTLEMENT IN EXCHANGE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE DATE RANGE FOR AT VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------
APPRECIATION
- --------------------------------------------------------------------------------------------------
Buy GBP 788,716 9/19/07 $1,555,468 $1,603,666 $48,198
=======
FUTURES CONTRACTS OUTSTANDING AT 7/31/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Long) 368 $40,503,000 Sep-07 $291,962
========
SWAP AGREEMENTS AT 7/31/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
6/20/09 USD 2,100,000 JP Morgan Chase Bank 4.8% (1) $ (54,799)
(fixed rate)
6/20/09 USD 4,200,000 JP Morgan Chase Bank 4.1% (1) 201,018
(fixed rate)
6/20/12 USD 2,100,000 Morgan Stanley Capital Services, Inc. 4.15% (2) (225,724)
(fixed rate)
6/20/12 USD 4,200,000 Morgan Stanley Capital Services, Inc. 3.76% (2) (510,125)
(fixed rate)
6/20/12 USD 4,200,000 Goldman Sachs International (3) 1.49% 276,416
(fixed rate)
9/20/12 USD 4,200,000 Goldman Sachs International 3.72% (4) (66,041)
(fixed rate)
9/20/12 USD 4,200,000 Goldman Sachs International 3.75% (5) (206,877)
(fixed rate)
3/20/17 USD 700,000 Merrill Lynch Capital Services (6) 0.81% 17
(fixed rate)
3/20/17 USD 700,000 JP Morgan Chase Bank (6) 0.78% 1,574
(fixed rate)
3/20/17 USD 700,000 JP Morgan Chase Bank (6) 0.80% 536
(fixed rate)
---------
$(584,005)
=========
(1) Fund to pay notional amount upon a defined credit default event by Abitibi Consolidated, 8.375%, 4/01/15.
(2) Fund to pay notional amount upon a defined credit default event by Bowater, Inc., 6.5%, 6/15/13.
(3) Fund to receive notional amount upon a defined credit default event by Constellation Brands, Inc., 8.0%,
2/15/08.
(4) Fund to pay notional amount upon a defined credit default event by Owens-Illinois, Inc., 7.8%, 5/15/18.
(5) Fund to pay notional amount upon a defined credit default event by Allied Waste North America Corp., 7.375%,
4/15/14.
(6) Fund to receive notional amount upon a defined credit default event by Waste Management, Inc., 7.375%, 8/01/10.
At July 31, 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 7/31/07 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities comprising
the total value of the fund.
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investments in non-affiliated companies, at value
(identified cost, $1,094,555,368) $1,046,994,126
Investments in affiliated money market portfolio, at value
(identified cost, $36,413,890) 36,413,890
- ---------------------------------------------------------------------------------------------------------
Total investments, at value (identified cost, $1,130,969,258) $1,083,408,016
- ---------------------------------------------------------------------------------------------------------
Cash 1,609,410
Receivable for forward foreign currency exchange contracts 48,198
Receivable for daily variation margin on open futures contracts 161,000
Receivable for investments sold 16,140,774
Receivable for fund shares sold 6,982,525
Interest and dividends receivable 21,586,578
Unrealized appreciation on credit default swaps 479,562
Other assets 8,112
- ---------------------------------------------------------------------------------------------------------
Total assets $1,130,424,175
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Distributions payable $7,629,686
Payable for investments purchased 15,362,284
Payable for fund shares reacquired 2,516,060
Unrealized depreciation on credit default swaps 1,063,567
Payable to affiliates
Management fee 55,069
Shareholder servicing costs 486,425
Distribution and service fees 45,145
Administrative services fee 2,172
Program manager fees 39
Retirement plan administration and services fees 203
Payable for independent trustees' compensation 134,288
Accrued expenses and other liabilities 88,328
- ---------------------------------------------------------------------------------------------------------
Total liabilities $27,383,266
- ---------------------------------------------------------------------------------------------------------
Net assets $1,103,040,909
- ---------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ---------------------------------------------------------------------------------------------------------
Paid-in capital $1,558,041,745
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (47,805,087)
Accumulated net realized gain (loss) on investments (406,317,984)
Accumulated distributions in excess of net investment income (877,765)
- ---------------------------------------------------------------------------------------------------------
Net assets $1,103,040,909
- ---------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 297,697,501
- ---------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- ---------------------------------------------------------------------------------------------------------
Net assets $600,885,112
Shares outstanding 162,278,134
- ---------------------------------------------------------------------------------------------------------
Net asset value per share $3.70
- ---------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $3.88
- ---------------------------------------------------------------------------------------------------------
Class B shares
- ---------------------------------------------------------------------------------------------------------
Net assets $148,327,813
Shares outstanding 39,935,861
- ---------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.71
- ---------------------------------------------------------------------------------------------------------
Class C shares
- ---------------------------------------------------------------------------------------------------------
Net assets $79,844,674
Shares outstanding 21,454,086
- ---------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.72
- ---------------------------------------------------------------------------------------------------------
Class I shares
- ---------------------------------------------------------------------------------------------------------
Net assets $257,216,777
Shares outstanding 69,503,244
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.70
- ---------------------------------------------------------------------------------------------------------
Class R shares
- ---------------------------------------------------------------------------------------------------------
Net assets $3,917,593
Shares outstanding 1,056,691
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.71
- ---------------------------------------------------------------------------------------------------------
Class R1 shares
- ---------------------------------------------------------------------------------------------------------
Net assets $620,327
Shares outstanding 167,134
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.71
- ---------------------------------------------------------------------------------------------------------
Class R2 shares
- ---------------------------------------------------------------------------------------------------------
Net assets $429,549
Shares outstanding 115,834
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.71
- ---------------------------------------------------------------------------------------------------------
Class R3 shares
- ---------------------------------------------------------------------------------------------------------
Net assets $2,711,014
Shares outstanding 731,473
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.71
- ---------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class R4 shares
- ---------------------------------------------------------------------------------------------------------
Net assets $7,585,514
Shares outstanding 2,049,428
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.70
- ---------------------------------------------------------------------------------------------------------
Class R5 shares
- ---------------------------------------------------------------------------------------------------------
Net assets $57,010
Shares outstanding 15,396
- ---------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $3.70
- ---------------------------------------------------------------------------------------------------------
Class 529A shares
- ---------------------------------------------------------------------------------------------------------
Net assets $870,521
Shares outstanding 235,170
- ---------------------------------------------------------------------------------------------------------
Net asset value per share $3.70
- ---------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $3.88
- ---------------------------------------------------------------------------------------------------------
Class 529B shares
- ---------------------------------------------------------------------------------------------------------
Net assets $222,236
Shares outstanding 60,037
- ---------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.70
- ---------------------------------------------------------------------------------------------------------
Class 529C shares
- ---------------------------------------------------------------------------------------------------------
Net assets $352,769
Shares outstanding 95,013
- ---------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $3.71
- ---------------------------------------------------------------------------------------------------------
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
Six months ended 7/31/07 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also
describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
Income
Interest $45,995,844
Income distributions from affiliated issuers 823,438
Dividends 1,154,326
- --------------------------------------------------------------------------------------------------------
Total investment income $47,973,608
- --------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,749,631
Distribution and service fees 2,343,426
Program manager fees 1,989
Shareholder servicing costs 804,104
Administrative services fee 107,326
Retirement plan administration and services fees 9,078
Independent trustees' compensation 20,491
Custodian fee 76,327
Shareholder communications 50,729
Auditing fees 32,714
Legal fees 9,509
Miscellaneous 114,845
- --------------------------------------------------------------------------------------------------------
Total expenses $6,320,169
- --------------------------------------------------------------------------------------------------------
Fees paid indirectly (34,393)
Reduction of expenses by investment adviser (3,569)
- --------------------------------------------------------------------------------------------------------
Net expenses $6,282,207
- --------------------------------------------------------------------------------------------------------
Net investment income $41,691,401
- --------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $15,000,751
Futures contracts (1,533,266)
Swap transactions 268,000
Foreign currency transactions 60,163
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $13,795,648
- --------------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
Change in unrealized appreciation (depreciation)
Investments $(79,413,299)
Futures contracts 1,517,902
Swap transactions (636,917)
Translation of assets and liabilities in foreign currencies (3,141)
- --------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(78,535,455)
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(64,739,807)
- --------------------------------------------------------------------------------------------------------
Change in net assets from operations $(23,048,406)
- --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from
operations, any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
7/31/07 1/31/07
(UNAUDITED)
CHANGE IN NET ASSETS FROM OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $41,691,401 $86,619,309
Net realized gain (loss) on investments 13,795,648 1,111,730
Net unrealized gain (loss) on investments (78,535,455) 31,193,207
- -----------------------------------------------------------------------------------------------
Change in net assets from operations $(23,048,406) $118,924,246
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
From net investment income
Class A $(24,230,320) $(47,667,939)
Class B (5,791,201) (14,939,675)
Class C (2,913,381) (6,203,739)
Class I (9,724,449) (18,929,135)
Class R (161,769) (363,983)
Class R1 (16,700) (17,366)
Class R2 (14,841) (23,859)
Class R3 (92,560) (123,244)
Class R4 (246,081) (187,948)
Class R5 (2,208) (4,063)
Class 529A (31,022) (55,195)
Class 529B (7,283) (11,049)
Class 529C (15,287) (28,602)
- -----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(43,247,102) $(88,555,797)
- -----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(50,122,242) $(138,159,915)
- -----------------------------------------------------------------------------------------------
Redemption fees $-- $8,665
- -----------------------------------------------------------------------------------------------
Total change in net assets $(116,417,750) $(107,782,801)
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
At beginning of period 1,219,458,659 1,327,241,460
At end of period (including accumulated distributions in
excess of net investment income of $877,765 and
undistributed net investment income of $677,936) $1,103,040,909 $1,219,458,659
- -----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and
the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a
single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an
investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 1/31
ENDED ------------------------------------------------------------------
CLASS A 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $3.92 $3.82 $3.98 $3.98 $3.52 $3.78
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.27 $0.27 $0.29 $0.30 $0.33
Net realized and unrealized gain (loss)
on investments and foreign currency (0.22) 0.11 (0.13) 0.01(g) 0.46 (0.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.08) $0.38 $0.14 $0.30 $0.76 $0.08
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.28) $(0.30) $(0.30) $(0.30) $(0.34)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to
paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $3.92 $3.82 $3.98 $3.98 $3.52
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.10)(n) 10.30 3.61 7.74 22.83 2.34
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.96(a) 1.00 1.00 0.99 0.99 1.00
Expenses after expense reductions (f) 0.96(a) 1.00 1.00 0.99 N/A N/A
Net investment income 7.08(a) 7.09 6.85 7.31 7.87 9.32
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $600,885 $671,019 $703,305 $799,651 $934,958 $769,069
- ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ------------------------------------------------------------------
CLASS B 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $3.93 $3.83 $3.99 $3.99 $3.53 $3.79
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.25 $0.24 $0.26 $0.27 $0.31
Net realized and unrealized gain (loss)
on investments and foreign currency (0.22) 0.10 (0.13) 0.01(g) 0.47 (0.26)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.09) $0.35 $0.11 $0.27 $0.74 $0.05
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.25) $(0.27) $(0.27) $(0.28) $(0.31)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.71 $3.93 $3.83 $3.99 $3.99 $3.53
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.43)(n) 9.53 2.90 7.10 21.65 1.64
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.66(a) 1.71 1.72 1.69 1.69 1.70
Expenses after expense reductions (f) 1.66(a) 1.71 1.72 1.69 N/A N/A
Net investment income 6.40(a) 6.40 6.26 6.63 7.18 8.65
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $148,328 $195,028 $275,363 $379,253 $471,520 $411,533
- ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------
CLASS C 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $3.94 $3.84 $4.00 $4.00 $3.54 $3.80
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.24 $0.24 $0.26 $0.27 $0.30
Net realized and unrealized gain (loss)
on investments and foreign currency (0.22) 0.11 (0.13) 0.01(g) 0.47 (0.25)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.09) $0.35 $0.11 $0.27 $0.74 $0.05
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.25) $(0.27) $(0.27) $(0.28) $(0.31)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.72 $3.94 $3.84 $4.00 $4.00 $3.54
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.42)(n) 9.52 2.91 7.10 21.61 1.64
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.66(a) 1.70 1.72 1.69 1.69 1.70
Expenses after expense reductions (f) 1.66(a) 1.70 1.72 1.69 N/A N/A
Net investment income 6.38(a) 6.39 6.26 6.63 7.18 8.59
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $79,845 $92,050 $108,181 $148,073 $214,915 $183,364
- ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------
CLASS I 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $3.92 $3.82 $3.98 $3.98 $3.52 $3.78
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.28 $0.28 $0.29 $0.30 $0.33
Net realized and unrealized gain (loss)
on investments and foreign currency (0.21) 0.11 (0.13) 0.02(g) 0.47 (0.24)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.07) $0.39 $0.15 $0.31 $0.77 $0.09
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.15) $(0.29) $(0.31) $(0.31) $(0.31) $(0.35)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $3.92 $3.82 $3.98 $3.98 $3.52
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (1.95)(n) 10.62 3.92 8.17 22.88 2.66
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.66(a) 0.70 0.71 0.68 0.69 0.70
Expenses after expense reductions (f) 0.66(a) 0.70 0.71 0.68 N/A N/A
Net investment income 7.33(a) 7.38 7.24 7.55 8.03 9.58
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $257,217 $246,306 $231,455 $170,679 $93,887 $26,373
- ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ----------------------------------------------------------------
CLASS R 7/31/07 2007 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.93 $3.83 $3.98 $3.98 $3.52 $3.51
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.26 $0.26 $0.28 $0.28 $0.02
Net realized and unrealized gain (loss)
on investments and foreign currency (0.21) 0.11 (0.12) 0.01(g) 0.48 0.02(g)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.08) $0.37 $0.14 $0.29 $0.76 $0.04
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.27) $(0.29) $(0.29) $(0.30) $(0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.71 $3.93 $3.83 $3.98 $3.98 $3.52
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (2.19)(n) 10.07 3.68 7.63 22.29 1.03(n)
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.16(a) 1.20 1.21 1.18 1.20 1.20(a)
Expenses after expense reductions (f) 1.16(a) 1.20 1.21 1.18 N/A N/A
Net investment income 6.90(a) 6.88 6.76 7.06 7.46 7.97(a)
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $3,918 $5,072 $5,422 $4,021 $1,359 $40
- ---------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -------------------
CLASS R1 7/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $3.93 $3.83 $3.89
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.24 $0.19
Net realized and unrealized gain (loss)
on investments and foreign currency (0.21) 0.11 (0.03)(g)
- ------------------------------------------------------------------------------------
Total from investment operations $(0.09) $0.35 $0.16
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.25) $(0.22)
- ------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w)
- ------------------------------------------------------------------------------------
Net asset value, end of period $3.71 $3.93 $3.83
- ------------------------------------------------------------------------------------
Total return (%) (r)(s) (2.48)(n) 9.41 4.28(n)
- ------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.79(a) 1.89 1.91(a)
Expenses after expense reductions (f) 1.76(a) 1.79 1.85(a)
Net investment income 6.15(a) 6.27 6.08(a)
Portfolio turnover 40 89 51
Net assets at end of period (000 Omitted) $620 $361 $231
- ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -------------------
CLASS R2 7/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $3.93 $3.83 $3.89
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.26 $0.21
Net realized and unrealized gain (loss)
on investments and foreign currency (0.22) 0.10 (0.04)(g)
- ------------------------------------------------------------------------------------
Total from investment operations $(0.09) $0.36 $0.17
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------
From net investment income $(0.13) $(0.26) $(0.23)
- ------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w)
- ------------------------------------------------------------------------------------
Net asset value, end of period $3.71 $3.93 $3.83
- ------------------------------------------------------------------------------------
Total return (%) (r)(s) (2.31)(n) 9.80 4.56(n)
- ------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.47(a) 1.59 1.59(a)
Expenses after expense reductions (f) 1.41(a) 1.44 1.51(a)
Net investment income 6.60(a) 6.63 6.50(a)
Portfolio turnover 40 89 51
Net assets at end of period (000 Omitted) $430 $460 $277
- ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED ---------------------------------------------
CLASS R3 7/31/07 2007 2006 2005 2004(i)
(UNAUDITED)
Net asset value, beginning of period $3.93 $3.83 $3.98 $3.98 $3.85
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.26 $0.24 $0.25 $0.07
Net realized and unrealized gain (loss) on
investments and foreign currency (0.21) 0.10 (0.11) 0.03(g) 0.13(g)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.08) $0.36 $0.13 $0.28 $0.20
- --------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.26) $(0.28) $(0.28) $(0.07)
- --------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $--
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.71 $3.93 $3.83 $3.98 $3.98
- --------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (2.26)(n) 9.91 3.45 7.37 5.32(n)
- --------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.35(a) 1.44 1.46 1.49 1.43(a)
Expenses after expense reductions (f) 1.31(a) 1.34 1.42 1.49 N/A
Net investment income 6.68(a) 6.71 6.61 6.58 7.07(a)
Portfolio turnover 40 89 51 68 81
Net assets at end of period (000 Omitted) $2,711 $2,406 $1,212 $246 $42
- --------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -------------------
CLASS R4 7/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $3.92 $3.82 $3.88
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.27 $0.21
Net realized and unrealized gain (loss)
on investments and foreign currency (0.22) 0.10 (0.02)(g)
- ------------------------------------------------------------------------------------
Total from investment operations $(0.08) $0.37 $0.19
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.27) $(0.25)
- ------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w)
- ------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $3.92 $3.82
- ------------------------------------------------------------------------------------
Total return (%) (r)(s) (2.15)(n) 10.18 4.94(n)
- ------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.07(a) 1.07 1.15(a)
Expenses after expense reductions (f) 1.07(a) 1.07 1.15(a)
Net investment income 6.89(a) 6.90 6.73(a)
Portfolio turnover 40 89 51
Net assets at end of period (000 Omitted) $7,586 $5,143 $393
- ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -------------------
CLASS R5 7/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $3.92 $3.82 $3.88
- ------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.28 $0.23
Net realized and unrealized gain (loss)
on investments and foreign currency (0.21) 0.11 (0.03)(g)
- ------------------------------------------------------------------------------------
Total from investment operations $(0.07) $0.39 $0.20
- ------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------
From net investment income $(0.15) $(0.29) $(0.26)
- ------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w)
- ------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $3.92 $3.82
- ------------------------------------------------------------------------------------
Total return (%) (r)(s) (2.00)(n) 10.52 5.20(n)
- ------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.76(a) 0.80 0.80(a)
Expenses after expense reductions (f) 0.76(a) 0.80 0.80(a)
Net investment income 7.25(a) 7.29 7.11(a)
Portfolio turnover 40 89 51
Net assets at end of period (000 Omitted) $57 $58 $53
- ------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------
CLASS 529A 7/31/07 2007 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.92 $3.82 $3.98 $3.98 $3.52 $3.42
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.26 $0.26 $0.27 $0.28 $0.13
Net realized and unrealized gain (loss)
on investments and foreign currency (0.21) 0.11 (0.14) 0.02(g) 0.47 0.13(g)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.08) $0.37 $0.12 $0.29 $0.75 $0.26
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $(0.27) $(0.28) $(0.29) $(0.29) $(0.16)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $3.92 $3.82 $3.98 $3.98 $3.52
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.24)(n) 9.97 3.30 7.53 22.16 7.70(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.26(a) 1.30 1.32 1.29 1.30 1.30(a)
Expenses after expense reductions (f) 1.26(a) 1.30 1.32 1.29 N/A N/A
Net investment income 6.74(a) 6.78 6.65 6.97 7.42 8.66(a)
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $871 $854 $776 $768 $406 $53
- -------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------
CLASS 529B 7/31/07 2007 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.92 $3.82 $3.97 $3.98 $3.52 $3.42
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.12 $0.23 $0.23 $0.25 $0.25 $0.11
Net realized and unrealized gain (loss)
on investments and foreign currency (0.22) 0.11 (0.12) 0.00(g)(w) 0.48 0.14(g)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.10) $0.34 $0.11 $0.25 $0.73 $0.25
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.24) $(0.26) $(0.26) $(0.27) $(0.15)
- ----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $3.92 $3.82 $3.97 $3.98 $3.52
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.56)(n) 9.26 2.89 6.57 21.39 7.35(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.91(a) 1.95 1.96 2.01 1.95 1.95(a)
Expenses after expense reductions (f) 1.91(a) 1.95 1.96 2.01 N/A N/A
Net investment income 6.10(a) 6.13 6.00 6.29 6.80 8.37(a)
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $222 $202 $157 $139 $119 $31
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------
CLASS 529C 7/31/07 2007 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $3.93 $3.83 $3.99 $3.99 $3.53 $3.43
- -------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.13 $0.23 $0.23 $0.25 $0.26 $0.13
Net realized and unrealized gain (loss)
on investments and foreign currency (0.23) 0.11 (0.13) 0.01(g) 0.47 0.12(g)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.10) $0.34 $0.10 $0.26 $0.73 $0.25
- -------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.12) $(0.24) $(0.26) $(0.26) $(0.27) $(0.15)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $3.71 $3.93 $3.83 $3.99 $3.99 $3.53
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.55)(n) 9.26 2.64 6.84 21.35 7.33(n)
- -------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.91(a) 1.95 1.96 1.97 1.95 1.95(a)
Expenses after expense reductions (f) 1.91(a) 1.95 1.96 1.97 N/A N/A
Net investment income 6.20(a) 6.13 6.00 6.31 6.79 8.05(a)
Portfolio turnover 40 89 51 68 81 80
Net assets at end of period (000 Omitted) $353 $500 $417 $347 $189 $43
- -------------------------------------------------------------------------------------------------------------------------
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) The per share amount is not in accordance with the net realized and unrealized gain/loss for the period because of the
timing of sales of fund shares and the 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.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS High Income Fund (the fund) is a series of MFS Series Trust III (the
trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. The fund can invest in foreign
securities, including securities of emerging market issuers. Investments in
foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing
in foreign securities previously described are heightened when investing in
emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the market
or exchange on which they are primarily traded. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities are
primarily traded. Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. 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. Forward foreign currency contracts are generally valued at the mean of
bid and asked prices for the time period interpolated from rates reported by an
independent pricing service for proximate time periods. Swaps are generally
valued at an evaluated bid as reported by an independent pricing service.
Open-end investment companies are generally valued at their net asset value per
share. 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.
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.
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, forward foreign currency
exchange 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of the contract. The fund may enter into forward foreign currency exchange
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
The fund may also use contracts in a manner intended to protect foreign
currency denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the fund may enter into
contracts with the intent of changing the relative exposure of the fund's
portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, 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.
SHORT TERM FEES - The fund charged a 1% redemption fee on proceeds from Class
A, Class B, Class C, and Class I shares redeemed or exchanged within 30
calendar days following their acquisition. Effective December 1, 2006, the fund
no longer charges a redemption fee. Any redemption fees charged are accounted
for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund 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. Dividends received in cash are
recorded on the ex-dividend date. Certain dividends from foreign securities
will be recorded when the fund is informed of the dividend if such information
is obtained subsequent to the ex-dividend date. Dividend and interest payments
received in additional securities are recorded on the ex- dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. 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.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended July 31, 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, amortization and accretion of debt securities, defaulted bonds,
and foreign currency transactions.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
1/31/07
Ordinary income (including any
short-term capital gains) $88,555,797
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 7/31/07
Cost of investments $1,132,360,241
-------------------------------------------------------------
Gross appreciation $6,976,885
Gross depreciation (55,929,110)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $(48,952,225)
AS OF 1/31/07
Undistributed ordinary income $7,490,764
Capital loss carryforwards (414,691,473)
Post-October capital loss deferral (2,530,560)
Other temporary differences (6,707,798)
Net unrealized appreciation (depreciation) 27,733,739
The aggregate cost above includes prior fiscal year end tax adjustments.
As of January 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
1/31/08 $(10,853,391)
1/31/09 (24,778,024)
1/31/10 (137,538,425)
1/31/11 (159,064,624)
1/31/13 (19,406,719)
1/31/14 (20,012,633)
1/31/15 (43,037,657)
-------------------------------------------------
$(414,691,473)
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 the following annual
rates:
First $1.4 billion of average daily net assets 0.46%
Average daily net assets in excess of $1.4 billion 0.44%
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters, MFS has agreed to reduce the management fee
to 0.39% of the fund's average daily net assets in excess of $1.4 billion for
the period March 1, 2004 through February 28, 2009. For the six months ended
July 31, 2007, the fund's average daily net assets did not exceed $1.4 billion
and therefore, the management fee was not reduced.
The management fee incurred for the six months ended July 31, 2007 was
equivalent to an annual effective rate of 0.46% of the fund's average daily net
assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $33,029 and $485 for the six months ended July
31, 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% $991,700
Class B 0.75% 0.25% 1.00% 1.00% 877,007
Class C 0.75% 0.25% 1.00% 1.00% 440,227
Class R 0.25% 0.25% 0.50% 0.50% 11,402
Class R1 0.50% 0.25% 0.75% 0.75% 1,898
Class R2 0.25% 0.25% 0.50% 0.50% 1,078
Class R3 0.25% 0.25% 0.50% 0.50% 6,606
Class R4 -- 0.25% 0.25% 0.25% 8,416
Class 529A 0.25% 0.25% 0.50% 0.35% 1,541
Class 529B 0.75% 0.25% 1.00% 1.00% 1,143
Class 529C 0.75% 0.25% 1.00% 1.00% 2,408
- --------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,343,426
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or
service fees up to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six
months ended July 31, 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 and 0.10% of the Class 529A distribution fee is currently being paid by the fund.
Payment of the remaining 0.05% of the Class A and 0.15% of the Class 529A distribution fee is not
yet in effect and will be implemented on such date as the fund's Board of Trustees may determine.
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within 12 months
of purchase. Class B and Class 529B shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within six years of
purchase. All contingent deferred sales charges are paid to MFD and during the
six months ended July 31, 2007, were as follows:
AMOUNT
Class A $3,524
Class B $164,356
Class C $2,983
Class 529B $11
Class 529C $--
The fund has entered into and may from time to time enter into contracts with
program managers and other parties which administer the tuition programs
through which an investment in the fund's 529 share classes is made. The fund
has entered into an agreement with MFD pursuant to which MFD receives an annual
fee of up to 0.35% of the average daily net assets attributable to each 529
share class. The fee is based on average daily net assets and is currently
established at 0.25% annually of average daily net assets of the fund's 529
share classes. The fee may only be increased with the approval of the Board of
Trustees who oversees the fund. The services provided by MFD, or a third party
with which MFD contracts, include recordkeeping and tax reporting and account
services, as well as services designed to maintain the program's compliance
with the Internal Revenue Code and other regulatory requirements. Class 529A,
Class 529B, and Class 529C shares closed on March 31, 2007. Program manager
fees for the six months ended July 31, 2007, were as follows:
AMOUNT
Class 529A $1,101
Class 529B 286
Class 529C 602
-------------------------------------------
Total Program Manager Fees $1,989
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 six months ended July 31, 2007, the fee was $310,635,
which equated to 0.0520% 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 six months ended July 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $481,209. The fund may also pay shareholder servicing related costs
directly to non-related parties.
Effective May 1, 2007, under a Special Servicing Agreement among MFS, each MFS
fund which invests in other MFS funds ("MFS fund-of-funds") and each underlying
fund in which a MFS fund-of-funds invests ("underlying funds"), each underlying
fund may pay a portion of each MFS fund-of-fund's transfer agent-related
expenses, including sub-accounting fees payable to financial intermediaries, to
the extent such payments do not exceed the benefits realized or expected to be
realized by the underlying fund from the investment in the underlying fund by
the MFS fund-of-fund. For the six months ended July 31, 2007, these costs for
the fund amounted to $75,399 and are reflected in the shareholder servicing
costs on the Statement of Operations.
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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the six months ended July 31, 2007
was equivalent to an annual effective rate of 0.0180% of the fund average daily
net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain shares. These services
include various administrative, recordkeeping, and communication/educational
services with respect to the retirement plans which invest in these shares, and
may be provided directly by MFS or by a third party. MFS may subsequently pay
all, or a portion, of the retirement plan administration and services fee to
affiliated or unaffiliated third parties. For the six months ended July 31,
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 ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE(g) AMOUNT
Class R1 0.45% 0.35% 0.35% $953
Class R2 0.40% 0.25% 0.25% 651
Class R3 0.25% 0.15% 0.15% 2,395
Class R4 0.15% 0.15% 0.15% 5,050
Class R5 0.10% 0.10% 0.10% 29
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $9,078
(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 six
months ended July 31, 2007, the waiver amounted to $592 and is reflected as
a reduction of total expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired independent
trustees which resulted in a pension expense of $3,790. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $1,979. Both amounts are included in
independent trustees' compensation for the six months ended July 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $132,702 at July 31, 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 six months ended July 31, 2007, the fee paid to Tarantino
LLC was $4,502. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $2,977, 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.
The fund may invest in a money market fund managed by MFS which seeks
preservation of capital and current income. Income earned on these investments
is included in income distributions from affiliated funds on the Statement of
Operations. This money market fund does not pay a management fee to MFS.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$458,313,841 and $502,279,451, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
7/31/07 1/31/07
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 17,362,481 $68,163,766 30,193,322 $115,720,298
Class B 1,143,762 4,476,521 3,834,252 14,694,024
Class C 1,200,155 4,720,156 3,267,356 12,574,521
Class I 4,928,807 19,142,620 10,406,564 39,870,984
Class R 149,156 586,750 404,231 1,551,092
Class R1 122,867 484,905 55,801 217,031
Class R2 77,779 307,569 80,563 309,260
Class R3 449,142 1,771,674 655,237 2,547,647
Class R4 1,764,134 6,950,082 1,650,795 6,370,935
Class R5 26 77 -- --
Class 529A 17,577 67,987 37,684 144,149
Class 529B 9,197 36,104 7,907 30,301
Class 529C 8,273 32,657 24,449 94,085
- ------------------------------------------------------------------------------------------------------
27,233,356 $106,740,868 50,618,161 $194,124,327
Shares issued to shareholders in
reinvestment of distributions
Class A 3,969,883 $15,635,914 8,226,268 $31,535,651
Class B 845,294 3,340,649 2,239,856 8,607,206
Class C 439,677 1,740,416 987,760 3,805,122
Class I 2,358,900 9,282,075 4,892,417 18,744,576
Class R 39,835 157,160 93,359 358,400
Class R1 3,609 14,252 4,498 17,306
Class R2 3,472 13,698 6,105 23,481
Class R3 20,841 82,228 32,016 122,910
Class R4 54,319 213,663 48,637 187,177
Class R5 541 2,132 1,060 4,063
Class 529A 7,541 29,672 14,324 54,911
Class 529B 1,745 6,866 2,879 11,044
Class 529C 3,860 15,250 7,434 28,580
- ------------------------------------------------------------------------------------------------------
7,749,517 $30,533,975 16,556,613 $63,500,427
Shares reacquired
Class A (30,096,916) $(117,407,524) (51,316,296) $(195,796,223)
Class B (11,616,794) (45,688,823) (28,313,819) (108,462,463)
Class C (3,530,889) (13,883,705) (9,060,985) (34,733,775)
Class I (605,151) (2,380,398) (13,051,235) (50,482,839)
Class R (423,600) (1,662,869) (622,632) (2,390,931)
Class R1 (51,118) (203,054) (28,705) (111,903)
Class R2 (82,582) (327,310) (41,724) (161,038)
Class R3 (351,278) (1,387,127) (391,110) (1,531,661)
Class R4 (1,080,582) (4,245,139) (490,792) (1,916,957)
Class 529A (7,819) (29,937) (37,189) (142,863)
Class 529B (2,429) (9,626) (411) (1,578)
Class 529C (44,122) (171,573) (13,692) (52,438)
- ------------------------------------------------------------------------------------------------------
(47,893,280) $(187,397,085) (103,368,590) $(395,784,669)
Net change
Class A (8,764,552) $(33,607,844) (12,896,706) $(48,540,274)
Class B (9,627,738) (37,871,653) (22,239,711) (85,161,233)
Class C (1,891,057) (7,423,133) (4,805,869) (18,354,132)
Class I 6,682,556 26,044,297 2,247,746 8,132,721
Class R (234,609) (918,959) (125,042) (481,439)
Class R1 75,358 296,103 31,594 122,434
Class R2 (1,331) (6,043) 44,944 171,703
Class R3 118,705 466,775 296,143 1,138,896
Class R4 737,871 2,918,606 1,208,640 4,641,155
Class R5 567 2,209 1,060 4,063
Class 529A 17,299 67,722 14,819 56,197
Class 529B 8,513 33,344 10,375 39,767
Class 529C (31,989) (123,666) 18,191 70,227
- ------------------------------------------------------------------------------------------------------
(12,910,407) $(50,122,242) (36,193,816) $(138,159,915)
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-of-funds do not invest in the underlying MFS funds for
the purpose of exercising management or control. At the end of the period, the
MFS Moderate Allocation Fund and MFS Growth Allocation Fund were the owners of
record of approximately 10% and 12%, respectively, of the value of outstanding
voting shares. In addition, the MFS Lifetime 2020 Fund and the MFS Lifetime
2030 Fund were each the owners of record of less than 1% of the value of
outstanding voting shares.
(6) LINE OF CREDIT
The fund and other 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%. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the six months
ended July 31, 2007, the fund's commitment fee and interest expense were $3,853
and $0, respectively, and are included in miscellaneous expense on the
Statement of Operations.
(7) TRANSACTIONS IN SECURITIES OF AFFILIATED ISSUERS
Affiliated issuers, as defined under the Investment Company Act of 1940, are
those in which the fund's holdings of an issuer represent 5% or more of the
outstanding voting securities of the issuer. A summary of the fund's
transactions in the securities of these issuers during the six months ended
July 31, 2007, is set forth below:
BEGINNING ACQUISITIONS DISPOSITIONS ENDING
SHARES/PAR SHARES/PAR SHARES/PAR SHARES/PAR
AFFILIATE AMOUNT AMOUNT AMOUNT AMOUNT
MFS Institutional
Money Market Portfolio -- 253,296,666 (216,882,776) 36,413,890
CAPITAL GAIN
DISTRIBUTIONS
FROM
REALIZED UNDERLYING DIVIDEND ENDING
AFFILIATE GAIN (LOSS) FUNDS INCOME VALUE
MFS Institutional
Money Market Portfolio -- -- $823,438 $36,413,890
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to
the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of MFS peer funds, (iii) information provided by MFS on the
advisory fees of comparable portfolios of other clients of MFS, including
institutional separate accounts and other clients, (iv) information as to
whether and to what extent applicable expense waivers, reimbursements or fee
"breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance monitoring
and portfolio trading practices, and (viii) information regarding the overall
organization of MFS, including information about MFS' senior management and
other personnel providing investment advisory, administrative and other
services to the Fund and the other MFS Funds. The comparative performance, fee
and expense information prepared and provided by Lipper Inc. was not
independently verified and the independent Trustees did not independently
verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than in others, and
that the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 3rd quintile relative to
the other funds in the universe for this three-year period (the 1st quintile
being the best performers and the 5th quintile being the worst performers). The
total return performance of the Fund's Class A shares was in the 2nd quintile
for the one-year period and the 3rd quintile for the five-year period ended
December 31, 2006 relative to the Lipper performance universe. Because of the
passage of time, these performance results may differ from the performance
results for more recent periods, including those shown elsewhere in this
report.
In addition to considering the performance information provided in connection
with the contract review meetings, the independent Trustees noted that, in
light of the Fund's substandard relative performance at the time of their
contract review meetings in 2006, they had met at each of their regular
meetings since then with MFS' senior investment management personnel to discuss
the Fund's performance and MFS' efforts to improve the Fund's performance. The
independent Trustees further noted that the Fund's relative performance for the
three-year period ended December 31, 2006 had improved in comparison to the
prior year. Taking this information into account, the Trustees concluded,
within the context of their overall conclusions regarding the investment
advisory agreement, that they were satisfied with MFS' responses and efforts
relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average daily net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that there is an advisory fee reduction on average daily net assets over $1.4
billion, which is in effect for the Fund through February 28, 2009 as part of
MFS' settlement with the New York Attorney General concerning market timing and
related matters. The Trustees also considered that, according to the Lipper
data, the Fund's effective advisory fee rate and total expense ratio were each
lower than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
subject to a contractual breakpoint that reduces the Fund's advisory fee rate
on average daily net assets over $1.4 billion and that the advisory fee rate
associated with such breakpoint is reduced during the period in which the
advisory fee reduction described above is in effect. The Trustees concluded
that the existing breakpoint was sufficient to allow the Fund to benefit from
economies of scale as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser that also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, which may include securities lending programs,
directed expense payment programs, class action recovery programs, and MFS'
interaction with third-party service providers, principally custodians and
sub-custodians. The Trustees concluded that the various non-advisory services
provided by MFS and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly) and various other
factors. Additionally, the Trustees considered so-called "fall-out benefits" to
MFS such as reputational value derived from serving as investment manager to
the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2007.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2007
by clicking on the fund's name under "Select a fund" on the MFS Web site
(mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA 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]
SEMIANNUAL REPORT
MFS(R) MUNICIPAL HIGH INCOME FUND
LETTER FROM THE CEO 1
- -----------------------------------------------------------
PORTFOLIO COMPOSITION 2
- -----------------------------------------------------------
EXPENSE TABLE 3
- -----------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- -----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 43
- -----------------------------------------------------------
STATEMENT OF OPERATIONS 45
- -----------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 46
- -----------------------------------------------------------
FINANCIAL HIGHLIGHTS 47
- -----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 51
- -----------------------------------------------------------
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT 61
- -----------------------------------------------------------
PROXY VOTING POLICIES AND
INFORMATION 65
- -----------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 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
- ------------------------------------------------------------------------------
7/31/07
MMH-SEM
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%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be 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)
September 14, 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 104.4%
Cash & Other Net Assets (4.4)%
TOP FIVE INDUSTRIES (i)
Healthcare Revenue - Hospitals 23.0%
------------------------------------------------
Healthcare Revenue - Long Term Care 11.4%
------------------------------------------------
Tax Assessment 8.2%
------------------------------------------------
Industrial Revenue - Airlines 5.8%
------------------------------------------------
Tobacco 5.0%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 20.1%
------------------------------------------------
AA 3.0%
------------------------------------------------
A 5.7%
------------------------------------------------
BBB 21.8%
------------------------------------------------
BB 6.5%
------------------------------------------------
B 7.9%
------------------------------------------------
CCC 1.6%
------------------------------------------------
CC (o) 0.0%
------------------------------------------------
Not Rated 33.4%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 6.8
------------------------------------------------
Average Life (i)(m) 16.6 yrs.
------------------------------------------------
Average Maturity (i)(m) 19.6 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.
(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.
(o) Less than 0.1%.
(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 07/31/07.
From time to time "Cash & Other Net Assets" may be negative due to the timing
of cash receipts and/or equivalent exposure from derivative holdings.
Percentages are based on net assets as of 07/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
EXPENSE TABLE
Fund Expenses Borne by the Shareholders During the Period,
February 1, 2007 through July 31, 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 (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to help
you understand your ongoing costs (in dollars) of investing in the fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period February 1, 2007 through July 31,
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). 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
Beginning Ending Paid During
Annualized Account Account Period (p)
Share Expense Value Value 2/01/07-
Class Ratio 2/01/07 7/31/07 7/31/07
- ----------------------------------------------------------------------------
Actual 0.77% $1,000.00 $1,010.10 $3.84
A -------------------------------------------------------------------
Hypothetical (h) 0.77% $1,000.00 $1,020.98 $3.86
- ----------------------------------------------------------------------------
Actual 1.55% $1,000.00 $1,005.10 $7.71
B -------------------------------------------------------------------
Hypothetical (h) 1.55% $1,000.00 $1,017.11 $7.75
- ----------------------------------------------------------------------------
Actual 1.77% $1,000.00 $1,005.10 $8.80
C -------------------------------------------------------------------
Hypothetical (h) 1.77% $1,000.00 $1,016.02 $8.85
- ----------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
7/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned byyour fund. It is categorized by broad-based asset
classes.
Municipal Bonds - 101.5%
- ---------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Airport & Port Revenue - 1.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Branson, MO, Regional Airport Transportation Development District Airport Rev., "B", 6%, 2025 $ 1,200,000 $ 1,170,384
Branson, MO, Regional Airport Transportation Development District Airport Rev., "B", 6%, 2037 300,000 296,691
Branson, MO, Regional Airport Transportation Development District Airport Rev., "B", 6%, 2037 2,480,000 2,402,897
Chicago, IL, O'Hare International Airport Rev. (Third Lien Passenger Facility B),
FSA, 5.75%, 2022 (u) 12,500,000 13,440,500
Chicago, IL, O'Hare International Airport Rev., Third Lien, "A", MBIA, 5%, 2029 4,270,000 4,408,903
Denver, CO, City & County Airport Rev., AMBAC, 6%, 2017 (u) 5,000,000 5,268,250
Miami-Dade County, FL, Aviation Rev., "A", CIFG, 5%, 2038 2,195,000 2,221,252
New York, NY, City Industrial Development Agency, Special Facilities Rev.
(Terminal One Group), 5.5%, 2024 850,000 899,181
--------------
$ 30,108,058
- ---------------------------------------------------------------------------------------------------------------------------------
General Obligations - General Purpose - 3.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Commonwealth of Massachusetts, 5.375%, 2011 (c)(u) $ 4,000,000 $ 4,245,720
Commonwealth of Puerto Rico, Public Improvement, "A", 5.25%, 2027 1,165,000 1,227,642
Cranston, RI, FGIC, 6.375%, 2009 (c) 855,000 911,858
Delaware County, OH, 6.25%, 2010 (c) 1,000,000 1,085,650
Florida Department of Transportation, 5%, 2017 (u) 4,600,000 4,730,594
Kane Kendall County, IL, Capital Appreciation, "E", FGIC, 0%, 2023 5,945,000 2,668,829
Kane Kendall County, IL, Capital Appreciation, "E", FGIC, 0%, 2025 6,000,000 2,413,500
Little Rock, AR, Capital Improvement Rev., 5.7%, 2018 720,000 734,062
Los Angeles, CA, FGIC, 5.25%, 2015 (u) 10,620,000 11,612,651
New York, NY, "H", FGIC, 6.125%, 2025 6,790,000 6,857,900
New York, NY, "I-1", 5%, 2025 6,000,000 6,239,040
New York, NY, "M", 5%, 2035 11,200,000 11,500,384
Texas Department of Transportation, 7%, 2012 119,167 119,169
Washington Motor Vehicle Fuel Tax, "B", FSA, 5%, 2024 9,850,000 10,281,036
West Warwick, RI, 7.45%, 2013 365,000 372,942
--------------
$ 65,000,977
- ---------------------------------------------------------------------------------------------------------------------------------
General Obligations - Improvement - 0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Bergen County, NJ, Improvement Authority School District Rev.
(Township of Wyckoff Board of Education), 5%, 2032 $ 540,000 $ 560,493
Birmingham, AL, "B", 5.75%, 2009 (c) 90,000 93,987
Mississippi Development Bank Special Obligation (Greenville Board), 5%, 2027 1,750,000 1,702,068
--------------
$ 2,356,548
- ---------------------------------------------------------------------------------------------------------------------------------
General Obligations - Schools - 4.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Aledo, TX, Independent School District, School Building, "A", PSF, 5.125%, 2033 $ 2,815,000 $ 2,913,581
Celina, TX, Independent School District, School Building, PSF, 5%, 2037 5,925,000 6,098,484
Chicago, IL, Board of Education, FGIC, 5.25%, 2020 (u) 15,820,000 17,365,456
DeSoto, TX, Independent School District, School Building, PSF, 0%, 2031 1,700,000 500,480
DeSoto, TX, Independent School District, School Building, PSF, 0%, 2034 1,285,000 320,749
DeSoto, TX, Independent School District, School Building, PSF, 0%, 2036 1,715,000 383,920
Florida Board of Education, FGIC, 5.25%, 2012 (u) 3,000,000 3,177,840
Florida Board of Education, FGIC, 5.25%, 2013 (u) 10,000,000 10,681,000
Forsyth County, GA, School District, 6%, 2010 (c) 1,700,000 1,819,578
Fort Bend, TX, Independent School District, "A", PSF, 5.25%, 2027 2,825,000 2,979,330
Irving, TX, Independent School District, Capital Appreciation, PSF, 0%, 2026 3,495,000 1,369,656
Kane, Cook & DuPage Counties, IL, FSA, 6.375%, 2011 (c) 1,255,000 1,356,178
Kane, Cook & DuPage Counties, IL, FSA, 6.5%, 2011 (c) 1,355,000 1,469,606
Lake County, IL, FGIC, 6%, 2008 (c) 2,500,000 2,573,350
Leander, TX, Independent School District, PSF, 0%, 2029 7,310,000 2,178,453
Leander, TX, Independent School District, PSF, 0%, 2030 6,480,000 1,818,806
Leander, TX, Independent School District, Capital Appreciation, Refunding, School Building,
FGIC, 0%, 2026 3,780,000 1,438,933
Leander, TX, Independent School District, Capital Appreciation, Refunding, School Building,
FGIC, 0%, 2031 3,820,000 1,081,748
McHenry & Lake County, IL, FSA, 6.125%, 2010 (c) 1,700,000 1,793,211
Pasadena, TX, Independent School District, School Building, 4.75%, 2036 3,000,000 2,999,940
Prosper, TX, Independent School District, Capital Appreciation, School Building,
"N", PSF, 0%, 2031 2,595,000 747,438
Royse City, TX, Independent School District, School Building, PSF, 0%, 2027 2,960,000 1,088,185
Royse City, TX, Independent School District, School Building, PSF, 0%, 2029 2,995,000 984,936
San Jose Evergreen, CA, Community College District, Election 2004, "A", MBIA, 0%, 2028 3,260,000 1,107,520
Santa Clarita Community College District, CA, Election 2006, MBIA, 0%, 2030 2,205,000 709,922
Snyder, TX, Independent School District, School Building, AMBAC, 5.25%, 2030 2,150,000 2,267,476
State Public School Building Authority, PA, School Rev. (Haverford Township Project),
XLCA, 5%, 2027 2,670,000 2,785,664
White Settlement, TX, Independent School District, School Building, PSF, 0%, 2033 8,965,000 2,321,307
--------------
$ 76,332,747
- ---------------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Hospitals - 22.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Alexander City, AL, Special Care Facilities Financing Authority Medical Facilities Rev.
(Russell Hospital Corp.), "A", 5.75%, 2036 $ 1,900,000 $ 1,955,081
Allegheny County, PA, Hospital Development Authority Rev. (South Hills Health Systems),
"B", 6.75%, 2010 (c) 1,200,000 1,290,048
Allegheny County, PA, Hospital Development Authority Rev. (West Penn Allegheny Health),
9.25%, 2010 (c) 6,100,000 7,209,712
Allegheny County, PA, Hospital Development Authority Rev. (West Penn Allegheny Health),
5.375%, 2040 2,965,000 2,873,233
Allegheny County, PA, Hospital Development Authority Rev. (West Penn Allegheny Health),
"A", 5%, 2028 1,465,000 1,364,970
Allegheny County, PA, Hospital Development Authority Rev. (West Penn Allegheny Health),
"B", 9.25%, 2010 (c) 3,360,000 3,971,251
Arkansas Development Finance Authority Rev. (Washington Regional Medical Center),
7.25%, 2010 (c) 2,500,000 2,700,950
Athens County, OH, Hospital Facilities Rev. (O'Bleness Memorial Hospital), "A", 7.125%, 2033 2,500,000 2,668,000
Baldwin County, AL, Eastern Shore Health Care Authority Rev. (Thomas Hospital), 5.75%, 2008 (c) 1,600,000 1,651,616
Brookhaven, NY, Industrial Development Agency Rev. (Memorial Hospital Medical Center, Inc.),
"A", 8.25%, 2010 (c) 2,500,000 2,860,575
California Statewide Communities Development Authority Rev. (Valleycare Health Systems),
"A", 5.125%, 2031 300,000 290,937
California Statewide Communities Development Authority Rev. (Valleycare Health Systems),
"A", 5%, 2022 600,000 586,398
California Valley Health Systems, COP, 6.875%, 2023 2,050,000 2,052,337
Chautauqua County, NY, Industrial Development Agency, Civic Facilities Rev.
(Women's Christian Assn.), "A", 6.35%, 2017 1,070,000 1,086,253
Chautauqua County, NY, Industrial Development Agency, Civic Facilities Rev.
(Women's Christian Assn.), "A", 6.4%, 2029 3,360,000 3,388,291
Chemung County, NY, Civic Facilities Rev. (St. Joseph's Hospital-Elmira), "A", 6%, 2013 1,560,000 1,554,353
Chemung County, NY, Civic Facilities Rev. (St. Joseph's Hospital-Elmira), "B", 6.35%, 2013 1,095,000 1,119,276
Chester County, PA, Health & Educational Facilities Rev. (Chester County Hospital),
"A", 6.75%, 2031 2,500,000 2,671,400
Citrus County, FL, Hospital Development Authority Rev. (Citrus Memorial Hospital), 6.25%, 2023 900,000 954,351
Clinton County, Mo, Industrial Development Authority Health Facilities Rev.,
(Camerone Regional Medical Center), 5%, 2032 2,000,000 1,926,180
Coffee County, GA, Hospital Authority Rev. (Coffee Regional Medical Center, Inc.), 5%, 2026 110,000 108,517
Colorado Health Facilities Authority Rev. (Parkview Medical Center, Inc.), 6.5%, 2020 770,000 827,650
Colorado Health Facilities Authority Rev. (Parkview Medical Center, Inc.), 5%, 2025 1,000,000 1,011,890
Colorado Health Facilities Authority Rev. (Portercare Adventist Health Systems),
6.625%, 2011 (c) 2,200,000 2,460,260
Crittenden County, AR, Hospital Rev., Refunding & Improvement, 7.15%, 2025 1,165,000 1,214,128
Cuyahoga County, OH, Hospital Facilities Rev. (Canton, Inc.), 7.5%, 2030 5,020,000 5,441,831
Denver, CO, Health & Hospital Authority Rev., "A", 5.375%, 2008 (c) 3,700,000 3,812,184
Denver, CO, Health & Hospital Authority Rev., "A", 5.375%, 2008 (c) 950,000 978,804
Denver, CO, Health & Hospital Authority Rev., "A", 6%, 2011(c) 750,000 811,493
Garden City, MI, Hospital Finance Authority Rev. (Garden City Hospital), "A", 4.875%, 2027 4,725,000 4,412,536
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial Hospital), 6.2%, 2025 750,000 771,315
Gaylord, MI, Hospital Finance Authority Rev. (Otsego Memorial Hospital), 6.5%, 2031 865,000 901,529
Genesee County, NY, Industrial Development Agency Civic Facility Rev.
(United Memorial Medical Center), 5%, 2027 700,000 668,976
Grand Forks, ND, Health Care Authority Rev. (Altru Health Systems Obligated Group),
7.125%, 2010 (c) 2,250,000 2,422,733
Hermann, MO, Hospital Rev., 5.15%, 2036 3,920,000 3,760,809
Highlands County, FL, Health Facilities Authority Rev. (Adventist Health Systems),
"C", 5.25%, 2036 3,735,000 3,775,712
Highlands County, FL, Health Facilities Authority Rev. (Adventist/Sunbelt Hospital),
6%, 2011 (c) 3,000,000 3,269,040
Illinois Finance Authority Rev. (Kewanee Hospital), 5.1%, 2031 2,090,000 2,050,227
Illinois Health Facilities Authority Rev. (Sinai Health), FHA, 5.15%, 2037 2,500,000 2,553,200
Indiana Health & Educational Facilities Hospital Rev. (Community Foundation Northwest),
5.5%, 2037 4,975,000 5,022,710
Indiana Health Facilities Authority Hosp Rev. (Refunding-Community), "A", 6.375%, 2011 (c) 360,000 396,169
Indiana Health Facilities Authority Hosp Rev. (Refunding-Community), "A", 6.375%, 2021 2,940,000 3,127,631
Indiana Health Facilities Financing Authority, Hospital Rev. (Clarian Health), "A", 5%, 2039 1,155,000 1,151,339
Indiana Health Facilities Financing Authority, Hospital Rev. (Community Foundation),
"A", 6.375%, 2011 (c) 6,785,000 7,466,689
Indiana Health Facilities Financing Authority, Hospital Rev. (Community Foundation),
"A", 6.375%, 2031 2,165,000 2,286,457
Indiana Health Facilities Financing Authority, Hospital Rev. (Community Hospital),
"A", AMBAC, 5%, 2035 5,220,000 5,350,970
Indiana Health Facilities Financing Authority, Hospital Rev. (Riverview Hospital), 6.125%, 2031 3,750,000 3,956,925
Johnson City, TN, Health & Educational Facilities, Hospital Rev. (Mountain States Health),
"A", 5.5%, 2036 1,095,000 1,132,340
Joplin, MO, Industrial Development Authority Health Facilities Rev. (Freeman Health Systems),
5.5%, 2029 1,290,000 1,323,656
Joplin, MO, Industrial Development Authority Health Facilities Rev. (Freeman Health Systems),
5.75%, 2035 1,395,000 1,469,214
Kentucky Economic Development Finance Authority (Norton Healthcare), "A", 6.5%, 2010 (c) 1,965,000 2,140,789
Kentucky Economic Development Finance Authority (Norton Healthcare), "A", 6.625%, 2010 (c) 1,565,000 1,710,780
Kentucky Economic Development Finance Authority, Unrefunded (Norton Healthcare), "A", 6.5%, 2020 3,035,000 3,230,758
Kentucky Economic Development Finance Authority, Unrefunded (Norton Healthcare),
"A", 6.625%, 2028 435,000 463,319
Knox County, TN, Health, Educational & Housing Facilities Board Rev. (Covenant Health),
"A", 0%, 2039 5,000,000 917,900
Knox County, TN, Health, Educational & Housing Facilities Board Rev.
(University Health Systems, Inc.), 5.25%, 2027 2,025,000 2,038,588
Knox County, TN, Health, Educational, Hospital & Housing Facilities Board Rev.
(Baptist Health Systems), 6.5%, 2031 7,100,000 7,323,650
Knox County, TN, Health, Educational, Hospital & Housing Facilities Board Rev.
(Covenant Health), "A", 0%, 2035 3,795,000 873,799
Knox County, TN, Health, Educational, Hospital & Housing Facilities Board Rev.
(Covenant Health), "A", 0%, 2037 1,625,000 334,230
Knox County, TN, Health, Educational, Hospital & Housing Facilities Board Rev.
(Covenant Health), "A", 0%, 2036 2,490,000 541,924
Knox County, TN, Health, Educational, Hospital & Housing Facilities Board Rev.
(University Health Systems, Inc.), 5.25%, 2036 2,700,000 2,705,886
Lufkin, TX, Health Facilities Rev. (Memorial Health System of East Texas), 5.7%, 2008 (c) 3,305,000 3,402,927
Macomb County, MI, Hospital Finance Authority Rev. (Mount Clemens General Hospital), 5.75%, 2025 2,050,000 2,111,808
Macomb County, MI, Hospital Finance Authority Rev. (Mount Clemens General Hospital),
5.875%, 2034 4,345,000 4,479,000
Madison County, ID, Hospital Rev., COP, 5.25%, 2037 2,640,000 2,592,876
Maple Grove, MN, Health Care Systems Rev. (Maple Grove Hospital Corp.), 5.25%, 2037 3,175,000 3,237,833
Maryland Health & Higher Educational Facilities Authority Rev.
(University of Maryland Medical System), 6.75%, 2010 (c) 1,000,000 1,089,780
Massachusetts Health & Educational Facilities Authority Rev. (Caritas Christi), "A", 5.7%, 2015 3,500,000 3,573,115
Massachusetts Health & Educational Facilities Authority Rev. (Caritas Christi), "B", 6.5%, 2012 1,500,000 1,614,615
Massachusetts Health & Educational Facilities Authority Rev. (Jordan Hospital), "D", 5.25%, 2018 4,600,000 4,610,258
Massachusetts Health & Educational Facilities Authority Rev. (Milford-Whitinsville Hospital),
"D", 6.35%, 2012 (c) 1,450,000 1,619,070
Massachusetts Health & Educational Facilities Authority Rev. (North Adams Regional Hospital),
"C", 6.625%, 2018 1,405,000 1,420,764
Massachusetts Health & Educational Facilities Authority Rev. (Northern Berkshire Health),
"B", 6.375%, 2034 760,000 797,316
Massachusetts Health & Educational Facilities Authority Rev. (Saints Memorial Medical Center),
"A", 6%, 2023 12,530,000 12,553,556
Massachusetts Health & Educational Facilities Authority Rev.
(University of Massachusetts Memorial Hospital), "C", 6.5%, 2021 500,000 532,520
Mecosta County, MI, General Hospital Rev., 6%, 2018 1,200,000 1,224,312
Miami Beach, FL, Health Facilities Authority Rev. (Mount Sinai Medical Center), 6.75%, 2029 2,490,000 2,775,528
Miami Beach, FL, Health Facilities Authority Rev. (Mount Sinai Medical Center), "A", 6.7%, 2019 3,505,000 3,809,620
Michigan Hospital Finance Authority Rev. (Memorial Healthcare Center), 5.875%, 2021 1,000,000 1,037,150
Mississippi Business Finance Corp., Health Facilities Rev. (Rush Medical Foundation, Inc.),
5.375%, 2008 (c) 700,000 723,282
Mississippi Business Finance Corp., Health Facilities Rev. (Rush Medical Foundation, Inc.),
5.625%, 2008 (c) 250,000 258,870
Mississippi Development Bank Special Obligation (Covington Hospital Nursing Home),
"A", AMBAC, 5%, 2031 500,000 514,465
Monongalia County, WV, Building Commission Hospital Rev. (Monongalia General Hospital),
"A", 5%, 2030 1,325,000 1,317,792
Monroe County, MI, Hospital Finance Authority, Hospital Rev. (Mercy Memorial Hospital Corp.),
5.375%, 2026 1,720,000 1,762,364
Monroe County, MI, Hospital Finance Authority, Hospital Rev. (Mercy Memorial Hospital Corp.),
5.5%, 2035 3,225,000 3,307,463
Monroe County, NY, Industrial Development Agency, Civic Facilities Rev.
(Highland Hospital of Rochester), 5%, 2025 185,000 185,725
Montgomery, AL, Medical Clinic Board Health Care Facility Rev. (Jackson Hospital & Clinic),
5.25%, 2031 1,915,000 1,918,849
Montgomery, AL, Special Care Facilities, Financing Authority Rev. (Baptist Health),
"A-2", 0%, to 2007, 5% to2014 (c) 5,100,000 5,308,539
Montgomery, AL, Special Care Facilities, Financing Authority Rev. (Baptist Health),
"C", 5.25%, 2014 (c) 2,240,000 2,412,323
Neosho County, KS, Hospital Authority Rev., "A", 5.05%, 2026 1,075,000 1,057,886
Neosho County, KS, Hospital Authority Rev., "A", 5.15%, 2031 770,000 755,285
Neosho County, KS, Hospital Authority Rev., "B", 5%, 2022 2,000,000 1,948,280
New Hampshire Health & Educational Facilities Authority Rev. (Catholic Medical Center),
"A", 6.125%, 2012 (c) 1,320,000 1,459,735
New Hampshire Health & Educational Facilities Authority Rev. (Catholic Medical Center),
"A", 6.125%, 2032 180,000 191,498
New Hampshire Health & Educational Facilities Authority Rev. (Covenant Health), 6.5%, 2017 3,715,000 4,042,737
New Hampshire Higher Educational & Health Facilities Authority Rev.
(Littleton Regional Hospital), "A", 5.9%, 2018 1,750,000 1,782,585
New Hampshire Higher Educational & Health Facilities Authority Rev.
(Littleton Regional Hospital), "B", 5%, 2008 160,000 159,826
New Jersey Health Care Facilities, Financing Authority Rev. (Children's Specialized Hospital),
"A", 5.5%, 2030 755,000 776,850
New Jersey Health Care Facilities, Financing Authority Rev. (Palisades Medical Center),
6.625%, 2031 1,115,000 1,190,285
New Jersey Health Care Facilities, Financing Authority Rev. (Saint Barnabas Health)
Capital Appreciation, "B", 0%, 2036 4,305,000 838,313
New Jersey Health Care Facilities, Financing Authority Rev. (Saint Barnabas Health)
Capital Appreciation, "B", 0%, 2038 22,690,000 3,921,967
New Jersey Health Care Facilities, Financing Authority Rev. (St. Peter's University Hospital),
"A", 6.875%, 2030 4,000,000 4,227,240
New Mexico State Hospital Equipment Loan Council, Hospital Rev.
(Rehoboth McKinley Christian Hospital), "A", 5.25%, 2026 1,580,000 1,515,726
New York Dormitory Authority Rev., Non State Supported Debt (Mt. Sinai NYU Health), 5.5%, 2026 1,895,000 1,915,371
New York Dormitory Authority Rev., Non State Supported Debt (Mt. Sinai NYU Health),
"C", 5.5%, 2026 2,000,000 2,021,500
New York Dormitory Authority Rev., Non State Supported Debt (NYU Hospitals Center),
"A", 5%, 2026 5,810,000 5,691,476
New York, NY, Industrial Development Agency, Civic Facilities Rev.
(Staten Island University Hospital), "A", 6.375%, 2031 490,000 504,597
New York, NY, Industrial Development Agency, Civic Facilities Rev.
(Staten Island University Hospital), "B", 6.375%, 2031 1,450,000 1,493,196
New York, NY, Industrial Development Agency, Civic Facilities Rev.
(Staten Island University Hospital), "C", 6.45%, 2032 920,000 956,478
Norman, OK, Regional Hospital Authority Rev., 5.375%, 2036 4,455,000 4,526,770
Ohio County, WV, County Commission Health System Rev. (Ohio Valley Medical Center), 5.75%, 2013 5,000,000 4,884,150
Oklahoma Development Finance Authority Rev. (Comanche County Hospital), "B", 6%, 2014 2,400,000 2,592,648
Oklahoma Development Finance Authority Rev. (Comanche County Hospital), "B", 6.6%, 2031 4,080,000 4,391,834
Peninsula Ports Authority, VA, Hospital Facility Rev. (Whittaker Memorial), FHA, 8.7%, 2023 480,000 536,582
Quincy, IL, Quincy Hospital Rev. (Blessing Hospital), 5%, 2029 6,185,000 6,127,108
Rhode Island Health & Education Building Corp. Rev., Hospital Financing
(Lifespan Obligated Group), 6.5%, 2012 (c) 9,000,000 10,072,980
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare Systems, Inc.), 6.375%, 2014 1,395,000 1,426,039
Royston, GA, Hospital Authority Rev. (Ty Cobb Healthcare Systems, Inc.), 6.5%, 2027 1,855,000 1,890,338
Salida, CO, Hospital District Rev., 5.25%, 2036 3,845,000 3,827,659
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6%, 2012 (c) 450,000 492,701
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6%, 2012 (c) 750,000 821,168
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6%, 2012 (c) 745,000 815,693
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6%, 2012 (c) 1,255,000 1,374,087
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6.25%, 2012 (c) 750,000 829,725
Shelby County, TN, Educational & Housing Facilities Board Hospital Rev.
(Methodist Healthcare), 6.25%, 2012 (c) 1,250,000 1,382,875
Sierra View, CA, Local Health Care District Rev., 5.4%, 2022 3,000,000 3,056,550
South Carolina Jobs & Economic Development Authority, Hospital Facilities Rev.
(Palmetto Health Alliance), 6.25%, 2031 2,725,000 2,899,564
South Carolina Medical University, Hospital Facilities Rev., "A", MBIA, 5%, 2031 1,995,000 2,048,486
Southwestern Illinois Development Authority Rev. (Anderson Hospital), 5.375%, 2015 885,000 907,957
Southwestern Illinois Development Authority Rev. (Anderson Hospital), 5.5%, 2020 1,805,000 1,851,551
Southwestern Illinois Development Authority Rev. (Anderson Hospital), 5.625%, 2029 1,330,000 1,354,166
Southwestern Illinois Development Authority Rev. (Anderson Hospital), 5.125%, 2036 1,750,000 1,725,255
Springfield, TN, Health & Educational Facilities Rev. (Northcrest Medical Center), 5.25%, 2018 3,500,000 3,476,900
Springfield, TN, Health & Educational Facilities Rev. (Northcrest Medical Center), 5.375%, 2024 4,000,000 3,993,360
St. Genevieve County, MO, Hospital Rev., "B", 5%, 2026 1,000,000 963,630
St. Louis County, MO, Industrial Development Authority, Health Facilities Rev.
(Ranken Jordan Project), 5%, 2027 675,000 665,300
St. Louis County, MO, Industrial Development Authority, Health Facilities Rev.
(Ranken Jordan Project), 5%, 2035 1,300,000 1,261,416
St. Paul, MN, Housing & Redevelopment Hospital (Healtheast Project), 6%, 2035 2,000,000 2,147,300
Sullivan County, TN, Health, Educational & Housing Facilities Board, Hospital Rev.
(Wellmont Health Systems Project), "C", 5.25%, 2036 1,000,000 1,003,540
Sumner County, TN, Health, Educational & Housing Facilitiess Board Rev., "A", 5.5%, 2046 4,000,000 4,024,520
Tallahassee, FL, Health Facilities Rev. (Tallahassee Memorial Healthcare), 6.25%, 2020 4,500,000 4,679,865
Texas Metro Health Facilities Development Corp., Metro Health Facilities Development Rev.
(Wilson N. Jones Memorial Hospital), 7.2%, 2021 4,300,000 4,406,210
Texas Metro Health Facilities Development Corp., Metro Health Facilities Development Rev.
(Wilson N. Jones Memorial Hospital), 7.25%, 2031 2,000,000 2,046,900
Tom Green County, TX, Health Facilities Rev. (Shannon Health System), 6.75%, 2021 3,150,000 3,360,231
University of Colorado, Hospital Authority Rev., "A", 5.25%, 2039 755,000 766,083
Upper Illinois River Valley Development, Health Facilities Rev. (Morris Hospital), 6.625%, 2031 1,900,000 2,029,409
Valley, AL, Financing Authority Rev. (Lanier Memorial Hospital), 5.45%, 2011 1,175,000 1,186,069
Vigo County, IN, Hospital Authority Rev. (Union Hospital), 5.8%, 2047 3,750,000 3,758,288
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional Health Center), 6.25%, 2012 (c) 2,000,000 2,215,700
Wapello County, IA, Hospital Authority Rev. (Ottumwa Regional Health Center), 6.375%, 2012 (c) 2,595,000 2,889,896
Weirton, WV, Municipal Hospital Building, Commission Rev. (Weirton Hospital Medical Center),
6.375%, 2031 3,885,000 4,045,800
Weslaco, TX, Health Facilities Rev. (Knapp Medical Center), 6.25%, 2032 4,000,000 4,178,680
West Plains, MO, Industrial Development Authority Rev. (Ozarks Medical Center), 6.75%, 2024 810,000 828,727
West Shore, PA, Hospital Authority Rev. (Holy Spirit Hospital), 6.2%, 2026 4,500,000 4,709,340
Wichita, KS, Hospital Authority Rev. (Via Christi Health System), 6.25%, 2020 2,500,000 2,706,450
Wisconsin Health & Educational Facilities Authority Rev. (Aurora Health Care, Inc.),
6.875%, 2030 2,250,000 2,507,468
Wisconsin Health & Educational Facilities Authority Rev. (Aurora Health Care, Inc.),
"B", 5.625%, 2029 1,100,000 1,124,805
Wisconsin Health & Educational Facilities Authority Rev. (Marshfield Clinic), "A", 5.375%, 2034 1,510,000 1,533,194
Wisconsin Health & Educational Facilities Authority Rev. (Wheaton Franciscan Healthcare),
5.25%, 2031 5,625,000 5,617,238
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. John's Riverside Hospital), "A", 7.125%, 2031 1,495,000 1,586,569
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. John's Riverside Hospital), "B", 6.8%, 2016 1,365,000 1,440,594
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. John's Riverside Hospital), "B", 7.125%, 2031 2,000,000 2,122,500
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. Joseph's Hospital), "A", 6.15%, 2015 2,000,000 1,994,140
Yonkers, NY, Industrial Development Agency, Civic Facilities Rev.
(St. Joseph's Hospital), "C", 6.2%, 2020 250,000 248,520
--------------
$ 386,390,848
- ---------------------------------------------------------------------------------------------------------------------------------
Healthcare Revenue - Long Term Care - 11.3%
- ---------------------------------------------------------------------------------------------------------------------------------
Abilene, TX, Health Facilities Development Co., Retirement Facilities Rev.
(Sears Methodist Retirement), "A", 7%, 2033 $ 1,155,000 $ 1,235,665
Arizona Health Facilities Authority Rev. (The Terraces Project), 7.75%, 2033 2,250,000 2,508,795
Bell County, TX, Health Facilities Development Rev. (Advanced Living Technology), 8.125%, 2016 1,415,000 1,365,716
Bell County, TX, Health Facilities Development Rev. (Advanced Living Technology), 8.5%, 2026 3,145,000 2,975,139
Bucks County, PA, Industrial Development Authority Rev. (Ann's Choice, Inc.), 6.125%, 2025 1,320,000 1,382,119
Cambria County, PA, Industrial Development Authority Rev. (Beverly Enterprises, Inc.),
ETM, 10%, 2012 (c) 480,000 559,507
Chartiers Valley, PA, Industrial & Commercial Development Authority
(Asbury Health Center Project), 5.75%, 2022 500,000 509,750
Chester County, PA, Industrial Development Authority Rev. (RHA Nursing Home), 8.5%, 2032 1,090,000 1,130,319
Colorado Health Facilities Authority Rev. (American Baptist Homes), "A", 5.9%, 2037 2,730,000 2,730,000
Colorado Health Facilities Authority Rev. (Christian Living Communities Project),
"A", 5.75%, 2037 3,355,000 3,405,929
Colorado Health Facilities Authority Rev. (Covenant Retirement Communities, Inc.),
"B", 6.125%, 2033 1,500,000 1,593,090
Cumberland County, PA, Municipal Authority Rev. (Wesley), "A", 7.25%, 2013 (c) 760,000 882,793
Cumberland County, PA, Municipal Authority, Retirement Community Rev. (Wesley), "A", 7.25%, 2035 1,965,000 2,282,485
Daphne, AL, Special Care Facilities Financing Authority (1st Mortgage Presbyterian),
0%, 2008 (c) 29,975,000 28,811,071
Daphne, AL, Special Care Facilities Financing Authority (2nd Mortgage Presbyterian),
0%, 2008 (c) 48,475,000 13,231,736
Daphne, AL, Special Care Facilities Financing Authority (2nd Mortgage Presbyterian),
0%, 2008 (c) 4,500,000 4,323,060
East Rochester, NY, Housing Authority Rev. (Woodland Village Project), 5.5%, 2033 600,000 602,454
Fulton County, GA, Residential Care Facilities (Canterbury Court), "A", 6.125%, 2034 1,020,000 1,058,230
Fulton County, GA, Residential Care Facilities, First Mortgage (Lenbrook Project), "A", 5%, 2027 2,500,000 2,441,350
Fulton County, GA, Residential Care Facilities, First Mortgage (Lenbrook Project),
"A", 5.125%, 2042 2,500,000 2,426,750
Georgia Medical Center Hospital Authority Rev. (Spring Harbor Green Island Project), 5.25%, 2037 2,100,000 2,011,401
Hawaii Department of Budget & Finance, Special Purpose Rev.
(Kahala Nui Senior Living Community), 8%, 2033 1,500,000 1,731,975
HFDC of Central Texas, Inc., Retirement Facilities Rev. (Legacy at Willowbend),
"A", 5.625%, 2026 1,500,000 1,520,895
HFDC of Central Texas, Inc., Retirement Facilities Rev. (Legacy at Willowbend),
"A", 5.75%, 2036 1,500,000 1,523,490
HFDC of Central Texas, Inc., Retirement Facilities Rev. (Village at Gleannloch Farms),
"A", 5.5%, 2027 1,150,000 1,166,158
HFDC of Central Texas, Inc., Retirement Facilities Rev. (Village at Gleannloch Farms),
"A", 5.5%, 2037 3,050,000 3,071,533
Huntsville-Redstone Village, AL, Special Care Facilities Financing Authority
(Redstone Village Project), 5.5%, 2028 1,975,000 1,932,261
Huntsville-Redstone Village, AL, Special Care Facilities Financing Authority
(Redstone Village Project), 5.5%, 2043 1,960,000 1,877,562
Illinois Finance Authority Rev. (Bond Anticipation Notes Tallgrass), 0%, 2012 790,000 788,736
Illinois Finance Authority Rev. (Clare at Water Tower), "A", 6%, 2025 1,510,000 1,557,641
Illinois Finance Authority Rev. (Franciscan Communities, Inc.), "A", 5.5%, 2027 1,600,000 1,606,336
Illinois Finance Authority Rev. (Franciscan Communities, Inc.), "A", 5.5%, 2037 3,000,000 2,980,140
Illinois Finance Authority Rev. (Landing at Plymouth Place), "A", 6%, 2037 1,510,000 1,559,770
Illinois Finance Authority Rev. (Montgomery Place), "A", 5.75%, 2038 1,730,000 1,771,658
Iowa Finance Authority Senior Housing Authority Rev. (Bethany Life Communities),
"A", 5.55%, 2041 770,000 750,357
Iowa Finance Authority, Health Care Facilities Rev. (Care Initiatives Project), 9.25%, 2011 (c) 3,900,000 4,681,287
Iowa Finance Authority, Health Care Facilities Rev. (Care Initiatives Project), "A", 5.5%, 2025 2,495,000 2,576,462
Iowa Finance Authority, Health Care Facilities Rev. (Care Initiatives Project), "B", 5.75%, 2018 2,520,000 2,584,210
James City County, VA, Economic Development, "A", 5.4%, 2027 2,180,000 2,158,898
James City County, VA, Economic Development, "A", 5.5%, 2037 3,375,000 3,335,749
Kalamazoo, MI, Economic Development Corp. Rev. (Heritage Community), 5.375%, 2027 750,000 751,350
Kalamazoo, MI, Economic Development Corp. Rev. (Heritage Community), 5.5%, 2036 2,200,000 2,216,346
Lenexa, KS, Health Care Facilities Rev. (Lakeview Village, Inc.), "C", 6.875%, 2012 (c) 1,250,000 1,419,975
Lenexa, KS, Health Care Facilities Rev. (Refining & Improvement), 5.375%, 2027 1,580,000 1,596,037
Lenexa, KS, Health Care Facilities Rev. (Refining & Improvement), 5.5%, 2039 2,605,000 2,638,188
Loves Park, IL (Hoosier Care), 7.125%, 2034 1,870,000 1,913,253
Maine Health & Higher Educational Facilities Rev. (Piper Shores), 7.5%, 2009 (c) 1,395,000 1,457,942
Massachusetts Development Finance Agency Rev. (Linden Ponds, Inc. Facilities), "A", 5.5%, 2027 1,235,000 1,242,595
Massachusetts Development Finance Agency Rev. (Linden Ponds, Inc. Facilities), "A", 5.75%, 2035 310,000 316,485
Massachusetts Industrial Finance Agency Rev. (GF/Revere, Inc.), 6.6%, 2025 6,635,000 6,698,961
Millbrae, CA, Residential Facilities Rev. (Magnolia of Millbrae), "A", 7.375%, 2027 6,670,000 6,874,569
Montana Facility Finance Authority Rev. (Senior Living St. Johns Lutheran), "A", 6.125%, 2036 1,360,000 1,402,486
Montgomery County, PA, Higher Education & Health Authority Rev. (AHF/Montgomery), 6.875%, 2036 3,805,000 3,945,671
Montgomery County, PA, Industrial Development Authority Rev. (Whitemarsh Continuing Care),
6.125%, 2028 750,000 784,088
Montgomery County, PA, Industrial Development Authority Rev.
(Whitemarsh Continuing Care), 6.25%, 2035 1,490,000 1,556,022
New Jersey Economic Development Authority Rev. (Courthouse Convalescent Center), "A", 8.7%, 2014 1,350,000 1,358,964
New Jersey Economic Development Authority Rev. (Lions Gate), "A", 5.875%, 2037 920,000 941,666
New Jersey Economic Development Authority Rev. (Seabrook Village, Inc.), 5.25%, 2036 1,945,000 1,933,602
New Jersey Economic Development Authority Rev. (Seashore Gardens), 5.375%, 2036 300,000 296,268
New Jersey Health Care Facilities Financing Authority Rev. (Cherry Hill), 8%, 2027 4,000,000 4,087,880
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort Norfolk Retirement Community),
"A", 6%, 2025 375,000 389,089
Norfolk, VA, Redevelopment & Housing Authority Rev. (Fort Norfolk Retirement Community),
"A", 6.125%, 2035 340,000 353,189
North Carolina Medical Care Commission, Health Care Facilities Rev.
(Presbyterian Homes), 5.4%, 2027 1,515,000 1,522,484
North Carolina Medical Care Commission, Health Care Facilities Rev.
(Presbyterian Homes), 5.5%, 2031 955,000 961,752
Olathe, KS, Senior Living Facilities Rev. (Catholic Care Campus, Inc.), "A", 6%, 2038 1,700,000 1,781,124
Orange County, FL, Health Facilities Authority Rev. (Orlando Lutheran Tower), 5.5%, 2032 785,000 773,343
Orange County, FL, Health Facilities Authority Rev. (Orlando Lutheran Tower), 5.5%, 2038 1,180,000 1,153,698
Sarasota County, FL, Health Facility Authority Rev. (Health Care Sarasota Manatee), 5.75%, 2037 1,790,000 1,742,583
Sarasota County, FL, Health Facility Authority Rev. (Health Care Sarasota Manatee), 5.75%, 2045 395,000 379,698
Scott County, IA, Rev. (Ridgecrest Village), 5.25%, 2027 2,950,000 2,875,749
Shelby County, TN, Health, Educational & Housing Facilities Board Rev.
(Germantown Village), 7.25%, 2034 2,470,000 2,520,981
South Carolina Jobs & Economic Development Authority, First Mortgage
(Lutheran Homes of South Carolina), 5.5%, 2028 870,000 863,649
South Carolina Jobs & Economic Development Authority, First Mortgage
(Lutheran Homes of South Carolina), 5.625%, 2042 550,000 544,313
St. Johns County, FL Industrial Development Authority (Bayview Project), "A", 5.25%, 2041 2,800,000 2,747,444
St. Joseph County, IN, Economic Development Rev. (Holy Cross Village at Notre Dame),
"A", 6%, 2038 475,000 492,632
Sterling, IL (Hoosier Care), 7.125%, 2034 1,310,000 1,338,964
Suffolk County, NY, Industrial Development Agency (Medford Hamlet Assisted Living), 6.375%, 2039 1,500,000 1,533,660
Travis County, TX, Health Facilities Development Corp., Retirement Facilities Rev.
(Querencia Barton Creek), 5.5%, 2025 1,440,000 1,472,544
Travis County, TX, Health Facilities Development Corp., Retirement Facilities Rev.
(Querencia Barton Creek), 5.65%, 2035 2,155,000 2,210,664
Washington State Housing Finance Commission Non-profit Rev. (Skyline at First Hill),
"A", 5.625%, 2027 785,000 793,816
Washington State Housing Finance Commission Non-profit Rev. (Skyline at First Hill),
"A", 5.625%, 2038 3,980,000 3,995,641
Washington, IA, Senior Housing Rev. (United Presbyterian Home of Washington), "A", 5.6%, 2036 1,615,000 1,558,556
--------------
$ 192,080,398
- ---------------------------------------------------------------------------------------------------------------------------------
Human Services - 1.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Alaska Industrial Development & Export Authority Community Provider Rev.
(Boys & Girls Home of Alaska, Inc.), 5.875%, 2027 $ 3,790,000 $ 3,820,282
Alaska Industrial Development & Export Authority Community Provider Rev.
(Boys & Girls Home of Alaska, Inc.), 6%, 2036 1,175,000 1,191,133
California Statewide Communities Development Authority (Prides Industries), 7.125%, 2009 (c) 1,420,000 1,519,641
Colorado Educational & Cultural Facilities Authority (Cerebral Palsy Project), "A", 6.25%, 2036 775,000 803,412
Lehigh County, PA, General Purpose Authority (Kidspeace Obligation Group), 6%, 2018 3,550,000 3,575,560
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(CDF Healthcare), "A", 7%, 2036 1,600,000 1,610,384
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(CDF Healthcare), "C", 7%, 2036 1,270,000 1,242,149
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(Westside Rehab Center Project), "A", 6.85%, 2036 3,415,000 3,745,606
Louisiana Local Government, Environmental Facilities & Community Development Authority Rev.
(Westside Rehab Center Project), "B", 6.5%, 2013 300,000 307,857
Montgomery County, PA, Industrial Development Authority (Wordsworth Academy), 8%, 2024 2,850,000 2,852,109
New Hampshire Higher Educational & Health Facilities Authority Rev. (Child & Family Services),
6.125%, 2009 (c) 1,095,000 1,132,559
New York, NY, Industrial Development Agency Rev. (Special Needs Facilities Pooled Program),
6.1%, 2012 1,005,000 1,018,949
Orange County, FL, Health Facilities Authority Rev. (GF/Orlando Healthcare Facilities),
8.875%, 2021 1,925,000 2,141,505
Orange County, FL, Health Facilities Authority Rev. (GF/Orlando Healthcare Facilities), 9%, 2031 2,185,000 2,433,653
Osceola County, FL, Industrial Development Authority Rev. (Community Provider), 7.75%, 2017 608,000 611,800
Philadelphia, PA, Industrial Development Authority Rev., 6.125%, 2019 1,250,000 951,825
--------------
$ 28,958,424
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Airlines - 5.7%
- ---------------------------------------------------------------------------------------------------------------------------------
Alliance Airport Authority, TX (American Airlines, Inc.), 5.75%, 2029 $ 7,590,000 $ 7,598,425
Chicago, IL, O'Hare International Airport Special Facilities Rev., (American Airlines, Inc.),
5.5%, 2030 7,860,000 7,657,841
Dallas Fort Worth, TX, International Airport Facility Improvement Corp.
(American Airlines, Inc.), 5.5%, 2030 4,325,000 4,181,497
Dallas Fort Worth, TX, International Airport Facility Improvement Corp.
(American Airlines, Inc.), "C", 6.15%, 2029 4,050,000 4,063,649
Denver, CO, City & County Airport Rev. (United Airlines), 5.25%, 2032 4,135,000 4,016,656
Denver, CO, City & County Airport Rev. (United Airlines), 5.75%, 2032 3,460,000 3,578,090
Houston, TX, Airport Systems Rev., Special Facilities (Continental, Inc.), "E", 6.75%, 2029 5,045,000 5,344,824
Los Angeles, CA, Regional Airport Lease Rev. (AMR Corp.), "C", 7%, 2012 1,700,000 1,805,128
Los Angeles, CA, Regional Airport Lease Rev. (AMR Corp.), "C", 7.5%, 2024 5,450,000 6,087,541
New Jersey Economic Development Authority, Special Facilities Rev.
(Continental Airlines, Inc.), 6.25%, 2019 3,205,000 3,289,772
New Jersey Economic Development Authority, Special Facilities Rev.
(Continental Airlines, Inc.), 6.25%, 2029 3,880,000 3,982,626
New York, NY, City Industrial Development Agencies Rev. (American Airlines, Inc.), 7.75%, 2031 3,935,000 4,648,455
New York, NY, City Industrial Development Agency, Special Facilities Rev.
(American Airlines, Inc.), 5.4%, 2020 1,250,000 1,221,563
New York, NY, Industrial Development Agencies Rev. (American Airlines, Inc.), 7.125%, 2011 5,845,000 6,140,173
New York, NY, Industrial Development Agencies Rev. (American Airlines, Inc.), 7.625%, 2025 27,460,000 32,195,477
New York, NY, Industrial Development Agencies Rev. (Continental Airlines, Inc.), 7.25%, 2008 335,000 340,152
New York, NY, Industrial Development Agencies Rev. (Continental Airlines, Inc.), 8%, 2012 950,000 1,020,224
Tulsa, OK, Municipal Airport Trust Rev. (American Airlines, Inc.), "B", 5.65%, 2035 120,000 120,996
--------------
$ 97,293,089
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Chemicals - 0.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Power County, ID, Pollution Control Rev. (FMC Corp.), 5.625%, 2014 $ 1,000,000 $ 1,021,620
Red River Authority, TX, Pollution Control Rev. (Celanese Project), "B", 6.7%, 2030 5,380,000 5,792,269
Sweetwater County, WY, Solid Waste Disposal Rev. (FMC Corp.), 5.6%, 2035 3,015,000 3,143,017
York County, SC, Industrial Rev. (Hoechst Celanese), 5.7%, 2024 115,000 115,680
--------------
$ 10,072,586
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Environmental Services - 1.3%
- ---------------------------------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority, Solid Waste Disposal Rev.
(Browning Ferris, Inc.), "A", 5.8%, 2016 $ 5,000,000 $ 5,065,250
Cobb County, GA, Development Authority, Solid Waste Disposal Rev. (Waste Management, Inc.),
"A", 5%, 2033 2,000,000 1,943,540
Colorado Housing & Finance Authority, Solid Waste Rev. (Waste Management, Inc.), 5.7%, 2018 540,000 570,067
Henrico County, VA, Industrial Development Authority Rev. (Browning Ferris, Inc.), 5.45%, 2014 2,000,000 2,030,120
Massachusetts Development Finance Agency Rev. (Waste Management, Inc.), "B", 6.9%, 2029 1,700,000 1,783,708
Mission, TX, Economic Development Corp., Solid Waste Disposal Rev. (Allied Waste N.A., Inc.),
"A", 5.2%, 2018 1,500,000 1,478,310
Nevada Department of Business & Industry Rev. (Republic Services, Inc.), 5.625%, 2026 2,000,000 2,113,680
New Hampshire Business Finance Authority, Solid Waste Disposal Rev. (Waste Management, Inc.),
5.2%, 2027 2,890,000 2,882,688
New Morgan, PA, Industrial Development Authority, Solid Waste Disposal Rev.
(New Morgan Landfill Co., Inc./Browning Ferris, Inc.), 6.5%, 2019 2,500,000 2,505,550
Schuylkill County, PA, Industrial Development Authority Rev. (Waste Management, Inc.),
5.1%, 2019 1,000,000 1,009,600
Yavapai County, AZ, Industrial Development Authority Rev. (Waste Management, Inc.), 4.9%, 2028 1,500,000 1,434,360
--------------
$ 22,816,873
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Metals - 0.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Burns Harbor, IN, Solid Waste Disposal Facilities Rev. (Bethlehem Steel), 8%, 2024 (d) $10,455,000 $ 105
Cambria County, PA, Industrial Development Authority Rev. (Bethlehem Steel), 7.5%, 2015 (d) 3,890,000 39
Mobile County, AL, Industrial Development Authority Rev. (Ipsco, Inc.), 6.875%, 2030 2,850,000 2,977,737
--------------
$ 2,977,881
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Other - 3.3%
- ---------------------------------------------------------------------------------------------------------------------------------
Aztalan, WI, Exempt Facility Rev. (Renew Energy LLC Project), 7.5%, 2018 $ 3,160,000 $ 3,118,098
Bayonne, NJ, Redevelopment Agency (Royal Caribbean Project), "A", 5.375%, 2035 1,500,000 1,508,010
Gulf Coast, TX, Industrial Development Authority Rev. (Microgy Holdings LLC Project), 7%, 2036 2,060,000 2,181,602
Gulf Coast, TX, Waste Disposal Rev. (Valero Energy Corp.), 6.65%, 2032 1,500,000 1,592,715
Hardeman County, TN, Correctional Facilities Rev., 7.75%, 2017 5,780,000 5,956,521
Janesville, WI, Industrial Development Rev. (Simmons Manufacturing Co.), 7%, 2017 3,900,000 3,910,530
Liberty, NY, Development Corp. Rev. (Goldman Sachs Headquarters), 5.25%, 2035 5,000,000 5,297,100
Madison County, FL, Rev. (Twin Oaks Project), "A", 6%, 2025 1,590,000 1,630,720
New Jersey Economic Development Authority (Gloucester Marine), "C", 6.5%, 2015 2,300,000 2,414,103
New York, NY, City Industrial Development Agency Rev., Liberty Bonds
(IAC/InterActiveCorp), 5%, 2035 1,880,000 1,910,400
Park Creek Metropolitan District, CO, Rev. (Custodial Receipts), "CR-1", 7.875%, 2032 (n) 4,225,000 4,624,432
Park Creek Metropolitan District, CO, Rev. (Custodial Receipts), "CR-2", 7.875%, 2032 (n) 1,860,000 2,035,844
Philadelphia, PA, Industrial Development Authority Rev. (Host Marriott LP), 7.75%, 2017 2,000,000 2,007,500
Port Corpus Christi, TX, Industrial Development Authority Rev. (Citgo Petroleum Corp.),
8.25%, 2031 2,300,000 2,345,862
Spirit Lake, IA, Industrial Development Rev. (Crystal Tips, Inc.), 0%, 2008 (c) 10,294,113 10,732,333
Tooele County, UT, Hazardous Waste Treatment Rev. (Union Pacific Corp.), 5.7%, 2026 3,895,000 4,011,889
--------------
$ 55,277,659
- ---------------------------------------------------------------------------------------------------------------------------------
Industrial Revenue - Paper - 2.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Arkansas Development Finance Authority, Industrial Facilities Rev. (Potlatch Corp.),
"A", 7.75%, 2025 $ 1,200,000 $ 1,338,708
Butler, AL, Industrial Development Board, Solid Waste Disposal Rev. (Georgia Pacific Corp.),
5.75%, 2028 1,510,000 1,541,559
De Soto Parish, LA, Environmental Improvement Rev. (International Paper Co.), 6.35%, 2025 1,650,000 1,721,016
Delta County, MI, Economic Development Corp., Environmental Improvements Rev.
(Mead Westvaco Escanaba), "A", 6.25%, 2012 (c) 3,100,000 3,402,901
Delta County, MI, Economic Development Corp., Environmental Improvements Rev.
(Mead Westvaco Escanaba), "B", 6.45%, 2012 (c) 1,100,000 1,209,406
Hodge, LA, Utilities Rev. (Stone Container Corp.), 7.45%, 2024 3,000,000 3,568,830
Hopewell, VA, Industrial Development Authority, Environmental Impact Rev.
(Smurfit-Stone Container), 5.25%, 2015 2,700,000 2,686,122
Maine Finance Authority, Solid Waste Recycling Facility Rev. (Bowater, Inc.), 7.75%, 2022 8,500,000 8,519,125
Onondaga County, NY, Industrial Development Authority Rev., Solid Waste Disposal Rev.
(Solvay Paperboard LLC), 6.8%, 2014 3,500,000 3,623,340
Sabine River Authority Rev., Louisiana Water Facilities (International Paper Co.), 6.2%, 2025 2,250,000 2,337,660
West Point, VA, Industrial Development Authority, Solid Waste Disposal Rev.
(Chesapeake Corp.), 6.25%, 2019 6,830,000 6,834,098
West Point, VA, Industrial Development Authority, Solid Waste Disposal Rev.
(Chesapeake Corp.), "A", 6.375%, 2019 800,000 800,472
--------------
$ 37,583,237
- ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Entertainment & Tourism - 0.6%
- ---------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev., East Valley Tourist
(Cabazon Casino), "A", 9.25%, 2020 (n) $ 3,845,000 $ 4,154,215
Mississippi Development Bank, Special Obligation (Diamond Lakes Utilities), 6.25%, 2017 3,000,000 3,050,880
New York Liberty Development Corp. Rev. (National Sports Museum), 6.125%, 2019 1,315,000 1,357,751
Seneca Nation Indians, NY, Capital Improvements Authority Special Obligation, 5%, 2023 (n) 1,040,000 1,024,306
--------------
$ 9,587,152
- ---------------------------------------------------------------------------------------------------------------------------------
Miscellaneous Revenue - Other - 1.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Austin, TX, Convention Center (Convention Enterprises, Inc.), "A", 6.6%, 2011 (c) $ 1,300,000 $ 1,411,033
Austin, TX, Convention Center (Convention Enterprises, Inc.), "A", 6.7%, 2011 (c) 2,000,000 2,177,160
Austin, TX, Convention Enterprises, Inc., Rev., "B", 5.75%, 2034 2,705,000 2,786,069
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Fairmount), "B", 5.125%, 2025 550,000 559,427
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Myers University), "E", 5.6%, 2025 395,000 410,018
Cleveland-Cuyahoga County, OH, Port Authority Rev. (Perrysburg Project), 4.8%, 2035 795,000 746,982
Gallery Certificate Trust, PA, Parking Rev., FSA, 4.5%, 2013(n) 2,205,000 2,183,700
Maryland Economic Development Corp. (Chesapeake Bay Conference Center), "A", 5%, 2031 1,295,000 1,280,535
New Jersey Economic Development Authority Rev. (Kapkowski Project), "B", 6.8%, 2018 3,785,000 4,260,131
Philadelphia, PA, Redevelopment Authority Rev. (Neighborhood Transformation), FGIC, 5%, 2027 2,690,000 2,792,489
San Antonio, TX, Convention Center, Hotel Financial Corp., Contract Rev.
(Empowerment Zone), "A", AMBAC, 5%, 2034 2,050,000 2,086,265
Southwestern Illinois Development Authority Rev., Solid Waste Disposal Rev., 5.9%, 2014 1,765,000 1,773,084
Summit County, OH, Port Authority Building Rev. (Seville Project), "A", 5.1%, 2025 600,000 606,870
Summit County, OH, Port Authority Building Rev. (Twinsburg Township), "D", 5.125%, 2025 480,000 486,590
Summit County, OH, Port Authority Building Rev. (Workforce Policy Board), "F", 4.875%, 2025 2,810,000 2,794,657
Toledo Lucas County, OH, Port Authority Development Rev. (Northwest Ohio Bond Fund),
"B", 4.8%, 2035 910,000 855,036
Toledo Lucas County, OH, Port Authority Development Rev. (Northwest Ohio Bond Fund),
"C", 5.125%, 2025 275,000 273,526
--------------
$ 27,483,572
- ---------------------------------------------------------------------------------------------------------------------------------
Multi-Family Housing Revenue - 2.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Alexandria, VA, Redevelopment & Housing Finance Authority Rev. (Jefferson Village Apartments),
"B", 9%, 2018 $ 1,755,000 $ 1,767,285
Bay County, FL, Housing Finance Authority, Multi-Family Rev. (Andrews Place II Apartments),
FSA, 5%, 2035 635,000 626,485
Bay County, FL, Housing Finance Authority, Multi-Family Rev. (Andrews Place II Apartments),
FSA, 5.1%, 2046 1,155,000 1,137,629
Charter Mac Equity Issuer Trust, FRN, 6.625%, 2009 (n) 8,000,000 8,319,040
District of Columbia, Housing Finance Authority (Azeeze Bates Apartments), FHLMC, 4.8%, 2036 1,525,000 1,489,315
Fairfax County, VA, Economic Development Authority, Senior Living
(Lewinsville Retirement Village), "A", 5.25%, 2032 1,215,000 1,175,379
GMAC Municipal Mortgage Trust, "B-1", 5.6%, 2039 (n) 4,000,000 3,996,120
GMAC Municipal Mortgage Trust, "C-1", 5.7%, 2040 (n) 2,000,000 2,013,480
Indianapolis, IN, Multi-Family Rev. (Cambridge Station Apartments II), FNMA, 5.25%, 2039 1,430,000 1,453,252
Munimae, TE, Bond Subsidiary LLC, 5.4%, 2049 (n) 2,000,000 2,022,320
Munimae, TE, Bond Subsidiary LLC, 5.9%, 2049 (n) 2,000,000 2,075,380
Munimae, TE, Bond Subsidiary LLC, FRN, 6.875%, 2049 (n) 6,000,000 6,266,400
North Charleston, SC, Housing Authority Rev. (Horizon Village), "A", FHA, 5.15%, 2048 1,380,000 1,363,744
Seattle, WA, Housing Authority Rev., Capped Fund Program (High Rise Rehab), "I", FSA, 5%, 2025 2,050,000 2,042,559
--------------
$ 35,748,388
- ---------------------------------------------------------------------------------------------------------------------------------
Parking - 0.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Rail Connections, Inc., MA, Rev., "B", 0%, 2009 (c) $ 375,000 $ 244,129
Rail Connections, Inc., MA, Rev., "B", 0%, 2009 (c) 450,000 274,113
Rail Connections, Inc., MA, Rev., "B", 0%, 2009 (c) 975,000 555,331
Rail Connections, Inc., MA, Rev., "B", 0%, 2009 (c) 1,235,000 658,811
--------------
$ 1,732,384
- ---------------------------------------------------------------------------------------------------------------------------------
Sales & Excise Tax Revenue - 0.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Desloge, MO, Tax Increment Rev. (U.S. Highway 67 Street Redevelopment), 5.2%, 2020 $ 1,340,000 $ 1,346,646
Wyandotte County-Kansas City, KS, Unified Government Rev. (Sales Tax Second Lien Area B),
5%, 2020 2,585,000 2,654,459
--------------
$ 4,001,105
- ---------------------------------------------------------------------------------------------------------------------------------
Single Family Housing - Local - 1.7%
- ---------------------------------------------------------------------------------------------------------------------------------
California Rural Home Mortgage Finance Authority Rev., GNMA, 6.55%, 2030 $ 315,000 $ 320,979
California Rural Home Mortgage Finance Authority Rev., "A", GNMA, 5.75%, 2044 1,240,000 1,311,300
Chicago, IL, Single Family Mortgage Rev., "C", GNMA, 7.05%, 2030 30,000 30,429
Cook County, IL, Single Family Mortgage Rev., "A", 0%, 2015 115,000 29,784
Corpus Christi, TX, Housing Finance Authority Rev., "B", 0%, 2011 1,880,000 786,930
Escambia County, FL, Single Family Housing Rev., GNMA, 6.95%, 2024 230,000 236,116
Jefferson County, TX, Housing Finance Corp., MBIA, 0%, 2015 600,000 249,372
Jefferson Parish, LA, Single Family Mortgage Rev., "B-1", GNMA, 6.625%, 2023 430,000 450,391
Jefferson Parish, LA, Single Family Mortgage Rev., "B-1", GNMA, 6.75%, 2030 1,265,000 1,267,416
Jefferson Parish, LA, Single Family Mortgage Rev., "D", GNMA, 5%, 2038 2,105,000 2,170,255
Jefferson Parish, LA, Single Family Mortgage Rev., "D-1", GNMA, 7.5%, 2026 100,000 102,420
Lee County, FL, Housing Finance Authority Rev. (Multi-County Program), "A-4", GNMA, 7%, 2031 20,000 20,030
Nortex, TX, Housing Finance Corp., Single Family Mortgage Rev., "B", 5.5%, 2038 440,000 442,328
Pima County, AZ, Industrial Development Authority Rev., "B-1", GNMA, 7.05%, 2030 220,000 221,492
Pinellas County, FL, Housing Finance Authority Rev. (Multi-County Program), "B-1",
GNMA, 6.2%, 2031 845,000 854,413
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 6.45%, 2029 290,000 289,635
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.9%, 2035 1,120,000 1,192,867
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 6.25%, 2035 495,000 522,611
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.55%, 2037 2,820,000 3,018,641
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.65%, 2037 2,255,000 2,408,768
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A", GNMA, 5.4%, 2037 2,405,000 2,509,233
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-1", GNMA, 6.875%, 2026 135,000 136,158
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-1", GNMA, 5.75%, 2037 840,000 905,117
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-2", GNMA, 5.6%, 2029 2,085,000 2,184,934
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-2", GNMA, 5.75%, 2037 1,660,000 1,766,506
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-3", GNMA, 6%, 2035 1,070,000 1,157,259
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-4", GNMA, 5.625%, 2036 930,000 969,069
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-4", GNMA, 5.85%, 2037 1,510,000 1,630,347
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "A-5", GNMA, 5.9%, 2037 610,000 659,355
Sedgwick & Shawnee Counties, KS, Single Family Housing Rev., "B-2", GNMA, 6.45%, 2033 925,000 978,955
--------------
$ 28,823,110
- ---------------------------------------------------------------------------------------------------------------------------------
Single Family Housing - State - 1.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Colorado Housing & Finance Authority Rev., "A-1", 7.4%, 2027 $ 30,000 $ 30,206
Colorado Housing & Finance Authority Rev., "A-2", 7.15%, 2014 6,000 6,070
Colorado Housing & Finance Authority Rev., "A-2", AMBAC, 6.6%, 2028 935,000 967,847
Colorado Housing & Finance Authority Rev., "B-2", 6.1%, 2023 335,000 343,991
Colorado Housing & Finance Authority Rev., "B-3", 6.55%, 2025 62,000 63,020
Colorado Housing & Finance Authority Rev., "B-3", 6.55%, 2033 315,000 319,281
Colorado Housing & Finance Authority Rev., "C-2", 5.9%, 2023 520,000 532,990
Colorado Housing & Finance Authority Rev., "C-2", FHA, 6.6%, 2032 500,000 528,635
Colorado Housing & Finance Authority Rev., "C-3", 6.75%, 2021 145,000 152,153
Colorado Housing & Finance Authority Rev., "C-3", 7.15%, 2030 70,000 70,969
Delaware Single Family Housing Authority Rev., "A-2", 6.75%, 2024 240,000 240,547
Louisiana Housing Finance Agency, Single Family Mortgage Rev., "B-2", GNMA, 7.55%, 2031 170,000 171,217
Mississippi Home Corp. Rev., Single Family Rev., "A", GNMA, 6.1%, 2034 2,340,000 2,386,660
Mississippi Home Corp. Rev., Single Family Rev., "A-2", GNMA, 6.5%, 2032 2,250,000 2,272,793
Missouri Housing Development Commission, Single Family Mortgage Rev. (Home Loan Program),
GNMA, 7.45%, 2031 115,000 117,993
Missouri Housing Development Commission, Single Family Mortgage Rev. (Home Loan Program),
GNMA, 6.35%, 2032 395,000 397,050
Missouri Housing Development Commission, Single Family Mortgage Rev. (Home Loan Program),
GNMA, 6.85%, 2032 335,000 353,381
Missouri Housing Development Commission, Single Family Mortgage Rev. (Home Loan Program),
GNMA, 6.75%, 2034 305,000 316,181
Missouri Housing Development Commission, Single Family Mortgage Rev. (Home Loan Program),
"B", GNMA, 6.7%, 2030 650,000 655,467
Missouri Housing Development Commission, Single Family Mortgage Rev. (Home Loan Program),
"B", GNMA, 6.05%, 2037 3,445,000 3,665,583
New Hampshire Housing Finance Authority Rev., "B", 5.875%, 2030 325,000 335,114
New Hampshire Housing Finance Authority Rev., "B", 6.3%, 2031 235,000 241,881
New Hampshire Housing Finance Authority Rev., "B", 6.5%, 2035 3,250,000 3,436,258
New Mexico Mortgage Finance Authority Rev., "B-2", GNMA, 6.35%, 2033 610,000 617,979
North Dakota Housing Finance Agency Rev., Housing Finance, "A", 5%, 2033 970,000 980,040
Oklahoma Housing Finance Agency, Single Family, 7.55%, 2028 280,000 285,477
Texas Affordable Housing Corp., Single Family Mortgage Rev., "B", GNMA, 5.25%, 2039 2,270,000 2,332,697
Texas Housing & Community Affairs, Residential Mortgage Rev , GNMA, 7.1%, 2021 1,845,000 1,882,730
Utah Housing Corp., Single Family Housing Rev., "H", 4.8%, 2038 2,530,000 2,435,226
--------------
$ 26,139,436
- ---------------------------------------------------------------------------------------------------------------------------------
Solid Waste Revenue - 0.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware County, PA, Industrial Development Authority, Resource Recovery Facilities Rev.
(American Ref-Fuel Co.), "A", 6.2%, 2019 $ 3,900,000 $ 3,996,486
Hudson County, NJ, Solid Waste System Rev., 6%, 2019 2,000,000 2,001,200
Massachusetts Industrial Finance Agency, Resource Recovery Rev. (Ogden Haverhill Associates),
"A", 5.5%, 2013 2,475,000 2,521,431
Massachusetts Industrial Finance Agency, Resource Recovery Rev. (Ogden Haverhill Associates),
"A", 5.6%, 2019 5,425,000 5,523,247
--------------
$ 14,042,364
- ---------------------------------------------------------------------------------------------------------------------------------
State & Local Agencies - 4.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Alabama Building Renovation Authority, AMBAC, 6%, 2017 $ 1,805,000 $ 1,912,831
Alabama Building Renovation Authority, AMBAC, 6%, 2018 1,155,000 1,224,000
Chicago, IL, Public Building Commission Rev., FGIC, 5.25%, 2017 (u) 9,000,000 9,832,050
College Park, GA, Industrial Development Authority Rev. (Civic Center), AMBAC, 5.75%, 2010 (c) 3,000,000 3,224,460
Delaware Valley, PA, Regional Finance Authority, RITES, FRN, AMBAC, 7.033%, 2018 (p) 7,000,000 8,420,860
Essex County, NJ, FGIC, 5.75%, 2010 (c)(u) 12,000,000 12,701,160
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., "A-1", AMBAC,
0% to 2010, 4.6% to 2023 1,185,000 1,039,399
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., "B", AMBAC,
5%, 2013 (c) 11,260,000 11,893,488
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Enhanced,
"A", 5%, 2045 5,000,000 5,025,600
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Enhanced,
"B", 5.375%, 2010 (c) 2,500,000 2,608,575
Harris County, TX, 5.8%, 2014 1,125,791 1,149,579
Harris County, TX, 5.625%, 2020 2,232,014 2,214,894
King George County, VA, Industrial Development Authority Lease Rev., FSA, 5%, 2036 3,800,000 3,915,748
Mississippi Development Bank, Special Obligations, Hinds County Public Improvements,
FSA, 5.25%, 2015 (c) 2,080,000 2,263,934
New Jersey Economic Development Authority Rev., School Facilities Construction, "O", 5.25%, 2025 1,940,000 2,056,749
Northumberland County, PA (Country Careers & Arts Center), 6.65%, 2010 (c) 1,080,000 1,099,040
Northumberland County, PA (Mountain View Manor), 7%, 2010 (c) 1,000,000 1,093,150
Shawnee County, KS (Community Mental Health Center, Inc.), 5.35%, 2009 (c) 250,000 257,070
--------------
$ 71,932,587
- ---------------------------------------------------------------------------------------------------------------------------------
Student Loan Revenue - 0.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Access to Loans for Learning, California Student Loan Rev., 7.95%, 2030 $ 2,700,000 $ 2,812,752
Arizona Student Loan Acquisition Authority, Student Loan Rev., 6.15%, 2029 1,500,000 1,565,190
South Dakota Student Loan Rev., Education Loans, Inc., 5.6%, 2020 2,605,000 2,678,930
--------------
$ 7,056,872
- ---------------------------------------------------------------------------------------------------------------------------------
Tax - Other - 0.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Black Hawk, CO, Device Tax Rev., 5.625%, 2008 (c) $ 2,750,000 $ 2,842,208
Black Hawk, CO, Device Tax Rev., 5%, 2010 280,000 284,872
Black Hawk, CO, Device Tax Rev., 5%, 2013 180,000 183,902
Black Hawk, CO, Device Tax Rev., 5%, 2015 560,000 571,430
Black Hawk, CO, Device Tax Rev., 5%, 2021 430,000 432,296
Harris County-Houston, TX, Sports Authority Rev., MBIA, 0%, 2032 6,310,000 1,671,014
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.5%, 2024 1,000,000 1,032,690
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.75%, 2029 1,795,000 1,917,365
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.5%, 2031 800,000 839,976
New Jersey Economic Development Authority Rev. Cigarette Tax, 5.75%, 2034 1,195,000 1,268,504
Orange County, FL, Tourist Development Tax Rev., XLCA, 5%, 2031 2,155,000 2,226,869
Virgin Islands Public Finance Authority Rev., "E", 5.875%, 2018 1,500,000 1,544,100
--------------
$ 14,815,226
- ---------------------------------------------------------------------------------------------------------------------------------
Tax Assessment - 8.1%
- ---------------------------------------------------------------------------------------------------------------------------------
Arborwood Community Development District, FL, Capital Improvement Rev., 5.25%, 2016 $ 500,000 $ 496,155
Arborwood Community Development District, FL, Capital Improvement Rev. (Centex Homes Project),
"A-1", 5.5%, 2036 1,480,000 1,473,503
Arborwood Community Development District, FL, Capital Improvement Rev.
(Master Infrastructure Projects), "A", 5.35%, 2036 1,845,000 1,812,934
Arborwood Community Development District, FL, Special Assessment
(Master Infrastructure Projects), "B", 5.1%, 2014 730,000 719,313
Atlanta, GA, Tax Allocation (Eastside Project), "B", 5.6%, 2030 2,450,000 2,512,769
Atlanta, GA, Tax Allocation (Princeton Lakes Project), 5.5%, 2031 1,765,000 1,773,154
Ave Maria Stewardship Community, FL, "A", 5.125%, 2038 2,045,000 1,928,803
Belmont Community Development District, FL, Capital Improvement Rev., "B", 5.125%, 2014 3,015,000 2,954,790
Broadview, IL, Tax Increment Rev., 5.25%, 2012 4,180,000 4,248,886
Broadview, IL, Tax Increment Rev., 5.375%, 2015 3,400,000 3,456,236
Brunswick, MD, Special Obligation (Brunswick Crossing Special Taxing), 5.5%, 2036 2,750,000 2,774,723
Improvement Rev., "A-2", 6.85%, 2031 695,000 745,103
Century Gardens Village Community Development District, FL, Special Assessment, 5.1%, 2037 1,020,000 971,968
Concord Station Community Development District, FL, Special Assessment, 5%, 2015 825,000 808,352
Concorde Estates Community Development District, FL, Special Assessment, "B", 5%, 2011 435,000 431,894
Creekside Community Development District, FL, Special Assessment, 5.2%, 2038 2,700,000 2,561,139
Dardenne, MO, Town Square Transportation Development District, "A", 5%, 2026 2,750,000 2,668,408
Du Page County, IL, Special Service Area No. 31 Special Tax (Monarch Landing Project),
5.625%, 2036 945,000 966,555
Durbin Crossing Community Development District, FL, Special Assessment, "B-1", 4.875%, 2010 5,620,000 5,562,395
East Homestead Community Development District, FL, Special Assessment, "B", 5%, 2011 555,000 551,093
Enclave at Black Point Marina Community Development District, FL, "A", 5.4%, 2037 395,000 381,369
Enclave at Black Point Marina Community Development District, FL, "B", 5.2%, 2014 1,785,000 1,770,845
Fishhawk Community Development District, FL, 5.125%, 2009 1,075,000 1,072,388
Grand Bayat Doral Community Development "A", 6%, 2039 620,000 619,058
Grand Bayat Doral Community Development, "B", 6%, 2017 1,870,000 1,868,429
Greyhawk Landing Community Development District, FL, Special Assessment, "B", 6.25%, 2009 110,000 110,635
Hawks Point Community Development District, FL, Special Assessment, "A", 5.3%, 2039 1,430,000 1,372,671
Heritage Harbour South Community Development District, FL, Special Assessment, "B", 5.4%, 2008 5,000 5,004
Katy, TX, Development Authority Rev., "B", 5.8%, 2011 1,985,000 2,023,370
Katy, TX, Development Authority Rev., "B", 6%, 2018 4,600,000 4,704,006
Killarney Community Development District, FL, Special Assessment, "B", 5.125%, 2009 850,000 848,122
Lake Elsinore, CA, Public Financing Authority, 7.1%, 2020 2,225,000 2,272,548
Lakes by the Bay South Community Development District, FL, Rev., "B", 5.3%, 2009 1,130,000 1,128,599
Lakeshore Villages Master Community Development District, LA, Special Assessment, 5.25%, 2017 2,975,000 2,934,213
Lancaster County, SC, Assessment Rev. (Sun City Carolina Lakes), 5.45%, 2037 340,000 342,689
Landmark at Doral, FL, Community Development District, Special Assessment, "B", 5.2%, 2015 2,000,000 1,994,800
Legends Bay Community Development District "A", 5.875%, 2038 1,370,000 1,372,370
Legends Bay Community Development District "B", 5.5%, 2014 1,580,000 1,584,266
Markham, IL, Tax Increment Rev., 9%, 2012 1,790,000 1,800,579
Middle Village Community Development District, FL, Special Assessment, "A", 5.8%, 2022 840,000 859,656
Morgantown, WV, Tax Increment Rev., Parking Garage Project, "A", 4.8%, 2026 1,215,000 1,180,883
Morgantown, WV, Tax Increment Rev., Parking Garage Project, "A", 5%, 2033 500,000 488,620
Naturewalk Community Development District, FL, Capital Improvement Rev., "B", 5.3%, 2016 2,340,000 2,266,627
New Port Tampa Bay Community Development District, FL, Special Assessment, "B", 5.3%, 2012 1,360,000 1,356,260
North Springs Improvement District, FL, Special Assessment (Parkland Golf Country Club),
"B-1", 5.125%, 2015 1,090,000 1,075,885
North Springs Improvement District, FL, Special Assessment (Parkland Golf Country Club),
"B-2", 5.125%, 2015 500,000 493,525
Old Palm Community Development District, FL, Special Assessment (Palm Beach Gardens),
"A", 5.9%, 2035 725,000 744,343
Old Palm Community Development District, FL, Special Assessment (Palm Beach Gardens),
"B", 5.375%, 2014 855,000 853,350
Osage Beach, MO, Tax Increment Rev. (Prewitts), 4.8%, 2016 1,675,000 1,649,054
Osage Beach, MO, Tax Increment Rev. (Prewitts), 5%, 2023 1,500,000 1,467,900
OTC Community Development District, FL, Special Assessment, "A", 5.3%, 2038 1,500,000 1,424,535
Overland Park, KS, Special Assessment (Tallgrass Creek), 4.85%, 2016 565,000 561,700
Overland Park, KS, Special Assessment (Tallgrass Creek), 5.125%, 2028 1,220,000 1,216,047
Palm Glades Community Development District, FL, Special Assessment, "A", 5.3%, 2036 1,110,000 1,072,116
Palm River Community Development District, FL, Special Assessment, "A", 5.375%, 2036 970,000 948,388
Palm River Community Development District, FL, Special Assessment, "B", 5.15%, 2013 1,000,000 992,080
Panther Trace II, Community Development District, FL, Special Assessment, 5.125%, 2013 1,145,000 1,136,172
Panther Trace II, Community Development District, FL, Special Assessment, "B", 5%, 2010 2,030,000 2,013,090
Parker Road Community Development District, FL, "A", 5.6%, 2038 1,260,000 1,232,230
Parkway Center, Community Development District, FL, Special Assessment, "B", 5.625%, 2014 3,705,000 3,730,231
Paseo, FL, Community Development District, "B", 4.875%, 2010 3,305,000 3,275,949
Preserve at Wilderness Lake, FL, 6.2%, 2008 35,000 35,161
Prince George's County, MD, Special Obligation (National Harbor Project), 5.2%, 2034 755,000 750,629
Renaissance Community Development District, FL, Special Assessment, "B", 6.25%, 2008 335,000 336,132
Reunion East Community Development District, FL, Special Assessment, 5.9%, 2007 50,000 49,998
Riverside County, CA, Public Financing Authority, Tax Allocation Rev., XLCA, 5%, 2037 2,000,000 2,045,760
Riverwood Estates Community Development District, FL, Special Assessment, "B", 5%, 2013 2,830,000 2,790,946
Rolling Hills Community Development District, FL, "B", 5.125%, 2013 2,300,000 2,273,481
Sarasota National Community Development District, FL, Special Assessment, 5.3%, 2039 3,215,000 3,074,601
Six Mile Creek Community Development District, FL, Capital Improvement Rev., 5.875%, 2038 5,000,000 5,018,600
Sterling Hill Community Development District, FL, Special Assessment, 5.5%, 2010 1,105,000 1,108,315
Stonebrier Community Development District, FL, Special Assessment, 5.5%, 2037 1,845,000 1,856,273
Stoneybrook South Community Development District, FL, Special Assessment, "A", 5.8%, 2039 2,000,000 1,999,800
Stoneybrook South Community Development District, FL, Special Assessment, "B"', 5.45%, 2015 2,000,000 1,995,880
Sweetwater Creek Community Development District, FL, Capital Improvement Rev., 5.3%, 2017 2,000,000 1,980,940
Sweetwater Creek Community Development District, FL, Capital Improvement Rev., 5.5%, 2038 1,500,000 1,480,365
Tuscany Reserve Community Development District, FL, Special Assessment, "B", 5.25%, 2016 1,525,000 1,517,482
Two Creeks Community Development District, FL, Capital Improvement Rev., 5.25%, 2037 2,185,000 2,071,642
Villa Portofino East Community Development District, FL, Special Assessment, 5.2%, 2037 2,345,000 2,252,302
Villa Portofino West Community Development District, FL, Special Assessment, "A", 5.35%, 2036 995,000 986,254
Villa Vizcaya Community Development District, FL, "A", 5.55%, 2039 790,000 779,477
Washington County, PA, Redevelopment Authority (Victory Centre Project), "A", 5.45%, 2035 630,000 633,560
Watergrass Community Development District, FL, "A", 5.375%, 2039 1,580,000 1,527,370
Watergrass Community Development District, FL, Special Assessment, "B", 4.875%, 2010 2,335,000 2,314,475
Wentworth Estates Community Development District, FL, Special Assessment, "B", 5.125%, 2012 1,235,000 1,221,551
--------------
$ 137,763,769
- ---------------------------------------------------------------------------------------------------------------------------------
Tobacco - 4.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Badger, WI, Tobacco Asset Securitization Corp., 6.125%, 2027 $10,185,000 $ 10,622,955
Badger, WI, Tobacco Asset Securitization Corp., 6.375%, 2032 495,000 535,333
California County, CA, Tobacco Securitization Agency, Capital Appreciation Asset Backed
(Gold Country), 0%, 2033 7,870,000 1,761,700
California County, CA, Tobacco Securitization Agency, Tobacco Settlement (Los Angeles County),
0% to 2010, 5.65% to 2041, 0%, 2041 1,525,000 1,311,561
California Statewide Financing Authority, Tobacco Settlement, 5.625%, 2029 4,320,000 4,434,350
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico, "A", 0%, 2050 8,000,000 546,640
Children's Trust Fund, Tobacco Settlement Rev., Puerto Rico, "B", 0%, 2055 14,000,000 512,960
District of Columbia, Tobacco Settlement, 6.25%, 2024 3,455,000 3,625,677
District of Columbia, Tobacco Settlement, 6.75%, 2040 885,000 944,410
District of Columbia, Tobacco Settlement, Capital Appreciation, "A", 0%, 2046 19,160,000 1,826,140
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A-1", 6.625%, 2013 (c) 1,070,000 1,220,014
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A-1", 6.75%, 2013 (c) 2,620,000 3,004,249
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement, "A-4", 7.8%, 2013 (c) 3,000,000 3,602,700
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev., Asset Backed, "B", 5.3%, 2011 (c) 5,000,000 5,255,250
Iowa Tobacco Settlement Authority, Tobacco Settlement Rev., Asset Backed,
"B", 0% to 2007, 5.6% to 2034 4,295,000 4,355,044
Louisiana Tobacco Settlement Authority Rev., 5.5%, 2030 4,915,000 5,115,778
Louisiana Tobacco Settlement Authority Rev., "2001B", 5.875%, 2039 4,325,000 4,579,916
New Jersey Tobacco Settlement Financing Corp., 5.75%, 2012 (c) 6,560,000 6,980,234
New Jersey Tobacco Settlement Financing Corp., 7%, 2013 (c) 45,000 52,181
New Jersey Tobacco Settlement Financing Corp., "1-A", 5%, 2029 5,000,000 4,684,400
Northern Tobacco Securitization Corp., AK, Asset Backed, "A", 5%, 2046 1,570,000 1,417,129
Rhode Island Tobacco Settlement Financing Corp., "A", 0%, 2052 41,525,000 2,772,209
Rockland Tobacco Asset Securitization Corp., NY, Tobacco Asset Backed, "C", 0%, 2060 33,955,000 660,764
Silicon Valley Tobacco Securitization Authority, CA, Tobacco Settlement Rev.
(Turbo-Santa Clara), "A", 0%, 2036 7,265,000 1,474,286
Silicon Valley Tobacco Securitization Authority, CA, Tobacco Settlement Rev.
(Turbo-Santa Clara), "A", 0%, 2041 5,640,000 852,937
South Carolina Tobacco Settlement Authority Rev., "B", 6%, 2022 2,500,000 2,604,000
South Carolina Tobacco Settlement Authority Rev., "B", 6.375%, 2028 3,725,000 3,934,084
South Carolina Tobacco Settlement Authority Rev., "B", 6.375%, 2030 2,435,000 2,720,163
Virginia Tobacco Settlement Financing Corp., 5.625%, 2015 (c) 1,150,000 1,271,210
Virginia Tobacco Settlement Financing Corp., "B-1", 5%, 2047 430,000 399,410
Washington Tobacco Settlement Authority, 6.5%, 2026 1,035,000 1,107,005
--------------
$ 84,184,689
- ---------------------------------------------------------------------------------------------------------------------------------
Toll Roads - 2.5%
- ---------------------------------------------------------------------------------------------------------------------------------
E-470 Public Highway Authority, Colorado Rev., Capital Appreciation, "B", MBIA, 0%, 2027 $12,305,000 $ 4,461,178
Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Rev., "A", 7.15%, 2010 (c) 5,000,000 5,489,400
New Jersey Turnpike Authority Rev., MBIA, 5.375%, 2010 (c)(u) 10,000,000 10,366,300
Pocahontas Parkway Assn., VA, Toll Road Rev., "B", 0%, 2008 (c) 2,100,000 1,658,328
Pocahontas Parkway Assn., VA, Toll Road Rev., "B", 0%, 2008 (c) 7,000,000 5,223,050
Pocahontas Parkway Assn., VA, Toll Road Rev., "B", 0%, 2008 (c) 5,100,000 3,592,134
San Joaquin Hills, CA, Toll Road Rev. (Transportation Corridor Agency), ETM, 0%, 2011 (c) 13,400,000 11,765,602
--------------
$ 42,555,992
- ---------------------------------------------------------------------------------------------------------------------------------
Transportation - Special Tax - 0.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Telluride, CO, Real Estate Transfer Assessment Rev. (Gondola Transit Co.), ETM, 11.5%, 2012 (c) $ 6,000,000 $ 7,713,840
- ---------------------------------------------------------------------------------------------------------------------------------
Universities - Colleges - 3.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Anderson, IN, Economic Development Rev. (Anderson University Project), 5%, 2028 $ 3,530,000 $ 3,503,349
Anderson, IN, Economic Development Rev. (Anderson University Project), 5%, 2032 1,025,000 1,007,637
California Educational Facilities Authority Rev. (L.A. College of Chiropractic), 5.6%, 2017 2,000,000 2,005,660
California Educational Facilities Authority Rev. (University of La Verne), "A", 5%, 2029 2,205,000 2,211,924
California Statewide Communities Development Authority Rev. (California Baptist University),
"A", 5.5%, 2038 1,580,000 1,596,985
Chabot Las Positas, CA, Community College, Capital Appreciation, Election of 2004,
"B", AMBAC, 0%, 2027 3,565,000 1,345,288
Foothill-DE Anza Community College District, CA, Capital Appreciation, "B", AMBAC, 0%, 2032 4,825,000 1,411,023
Foothill-DE Anza Community College District, CA, Capital Appreciation, "B", AMBAC, 0%, 2033 5,335,000 1,481,530
Foothill-DE Anza Community College District, CA, Capital Appreciation, "B", AMBAC, 0%, 2034 9,580,000 2,525,767
Harrisburg, PA, University of Science, "A", 5.4%, 2016 815,000 831,365
Harrisburg, PA, University of Science, "B", 6%, 2036 1,895,000 1,945,331
Houston, TX, Community College Systems, MBIA, 7.875%, 2025 9,150,000 10,641,725
Illinois Educational Facilities Authority Rev. (Augustana College), "A", 5.625%, 2022 1,300,000 1,361,113
Illinois Finance Authority Rev. (Illinois Institute of Technology), "A", 5%, 2031 2,000,000 1,999,860
Illinois Finance Authority Rev. (Illinois Institute of Technology), "A", 5%, 2036 7,270,000 7,214,748
Indiana Educational Facilities Authority Rev. (Manchester College), 5.75%, 2018 1,000,000 1,025,900
Iowa Higher Education Loan Authority Rev. (Waldorf Lutheran Collage), "A", 5%, 2027 1,100,000 1,095,776
Iowa Higher Education Loan Authority Rev. (Waldorf Lutheran Collage), "A", 5%, 2034 1,000,000 983,870
Maryland Health & Higher Educational Facilities Authority Rev. (Loyola College),
"A", 5.125%, 2045 3,395,000 3,436,521
New Hampshire Higher Educational & Health Facilities Authority Rev.
(Franklin Pierce Law Center), 5.5%, 2018 1,200,000 1,224,336
New York Dormitory Authority Rev. (Vassar College), 4.25%, 2039 1,880,000 1,697,753
Private Colleges & Universities Authority, GA, Rev. (Mercer University Project),
"A", 5.375%, 2029 760,000 775,048
San Leanna, TX, Educational Facilities Corp., Higher Education Rev.
(Saint Edwards University), 5.125%, 2024 500,000 513,765
San Leanna, TX, Educational Facilities Corp., Higher Education Rev.
(Saint Edwards University), 5.125%, 2026 495,000 503,182
San Leanna, TX, Educational Facilities Corp., Higher Education Rev.
(Saint Edwards University), 5.125%, 2027 890,000 903,323
San Leanna, TX, Educational Facilities Corp., Higher Education Rev.
(Saint Edwards University), 5.125%, 2036 1,375,000 1,389,190
Savannah, GA, Economic Development Authority Rev. (College of Art & Design, Inc.),
6.5%, 2009 (c) 2,000,000 2,141,280
Savannah, GA, Economic Development Authority Rev. (College of Art & Design, Inc.),
ETM, 6.2%, 2009 (c) 635,000 649,288
University of Arkansas, University Construction Rev. (UAMS Campus), "B", MBIA, 5%, 2034 890,000 919,415
University of Colorado Enterprise Systems Rev., Refunding & Improvement, FGIC, 5%, 2030 1,865,000 1,929,566
West Virginia, Higher Education Facilities Rev., "B", FGIC, 5%, 2034 3,730,000 3,829,628
Wisconsin Health & Educational Facilities Authority Rev. (Carroll College, Inc. Project),
5.25%, 2021 500,000 518,365
--------------
$ 64,619,511
- ---------------------------------------------------------------------------------------------------------------------------------
Universities - Dormitories - 0.3%
- ---------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev. (California Baptist University),
"A", 5.4%, 2027 $ 1,385,000 $ 1,398,476
California Statewide Communities Development Authority Rev.
(Lancer Educational Student Housing Project), 5.625%, 2033 1,380,000 1,389,964
Illinois Educational Facilities Authority, Educational Advancement Fund (University Center),
6.625%, 2012 (c) 1,500,000 1,687,860
Maryland Economic Development Corp. (Morgan State University Project), "A", 6%, 2022 100,000 103,359
Maryland Economic Development Corp. (Morgan State University Project), "A", 6%, 2034 55,000 56,086
--------------
$ 4,635,745
- ---------------------------------------------------------------------------------------------------------------------------------
Universities - Secondary Schools - 1.8%
- ---------------------------------------------------------------------------------------------------------------------------------
California Statewide Communities Development Authority Rev. (Escondido Charter High School),
7.5%, 2011 (c) $ 1,780,000 $ 2,005,010
California Statewide Communities Development Authority Rev. (Escondido Charter High School),
7.5%, 2011 (c) 3,485,000 4,022,910
Colorado Housing Finance Development Rev. (Evergreen Country Day School), 5.875%, 2037 2,760,000 2,757,792
Deerfield, IL, Educational Facilities Authority Rev. (Chicagoland Jewish High School Project),
6%, 2041 2,610,000 2,642,286
Gainesville, GA, Redevelopment Authority Educational Facilities Rev.
(Riverside Military Academy, Inc.), 5.125%, 2037 800,000 782,680
Illinois Development Finance Authority, Economic Development Rev. (Latin School of Chicago),
5.6%, 2008 (c) 850,000 864,960
Illinois Development Finance Authority, Economic Development Rev. (Latin School of Chicago),
5.65%, 2008 (c) 1,730,000 1,761,278
Lee County, FL, Industrial Development Authority Rev. (Lee Charter Foundation), "A", 5.25%, 2027 1,570,000 1,539,542
Lee County, FL, Industrial Development Authority Rev. (Lee Charter Foundation),
"A", 5.375%, 2037 1,575,000 1,539,405
Maryland Health & Higher Educational Facilities Authority Rev. (Washington Christian Academy),
5.25%, 2018 985,000 988,576
Maryland Health & Higher Educational Facilities Authority Rev. (Washington Christian Academy),
5.5%, 2038 460,000 459,977
Maryland Industrial Development Financing Authority, Economic Development Authority Rev.
(Our Lady of Good Council), "A", 6%, 2035 450,000 474,719
Massachusetts Development Finance Agency Rev. (Williston Northampton School), 6.5%, 2008 (c) 1,400,000 1,470,070
Michigan Municipal Bond Authority Rev. (YMCA Service Learning Academy), 7.625%, 2021 550,000 587,890
Michigan Municipal Bond Authority Rev. (YMCA Service Learning Academy), 7.75%, 2031 2,450,000 2,618,928
Pima County, AZ, Industrial Development Authority Education Rev. (Arizona Charter Schools),
"C", 6.4%, 2013 1,055,000 1,107,592
Pima County, AZ, Industrial Development Authority Education Rev. (Arizona Charter Schools),
"C", 6.75%, 2031 2,970,000 3,121,203
Utah County, UT, Charter School Rev. (Lakeview Academy), "A", 5.625%, 2037 800,000 799,400
Utah County, UT, Charter School Rev. (Renaissance Academy), "A", 5.625%, 2037 1,065,000 1,064,201
--------------
$ 30,608,419
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities - Cogeneration - 1.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Alaska Industrial Development & Export Authority, 5.7%, 2012 $ 830,000 $ 833,843
Alaska Industrial Development & Export Authority, 5.875%, 2032 1,800,000 1,782,612
Carbon County, PA, Industrial Development Authority Rev. (Panther Creek Partners), 6.65%, 2010 4,975,000 5,096,440
Ohio Water Development Authority (Bay Shore Power), 5.875%, 2020 1,700,000 1,723,494
Pennsylvania Economic Development Financing Authority Rev., Resources Recovery Rev. (Colver),
"G", 5.125%, 2015 1,050,000 1,051,124
Pennsylvania Economic Development Financing Authority Rev., Resources Recovery Rev.
(Northampton Generating), "A", 6.5%, 2013 2,300,000 2,310,511
Pennsylvania Economic Development Financing Authority Rev., Resources Recovery Rev.
(Northampton Generating), "A", 6.6%, 2019 5,000,000 5,025,400
--------------
$ 17,823,424
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities - Investor Owned - 2.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Brazos River Authority, TX, Pollution Control Rev. (TXU Electric Co.), "C", 5.75%, 2036 $ 3,760,000 $ 3,820,198
Calcasieu Parish, LA, Industrial Development Board, Pollution Control Rev.
(Entergy Gulf States, Inc.), 5.45%, 2010 4,800,000 4,804,128
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), "A", 6.3%, 2016 3,240,000 3,291,322
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), "A", 5.8%, 2022 4,500,000 4,529,880
Farmington, NM, Pollution Control Rev. (New Mexico Public Service), "C", 5.8%, 2022 1,390,000 1,399,230
Farmington, NM, Pollution Control Rev. (Tucson Electric), "A", 6.95%, 2020 3,000,000 3,072,420
Forsyth, MT, Pollution Control Rev. (Northwestern Corp.), AMBAC, 4.65%, 2023 3,085,000 3,116,621
Forsyth, MT, Pollution Control Rev. (Portland General), "B", 5.2%, 2033 770,000 784,314
Forsyth, MT, Pollution Control Rev. (Puget Sound Energy), " A", AMBAC, 5%, 2031 3,165,000 3,274,161
Matagorda County, TX, Pollution Control Rev. (Reliant Energy), 5.95%, 2030 3,095,000 3,122,515
Mecklenburg County, VA, Industrial Development Authority Rev. (UAE Mecklenburg LP), 6.5%, 2017 2,800,000 3,013,836
New Hampshire Industrial Development Authority, Pollution Control Rev.
(Connecticut Light & Power), 5.9%, 2018 1,000,000 1,035,630
Pima County, AZ, Industrial Development Authority Rev. (Tucson Electric Power Co.),
"A", 6.1%, 2025 2,000,000 2,002,140
Pointe Coupee Parish, LA, Pollution Control Rev. (Gulf States Utilities Co.), 6.7%, 2013 1,000,000 1,002,410
Port Morrow, OR, Pollution Control Rev. (Portland General), 5.2%, 2033 1,900,000 1,933,440
West Feliciana Parish, LA, Pollution Control Rev. (Entergy Gulf States), 6.6%, 2028 3,335,000 3,337,001
--------------
$ 43,539,246
- ---------------------------------------------------------------------------------------------------------------------------------
Utilities - Municipal Owned - 0.2%
- ---------------------------------------------------------------------------------------------------------------------------------
North Carolina Municipal Power Agency, Catawba Electric Rev., 6.375%, 2013 $ 2,750,000 $ 2,921,628
- ---------------------------------------------------------------------------------------------------------------------------------
Water & Sewer Utility Revenue - 2.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Alabama Drinking Water Finance Authority, "A", AMBAC, 4%, 2028 $ 5,000,000 $ 4,585,700
Berkeley County, WV, Public Service Sewer District, "A", 5%, 2047 745,000 729,869
Berkeley County, WV, Public Service Sewer District, Sewer Capacity Impact Fee, 5%, 2022 900,000 878,454
Forsyth County, GA, Water & Sewer Authority Rev., 6.25%, 2010 (c) 1,010,000 1,081,407
Forsyth County, GA, Water & Sewerage Authority Rev., 6.25%, 2010 (c) 1,000,000 1,070,700
Louisville & Jefferson, KY, District Sewer & Drain System, "A", FGIC, 5.25%, 2037 2,635,000 2,786,144
Magnolia, TX, Water & Sewer System Rev., 5.15%, 2031 655,000 661,255
Massachusetts Water Resources Authority, RITES, FRN, FGIC, 8.454%, 2019 (n)(v) 765,000 1,029,223
Miami-Dade County, FL, Stormwater Utility Rev., MBIA, 5%, 2028 1,685,000 1,746,722
Michigan Municipal Bond Authority Rev., 5.5%, 2009 (c)(u) 15,170,000 15,852,043
Mississippi Development Bank Special Obligations, Grenada, MS, Water & Sewer Systems Project,
"N", FSA, 5%, 2030 2,155,000 2,231,653
Montgomery County, TX, Municipal Utility District No. 46 (Waterworks & Sewer Systems),
MBIA, 4.75%, 2028 1,490,000 1,497,465
Nueces River Authority, Texas Water Supply Rev. (Corpus Christi Project), FSA, 5%, 2027 2,000,000 2,064,788
Phoenix, AZ, FGIC, 6.25%, 2010 (c) 1,000,000 1,076,700
Virginia Clean Water Rev., 5.75%, 2010 (c) 2,500,000 2,646,075
Westmoreland County, PA, Municipal Authority Services Rev., FSA, 5.25%, 2015 (c) 2,075,000 2,256,127
--------------
$ 42,194,325
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (IDENTIFIED COST, $1,692,834,613) $1,727,172,109
- ---------------------------------------------------------------------------------------------------------------------------------
Floating Rate Demand Notes - 1.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Atlanta, GA, Water & Wastewater Rev., "C", 3.66%, due 8/01/07 $ 145,000 $ 145,000
Bell County, TX, Health Facilities Development Corp. Rev. (Scott & White Memorial Hospital),
"B-2", 3.7%, due 8/01/07 850,000 850,000
Blount County, TN Public Building Authority (Local Public Government), 3.72%, due 8/01/07 335,000 335,000
Blount County, TN Public Building Authority (Local Public Government), 3.72%, due 8/01/07 1,400,000 1,400,000
Blount County, TN Public Building Authority (Local Public Government), 3.72%, due 8/01/07 400,000 400,000
Blount County, TN Public Building Authority (Local Public Government), 3.72%, due 8/01/07 1,000,000 1,000,000
Blount County, TN, Public Building Authority, Local Government Public Improvement,
"A-1", 3.72%, due 8/01/07 390,000 390,000
Chicago, IL, Midway Airport Rev., Second Lien, "A", 3.77%, due 8/01/07 400,000 400,000
East Baton Rouge, LA, Pollution Control Rev. (Exxon Mobil Corp.), 3.63%, due 8/01/07 1,100,000 1,100,000
Jackson County, MS, Pollution Control Rev. (Chevron USA, Inc.), 3.66%, due 8/01/07 900,000 900,000
Lincoln County, WY, Pollution Control Rev. (Exxon Mobil Corp.), "C", 3.69%, due 8/01/07 6,985,000 6,985,000
Lincoln County, WY, Pollution Control Rev. (Exxon Mobil Corp.), "A", 3.69%, due 8/01/07 1,000,000 1,000,000
New York, NY, "A-4", 3.66%, due 8/01/07 300,000 300,000
New York, NY, Municipal Water & Sewer Finance Authority Rev., "C", 3.64%, due 8/01/07 4,500,000 4,500,000
New York, NY, Municipal Water Finance Authority, Water & Sewer Systems Rev., "A",
3.65%, due 8/01/07 100,000 100,000
New York, NY, Municipal Water Finance Authority, Water & Sewer Systems Rev., "G",
3.61%, due 8/01/07 100,000 100,000
Orange County, CA, 3.56%, due 8/01/07 100,000 100,000
Pinellas County, FL, Health Facilities Authority Rev. (Pooled Hospital Loan Program),
3.7%, due 8/01/07 1,100,000 1,100,000
Sevier County, TN, Public Building Authority (Local Government Public Improvement),
3.72%, due 8/01/07 200,000 200,000
Sevier County, TN, Public Building Authority (Local Government Public Improvement),
3.72%, due 8/01/07 100,000 100,000
Sevier County, TN, Public Building Authority Rev., 3.64%, due 8/02/07 65,000 65,000
Sevier County, TN, Public Building Authority Rev. (Local Government Public Improvement),
3.64%, due 8/02/07 700,000 700,000
Sevier County, TN, Public Building Authority Rev., Government Public Improvement III,
"B-2", 3.64%, due 8/02/07 50,000 50,000
Sevier County, TN, Public Building Authority, "D", 3.64%, 8/02/07 1,700,000 1,700,000
South Blount County, TN, Utility District Rev., 3.72%, due 8/01/07 800,000 800,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE DEMAND NOTES, AT IDENTIFIED COST $ 24,720,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,717,554,613) (k) $1,751,892,109
- ---------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.0)% (50,952,925)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,700,939,184
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Refunded bond.
(d) Non-income producing security - in default.
(k) As of July 31, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of Trustees,
aggregating $1,727,172,109 and 98.59% of market value. An independent pricing service provided an evaluated bid for 98.46% 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 $39,744,460 representing 2.3% of net assets.
(p) Primary inverse floater.
(u) Underlying security deposited into special purpose trust ("the trust") by investment banker upon creation of self-deposited
inverse floaters.
(v) Externally deposited inverse floater.
The following abbreviations are used in this report and are defined:
BMA Bond Market Assn.
COP Certificate of Participation
ETM Escrowed to Maturity
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
Insurers
- -------------------------------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corp.
CIFG CDC IXIS Financial Guaranty
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FHLMC Federal Home Loan Mortgage Corp.
FNMA Federal National Mortgage Assn.
FSA Financial Security Assurance Inc.
GNMA Government National Mortgage Assn.
MBIA MBIA Insurance Corp.
PSF Permanent School Fund
XLCA XL Capital Insurance Co.
Inverse Floaters
- -------------------------------------------------------------------------------------------------------
RITES Residual Interest Tax-Exempt Security
SWAP AGREEMENTS AT 7/31/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS
12/01/07 USD 22,000,000 Merrill Lynch Capital Services 7-Day BMA 2.795% $100,129
(fixed rate)
11/01/27 USD 16,000,000 Merrill Lynch Capital Services 3-Month 5.716% --
LIBOR (fixed rate)
--------
$100,129
========
At July 31, 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 7/31/07 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities comprising
the total value of the fund.
ASSETS
- ---------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $1,717,554,613) $1,751,892,109
Cash 212,359
Receivable for investments sold 34,932,574
Receivable for fund shares sold 5,514,952
Interest receivable 22,254,607
Unrealized appreciation on interest rate swap agreements 100,129
Other assets 10,915
- ---------------------------------------------------------------------------------------------------------
Total assets $1,814,917,645
- ---------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Distributions payable $7,048,281
Payable for investments purchased 46,920,653
Payable to the holder of the floating rate certificate
from trust assets 56,095,831
Payable for fund shares reacquired 2,932,962
Payable to affiliates
Management fee 93,207
Shareholder servicing costs 217,833
Distribution and service fees 56,365
Administrative services fee 3,295
Payable for independent trustees' compensation 46,020
Payable for interest expense and fees 474,535
Accrued expenses and other liabilities 89,479
- ---------------------------------------------------------------------------------------------------------
Total liabilities $113,978,461
- ---------------------------------------------------------------------------------------------------------
Net assets $1,700,939,184
- ---------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ---------------------------------------------------------------------------------------------------------
Paid-in capital $1,719,614,330
Unrealized appreciation (depreciation) on investments 34,437,625
Accumulated net realized gain (loss) on investments (62,550,374)
Undistributed net investment income 9,437,603
- ---------------------------------------------------------------------------------------------------------
Net assets $1,700,939,184
- ---------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 203,507,099
- ---------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- ---------------------------------------------------------------------------------------------------------
Net assets $1,371,470,973
Shares outstanding 164,121,305
- ---------------------------------------------------------------------------------------------------------
Net asset value per share $8.36
- ---------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $8.78
- ---------------------------------------------------------------------------------------------------------
Class B shares
- ---------------------------------------------------------------------------------------------------------
Net assets $149,345,267
Shares outstanding 17,856,137
- ---------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.36
- ---------------------------------------------------------------------------------------------------------
Class C shares
- ---------------------------------------------------------------------------------------------------------
Net assets $180,122,944
Shares outstanding 21,529,657
- ---------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $8.37
- ---------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 7/31/07 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------------
Interest interest $57,093,266
- --------------------------------------------------------------------------------------------------------
Expenses
Management fee $5,057,507
Distribution and service fees 1,519,874
Shareholder servicing costs 715,978
Administrative services fee 150,305
Independent trustees' compensation 22,696
Custodian fee 61,204
Shareholder communications 44,540
Auditing fees 24,799
Legal fees 66,795
Interest expense and fees 1,132,340
Miscellaneous 112,366
- --------------------------------------------------------------------------------------------------------
Total expenses $8,908,404
- --------------------------------------------------------------------------------------------------------
Fees paid indirectly (52,889)
Reduction of expenses by investment adviser (807,997)
- --------------------------------------------------------------------------------------------------------
Net expenses $8,047,518
- --------------------------------------------------------------------------------------------------------
Net investment income $49,045,748
- --------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(1,283,898)
Swap transactions 577,829
- --------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(706,069)
- --------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(33,583,024)
Swap transactions (227,221)
- --------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(33,810,245)
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $(34,516,314)
- --------------------------------------------------------------------------------------------------------
Change in net assets from operations $14,529,434
- --------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from
operations, any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
7/31/07 1/31/07
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income $49,045,748 $78,097,274
Net realized gain (loss) on investments (706,069) (1,089,624)
Net unrealized gain (loss) on investments (33,810,245) 13,538,310
- -----------------------------------------------------------------------------------------------
Change in net assets from operations $14,529,434 $90,545,960
- -----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
From net investment income
Class A $(35,012,416) $(61,246,122)
Class B (3,582,957) (8,854,231)
Class C (3,658,826) (6,023,571)
- -----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(42,254,199) $(76,123,924)
- -----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $44,782,064 $247,827,107
- -----------------------------------------------------------------------------------------------
Redemption fees $-- $21,728
- -----------------------------------------------------------------------------------------------
Total change in net assets $17,057,299 $262,270,871
- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
At beginning of period 1,683,881,885 1,421,611,014
At end of period (including undistributed net investment
income of $9,437,603 and $2,646,054, respectively) $1,700,939,184 $1,683,881,885
- -----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and the
past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment
of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------------
CLASS A 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $8.49 $8.41 $8.39 $8.28 $8.12 $8.23
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.45 $0.46 $0.48 $0.47 $0.48
Net realized and unrealized gain (loss)
on investments (0.16) 0.07 0.02 0.09 0.17 (0.09)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.09 $0.52 $0.48 $0.57 $0.64 $0.39
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.22) $(0.44) $(0.46) $(0.46) $(0.48) $(0.50)
- -----------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.36 $8.49 $8.41 $8.39 $8.28 $8.12
- -----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.01(n) 6.32 5.81 7.16 7.98 4.96
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.87(a) 0.97 0.94(z) 0.80 0.81 0.84
Expenses after expense reductions (f) 0.77(a) 0.87 0.84(z) 0.71 0.79 0.79
Expenses after expense reductions and
excluding interest expense and fees (f)(l) 0.64(a) 0.72 0.72 0.71 0.79 0.79
Net investment income 5.95(a) 5.32 5.47 5.82 5.80 5.88
Portfolio turnover 15 13 20 13 9 20
Net assets at end of period (000 Omitted) $1,371,471 $1,335,269 $1,080,805 $977,416 $1,003,328 $1,050,204
- -----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------
CLASS B 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $8.50 $8.41 $8.40 $8.28 $8.13 $8.24
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.39 $0.40 $0.42 $0.41 $0.42
Net realized and unrealized gain (loss)
on investments (0.18) 0.07 0.00(w) 0.10 0.16 (0.10)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.46 $0.40 $0.52 $0.57 $0.32
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.18) $(0.37) $(0.39) $(0.40) $(0.42) $(0.43)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.36 $8.50 $8.41 $8.40 $8.28 $8.13
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.51(n) 5.64 4.88 6.47 7.15 4.01
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions(f) 1.64(a) 1.74 1.70(z) 1.57 1.59 1.63
Expenses after expense reductions(f) 1.55(a) 1.64 1.60(z) 1.48 1.57 1.58
Expenses after expense reductions
and excluding interest expense and fees (f)(l) 1.42(a) 1.50 1.48 1.48 1.57 1.58
Net investment income 5.12(a) 4.60 4.73 5.05 5.02 5.09
Portfolio turnover 15 13 20 13 9 20
Net assets at end of period (000 Omitted) $149,345 $178,566 $220,854 $283,360 $337,065 $355,602
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED --------------------------------------------------------------
CLASS C 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $8.50 $8.42 $8.40 $8.29 $8.13 $8.24
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.21 $0.36 $0.37 $0.39 $0.39 $0.40
Net realized and unrealized gain (loss)
on investments (0.17) 0.08 0.02 0.10 0.17 (0.10)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.04 $0.44 $0.39 $0.49 $0.56 $0.30
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $(0.36) $(0.37) $(0.38) $(0.40) $(0.41)
- -----------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.37 $8.50 $8.42 $8.40 $8.29 $8.13
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 0.51(n) 5.27 4.76 6.10 6.91 3.92
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions(f) 1.87(a) 1.97 1.94(z) 1.80 1.81 1.84
Expenses after expense reductions (f) 1.77(a) 1.87 1.84(z) 1.71 1.79 1.79
Expenses after expense reductions and
excluding interest expense and fees(f)(l) 1.64(a) 1.72 1.72 1.71 1.79 1.79
Net investment income 4.96(a) 4.30 4.44 4.80 4.78 4.86
Portfolio turnover 15 13 20 13 9 20
Net assets at end of period (000 Omitted) $180,123 $170,047 $119,952 $85,715 $78,975 $71,519
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(l) Interest expense and fees relate to payments made to the holder of the
floating rate certificate from trust assets.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been
lower.
(s) From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
(z) After the fund issued its January 31, 2006 financial statements, the fund
determined that the criteria for sale accounting in FASB Statement No. 140
had not been met for certain transfers of municipal bonds in connection with
self-deposited inverse floaters should have been accounted for as secured
borrowings rather than as sales. Accordingly, the expense ratio has been
restated to reflect interest expense and fees related to payments made to
the holder of the floating rate certificate from trust assets in connection
with self-deposited inverse floater transactions. The impact of the
restatement was to increase the expense ratio by 0.12%.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Municipal High Income Fund (the fund) is a series of MFS Series Trust III
which is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. Municipal securities backed by
current or anticipated revenues from a specific project or specific assets can
be negatively affected by the discontinuance of the taxation supporting the
projects or assets or the inability to collect revenues for the project or from
the assets. If the Internal Revenue Service determines an issuer of a municipal
security has not complied with applicable tax requirements, the security could
decline in value, interest from the security could become taxable and the fund
may be required to issue Forms 1099-DIV.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. 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.
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.
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.
INVERSE FLOATERS - The fund invests in municipal inverse floating rate
securities which are structured by the issuer (known as primary market inverse
floating rate securities) or by an investment banker utilizing municipal bonds
which have already been issued (known as secondary market inverse floating rate
securities) to have variable rates of interest which typically move in the
opposite direction of short term interest rates. A secondary market inverse
floating rate security is created when an investment banker transfers a fixed
rate municipal bond to a special purpose trust, and causes the trust to (a)
issue floating rate certificates to third parties, in an amount equal to a
fraction of the par amount of the deposited bonds (these certificates usually
pay tax-exempt interest at short-term interest rates that typically reset
weekly; and the certificate holders typically, on seven days notice, have the
option to tender their certificates to the investment banker or another party
for redemption at par plus accrued interest), and (b) issue inverse floating
rate certificates (sometimes referred to as "inverse floaters"). If the holder
of the inverse floater transfers the municipal bonds to an investment banker
for the purpose of depositing the municipal bonds into the special purpose
trust, the inverse floating rate certificates that are issued by the trust are
referred to as "self-deposited inverse floaters." If the bonds held by the
trust are purchased by the investment banker for deposit into the trust from
someone other than the purchasers of the inverse floaters, the inverse floating
rate certificates that are issued by the trust are referred to as "externally
deposited inverse floaters." Such self-deposited inverse floaters held by the
fund are accounted for as secured borrowings, with the municipal bonds
reflected in the investments of the fund and amounts owed to the holder of the
floating rate certificate under the provisions of the trust, which amounts are
paid solely from the assets of the trust, reflected as liabilities of the fund
in the Statement of Assets and Liabilities under the caption, "Payable to the
holder of the floating rate certificate from trust assets". At July 31, 2007,
the fund's payable to the holder of the floating rate certificate from trust
assets was $56,095,831. The weighted average interest rate on the floating rate
certificates issued by the trust was 4.25%. Interest expense and fees relate to
payments made to the holder of the floating rate certificate from trust assets
in connection with self-deposited inverse floater transactions. Interest
expense and fees are recorded as incurred. For the six months ended July 31,
2007, interest expense and fess in connection with self-deposited inverse
floaters was $1,132,340. Primary and externally deposited inverse floaters held
by the fund are not accounted for as secured borrowings.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
SHORT TERM FEES - The fund charged a 1% redemption fee on proceeds from Class
A, Class B, and Class C shares redeemed or exchanged within 30 calendar days
following their acquisition. Effective December 1, 2006, the fund no longer
charges a redemption fee. Any redemption fees charged are accounted for as an
addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All 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.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended July 31, 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 expiration of capital loss
carryforwards, amortization and accretion of debt securities, defaulted bonds,
and secured borrowings.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
1/31/07
Ordinary income (including any
short-term capital gains) $301,170
Tax-exempt income 75,822,754
-------------------------------------------------------------
Total distributions $76,123,924
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 7/31/07
Cost of investments $1,719,054,486
-------------------------------------------------------------
Gross appreciation $73,165,030
Gross depreciation (40,568,238)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $32,596,792
AS OF 1/31/07
Undistributed ordinary income $437,165
Undistributed tax-exempt income 9,024,355
Capital loss carryforwards (63,382,067)
Post-October capital loss deferral (1,543,279)
Other temporary differences (6,520,996)
Net unrealized appreciation (depreciation) 71,034,441
The aggregate cost above includes prior fiscal year end tax adjustments.
As of January 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
1/31/08 $(1,353,678)
1/31/09 (10,935,605)
1/31/10 (2,971,573)
1/31/11 (18,364,839)
1/31/12 (15,537,212)
1/31/13 (3,190,630)
1/31/14 (10,798,317)
1/31/15 (230,213)
---------------------------------------------------------
$(63,382,067)
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 the following annual
rates:
First $1.4 billion of average daily net assets 0.60%
Average daily net assets in excess of $1.4 billion 0.57%
As part of a settlement agreement with the New York Attorney General concerning
market timing and related matters, MFS has agreed to reduce the management fee
to 0.50% of the fund's average daily net assets for the period March 1, 2004
through February 28, 2009. For the six months ended July 31, 2007, this waiver
amounted to $803,786 and is reflected as a reduction of total expenses in the
Statement of Operations.
The management fee incurred for the six months ended July 31, 2007 was
equivalent to an annual effective rate of 0.50% of the fund's average daily net
assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $247,660 for the six months ended July 31, 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 B 0.75% 0.25% 1.00% 0.77% $634,171
Class C 0.75% 0.25% 1.00% 1.00% 885,703
- --------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,519,874
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or
service fees up to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six
months ended July 31, 2007 based on each class' average daily net assets. For one year from the date
of sale of Class B shares, assets attributable to such Class B shares are subject to the 25% annual
Class B service fee. On assets attributable to all other Class B shares, the service fee is not
currently in effect, but may be implemented on such date as the fund's Board of Trustees may
determine.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the six months ended July 31,
2007, were as follows:
AMOUNT
Class A $21,538
Class B $127,750
Class C $23,897
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 six months ended July 31, 2007, the fee was $441,509,
which equated to 0.0519% 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 six months ended July 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $267,795. 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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the six months ended July 31, 2007
was equivalent to an annual effective rate of 0.0177% of the fund's average
daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC. The fund has an unfunded, defined benefit plan
for certain retired independent trustees which resulted in a pension expense of
$2,390. This amount is included in independent trustees' compensation for the
six months ended July 31, 2007. The liability for deferred retirement benefits
payable to certain retired independent trustees amounted to $44,814 at July 31,
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 six months ended July 31, 2007, the fee paid to Tarantino
LLC was $6,285. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $4,211, 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
$306,733,522 and $263,244,874, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
7/31/07 1/31/07
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 19,669,102 $166,577,540 44,330,384 $375,734,204
Class B 567,427 4,801,828 2,008,855 16,999,796
Class C 3,249,208 27,571,636 7,867,910 66,695,786
- -----------------------------------------------------------------------------------------------------
23,485,737 $198,951,004 54,207,149 $459,429,786
Shares issued to shareholders in
reinvestment of distributions
Class A 2,073,167 $17,563,857 3,592,569 $30,420,282
Class B 177,294 1,503,984 422,131 3,574,609
Class C 222,045 1,883,225 359,226 3,045,882
- -----------------------------------------------------------------------------------------------------
2,472,506 $20,951,066 4,373,926 $37,040,773
Shares reacquired
Class A (14,877,624) $(125,674,121) (19,237,523) $(162,774,354)
Class B (3,899,810) (32,994,096) (7,669,455) (64,903,633)
Class C (1,946,053) (16,451,789) (2,475,435) (20,965,465)
- -----------------------------------------------------------------------------------------------------
(20,723,487) $(175,120,006) (29,382,413) $(248,643,452)
Net change
Class A 6,864,645 $58,467,276 28,685,430 $243,380,132
Class B (3,155,089) (26,688,284) (5,238,469) (44,329,228)
Class C 1,525,200 13,003,072 5,751,701 48,776,203
- -----------------------------------------------------------------------------------------------------
5,234,756 $44,782,064 29,198,662 $247,827,107
(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%. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the six months
ended July 31, 2007, the fund's commitment fee and interest expense on the line
of credit were $4,854 and $0, respectively, and are included in miscellaneous
expense and interest expense and fees, respectively, on the Statement of
Operations.
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to
the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of MFS peer funds, (iii) information provided by MFS on the
advisory fees of comparable portfolios of other clients of MFS, including
institutional separate accounts and other clients, (iv) information as to
whether and to what extent applicable expense waivers, reimbursements or fee
"breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance monitoring
and portfolio trading practices, and (viii) information regarding the overall
organization of MFS, including information about MFS' senior management and
other personnel providing investment advisory, administrative and other
services to the Fund and the other MFS Funds. The comparative performance, fee
and expense information prepared and provided by Lipper Inc. was not
independently verified and the independent Trustees did not independently
verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than in others, and
that the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 2nd quintile relative to
the other funds in the universe for this three-year period (the 1st quintile
being the best performers and the 5th quintile being the worst performers). The
total return performance of the Fund's Class A shares was in the 3rd quintile
for the one-year period and the 2nd quintile for the five-year period ended
December 31, 2006 relative to the Lipper performance universe. Because of the
passage of time, these performance results may differ from the performance
results for more recent periods, including those shown elsewhere in this
report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings, as
well as during investment review meetings conducted with portfolio management
personnel during the course of the year regarding the Fund's performance. After
reviewing these and related factors, the Trustees concluded, within the context
of their overall conclusions regarding the investment advisory agreement, that
they were satisfied with MFS' responses and efforts relating to investment
performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average daily net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that there is an advisory fee reduction in effect for the Fund through February
28, 2009 as part of MFS' settlement with the New York Attorney General
concerning market timing and related matters. The Trustees also considered
that, according to the Lipper data, the Fund's effective advisory fee rate
(taking into account the advisory fee reduction) was approximately at the
Lipper expense group median, and the Fund's total expense ratio was lower than
the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
subject to a contractual breakpoint. However, such breakpoint is not applicable
because the Fund is currently subject to the advisory fee reduction described
above. Accordingly, the Trustees determined not to recommend any advisory fee
breakpoint changes at this time.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser that also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, which may include securities lending programs,
directed expense payment programs, class action recovery programs, and MFS'
interaction with third-party service providers, principally custodians and
sub-custodians. The Trustees concluded that the various non-advisory services
provided by MFS and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly) and various other
factors. Additionally, the Trustees considered so-called "fall-out benefits" to
MFS such as reputational value derived from serving as investment manager to
the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2007.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2007
by clicking on the fund's name under "Select a fund" on the MFS Web site
(mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to MFS.COM, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) HIGH YIELD OPPORTUNITIES FUND
LETTER FROM THE CEO 1
- ----------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ----------------------------------------------------------
EXPENSE TABLE 3
- ----------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- ----------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 21
- ----------------------------------------------------------
STATEMENT OF OPERATIONS 23
- ----------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 25
- ----------------------------------------------------------
FINANCIAL HIGHLIGHTS 26
- ----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 31
- ----------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 42
- ----------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 46
- ----------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 46
- ----------------------------------------------------------
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
- ------------------------------------------------------------------------------
7/31/07
HYO-SEM
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%. But the Dow's upward
rise has not been without hiccups. After hitting new records in July 2007, the
Dow lost 8% in the following weeks as a crisis swept global credit markets. As
we have said before, markets can be 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)
September 14, 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 94.4%
Floating Rate Loans 6.4%
Common Stocks 1.7%
Preferred Stocks 0.3%
Cash & Other Net Assets (0.8)
TOP FIVE INDUSTRIES (i)
Medical & Health Technology & Services 8.2%
------------------------------------------------
Broadcasting 6.7%
------------------------------------------------
Gaming & Lodging 5.9%
------------------------------------------------
Automotive 5.6%
------------------------------------------------
Emerging Market Sovereign 5.4%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 0.1%
------------------------------------------------
A 1.4%
------------------------------------------------
BBB 5.4%
------------------------------------------------
BB 21.6%
------------------------------------------------
B 45.7%
------------------------------------------------
CCC 23.1%
------------------------------------------------
C 0.1%
------------------------------------------------
Not Rated 2.6%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d)(i) 4.9
------------------------------------------------
Average Life (i)(m) 8.7 yrs.
------------------------------------------------
Average Maturity (i)(m) 8.9 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) B+
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this 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 07/31/07.
From time to time "Cash & Other Net Assets" may be negative due to timing of
cash receipts.
Percentages are based on net assets as of 07/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
EXPENSE TABLE
Fund Expenses Borne by the Shareholders During the Period,
February 1, 2007 through July 31, 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 (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to help
you understand your ongoing costs (in dollars) of investing in the fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period February 1, 2007 through July 31,
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). 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
Beginning Ending Paid During
Annualized Account Account Period (p)
Share Expense Value Value 2/01/07-
Class Ratio 2/01/07 7/31/07 7/31/07
- ----------------------------------------------------------------------------
Actual 0.85% $1,000.00 $ 980.50 $4.17
A -------------------------------------------------------------------
Hypothetical (h) 0.85% $1,000.00 $1,020.58 $4.26
- ----------------------------------------------------------------------------
Actual 1.50% $1,000.00 $ 978.80 $7.36
B -------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.36 $7.50
- ----------------------------------------------------------------------------
Actual 1.50% $1,000.00 $ 978.50 $7.36
C -------------------------------------------------------------------
Hypothetical (h) 1.50% $1,000.00 $1,017.36 $7.50
- ----------------------------------------------------------------------------
Actual 0.50% $1,000.00 $ 983.70 $2.46
I -------------------------------------------------------------------
Hypothetical (h) 0.50% $1,000.00 $1,022.32 $2.51
- ----------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
7/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Bonds - 87.6%
- ---------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ---------------------------------------------------------------------------------------------------------------
Aerospace - 2.0%
- ---------------------------------------------------------------------------------------------------------------
Bombardier, Inc., 8%, 2014 (n) $ 3,210,000 $ 3,177,900
Hawker Beechcraft Acquisition Corp., 9.75%, 2017 (n) 7,510,000 7,434,900
Vought Aircraft Industries, Inc., 8%, 2011 4,790,000 4,454,700
------------
$ 15,067,500
- ---------------------------------------------------------------------------------------------------------------
Airlines - 0.4%
- ---------------------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 6.9%, 2017 $ 218,626 $ 212,066
Continental Airlines, Inc., 6.748%, 2017 460,904 447,075
Continental Airlines, Inc., 6.795%, 2018 1,474,262 1,415,289
Continental Airlines, Inc., 8.307%, 2018 1,049,902 1,060,400
------------
$ 3,134,830
- ---------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Cerveceria Nacional Dominicana, 8%, 2014 (n) $ 147,000 $ 145,530
- ---------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.8%
- ---------------------------------------------------------------------------------------------------------------
Levi Strauss & Co., 9.75%, 2015 $ 3,255,000 $ 3,287,548
Propex Fabrics, Inc., 10%, 2012 3,605,000 3,064,248
------------
$ 6,351,796
- ---------------------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 1.8%
- ---------------------------------------------------------------------------------------------------------------
Anthracite Ltd., CDO, 6%, 2037 (z) $ 1,500,000 $ 1,279,922
Arbor Realty Mortgage Securities, CDO, FRN, 7.66%, 2038 (z) 1,390,937 1,378,419
ARCap REIT, Inc., "H", 6.1%, 2045 (n) 1,025,662 830,305
Asset Securitization Corp., FRN, 8.356%, 2029 (z) 2,300,000 2,442,151
Babson CLO Ltd., "D", FRN, 6.86%, 2018 (n) 1,005,000 934,650
Crest Ltd., 7%, 2040 993,500 900,210
Falcon Franchise Loan LLC, FRN, 3.777%, 2025 (i)(z) 1,812,425 235,434
Lehman Brothers Commercial Conduit Mortgage Trust, FRN, 0.877%, 2030 (i) 4,989,053 114,294
Morgan Stanley Capital I, Inc., 1.41%, 2039 (i)(n) 4,926,790 259,426
Preferred Term Securities XII Ltd., 9.8%, 2033 (e)(z) 1,775,000 1,366,750
Preferred Term Securities XVI Ltd., 14%, 2035 (e)(z) 3,250,000 2,697,500
Preferred Term Securities XVII Ltd., 9.3%, 2035 (e)(z) 1,813,000 1,359,750
------------
$ 13,798,811
- ---------------------------------------------------------------------------------------------------------------
Automotive - 4.4%
- ---------------------------------------------------------------------------------------------------------------
Ford Motor Co., 7.45%, 2031 $ 4,500,000 $ 3,465,000
Ford Motor Credit Co., 9.75%, 2010 9,740,000 9,836,034
Ford Motor Credit Co., 8.625%, 2010 1,255,000 1,219,632
Ford Motor Credit Co., 7%, 2013 1,896,000 1,706,182
Ford Motor Credit Co., 8%, 2016 2,535,000 2,336,307
Ford Motor Credit Co., FRN, 8.11%, 2012 1,615,000 1,542,070
General Motors Corp., 8.375%, 2033 8,246,000 6,782,333
Goodyear Tire & Rubber Co., 9%, 2015 2,564,000 2,628,100
TRW Automotive, Inc., 7%, 2014 (n) 3,855,000 3,604,425
TRW Automotive, Inc., 7.25%, 2017 (n) 345,000 310,500
------------
$ 33,430,583
- ---------------------------------------------------------------------------------------------------------------
Broadcasting - 6.0%
- ---------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 4,037,000 $ 3,936,074
Bonten Media Acquisition Co., 9%, 2015 (n)(p) 2,560,000 2,329,600
CanWest MediaWorks LP, 9.25%, 2015 (n) 2,025,000 1,964,250
Clear Channel Communications, Inc., 5.5%, 2014 5,865,000 4,600,090
Grupo Televisa S.A., 8.5%, 2032 1,368,000 1,671,162
Inmarsat Finance II PLC, 0% to 2008, 10.375% to 2012 3,245,000 3,017,850
Intelsat Bermuda Ltd., 11.25%, 2016 5,780,000 6,040,100
Intelsat Bermuda Ltd., FRN, 8.886%, 2015 2,050,000 2,060,250
Intelsat Ltd., 0% to 2010, 9.25% to 2015 1,745,000 1,369,825
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 1,260,000 1,263,150
ION Media Networks, Inc., FRN, 11.61%, 2013 (n) 3,370,000 3,403,700
LBI Media Holdings, Inc., 0% to 2008, 11% to 2013 4,375,000 3,981,250
LBI Media, Inc., 8.5%, 2017 (z) 1,895,000 1,838,150
Univision Communications, Inc., 9.75%, 2015 (n)(p) 9,305,000 8,467,550
------------
$ 45,943,001
- ---------------------------------------------------------------------------------------------------------------
Building - 1.7%
- ---------------------------------------------------------------------------------------------------------------
Builders FirstSource, Inc., FRN, 9.61%, 2012 $ 615,000 $ 605,775
C10 Capital SPV Ltd., 6.722% to 2016, FRN to 2049 (n) 515,000 484,950
Interface, Inc., 10.375%, 2010 864,000 898,560
Interface, Inc., 9.5%, 2014 1,055,000 1,097,200
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 6,598,000 4,024,780
Nortek Holdings, Inc., 8.5%, 2014 2,624,000 2,256,640
Ply Gem Industries, Inc., 9%, 2012 4,720,000 3,764,200
------------
$ 13,132,105
- ---------------------------------------------------------------------------------------------------------------
Business Services - 1.3%
- ---------------------------------------------------------------------------------------------------------------
Nortel Networks Ltd., 10.75%, 2016 (n) $ 2,245,000 $ 2,346,025
SunGard Data Systems, Inc., 10.25%, 2015 7,270,000 7,270,000
------------
$ 9,616,025
- ---------------------------------------------------------------------------------------------------------------
Cable TV - 2.6%
- ---------------------------------------------------------------------------------------------------------------
CCH I Holdings LLC, 11%, 2015 $ 5,892,000 $ 5,892,000
CCH II Holdings LLC, 10.25%, 2010 2,960,000 3,011,800
CCO Holdings LLC, 8.75%, 2013 2,035,000 2,014,650
CSC Holdings, Inc., 6.75%, 2012 2,085,000 1,892,138
Kabel Deutschland GmbH, 10.625%, 2014 1,635,000 1,692,225
NTL Cable PLC, 9.125%, 2016 2,924,000 2,953,240
Telenet Group Holdings N.V., 0% to 2008, 11.5% to 2014 (n) 2,761,000 2,650,560
------------
$ 20,106,613
- ---------------------------------------------------------------------------------------------------------------
Chemicals - 3.0%
- ---------------------------------------------------------------------------------------------------------------
Innophos, Inc., 8.875%, 2014 $ 2,890,000 $ 2,904,450
KI Holdings, Inc., 0% to 2009, 9.875% to 2014 4,981,000 4,196,493
Koppers, Inc., 9.875%, 2013 2,575,000 2,729,500
Momentive Performance Materials, Inc., 11.5%, 2016 (n) 8,215,000 7,783,713
Mosaic Co., 7.625%, 2016 (n) 3,050,000 3,065,250
Nalco Co., 8.875%, 2013 2,670,000 2,629,950
------------
$ 23,309,356
- ---------------------------------------------------------------------------------------------------------------
Construction - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Urbi Desarrollos Urbanos S.A. de C.V., 8.5%, 2016 (n) $ 700,000 $ 707,000
- ---------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 4.8%
- ---------------------------------------------------------------------------------------------------------------
Affinion Group, Inc., 11.5%, 2015 $ 2,305,000 $ 2,316,525
Corrections Corp. of America, 6.25%, 2013 2,400,000 2,262,000
Del Laboratories, Inc., 8%, 2012 3,275,000 2,931,125
GEO Group, Inc., 8.25%, 2013 2,465,000 2,428,025
Jarden Corp., 7.5%, 2017 2,945,000 2,650,500
Kar Holdings, Inc., 10%, 2015 (n) 8,115,000 7,141,200
Realogy Corp., 10.5%, 2014 (n) 290,000 268,250
Realogy Corp., 12.375%, 2015 (n) 8,440,000 6,752,000
Service Corp. International, 7.375%, 2014 1,485,000 1,444,163
Service Corp. International, 6.75%, 2015 (n) 765,000 703,800
Service Corp. International, 7%, 2017 3,615,000 3,289,650
Visant Holding Corp., 8.75%, 2013 3,350,000 3,316,500
Vitro S.A., 8.625%, 2012 (n) 204,000 197,880
Vitro S.A., 9.125%, 2017 (n) 907,000 870,720
------------
$ 36,572,338
- ---------------------------------------------------------------------------------------------------------------
Containers - 1.1%
- ---------------------------------------------------------------------------------------------------------------
Graham Packaging Co. LP, 9.875%, 2014 $ 3,190,000 $ 2,998,600
Greif, Inc., 6.75%, 2017 2,185,000 2,081,213
Owens-Brockway Glass Container, Inc., 8.25%, 2013 3,570,000 3,587,850
------------
$ 8,667,663
- ---------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.7%
- ---------------------------------------------------------------------------------------------------------------
L-3 Communications Corp., 6.125%, 2014 $ 1,500,000 $ 1,391,250
L-3 Communications Corp., 5.875%, 2015 4,415,000 4,017,650
------------
$ 5,408,900
- ---------------------------------------------------------------------------------------------------------------
Electronics - 2.3%
- ---------------------------------------------------------------------------------------------------------------
Avago Technologies Finance, 11.875%, 2015 $ 2,285,000 $ 2,502,075
Freescale Semiconductor, Inc., 10.125%, 2016 (n) 8,770,000 7,717,600
NXP B.V./NXP Funding LLC, 7.875%, 2014 1,075,000 994,375
NXP B.V./NXP Funding LLC, 9.5%, 2015 2,280,000 1,942,275
Spansion LLC, 11.25%, 2016 (n) 4,495,000 4,225,300
------------
$ 17,381,625
- ---------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 2.5%
- ---------------------------------------------------------------------------------------------------------------
Banco do Brasil S.A., 7.95%, 2049 (n) $ 283,000 $ 287,245
Bogota D.C., 9.75%, 2028 (z) COP 251,000,000 127,054
Codelco, Inc., 5.625%, 2035 $ 3,362,000 3,021,362
Gazprom International S.A., 6.212%, 2016 2,538,000 2,416,937
Gazprom International S.A., 7.201%, 2020 3,580,394 3,663,817
Gazprom International S.A., 6.51%, 2022 (n) 2,020,000 1,931,726
Majapahit Holding B.V., 7.75%, 2016 (n) 309,000 298,958
Majapahit Holding B.V., 7.25%, 2017 (n) 723,000 670,583
Majapahit Holding B.V., 7.875%, 2037 (n) 1,878,000 1,723,065
National Power Corp., 6.875%, 2016 (n) 317,000 303,924
OAO Gazprom, 9.625%, 2013 1,340,000 1,524,250
Pemex Project Funding Master Trust, 8.625%, 2022 2,129,000 2,533,101
Pemex Project Funding Master Trust, 9.5%, 2027 507,000 662,903
------------
$ 19,164,925
- ---------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 5.3%
- ---------------------------------------------------------------------------------------------------------------
Federative Republic of Brazil, 6%, 2017 $ 874,000 $ 846,469
Federative Republic of Brazil, 8%, 2018 4,263,000 4,623,224
Federative Republic of Brazil, 7.125%, 2037 1,983,000 2,089,091
Federative Republic of Brazil, CLN, 6%, 2009 (z) BRL 4,111,408 2,157,473
Republic of Argentina, 5.475%, 2012 $ 1,724,250 1,571,137
Republic of Argentina, 7%, 2013 3,000,000 2,661,583
Republic of Argentina, 7%, 2015 1,951,000 1,582,586
Republic of Argentina, 8.28%, 2033 1,101,749 930,978
Republic of Argentina, FRN, 0%, 2033 ARS 1,219,000 490,956
Republic of Argentina, FRN, 0.624%, 2035 (i) $ 5,800,000 754,000
Republic of Colombia, 7.375%, 2037 1,141,000 1,215,165
Republic of Colombia, FRN, 7.16%, 2015 511,000 536,550
Republic of El Salvador, 8.25%, 2032 1,475,000 1,755,250
Republic of El Salvador, 7.65%, 2035 (n) 386,000 428,460
Republic of Indonesia, 6.625%, 2037 393,000 357,718
Republic of Indonesia, CLN, 12.5%, 2013 (z) 1,972,000 1,899,864
Republic of Panama, 6.7%, 2036 1,802,000 1,783,980
Republic of Peru, 6.55%, 2037 1,456,000 1,430,520
Republic of Philippines, 8%, 2016 329,000 347,918
Republic of Philippines, 7.5%, 2024 930,000 960,225
Republic of Philippines, 9.5%, 2030 234,000 293,366
Republic of Philippines, 7.75%, 2031 1,405,000 1,487,544
Republic of Turkey, 7.25%, 2015 1,249,000 1,267,735
Republic of Turkey, 6.875%, 2036 2,042,000 1,899,060
Republic of Uruguay, 9.25%, 2017 420,000 491,400
Republic of Uruguay, 8%, 2022 1,882,000 2,041,970
Republic of Venezuela, 7%, 2018 2,325,000 2,094,825
Republic of Venezuela, 6%, 2020 650,000 524,875
Republica Orient Uruguay, 7.625%, 2036 236,000 251,340
United Mexican States, 8.3%, 2031 1,218,000 1,506,666
------------
$ 40,281,928
- ---------------------------------------------------------------------------------------------------------------
Energy - Independent - 3.5%
- ---------------------------------------------------------------------------------------------------------------
Chaparral Energy, Inc., 8.875%, 2017 (n) $ 3,975,000 $ 3,617,250
Chesapeake Energy Corp., 6.375%, 2015 3,840,000 3,604,800
Chesapeake Energy Corp., 6.875%, 2016 2,115,000 2,014,538
Energy Partners Ltd., 9.75%, 2014 (n) 1,875,000 1,781,250
Forest Oil Corp., 7.25%, 2019 (n) 1,860,000 1,734,450
Hilcorp Energy I LP, 7.75%, 2015 (n) 995,000 930,325
Hilcorp Energy I LP, 9%, 2016 (n) 3,010,000 2,994,950
Mariner Energy, Inc., 8%, 2017 2,285,000 2,147,900
Newfield Exploration Co., 6.625%, 2014 2,255,000 2,153,525
Plains Exploration & Production Co., 7%, 2017 3,545,000 3,163,913
Quicksilver Resources, Inc., 7.125%, 2016 3,125,000 2,898,438
------------
$ 27,041,339
- ---------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Petroleum Co. of Trinidad & Tobago Ltd., 6%, 2022 (n) $ 674,000 $ 668,210
TNK-BP Finance S.A., 7.5%, 2016 (n) 1,870,000 1,877,013
------------
$ 2,545,223
- ---------------------------------------------------------------------------------------------------------------
Entertainment - 0.8%
- ---------------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 8%, 2014 $ 615,000 $ 561,188
AMC Entertainment, Inc., 11%, 2016 1,825,000 1,884,313
HRP Myrtle Beach Operations, FRN, 10.07%, 2012 (z) 1,845,000 1,868,063
Marquee Holdings, Inc., 0% to 2009, 12% to 2014 2,585,000 2,197,250
------------
$ 6,510,814
- ---------------------------------------------------------------------------------------------------------------
Financial Institutions - 1.9%
- ---------------------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 6.875%, 2011 $ 5,008,000 $ 4,656,934
General Motors Acceptance Corp., 6.75%, 2014 8,723,000 7,839,945
General Motors Acceptance Corp., 8%, 2031 1,885,000 1,770,168
------------
$ 14,267,047
- ---------------------------------------------------------------------------------------------------------------
Food & Beverages - 1.3%
- ---------------------------------------------------------------------------------------------------------------
ARAMARK Corp., 8.5%, 2015 (n) $ 5,345,000 $ 5,037,663
B&G Foods Holding Corp., 8%, 2011 1,525,000 1,479,250
Del Monte Corp., 6.75%, 2015 2,180,000 1,972,900
Michael Foods, Inc., 8%, 2013 1,400,000 1,358,000
------------
$ 9,847,813
- ---------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.6%
- ---------------------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 7.4%, 2018 $ 1,870,000 $ 1,421,200
Buckeye Technologies, Inc., 8%, 2010 2,355,000 2,355,000
Jefferson Smurfit Corp., 8.25%, 2012 2,949,000 2,838,413
JSG Funding PLC, 7.75%, 2015 1,365,000 1,303,575
MDP Acquisitions PLC, 9.625%, 2012 70,000 73,150
Millar Western Forest Products, 7.75%, 2013 4,830,000 4,033,050
------------
$ 12,024,388
- ---------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 5.8%
- ---------------------------------------------------------------------------------------------------------------
Cap Cana S.A., 9.625%, 2013 $ 1,130,000 $ 1,152,374
Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (n) 2,595,000 2,238,188
Great Canadian Gaming Corp., 7.25%, 2015 (n) 725,000 696,000
Greektown Holdings, 10.75%, 2013 (n) 2,610,000 2,675,250
Harrah's Entertainment, Inc., 5.75%, 2017 9,565,000 6,791,150
Harrah's Operating Co., Inc., 5.375%, 2013 2,245,000 1,683,750
Majestic Star Casino LLC, 9.75%, 2011 4,045,000 3,802,300
Mandalay Resort Group, 9.375%, 2010 1,000,000 1,022,500
MGM Mirage, Inc., 8.375%, 2011 5,280,000 5,346,000
MGM Mirage, Inc., 5.875%, 2014 1,975,000 1,728,125
MTR Gaming Group, Inc., 9%, 2012 970,000 994,250
NCL Corp. Ltd., 10.625%, 2014 2,140,000 2,011,600
Pinnacle Entertainment, Inc., 8.25%, 2012 1,950,000 1,969,500
Station Casinos, Inc., 6.5%, 2014 5,335,000 4,521,413
Wimar Opco LLC, 9.625%, 2014 (n) 5,320,000 4,468,800
Wynn Las Vegas LLC, 6.625%, 2014 3,410,000 3,162,775
------------
$ 44,263,975
- ---------------------------------------------------------------------------------------------------------------
Industrial - 0.8%
- ---------------------------------------------------------------------------------------------------------------
Blount, Inc., 8.875%, 2012 $ 2,415,000 $ 2,270,100
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 3,545,000 3,651,350
------------
$ 5,921,450
- ---------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.4%
- ---------------------------------------------------------------------------------------------------------------
USI Holdings Corp., 9.75%, 2015 (n) $ 3,650,000 $ 3,467,500
- ---------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 1,115,000 $ 1,098,275
Case New Holland, Inc., 7.125%, 2014 1,160,000 1,133,900
------------
$ 2,232,175
- ---------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 7.4%
- ---------------------------------------------------------------------------------------------------------------
Accellent, Inc., 10.5%, 2013 $ 4,160,000 $ 3,993,600
Advanced Medical Optics, Inc., 7.5%, 2017 2,920,000 2,657,200
Community Health Systems, Inc., 8.875%, 2015 (n) 4,980,000 4,836,825
Cooper Cos., Inc., 7.125%, 2015 2,980,000 2,868,250
DaVita, Inc., 6.625%, 2013 860,000 821,300
DaVita, Inc., 7.25%, 2015 5,645,000 5,348,638
Hanger Orthopedic Group, 10.25%, 2014 1,845,000 1,909,575
HCA, Inc., 9%, 2014 4,680,000 4,536,956
HCA, Inc., 6.375%, 2015 2,580,000 1,999,500
HCA, Inc., 9.25%, 2016 (n) 8,115,000 8,054,138
HealthSouth Corp., 10.75%, 2016 3,655,000 3,691,550
Omnicare, Inc., 6.875%, 2015 2,510,000 2,265,275
Psychiatric Solutions, Inc., 7.75%, 2015 3,080,000 2,926,000
Surgical Care Affiliates, Inc., 10%, 2017 (n) 2,815,000 2,807,963
U.S. Oncology, Inc., 10.75%, 2014 3,040,000 3,070,400
Universal Hospital Services, Inc., 8.5%, 2015 (n) 1,910,000 1,723,775
Universal Hospital Services, Inc., FRN, 8.759%, 2015 (n) 590,000 550,175
VWR Funding, Inc., 10.25%, 2015 (n) 3,000,000 2,812,500
------------
$ 56,873,620
- ---------------------------------------------------------------------------------------------------------------
Metals & Mining - 3.4%
- ---------------------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 4,670,000 $ 4,249,700
Chaparral Steel Co., 10%, 2013 1,725,000 1,901,813
FMG Finance Ltd., 10.625%, 2016 (n) 5,525,000 6,326,125
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 2,530,000 2,650,175
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 4,345,000 4,562,250
Peabody Energy Corp., 5.875%, 2016 1,675,000 1,482,375
Peabody Energy Corp., 7.375%, 2016 1,635,000 1,598,213
PNA Group, Inc., 10.75%, 2016 (n) 2,930,000 3,135,100
------------
$ 25,905,751
- ---------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.4%
- ---------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.125%, 2016 $ 3,000,000 $ 2,776,800
- ---------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.8%
- ---------------------------------------------------------------------------------------------------------------
Atlas Pipeline Partners LP, 8.125%, 2015 $ 2,955,000 $ 2,910,675
El Paso Performance-Linked Trust, CLN, 7.75%, 2011 (n) 2,305,000 2,368,388
Intergas Finance B.V., 6.875%, 2011 (n) 1,337,000 1,350,370
Intergas Finance B.V., 6.375%, 2017 (n) 1,116,000 1,054,620
Williams Cos., Inc., 7.125%, 2011 1,060,000 1,060,000
Williams Cos., Inc., 8.75%, 2032 2,000,000 2,210,000
Williams Partners LP, 7.25%, 2017 2,750,000 2,667,500
------------
$ 13,621,553
- ---------------------------------------------------------------------------------------------------------------
Network & Telecom - 1.7%
- ---------------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 2,820,000 $ 2,679,000
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 1,270,000 1,257,300
Qwest Capital Funding, Inc., 7.25%, 2011 2,015,000 1,962,106
Qwest Corp., 7.875%, 2011 1,400,000 1,421,000
Qwest Corp., 8.875%, 2012 465,000 488,831
Time Warner Telecom Holdings, Inc., 9.25%, 2014 1,425,000 1,457,063
Windstream Corp., 8.625%, 2016 3,190,000 3,229,875
Windstream Corp., 7%, 2019 660,000 594,000
------------
$ 13,089,175
- ---------------------------------------------------------------------------------------------------------------
Oil Services - 0.8%
- ---------------------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 1,870,000 $ 1,701,700
Bristow Group, Inc., 7.5%, 2017 (n) 1,185,000 1,173,150
Compagnie Generale de Geophysique - Veritas, 7.75%, 2017 1,730,000 1,686,750
Hanover Compressor Co., 9%, 2014 1,120,000 1,234,800
------------
$ 5,796,400
- ---------------------------------------------------------------------------------------------------------------
Oils - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Petroleos de Venezuela S.A., 5.25%, 2017 $ 1,327,000 $ 990,606
- ---------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 1.4%
- ---------------------------------------------------------------------------------------------------------------
Banco BMG S.A., 9.15%, 2016 (n) $ 1,115,000 $ 1,134,513
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 (n) 1,136,000 1,185,700
CenterCredit International B.V., 8.625%, 2014 (n) 1,883,000 1,788,850
HSBK Europe B.V., 7.25%, 2017 (n) 2,068,000 1,949,090
ICICI Bank Ltd., FRN, 6.375%, 2022 (n) 331,000 314,195
RSHB Capital S.A., 7.175%, 2013 (n) 212,000 217,576
Russian Standard Finance S.A., 8.125%, 2008 (n) 869,000 860,310
Russian Standard Finance S.A., 7.5%, 2010 (n) 108,000 100,440
Russian Standard Finance S.A., 7.5%, 2010 709,000 659,370
Russian Standard Finance S.A., 8.625%, 2011 (n) 643,000 607,635
Turanalem Finance B.V., 8.25%, 2037 (n) 1,004,000 888,540
VTB Capital S.A., 7.5%, 2011 1,066,000 1,110,314
------------
$ 10,816,533
- ---------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Warner Chilcott Corp., 8.75%, 2015 $ 2,587,000 $ 2,522,325
- ---------------------------------------------------------------------------------------------------------------
Printing & Publishing - 3.0%
- ---------------------------------------------------------------------------------------------------------------
American Media Operations, Inc., 10.25%, 2009 $ 5,182,000 $ 4,715,620
Dex Media West LLC, 9.875%, 2013 610,000 640,500
Dex Media, Inc., 0% to 2008, 9% to 2013 3,250,000 2,925,000
Dex Media, Inc., 0% to 2008, 9% to 2013 2,465,000 2,218,500
Idearc, Inc., 8%, 2016 6,090,000 5,770,275
Nielsen Finance LLC, 0% to 2011, 12.5% to 2016 (n) 7,065,000 4,627,575
R.H. Donnelley Corp., 8.875%, 2016 2,460,000 2,392,350
------------
$ 23,289,820
- ---------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.1%
- ---------------------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 665,000 $ 701,575
- ---------------------------------------------------------------------------------------------------------------
Retailers - 1.4%
- ---------------------------------------------------------------------------------------------------------------
Buhrmann U.S., Inc., 7.875%, 2015 $ 1,935,000 $ 1,789,875
Couche-Tard, Inc., 7.5%, 2013 945,000 930,825
Eye Care Centers of America, 10.75%, 2015 1,105,000 1,209,975
Neiman Marcus Group, Inc., 9%, 2015 1,835,000 1,912,988
Neiman Marcus Group, Inc., 10.375%, 2015 1,000,000 1,052,500
Rite Aid Corp., 9.5%, 2017 (n) 4,175,000 3,694,875
------------
$ 10,591,038
- ---------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.3%
- ---------------------------------------------------------------------------------------------------------------
Claire's Stores, Inc., 9.25%, 2015 (n) $ 5,415,000 $ 4,765,200
Claire's Stores, Inc., 10.5%, 2017 (n) 1,915,000 1,512,850
Michaels Stores, Inc., 11.375%, 2016 (n) 2,280,000 2,200,200
Payless ShoeSource, Inc., 8.25%, 2013 1,155,000 1,120,350
------------
$ 9,598,600
- ---------------------------------------------------------------------------------------------------------------
Supermarkets - 0.5%
- ---------------------------------------------------------------------------------------------------------------
Stater Brothers Holdings, Inc., 7.75%, 2015 (n) $ 1,975,000 $ 1,836,750
SUPERVALU, Inc., 7.5%, 2014 2,105,000 2,010,275
------------
$ 3,847,025
- ---------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.9%
- ---------------------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 $ 1,305,000 $ 1,368,619
Globo Comunicacoes e Participacoes S.A., 7.25%, 2022 (n) 1,230,000 1,122,375
MetroPCS Wireless, Inc., 9.25%, 2014 (n) 1,265,000 1,239,700
Wind Acquisition Finance S.A., 10.75%, 2015 (n) 3,270,000 3,368,100
------------
$ 7,098,794
- ---------------------------------------------------------------------------------------------------------------
Transportation - 0.4%
- ---------------------------------------------------------------------------------------------------------------
Autopistas del Sol S.A., 11.5%, 2017 (n) $ 1,326,000 $ 1,286,220
Peru Enhanced Pass-Through Trust, 0%, 2018 (n) 346,000 224,900
PT Arpeni Pratama Ocean Line Tbk., 8.75%, 2013 (n) 1,419,000 1,419,000
------------
$ 2,930,120
- ---------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.5%
- ---------------------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 $ 3,615,000 $ 3,615,000
- ---------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.7%
- ---------------------------------------------------------------------------------------------------------------
AES Corp., 9.375%, 2010 $ 2,840,000 $ 2,911,000
CESP - Companhia Energetica de Sao Paulo, 9.25%, 2013 (n) 123,000 132,533
CESP - Companhia Energetica de Sao Paulo, 9.25%, 2013 300,000 323,250
Edison Mission Energy, 7%, 2017 (n) 7,670,000 6,922,175
Edison Mission Energy, 7.625%, 2027 (n) 505,000 440,612
Empresa Nacional de Electricidad S.A., 8.35%, 2013 93,000 102,533
Enersis S.A., 7.375%, 2014 1,693,000 1,752,506
Intergen N.V., 9%, 2017 (z) 1,610,000 1,585,850
ISA Capital do Brasil S.A., 7.875%, 2012 (n) 754,000 749,476
ISA Capital do Brasil S.A., 8.8%, 2017 (n) 1,530,000 1,541,475
Mirant Americas Generation LLC, 8.3%, 2011 1,900,000 1,862,000
Mirant Americas Generation, Inc., 8.5%, 2021 1,250,000 1,190,625
Mirant North American LLC, 7.375%, 2013 3,000,000 2,985,000
NGC Corp. Capital Trust, 8.316%, 2027 1,975,000 1,718,250
NRG Energy, Inc., 7.375%, 2016 7,450,000 7,189,250
Reliant Energy, Inc., 7.875%, 2017 4,470,000 4,246,500
------------
$ 35,653,035
- ---------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $696,976,084) $670,060,023
- ---------------------------------------------------------------------------------------------------------------
Common Stocks - 1.7%
- ---------------------------------------------------------------------------------------------------------------
Cable TV - 0.4%
- ---------------------------------------------------------------------------------------------------------------
Comcast Corp., "A" (a) 61,700 $ 1,620,859
Time Warner Cable, Inc. (a) 33,200 1,268,904
------------
$ 2,889,763
- ---------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Central Garden & Pet Co. (a) 28,000 $ 352,240
- ---------------------------------------------------------------------------------------------------------------
Electronics - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Intel Corp. 29,000 $ 684,980
- ---------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.2%
- ---------------------------------------------------------------------------------------------------------------
Chesapeake Energy Corp. 17,500 $ 595,700
Foundation Coal Holdings, Inc. 34,530 1,203,371
------------
$ 1,799,071
- ---------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Chevron Corp. 8,500 $ 724,710
- ---------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Louisiana-Pacific Corp. 28,000 $ 518,560
- ---------------------------------------------------------------------------------------------------------------
Major Banks - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Bank of America Corp. 7,100 $ 336,682
JPMorgan Chase & Co. 7,100 312,471
------------
$ 649,153
- ---------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.2%
- ---------------------------------------------------------------------------------------------------------------
Omnicare, Inc. 40,800 $ 1,352,928
- ---------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.0%
- ---------------------------------------------------------------------------------------------------------------
Oxford Automotive, Inc. (a) 29 $ 0
- ---------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. 25,400 $ 819,150
- ---------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Johnson & Johnson 11,400 $ 689,700
- ---------------------------------------------------------------------------------------------------------------
Real Estate - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Host Hotels & Resorts, Inc., REIT 59,400 $ 1,254,528
- ---------------------------------------------------------------------------------------------------------------
Telephone Services - 0.2%
- ---------------------------------------------------------------------------------------------------------------
Windstream Corp. 96,100 $ 1,322,336
- ---------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $13,023,498) $ 13,057,119
- ---------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 6.4% (g)(r)
- ---------------------------------------------------------------------------------------------------------------
Automotive - 1.1%
- ---------------------------------------------------------------------------------------------------------------
Ford Motor Co., Term Loan B, 8.36%, 2013 $ 3,629,126 $ 3,411,379
Goodyear Tire & Rubber, Second Lien Term Loan, 2014 (o) 1,995,680 1,907,122
Mark IV Industries, Inc., Second Lien Term Loan, 11.1%, 2011 3,190,622 3,073,632
------------
$ 8,392,133
- ---------------------------------------------------------------------------------------------------------------
Broadcasting - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Gray Television, Inc., Term Loan B, 6.86%, 2014 $ 1,373,556 $ 1,300,586
Univison Communications, Inc., Term Loan B, 2014 (o) 876,848 805,779
Univison Communications, Inc., Term Loan B, 2014 (o) 56,369 51,800
------------
$ 2,158,165
- ---------------------------------------------------------------------------------------------------------------
Building - 0.6%
- ---------------------------------------------------------------------------------------------------------------
Building Materials Corp. Second Lien Term Loan, 11.12%, 2014 (o) $ 2,214,002 $ 1,970,462
Roofing Supply Group, Term Loan B, 9.36%, 2013 2,311,731 2,242,379
------------
$ 4,212,841
- ---------------------------------------------------------------------------------------------------------------
Cable TV - 0.7%
- ---------------------------------------------------------------------------------------------------------------
Charter Communications, Inc., Term Loan, 7.36%, 2013 $ 1,007,847 $ 956,873
CSC Holdings, Inc., Term Loan B, 7.07%, 2013 2,248,514 2,152,482
MCC Iowa LLC Mediacom, Term Loan A, 6.84%, 2012 2,002,791 1,923,932
------------
$ 5,033,287
- ---------------------------------------------------------------------------------------------------------------
Chemicals - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Celanese AG, Term Loan, 7.11%, 2014 $ 2,833,037 $ 2,677,220
- ---------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Jarden Corp., Term Loan B, 2008 (o) $ 850,287 $ 827,258
- ---------------------------------------------------------------------------------------------------------------
Containers - 0.5%
- ---------------------------------------------------------------------------------------------------------------
Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 $ 878,788 $ 880,985
Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 2,746,212 2,696,437
------------
$ 3,577,422
- ---------------------------------------------------------------------------------------------------------------
Energy - Independent - 0.8%
- ---------------------------------------------------------------------------------------------------------------
Crimson Exploration, Second Lien Term Loan, 10.57%, 2012 $ 1,888,867 $ 1,832,201
Sandridge Energy, Term Loan B, 5.36%, 2015 4,673,000 4,532,810
------------
$ 6,365,011
- ---------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Dean Foods, Term Loan B, 6.86%, 2014 $ 2,513,281 $ 2,411,965
- ---------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.5%
- ---------------------------------------------------------------------------------------------------------------
HCA, Inc., Term Loan B, 7.61%, 2013 (o) $ 3,851,778 $ 3,702,893
- ---------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.1%
- ---------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., Term Loan B, 6.82%, 2014 $ 1,101,568 $ 1,050,621
- ---------------------------------------------------------------------------------------------------------------
Pollution Control - 0.4%
- ---------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., Letter of Credit, 5.32%, 2012 $ 903,117 $ 871,508
Allied Waste North America, Inc., Term Loan B, 7.08%, 2020 1,998,921 1,932,297
------------
$ 2,803,805
- ---------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.4%
- ---------------------------------------------------------------------------------------------------------------
Idearc, Inc., Term Loan B, 7.36%, 2014 $ 3,423,005 $ 3,261,364
- ---------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Michaels Stores, Term Loan B, 7.62%, 2013 $ 2,632,191 $ 2,444,649
- ---------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $50,938,426) $ 48,918,634
- ---------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Broadcasting - 0.3%
- ---------------------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc., "B", 10.75% (p) 1,975 $ 2,142,875
- ---------------------------------------------------------------------------------------------------------------
Real Estate - 0.0%
- ---------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", REIT, 8.75% 1,375 $ 34,238
- ---------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $1,980,343) $ 2,177,113
- ---------------------------------------------------------------------------------------------------------------
Money Market Funds (v) - 2.0%
- ---------------------------------------------------------------------------------------------------------------
MFS Institutional Money Market Portfolio, 5.35%, at Cost and Net Asset Value $ 15,357,484 $ 15,357,484
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $778,275,835) (k) $ 749,570,373
- ---------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.0% 15,049,158
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $764,619,531
- ---------------------------------------------------------------------------------------------------------------
FUTURES CONTRACTS OUTSTANDING AT 7/31/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Long) 132 14,528,250 Sep-07 $104,726
========
SWAP AGREEMENTS AT 7/31/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
6/20/09 USD 2,300,000 JPMorgan Chase Bank 4.1% (1) $ 110,082
(fixed rate)
6/20/09 USD 1,150,000 JPMorgan Chase Bank 4.8% (1) (30,010)
(fixed rate)
9/20/12 USD 2,300,000 Goldman Sachs International 3.75% (2) (113,290)
(fixed rate)
6/20/12 USD 2,300,000 Morgan Stanley Capital Services, Inc. 3.76% (3) (279,354)
(fixed rate)
6/20/12 USD 1,150,000 Morgan Stanley Capital Services, Inc. 4.15% (3) (123,610)
(fixed rate)
6/20/12 USD 2,300,000 Goldman Sachs International (4) 1.49% 151,370
(fixed rate)
9/20/12 USD 2,300,000 Goldman Sachs International 3.72% (5) (36,165)
(fixed rate)
3/1/17 USD 385,000 JPMorgan Chase Bank (6) 0.78% 866
(fixed rate)
3/20/17 USD 385,000 JPMorgan Chase Bank (6) 0.80% 295
(fixed rate)
3/20/17 USD 380,000 Merrill Lynch International (6) 0.81% 9
(fixed rate)
---------
$(319,807)
=========
(1) Fund to pay notional amount upon a defined credit default event by Abitibi
Consolidated, 8.375%, 4/01/15.
(2) Fund to pay notional amount upon a defined credit default event by Allied
Waste North America, Inc., 7.375%, 4/15/14.
(3) Fund to pay notional amount upon a defined credit default event by Bowater,
Inc., 6.5%, 6/15/13.
(4) Fund to receive notional amount upon a defined credit default event by
Constellation Brands, 8%, 2/15/08.
(5) Fund to pay notional amount upon a defined credit default event by
Owens-Illinois, Inc., 7.85%, 5/15/18.
(6) Fund to receive notional amount upon a defined credit default event by Waste
Management, Inc., 7.375%, 8/01/10.
At July 31, 2007, the fund had sufficient cash and/or other liquid securities
to cover any commitments under these derivative contracts.
(a) Non-income producing security.
(e) The rate shown represents a current effective yield.
(g) The rate shown represents a weighted average coupon rate on settled
positions at period end.
(i) Interest only security for which the fund receives interest no notional
principal (Par amount). Par amount shown is the notional principal and does
not reflect the cost of the security.
(k) As of July 31, 2007, the fund held securities fair valued in accordance with
the policies adopted by the Board of Trustees, aggregating $645,905,174 and
86.17% of market value. An independent pricing service provided an evaluated
bid for 82.78% 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
$199,189,089, representing 26.05% of net assets.
(o) All or a portion of this position has not settled. Upon settlement date,
interest rates will be determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated
maturities shown as a result of contractual or optional prepayments by the
borrower. Such prepayments cannot be predicted with certainty. These loans
may be subject to restrictions on resale. Floating rate loans generally have
rates of interest which are determined periodically by reference to a base
lending rate plus a premium.
(v) Affiliated fund that is available only to investment companies managed by
MFS. The rate quoted is the annualized seven-day yield of the fund at period
end.
(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 Ltd., CDO, 6%, 2037 5/14/02 $ 968,128 $1,279,922
Arbor Realty Mortgage Securities, CDO,
FRN, 7.66%, 2038 12/20/05 1,390,937 1,378,419
Asset Securitization Corp., FRN, 8.356%, 2029 1/25/05 1,985,098 2,442,151
Bogota D.C., 9.75%, 2028 7/23/07 130,705 127,054
Falcon Franchise Loan LLC, FRN, 3.777%, 2025 1/29/03 272,219 235,434
Federative Republic of Brazil, CLN, 6%, 2009 6/16/06 1,664,570 2,157,473
HRP Myrtle Beach Operations, FRN, 10.07%, 2012 3/23/06 1,845,000 1,868,063
Intergen N.V., 9%, 2017 7/24/07 1,596,945 1,585,850
LBI Media, Inc., 8.5%, 2017 7/19/07 1,863,782 1,838,150
Preferred Term Securities XII Ltd., 9.8%, 2033 1/07/05 1,863,750 1,366,750
Preferred Term Securities XVI Ltd., 14%, 2035 12/08/04 - 1/25/05 3,274,750 2,697,500
Preferred Term Securities XVII Ltd., 9.3%, 2035 3/09/05 1,813,000 1,359,750
Republic of Indonesia, CLN, 12.5%, 2013 2/20/07 1,874,608 1,899,864
- -----------------------------------------------------------------------------------------------------------------
Total Restricted Securities $20,236,380 2.6%
=========================
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
CLN Credit-Linked Note
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
Abbreviations indicate amounts shown in currencies other than the U.S. dollar.
All amounts are stated in U.S. dollars unless otherwise indicated. A list of
abbreviations is shown below:
ARS Argentine Peso
BRL Brazilian Real
COP Colombian Peso
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 7/31/07 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- ---------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $778,275,835) $749,570,373
Cash 7,040
Foreign currency, at value (identified cost, $271,353) 271,573
Receivable for daily variation margin on open futures contracts 57,750
Receivable for investments sold 9,177,224
Receivable for fund shares sold 6,008,451
Interest and dividends receivable 14,622,688
Receivable from investment adviser 256,531
Unrealized appreciation on credit default swaps 262,622
Other assets 4,950
- ---------------------------------------------------------------------------------------------------
Total assets $780,239,202
- ---------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------
Distributions payable $5,099,996
Payable for investments purchased 6,400,076
Payable for fund shares reacquired 3,219,460
Unrealized depreciation on credit default swaps 582,429
Payable to affiliates
Management fee 41,542
Shareholder servicing costs 174,088
Distribution and service fees 42,086
Administrative services fee 1,550
Payable for independent trustees' compensation 10,573
Accrued expenses and other liabilities 47,871
- ---------------------------------------------------------------------------------------------------
Total liabilities $15,619,671
- ---------------------------------------------------------------------------------------------------
Net assets $764,619,531
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $784,482,005
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (28,919,791)
Accumulated net realized gain (loss) on investments 8,874,560
Undistributed net investment income 182,757
- ---------------------------------------------------------------------------------------------------
Net assets $764,619,531
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 105,684,650
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- ---------------------------------------------------------------------------------------------------
Net assets $503,532,979
Shares outstanding 69,623,380
- ---------------------------------------------------------------------------------------------------
Net asset value per share $7.23
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/95.25 X net asset value per share) $7.59
- ---------------------------------------------------------------------------------------------------
Class B shares
- ---------------------------------------------------------------------------------------------------
Net assets $107,407,288
Shares outstanding 14,803,858
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.26
- ---------------------------------------------------------------------------------------------------
Class C shares
- ---------------------------------------------------------------------------------------------------
Net assets $103,762,143
Shares outstanding 14,377,091
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $7.22
- ---------------------------------------------------------------------------------------------------
Class I shares
- ---------------------------------------------------------------------------------------------------
Net assets $49,917,121
Shares outstanding 6,880,321
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $7.26
- ---------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 7/31/07 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------
Income
Interest $32,505,590
Dividends 1,060,757
Foreign taxes withheld (2,166)
- ----------------------------------------------------------------------------------------------------
Total investment income $33,564,181
- ----------------------------------------------------------------------------------------------------
Expenses
Management fee $2,594,508
Distribution and service fees 2,027,368
Shareholder servicing costs 444,677
Administrative services fee 74,062
Independent trustees' compensation 10,477
Custodian fee 50,384
Shareholder communications 49,489
Auditing fees 30,983
Legal fees 8,392
Miscellaneous 55,017
- ----------------------------------------------------------------------------------------------------
Total expenses $5,345,357
- ----------------------------------------------------------------------------------------------------
Fees paid indirectly (24,769)
Reduction of expenses by investment adviser (1,322,216)
- ----------------------------------------------------------------------------------------------------
Net expenses $3,998,372
- ----------------------------------------------------------------------------------------------------
Net investment income $29,565,809
- ----------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ----------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $11,007,982
Futures contracts (556,163)
Swap transactions 146,761
Foreign currency transactions 27,888
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $10,626,468
- ----------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(56,807,069)
Futures contracts 544,466
Swap transactions (348,782)
Translation of assets and liabilities in foreign currencies 972
- ----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(56,610,413)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(45,983,945)
- ----------------------------------------------------------------------------------------------------
Change in net assets from operations $(16,418,136)
- ----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from
operations, any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
7/31/07 1/31/07
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income $29,565,809 $48,578,791
Net realized gain (loss) on investments and foreign
currency transactions 10,626,468 8,650,238
Net unrealized gain (loss) on investments and foreign
currency translation (56,610,413) 17,837,264
- ----------------------------------------------------------------------------------------------
Change in net assets from operations $(16,418,136) $75,066,293
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------
From net investment income
Class A $(18,888,069) $(30,978,000)
Class B (4,076,156) (8,758,040)
Class C (3,652,865) (6,910,379)
Class I (2,452,649) (4,015,222)
From net realized gain on investments and foreign
currency transactions
Class A (523,890) --
Class B (119,633) --
Class C (110,242) --
Class I (66,725) --
- ----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(29,890,229) $(50,661,641)
- ----------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $37,745,273 $145,046,575
- ----------------------------------------------------------------------------------------------
Redemption fees $-- $12,674
- ----------------------------------------------------------------------------------------------
Total change in net assets $(8,563,092) $169,463,901
- ----------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------
At beginning of period 773,182,623 603,718,722
At end of period (including undistributed net investment
income of $182,757 and accumulated distributions in excess
of net investment income of $313,313) $764,619,531 $773,182,623
- ----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming
reinvestment of all distributions) held for the entire period.
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------
CLASS A 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $7.66 $7.40 $7.63 $7.65 $6.61 $7.08
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.27 $0.56 $0.56 $0.57 $0.60 $0.62
Net realized and unrealized gain (loss)
on investments and foreign currency (0.41) 0.28 (0.16) 0.08 1.05 (0.43)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.14) $0.84 $0.40 $0.65 $1.65 $0.19
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $(0.58) $(0.59) $(0.59) $(0.61) $(0.66)
From net realized gain on investments (0.01) -- (0.04) (0.08) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.29) $(0.58) $(0.63) $(0.67) $(0.61) $(0.66)
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.23 $7.66 $7.40 $7.63 $7.65 $6.61
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (1.95)(n) 11.89 5.55 8.98 26.04 2.95
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET
ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions(f) 1.18(a) 1.27 1.29 1.29 1.34 1.37
Expenses after expense reductions (f) 0.85(a) 0.85 0.85 0.87 1.01 1.01
Net investment income 7.09(a) 7.53 7.51 7.62 8.21 9.35
Portfolio turnover 40 85 66 69 98 104
Net assets at end of period (000 Omitted) $503,533 $488,673 $338,568 $278,886 $150,334 $70,892
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------
CLASS B 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $7.68 $7.42 $7.65 $7.67 $6.63 $7.09
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.52 $0.51 $0.53 $0.55 $0.58
Net realized and unrealized gain (loss)
on investments and foreign currency (0.40) 0.28 (0.16) 0.07 1.06 (0.43)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.15) $0.80 $0.35 $0.60 $1.61 $0.15
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.54) $(0.54) $(0.54) $(0.57) $(0.61)
From net realized gain on investments (0.01) -- (0.04) (0.08) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.27) $(0.54) $(0.58) $(0.62) $(0.57) $(0.61)
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.26 $7.68 $7.42 $7.65 $7.67 $6.63
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.12)(n) 11.17 4.87 8.28 25.19 2.43
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET
ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83(a) 1.92 1.94 1.94 1.99 2.02
Expenses after expense reductions(f) 1.50(a) 1.50 1.50 1.52 1.66 1.66
Net investment income 6.50(a) 6.91 6.88 7.03 7.61 8.75
Portfolio turnover 40 85 66 69 98 104
Net assets at end of period (000 Omitted) $107,407 $124,393 $125,667 $151,711 $140,348 $72,321
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------
CLASS C 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $7.64 $7.38 $7.61 $7.63 $6.60 $7.07
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.25 $0.51 $0.51 $0.52 $0.54 $0.57
Net realized and unrealized gain (loss)
on investments and foreign currency (0.40) 0.28 (0.16) 0.08 1.06 (0.43)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.15) $0.79 $0.35 $0.60 $1.60 $0.14
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.53) $(0.54) $(0.54) $(0.57) $(0.61)
From net realized gain on investments (0.01) -- (0.04) (0.08) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.27) $(0.53) $(0.58) $(0.62) $(0.57) $(0.61)
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.22 $7.64 $7.38 $7.61 $7.63 $6.60
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (2.15)(n) 11.19 4.86 8.28 25.10 2.29
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET
ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83(a) 1.92 1.94 1.94 1.99 2.02
Expenses after expense reductions(f) 1.50(a) 1.50 1.50 1.52 1.66 1.66
Net investment income 6.46(a) 6.90 6.88 7.01 7.56 8.67
Portfolio turnover 40 85 66 69 98 104
Net assets at end of period (000 Omitted) $103,762 $103,873 $92,613 $101,113 $84,643 $38,130
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 1/31
ENDED -----------------------------------------------------------------
CLASS I 7/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $7.68 $7.42 $7.65 $7.68 $6.64 $7.10
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.32 $0.59 $0.59 $0.55 $0.63 $0.64
Net realized and unrealized gain (loss)
on investments and foreign currency (0.43) 0.28 (0.16) 0.12 1.05 (0.42)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $(0.11) $0.87 $0.43 $0.67 $1.68 $0.22
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.30) $(0.61) $(0.62) $(0.62) $(0.64) $(0.68)
From net realized gain on investments (0.01) -- (0.04) (0.08) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.31) $(0.61) $(0.66) $(0.70) $(0.64) $(0.68)
- ----------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in capital (d) $-- $0.00(w) $0.00(w) $0.00(w) $-- $--
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.26 $7.68 $7.42 $7.65 $7.68 $6.64
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (1.63)(n) 12.27 5.92 9.23 26.41 3.45
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET
ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.83(a) 0.92 0.94 0.93 0.99 1.02
Expenses after expense reductions(f) 0.50(a) 0.50 0.50 0.51 0.66 0.66
Net investment income 7.93(a) 7.89 7.86 7.75 8.66 9.76
Portfolio turnover 40 85 66 69 98 104
Net assets at end of period (000 Omitted) $49,917 $56,243 $46,871 $33,556 $3,434 $2,508
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been
lower.
(s) From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS High Yield Opportunities Fund (the fund) is a series of MFS Series Trust
III (the trust). The trust is organized as a Massachusetts business trust and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest up to 100% of its portfolio in high-yield securities rated below
investment grade. Investments in high-yield securities involve greater degrees
of credit and market risk than investments in higher-rated securities and tend
to be more sensitive to economic conditions. The fund can invest in foreign
securities, including securities of emerging market issuers. Investments in
foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing
in foreign securities previously described are heightened when investing in
emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the market
or exchange on which they are primarily traded. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities are
primarily traded. Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. 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. Forward foreign currency contracts are generally valued at the mean of
bid and asked prices for the time period interpolated from rates reported by an
independent pricing service for proximate time periods. Swaps are generally
valued at 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. 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.
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.
HYBRID INSTRUMENTS - The fund may invest in indexed or hybrid securities on
which any combination of interest payments, the principal or stated amount
payable at maturity is determined by reference to prices of other securities,
currencies, indexes, economic factors or other measures, including interest
rates, currency exchange rates, or securities indices. The risks of investing
in hybrid instruments reflect a combination of the risks of investing in
securities, swaps, options, futures and currencies. Hybrid instruments are
potentially more volatile and carry greater market risks than traditional debt
instruments. Depending on the structure of the particular hybrid instrument,
changes in a benchmark, underlying assets or economic indicator may be
magnified by the terms of the hybrid instrument and have an even more dramatic
and substantial effect upon the value of the hybrid instrument. Also, the
prices of the hybrid instrument and the benchmark, underlying asset or economic
indicator may not move in the same direction or at the same time.
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.
SHORT TERM FEES - The fund charged a 1% redemption fee on proceeds from Class
A, Class B, Class C, and Class I shares redeemed or exchanged within 30
calendar days following their acquisition. Effective December 1, 2006, the fund
no longer charges a redemption fee. Any redemption fees charged are accounted
for as an addition to paid-in-capital.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund 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. Dividends received in cash are
recorded on the ex-dividend date. Certain dividends from foreign securities
will be recorded when the fund is informed of the dividend if such information
is obtained subsequent to the ex-dividend date. Dividend and interest payments
received in additional securities are recorded on the ex- dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. 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 six months ended July 31, 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, defaulted bonds, derivative transactions, and treating a portion of
the proceeds from redemptions as a distribution for tax purposes.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
1/31/07
Ordinary income (including any
short-term capital gains) $50,661,641
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 7/31/07
Cost of investments $778,091,159
-------------------------------------------------------------
Gross appreciation $8,649,814
Gross depreciation (37,170,600)
-------------------------------------------------------------
Net unrealized appreciation (depreciation) $(28,520,786)
AS OF 1/31/07
Undistributed ordinary income $4,943,153
Undistributed long-term capital gain 200,636
Other temporary differences (4,552,396)
Net unrealized appreciation (depreciation) 25,854,498
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 0.65% of the fund's average daily net assets. As part of a
settlement agreement with the New York Attorney General concerning market
timing and related matters, MFS has agreed to reduce the management fee to
0.50% of the fund's average daily net assets for the period March 1, 2004
through February 28, 2009. For the six months ended July 31, 2007, this waiver
amounted to $598,735 and is reflected as a reduction of total expenses in the
Statement of Operations.
The investment adviser has agreed in writing to pay all of the fund's operating
expenses, exclusive of management, distribution and service, and certain other
fees and expenses, This written agreement will continue through May 31, 2008
unless changed or rescinded by the fund's Board of Trustees. For the six months
ended July 31, 2007, this reduction amounted to $721,505 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 $89,820 for the six months ended July 31, 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:
DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $888,038
Class B 0.75% 0.25% 1.00% 1.00% 600,578
Class C 0.75% 0.25% 1.00% 1.00% 538,752
- -----------------------------------------------------------------------------------------
Total Distribution and Service Fees $2,027,368
(d) In accordance with the distribution plan for certain classes, the fund
pays distribution and/or service fees up to these annual percentage rates
of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the
distribution plan for the six months ended July 31, 2007 based on each
class' average daily net assets.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. All contingent
deferred sales charges are paid to MFD and during the six months ended July 31,
2007, were as follows:
AMOUNT
Class A $2,159
Class B 111,098
Class C 6,867
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 six months ended July 31, 2007, the fee was $206,893,
which equated to 0.0518% 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 six months ended July 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $231,359. 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 average daily net assets. The fund's annual fixed
amount is $17,500. The administrative services fee incurred for the six months
ended July 31, 2007 was equivalent to an annual effective rate of 0.0186% 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 an expense of $797.
This amount is included in independent trustees' compensation for the six
months ended July 31, 2007. The liability for deferred retirement benefits
payable to certain retired independent trustees amounted to $9,678 at July 31,
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 six months ended July 31, 2007, the fee paid to Tarantino
LLC was $2,913. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $1,976, 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.
The fund may invest in a money market fund managed by MFS which seeks
preservation of capital and current income. Income earned on this investment is
included in income distributions from affiliated funds on the Statement of
Operations. This money market fund does not pay a management fee to MFS.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $0 and
$0, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
7/31/07 1/31/07
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 16,642,845 $127,694,445 30,524,426 $228,027,783
Class B 1,280,133 9,833,067 3,406,685 25,477,273
Class C 2,216,758 16,983,701 4,014,845 29,944,983
Class I 2,899,080 22,302,535 2,522,708 18,976,883
- -----------------------------------------------------------------------------------------------------
23,038,816 $176,813,748 40,468,664 $302,426,922
Shares issued to shareholders in
reinvestment of distributions
Class A 1,819,187 $13,997,307 2,967,916 $22,199,143
Class B 306,769 2,368,025 638,792 4,787,667
Class C 247,615 1,900,929 486,261 3,625,246
Class I 64,279 496,137 44,043 330,585
- -----------------------------------------------------------------------------------------------------
2,437,850 $18,762,398 4,137,012 $30,942,641
Shares reacquired
Class A (12,646,071) $(96,560,389) (15,461,629) $(115,162,433)
Class B (2,973,909) (22,748,635) (4,793,839) (35,756,027)
Class C (1,679,510) (12,788,059) (3,458,037) (25,737,214)
Class I (3,402,760) (25,733,790) (1,563,868) (11,667,314)
- -----------------------------------------------------------------------------------------------------
(20,702,250) $(157,830,873) (25,277,373) $(188,322,988)
Net change
Class A 5,815,961 $45,131,363 18,030,713 $135,064,493
Class B (1,387,007) (10,547,543) (748,362) (5,491,087)
Class C 784,863 6,096,571 1,043,069 7,833,015
Class I (439,401) (2,935,118) 1,002,883 7,640,154
- -----------------------------------------------------------------------------------------------------
4,774,416 $37,745,273 19,328,303 $145,046,575
(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%. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the six months
ended July 31, 2007, the fund's commitment fee and interest expense were $2,098
and $0, respectively, and are included in miscellaneous expense on the
Statement of Operations.
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to
the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of MFS peer funds, (iii) information provided by MFS on the
advisory fees of comparable portfolios of other clients of MFS, including
institutional separate accounts and other clients, (iv) information as to
whether and to what extent applicable expense waivers, reimbursements or fee
"breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance monitoring
and portfolio trading practices, and (viii) information regarding the overall
organization of MFS, including information about MFS' senior management and
other personnel providing investment advisory, administrative and other
services to the Fund and the other MFS Funds. The comparative performance, fee
and expense information prepared and provided by Lipper Inc. was not
independently verified and the independent Trustees did not independently
verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than in others, and
that the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 1st quintile relative to
the other funds in the universe for this three-year period (the 1st quintile
being the best performers and the 5th quintile being the worst performers). The
total return performance of the Fund's Class A shares was in the 1st quintile
for each of the one- and five-year periods ended December 31, 2006 relative to
the Lipper performance universe. Because of the passage of time, these
performance results may differ from the performance results for more recent
periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings, as
well as during investment review meetings conducted with portfolio management
personnel during the course of the year regarding the Fund's performance. After
reviewing these and related factors, the Trustees concluded, within the context
of their overall conclusions regarding the investment advisory agreement, that
they were satisfied with MFS' responses and efforts relating to investment
performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average daily net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that there is an advisory fee reduction in effect for the Fund through February
28, 2009 as part of MFS' settlement with the New York Attorney General
concerning market timing and related matters, and that MFS currently observes
an expense limitation for the Fund. The Trustees also considered that,
according to the Lipper data (which takes into account the advisory fee
reduction and expense limitation), the Fund's effective advisory fee rate and
total expense ratio were each lower than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Taking into account the advisory fee
reduction and the expense limitation noted above, the Trustees determined not
to recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser that also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, which may include securities lending programs,
directed expense payment programs, class action recovery programs, and MFS'
interaction with third-party service providers, principally custodians and
sub-custodians. The Trustees concluded that the various non-advisory services
provided by MFS and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly) and various other
factors. Additionally, the Trustees considered so-called "fall-out benefits" to
MFS such as reputational value derived from serving as investment manager to
the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2007.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before November 1, 2007
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.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to MFS.COM, log in to
your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 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.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
NOTICE
------
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST III
-------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
------------------------------------------------------
Maria F. Dwyer, President
Date: September 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: September 13, 2007
------------------
By (Signature and Title)* TRACY ATKINSON
------------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: September 13, 2007
------------------
* Print name and title of each signing officer under his or her signature.