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 811-3327
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MFS SERIES TRUST XIII
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: February 28
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Date of reporting period: August 31, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) DIVERSIFIED INCOME FUND
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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EXPENSE TABLE 3
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PORTFOLIO OF INVESTMENTS 5
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STATEMENT OF ASSETS AND LIABILITIES 21
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STATEMENT OF OPERATIONS 23
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STATEMENTS OF CHANGES IN NET ASSETS 24
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FINANCIAL HIGHLIGHTS 25
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NOTES TO FINANCIAL STATEMENTS 28
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 38
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PROXY VOTING POLICIES AND INFORMATION 42
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QUARTERLY PORTFOLIO DISCLOSURE 42
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CONTACT INFORMATION BACK COVER
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THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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8/31/07
DIF-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)
October 15, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 54.7%
Common Stocks 40.1%
Floating Rate Loans 2.0%
Cash & Other Net Assets 3.2%
TOP TEN HOLDINGS (i)
Fannie Mae 5.5% 30 Years 3.2%
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U.S. Treasury Notes, 5.125%, 2016 2.4%
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Exxon Mobil Corp. 1.5%
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U.S. Treasury Notes, 5.125%, 2011 1.5%
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Bank of America Corp. 1.3%
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Chevron Corp. 1.1%
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Simon Property Group, Inc. 1.1%
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Citigroup Inc. 1.0%
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Freddie Mac, 4.625%, 2008 1.0%
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JPMorgan Chase & Co. 1.0%
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CREDIT QUALITY OF BONDS (r)
AAA 36.1%
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A 2.8%
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BBB 8.6%
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BB 21.9%
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B 20.7%
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CCC 9.6%
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Not Rated 0.3%
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PORTFOLIO FACTS
Average Duration (d)(i) 5.3
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Average Life (i)(m) 9.1 yrs.
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Average Maturity (i)(m) 11.8 yrs.
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Average Credit Quality of Rated
Securities (long-term) (a) BBB
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Average Credit Quality of Rated
Securities (short-term) (a) A-1
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(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 08/31/07.
Percentages are based on net assets as of 08/31/07, 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,
March 1, 2007 through August 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 March 1, 2007 through August 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.
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Expenses
Paid During
Annualized Beginning Ending Period(p)
Share Expense Account Value Account Value 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
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Actual 0.95% $1,000.00 $986.90 $4.74
A ------------------------------------------------------------------------
Hypothetical (h) 0.95% $1,000.00 $1,020.36 $4.82
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Actual 1.65% $1,000.00 $984.30 $8.23
C ------------------------------------------------------------------------
Hypothetical (h) 1.65% $1,000.00 $1,016.84 $8.36
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Actual 0.65% $1,000.00 $989.30 $3.25
I ------------------------------------------------------------------------
Hypothetical (h) 0.65% $1,000.00 $1,021.87 $3.30
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(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 54.7%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 0.4%
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Bombardier, Inc., 8%, 2014 (n) $ 226,000 $ 233,345
Hawker Beechcraft Acquisition Co. LLC, 9.75%, 2017 (l)(n) 880,000 871,200
Vought Aircraft Industries, Inc., 8%, 2011 (l) 235,000 227,950
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$ 1,332,495
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Apparel Manufacturers - 0.2%
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Levi Strauss & Co., 9.75%, 2015 $ 500,000 $ 517,488
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Automotive - 1.3%
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Ford Motor Credit Co., 8%, 2016 $ 545,000 $ 502,940
Ford Motor Credit Co., FRN, 8.11%, 2012 120,000 109,897
Ford Motor Credit Co. LLC, 9.75%, 2010 960,000 950,724
General Motors Corp., 8.375%, 2033 (l) 771,000 618,728
Goodyear Tire & Rubber Co., 9%, 2015 (l) 890,000 921,150
TRW Automotive, Inc., 7%, 2014 (n) 750,000 697,500
TRW Automotive, Inc., 7.25%, 2017 (n) 35,000 31,850
------------
$ 3,832,789
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Broadcasting - 1.7%
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Allbritton Communications Co., 7.75%, 2012 $ 380,000 $ 371,450
Bonten Media Acquisition Co., 9%, 2015 (n)(p) 285,000 247,950
CanWest MediaWorks LP, 9.25%, 2015 (n) 195,000 193,050
Clear Channel Communications, Inc., 5.5%, 2014 515,000 401,700
Grupo Televisa S.A., 8.5%, 2032 422,000 504,770
Intelsat Bermuda Ltd., 11.25%, 2016 1,870,000 1,956,488
ION Media Networks, Inc., FRN, 11.61%, 2013 (n) 455,000 455,000
LBI Media, Inc., 8.5%, 2017 (n) 185,000 181,531
Univision Communications, Inc., 9.75%, 2015 (l)(n)(p) 795,000 757,238
------------
$ 5,069,177
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Building - 0.2%
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Builders FirstSource, Inc., FRN, 9.808%, 2012 $ 100,000 $ 96,000
Nortek Holdings, Inc., 8.5%, 2014 95,000 82,175
Ply Gem Industries, Inc., 9%, 2012 485,000 407,400
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$ 585,575
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Business Services - 0.4%
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SunGard Data Systems, Inc., 10.25%, 2015 (l) $ 1,145,000 $ 1,179,350
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Cable TV - 0.6%
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CCH II Holdings LLC, 10.25%, 2010 $ 250,000 $ 252,500
CCO Holdings LLC, 8.75%, 2013 965,000 945,700
CSC Holdings, Inc., 6.75%, 2012 400,000 378,000
NTL Cable PLC, 9.125%, 2016 200,000 202,250
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$ 1,778,450
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Chemicals - 1.0%
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Innophos, Inc., 8.875%, 2014 $ 615,000 $ 605,775
Koppers, Inc., 9.875%, 2013 190,000 197,600
Momentive Performance Materials, Inc., 11.5%, 2016 (l)(n) 1,020,000 974,100
Mosaic Co., 7.625%, 2016 (n) 550,000 563,750
Nalco Co., 8.875%, 2013 (l) 610,000 623,725
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$ 2,964,950
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Construction - 0.1%
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Urbi Desarrollos Urbanos S.A. de C.V., 8.5%, 2016 $ 200,000 $ 199,000
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Consumer Goods & Services - 0.9%
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ACCO Brands Corp., 7.625%, 2015 $ 365,000 $ 341,275
Corrections Corp. of America, 6.25%, 2013 180,000 174,600
Jarden Corp., 7.5%, 2017 335,000 313,225
Kar Holdings, Inc., 10%, 2015 (n) 575,000 514,625
Service Corp. International, 7.375%, 2014 125,000 125,625
Service Corp. International, 6.75%, 2015 80,000 77,600
Service Corp. International, 7%, 2017 540,000 510,300
Visant Holding Corp., 8.75%, 2013 647,000 647,000
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$ 2,704,250
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Containers - 0.4%
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Greif, Inc., 6.75%, 2017 $ 570,000 $ 555,750
Owens-Brockway Glass Container, Inc., 8.25%, 2013 595,000 609,875
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$ 1,165,625
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Defense Electronics - 0.3%
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L-3 Communications Corp., 6.125%, 2014 $ 100,000 $ 96,500
L-3 Communications Corp., 5.875%, 2015 810,000 767,475
------------
$ 863,975
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Electronics - 0.7%
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Flextronics International Ltd., 6.25%, 2014 $ 480,000 $ 441,600
Freescale Semiconductor, Inc., 10.125%, 2016 (l) 765,000 665,550
NXP B.V./NXP Funding LLC, 7.875%, 2014 40,000 36,100
Spansion LLC, 11.25%, 2016 (n) 930,000 881,175
------------
$ 2,024,425
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Emerging Market Quasi-Sovereign - 3.0%
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Codelco, Inc., 5.625%, 2035 $ 1,145,000 $ 1,043,969
Gazprom International S.A., 6.212%, 2016 (l) 1,548,000 1,497,535
Gazprom International S.A., 7.201%, 2020 1,404,926 1,427,827
Gazprom International S.A., 6.51%, 2022 (n) 620,000 599,230
Majapahit Holding B.V., 7.75%, 2016 600,000 589,500
National Power Corp., 6.875%, 2016 (n) 100,000 95,375
National Power Corp., 6.875%, 2016 300,000 288,204
OAO Gazprom, 9.625%, 2013 300,000 342,000
Pemex Project Funding Master Trust, 8.625%, 2022 950,000 1,173,163
Pemex Project Funding Master Trust, 6.625%, 2035 1,887,000 1,929,420
------------
$ 8,986,223
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Emerging Market Sovereign - 8.7%
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Banque Centrale de Tunisie, 7.375%, 2012 $ 200,000 $ 214,000
Federative Republic of Brazil, 6%, 2017 1,371,000 1,362,774
Federative Republic of Brazil, 8%, 2018 1,033,000 1,136,300
Federative Republic of Brazil, 7.125%, 2037 (l) 800,000 871,200
Federative Republic of Brazil, 11%, 2040 (l) 332,000 439,402
Republic of Argentina, 7%, 2013 2,158,000 1,774,056
Republic of Argentina, 8.28%, 2033 (l) 774,359 662,077
Republic of Argentina, FRN, 5.389%, 2012 2,059,375 1,812,621
Republic of Colombia, 10.375%, 2033 20,000 28,460
Republic of Colombia, 7.375%, 2037 300,000 318,150
Republic of Colombia, FRN, 7.33%, 2015 796,000 824,258
Republic of Croatia, FRN, 6.188%, 2010 (l) 681,818 685,411
Republic of El Salvador, 7.65%, 2035 900,000 976,500
Republic of El Salvador, 7.65%, 2035 (n) 225,000 244,125
Republic of Indonesia, 8.5%, 2035 (l) 1,637,000 1,827,290
Republic of Panama, 9.375%, 2029 1,240,000 1,618,200
Republic of Panama, 6.7%, 2036 816,000 807,840
Republic of Peru, 6.55%, 2037 1,233,000 1,232,384
Republic of Philippines, 9.375%, 2017 460,000 538,200
Republic of Philippines, 9.5%, 2030 20,000 25,250
Republic of Philippines, 7.75%, 2031 (l) 900,000 956,250
Republic of South Africa, 5.875%, 2022 700,000 674,625
Republic of Turkey, 11.5%, 2012 16,000 19,070
Republic of Turkey, 9.5%, 2014 300,000 344,250
Republic of Turkey, 7.25%, 2015 20,000 20,600
Republic of Turkey, 7%, 2016 (l) 150,000 151,875
Republic of Turkey, 7.375%, 2025 297,000 303,683
Republic of Turkey, 8%, 2034 85,000 91,163
Republic of Turkey, 6.875%, 2036 800,000 751,000
Republic of Uruguay, 9.25%, 2017 630,000 733,950
Republic of Venezuela, 8.5%, 2014 1,307,000 1,257,988
Republic of Venezuela, 7%, 2018 (l) 206,000 173,555
Republic of Venezuela, 7.65%, 2025 727,000 623,403
Republica Orient Uruguay, 7.625%, 2036 700,000 728,000
United Mexican States, 8.3%, 2031 470,000 602,775
United Mexican States, 6.75%, 2034 1,113,000 1,208,718
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$ 26,039,403
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Energy - Independent - 1.2%
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Chaparral Energy, Inc., 8.875%, 2017 (n) $ 650,000 $ 585,000
Chesapeake Energy Corp., 6.875%, 2016 515,000 503,413
Forest Oil Corp., 7.25%, 2019 (n) 210,000 202,125
Hilcorp Energy I LP, 7.75%, 2015 (n) 95,000 90,963
Hilcorp Energy I LP, 9%, 2016 (n) 455,000 460,688
Mariner Energy, Inc., 8%, 2017 340,000 322,150
Plains Exploration & Production Co., 7%, 2017 500,000 455,000
Quicksilver Resources, Inc., 7.125%, 2016 1,045,000 997,975
------------
$ 3,617,314
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Energy - Integrated - 0.5%
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Petroleum Co. of Trinidad & Tobago Ltd., 6%, 2022 (n) $ 746,000 $ 751,088
TNK-BP Finance S.A., 7.5%, 2016 (n) 14,000 13,825
TNK-BP Finance S.A., 7.5%, 2016 700,000 691,250
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$ 1,456,163
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Financial Institutions - 0.4%
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General Motors Acceptance Corp., 6.875%, 2011 $ 535,000 $ 477,145
General Motors Acceptance Corp., 6.75%, 2014 635,000 538,904
General Motors Acceptance Corp., 8%, 2031 185,000 166,197
Residential Capital LLC, 7.125%, 2008 70,000 58,450
Residential Capital LLC, 7.5%, 2012 36,000 27,360
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$ 1,268,056
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Food & Beverages - 0.3%
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ARAMARK Corp., 8.5%, 2015 (l) $ 500,000 $ 498,125
Del Monte Corp., 6.75%, 2015 300,000 285,000
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$ 783,125
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Forest & Paper Products - 0.3%
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Buckeye Technologies, Inc., 8%, 2010 $ 434,000 $ 434,000
Millar Western Forest Products, 7.75%, 2013 585,000 457,763
------------
$ 891,763
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Gaming & Lodging - 1.3%
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Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (l)(n) $ 630,000 $ 540,225
Harrah's Entertainment, Inc., 5.75%, 2017 750,000 562,500
Isle of Capri Casinos, Inc., 7%, 2014 500,000 433,750
Majestic Star Casino LLC, 9.75%, 2011 830,000 705,500
MGM Mirage, Inc., 6.75%, 2013 750,000 727,500
Station Casinos, Inc., 6.5%, 2014 520,000 440,700
Wimar Opco LLC, 9.625%, 2014 (n) 600,000 444,000
------------
$ 3,854,175
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Industrial - 0.1%
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Blount, Inc., 8.875%, 2012 (l) $ 325,000 $ 325,000
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Insurance - Health - 0.0%
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Centene Corp., 7.25%, 2014 $ 145,000 $ 141,375
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Insurance - Property & Casualty - 0.1%
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USI Holdings Corp., 9.75%, 2015 (n) $ 215,000 $ 196,725
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Medical & Health Technology & Services - 1.2%
- ----------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc., 7.5%, 2017 $ 295,000 $ 269,188
Community Health Systems, Inc., 8.875%, 2015 (n) 460,000 459,425
Cooper Cos., Inc., 7.125%, 2015 310,000 296,050
DaVita, Inc., 7.25%, 2015 (l) 720,000 705,600
HCA, Inc., 6.375%, 2015 395,000 321,925
HealthSouth Corp., 10.75%, 2016 150,000 154,500
Omnicare, Inc., 6.875%, 2015 500,000 466,250
Psychiatric Solutions, Inc., 7.75%, 2015 190,000 186,200
U.S. Oncology, Inc., 10.75%, 2014 450,000 452,250
Universal Hospital Services, Inc., 8.5%, 2015 (n)(p) 205,000 194,750
Universal Hospital Services, Inc., FRN, 8.759%, 2015 (n) 65,000 62,725
VWR Funding, Inc., 10.25%, 2015 (n) 155,000 144,150
------------
$ 3,713,013
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Metals & Mining - 1.2%
- ----------------------------------------------------------------------------------------------------------------
FMG Finance Ltd., 10.625%, 2016 (n) $ 790,000 $ 904,550
Foundation PA Coal Co., 7.25%, 2014 35,000 33,513
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 250,000 265,000
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 580,000 617,700
Peabody Energy Corp., 7.375%, 2016 105,000 105,788
Peabody Energy Corp., "B", 6.875%, 2013 1,040,000 1,037,400
PNA Group, Inc., 10.75%, 2016 (n) 500,000 515,625
------------
$ 3,479,576
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Mortgage Backed - 10.0%
- ----------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.972%, 2008 $ 100,524 $ 100,453
Fannie Mae, 4.374%, 2013 134,507 128,643
Fannie Mae, 4.495%, 2013 188,002 180,426
Fannie Mae, 4.51%, 2013 125,030 120,485
Fannie Mae, 5.369%, 2013 98,319 99,988
Fannie Mae, 4.56%, 2014 - 2015 216,927 207,895
Fannie Mae, 4.76%, 2014 97,598 94,623
Fannie Mae, 4.88%, 2014 105,449 102,404
Fannie Mae, 4.935%, 2014 170,903 167,109
Fannie Mae, 4.991%, 2014 176,787 172,552
Fannie Mae, 5.033%, 2014 321,449 313,379
Fannie Mae, 4.6%, 2015 29,144 27,948
Fannie Mae, 4.69%, 2015 203,596 196,959
Fannie Mae, 4.7%, 2015 62,830 60,784
Fannie Mae, 4.78%, 2015 86,460 83,844
Fannie Mae, 4.79%, 2015 129,853 124,826
Fannie Mae, 4.85%, 2015 187,278 182,855
Fannie Mae, 4.856%, 2015 157,466 151,935
Fannie Mae, 4.925%, 2015 154,767 150,470
Fannie Mae, 4.97%, 2015 194,457 188,896
Fannie Mae, 5.022%, 2015 171,561 167,876
Fannie Mae, 5.034%, 2015 113,929 111,288
Fannie Mae, 5.09%, 2016 68,669 67,722
Fannie Mae, 5.259%, 2016 75,000 73,684
Fannie Mae, 5.423%, 2016 34,409 34,344
Fannie Mae, 5.574%, 2016 113,051 112,080
Fannie Mae, 5.93%, 2016 123,156 126,414
Fannie Mae, 6.039%, 2016 74,400 76,639
Fannie Mae, 4.996%, 2017 284,562 277,332
Fannie Mae, 5.218%, 2017 70,000 68,550
Fannie Mae, 5.32%, 2017 116,671 114,746
Fannie Mae, 5.456%, 2017 115,000 114,369
Fannie Mae, 5.476%, 2017 169,500 168,757
Fannie Mae, 5.5%, 2017 - 2037 11,232,408 11,002,166
Fannie Mae, 5.631%, 2017 113,562 114,231
Fannie Mae, 5.724%, 2017 190,000 192,290
Fannie Mae, 6%, 2017 - 2037 3,339,529 3,348,527
Fannie Mae, 6.5%, 2017 - 2037 370,564 376,530
Fannie Mae, 4.5%, 2018 - 2020 2,140,263 2,057,684
Fannie Mae, 5%, 2025 1,486,020 1,481,582
Freddie Mac, 4.5%, 2015 - 2021 164,066 162,774
Freddie Mac, 6%, 2017 - 2036 382,921 383,785
Freddie Mac, 5%, 2018 - 2027 2,379,009 2,359,590
Freddie Mac, 4%, 2024 282,728 279,211
Freddie Mac, 5.5%, 2024 - 2035 1,243,026 1,234,556
Freddie Mac, 6.5%, 2037 1,550,605 1,574,026
Ginnie Mae, 5.5%, 2033 977,789 962,502
------------
$ 29,899,729
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Municipals - 0.4%
- ----------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Rev. (Stanford
University), "T-1", 5%, 2039 $ 585,000 $ 624,751
Puerto Rico Highway and Transportation Authority Rev., "N",
FGIC, 5.25%, 2039 540,000 588,746
------------
$ 1,213,497
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.3%
- ----------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.125%, 2016 $ 300,000 $ 288,000
Inergy LP, 6.875%, 2014 820,000 783,100
------------
$ 1,071,100
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.2%
- ----------------------------------------------------------------------------------------------------------------
Deutsche Bank (El Paso Performance-Linked Trust, CLN), 7.75%, 2011 (n) $ 450,000 $ 461,043
Intergas Finance B.V., 6.375%, 2017 (n) 2,140,000 1,995,550
Williams Cos., Inc., 8.75%, 2032 1,000,000 1,137,500
Williams Partners LP, 7.25%, 2017 175,000 173,250
------------
$ 3,767,343
- ----------------------------------------------------------------------------------------------------------------
Network & Telecom - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 55,000 $ 54,450
Citizens Communications Co., 9.25%, 2011 250,000 268,125
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 195,000 201,825
Qwest Capital Funding, Inc., 7.25%, 2011 235,000 231,475
Windstream Corp., 7%, 2019 65,000 61,263
------------
$ 817,138
- ----------------------------------------------------------------------------------------------------------------
Oil Services - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 220,000 $ 201,300
Compagnie Generale de Geophysique - Veritas, 7.75%, 2017 1,170,000 1,181,700
------------
$ 1,383,000
- ----------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 1.3%
- ----------------------------------------------------------------------------------------------------------------
Banco BMG S.A., 9.15%, 2016 $ 300,000 $ 309,390
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 300,000 299,250
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 (n) 80,000 83,500
HSBK Europe B.V., 7.25%, 2017 (n) 1,496,000 1,406,240
ICICI Bank Ltd., FRN, 6.375%, 2022 (n) 101,000 94,643
RSHB Capital S.A., 7.175%, 2013 (l) 1,150,000 1,175,875
RSHB Capital S.A., 6.299%, 2017 (n) 141,000 133,245
Russian Standard Finance S.A., 8.625%, 2011 500,000 465,000
VTB Capital S.A., 7.5%, 2011 54,000 56,015
------------
$ 4,023,158
- ----------------------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.6%
- ----------------------------------------------------------------------------------------------------------------
Alrosa Finance S.A., 8.875%, 2014 $ 1,700,000 $ 1,852,320
- ----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 1.0%
- ----------------------------------------------------------------------------------------------------------------
American Media Operations, Inc., 10.25%, 2009 (l) $ 500,000 $ 440,000
Dex Media, Inc., 0% to 2008, 9% to 2013 250,000 230,625
Idearc, Inc., 8%, 2016 685,000 676,438
Nielsen Finance LLC, 0% to 2011, 12.5% to 2016 1,765,000 1,186,963
R.H. Donnelley Corp., 8.875%, 2016 530,000 543,250
------------
$ 3,077,276
- ----------------------------------------------------------------------------------------------------------------
Retailers - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 220,000 $ 215,600
Rite Aid Corp., 9.5%, 2017 (n) 225,000 204,188
Sally Beauty Holdings. Inc., 9.25%, 2014 410,000 403,850
------------
$ 823,638
- ----------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Claire's Stores, Inc., 9.25%, 2015 (l)(n) $ 275,000 $ 238,563
Claire's Stores, Inc., 10.5%, 2017 (l)(n) 140,000 103,600
Michaels Stores, Inc., 11.375%, 2016 (l)(n) 185,000 179,913
Payless ShoeSource, Inc., 8.25%, 2013 80,000 74,000
------------
$ 596,076
- ----------------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Stater Brothers Holdings, Inc., 7.75%, 2015 (n) $ 230,000 $ 223,100
SUPERVALU, Inc., 7.5%, 2014 185,000 186,850
------------
$ 409,950
- ----------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.3%
- ----------------------------------------------------------------------------------------------------------------
MetroPCS Wireless, Inc., 9.25%, 2014 (n) $ 200,000 $ 197,000
UBS Luxembourg S.A., 8.25%, 2016 300,000 301,500
Wind Acquisition Finance S.A., 10.75%, 2015 (n) 375,000 386,250
------------
$ 884,750
- ----------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 $ 595,000 $ 615,825
- ----------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 5.3%
- ----------------------------------------------------------------------------------------------------------------
Fannie Mae, 6.625%, 2009 (l) $ 1,932,000 $ 2,003,094
Fannie Mae, 6%, 2011 (l) 1,340,000 1,396,244
Fannie Mae, 4.625%, 2013 (l) 2,581,000 2,544,267
Fannie Mae, 5.25%, 2016 (l) 1,916,000 1,937,699
Fannie Mae, 7.125%, 2030 (l) 1,234,000 1,512,036
Freddie Mac, 4.625%, 2008 (l) 2,986,000 2,975,651
Freddie Mac, 5.125%, 2008 200,000 199,879
Freddie Mac, 5.4%, 2009 2,522,000 2,533,596
Small Business Administration, 6.34%, 2021 485,123 499,402
Small Business Administration, 6.07%, 2022 416,536 426,805
------------
$ 16,028,673
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.9%
- ----------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 9.25%, 2016 (l) $ 576,000 $ 765,225
U.S. Treasury Bonds, 6.75%, 2026 (l) 1,372,000 1,687,024
U.S. Treasury Notes, 5.5%, 2008 (l) 173,000 173,973
U.S. Treasury Notes, 6.5%, 2010 (l) 53,000 55,795
U.S. Treasury Notes, 5.125%, 2011 (f)(l) 4,199,000 4,333,171
U.S. Treasury Notes, 4%, 2014 (l) 304,000 298,205
U.S. Treasury Notes, 5.125%, 2016 (l) 6,789,000 7,079,651
U.S. Treasury Notes, TIPS, 2.375%, 2017 (l) 288,235 287,875
------------
$ 14,680,919
- ----------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.3%
- ----------------------------------------------------------------------------------------------------------------
AES Corp., 9.375%, 2010 $ 30,000 $ 31,350
Edison Mission Energy, 7%, 2017 (n) 980,000 926,100
Intergen N.V., 9%, 2017 (n) 155,000 157,325
ISA Capital do Brasil S.A., 8.8%, 2017 600,000 616,500
Mirant Americas Generation LLC, 8.3%, 2011 600,000 592,500
Mirant North American LLC, 7.375%, 2013 135,000 134,325
NRG Energy, Inc., 7.375%, 2016 840,000 829,500
Reliant Energy, Inc., 7.875%, 2017 585,000 571,838
------------
$ 3,859,438
- ----------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $167,993,793) $163,973,290
- ----------------------------------------------------------------------------------------------------------------
Common Stocks - 40.1%
- ----------------------------------------------------------------------------------------------------------------
Aerospace - 1.1%
- ----------------------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 16,580 $ 1,643,741
Northrop Grumman Corp. 22,166 1,747,567
------------
$ 3,391,308
- ----------------------------------------------------------------------------------------------------------------
Automotive - 0.6%
- ----------------------------------------------------------------------------------------------------------------
Autoliv, Inc. 17,090 $ 980,453
General Motors Corp. 21,100 648,614
------------
$ 1,629,067
- ----------------------------------------------------------------------------------------------------------------
Biotechnology - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Amgen, Inc. (a) 5,850 $ 293,144
- ----------------------------------------------------------------------------------------------------------------
Broadcasting - 0.4%
- ----------------------------------------------------------------------------------------------------------------
CBS Corp., "B" 16,030 $ 505,105
News Corp., "A" 9,380 189,757
Walt Disney Co. 18,329 615,854
------------
$ 1,310,716
- ----------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 1.3%
- ----------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 5,350 $ 941,654
Lehman Brothers Holdings, Inc. 16,492 904,256
Merrill Lynch & Co., Inc. 5,860 431,882
Morgan Stanley 24,720 1,541,786
------------
$ 3,819,578
- ----------------------------------------------------------------------------------------------------------------
Chemicals - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Dow Chemical Co. 20,764 $ 885,169
PPG Industries, Inc. 6,800 498,780
------------
$ 1,383,949
- ----------------------------------------------------------------------------------------------------------------
Computer Software - 0.1%
- ----------------------------------------------------------------------------------------------------------------
McAfee, Inc. (a) 5,073 $ 181,360
- ----------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 0.6%
- ----------------------------------------------------------------------------------------------------------------
Hewlett-Packard Co. 18,210 $ 898,664
International Business Machines Corp. 6,780 791,158
------------
$ 1,689,822
- ----------------------------------------------------------------------------------------------------------------
Construction - 0.1%
- ----------------------------------------------------------------------------------------------------------------
D.R. Horton, Inc. 24,800 $ 374,728
- ----------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Kimberly-Clark Corp. 2,583 $ 177,426
- ----------------------------------------------------------------------------------------------------------------
Electrical Equipment - 0.3%
- ----------------------------------------------------------------------------------------------------------------
General Electric Co. 18,390 $ 714,819
Rockwell Automation, Inc. 2,667 187,917
------------
$ 902,736
- ----------------------------------------------------------------------------------------------------------------
Electronics - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Amkor Technology, Inc. (a) 42,390 $ 488,333
Intel Corp. 18,350 472,513
------------
$ 960,846
- ----------------------------------------------------------------------------------------------------------------
Energy - Integrated - 3.1%
- ----------------------------------------------------------------------------------------------------------------
Chevron Corp. 39,010 $ 3,423,518
ConocoPhillips 2,650 217,009
Exxon Mobil Corp. 52,520 4,502,540
Hess Corp. 19,900 1,221,263
------------
$ 9,364,330
- ----------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.2%
- ----------------------------------------------------------------------------------------------------------------
General Mills, Inc. 12,467 $ 696,656
- ----------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Kroger Co. 21,750 $ 578,115
- ----------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Hilton Hotels Corp. 8,602 $ 395,262
Penn National Gaming, Inc. (a) 3,930 231,084
Royal Caribbean Cruises Ltd. 8,390 319,072
------------
$ 945,418
- ----------------------------------------------------------------------------------------------------------------
General Merchandise - 0.7%
- ----------------------------------------------------------------------------------------------------------------
Family Dollar Stores, Inc. 14,730 $ 431,294
Macy's, Inc. 29,205 926,383
Wal-Mart Stores, Inc. 15,200 663,176
------------
$ 2,020,853
- ----------------------------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Humana, Inc. (a) 15,980 $ 1,024,158
- ----------------------------------------------------------------------------------------------------------------
Insurance - 2.1%
- ----------------------------------------------------------------------------------------------------------------
Ace Ltd. 21,867 $ 1,263,038
Allstate Corp. 9,920 543,120
Endurance Specialty Holdings Ltd. 5,820 232,043
Hartford Financial Services Group, Inc. 7,140 634,817
IPC Holdings Ltd. 18,330 465,949
MetLife, Inc. 22,540 1,443,687
Travelers Cos., Inc. 35,870 1,812,870
------------
$ 6,395,524
- ----------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.9%
- ----------------------------------------------------------------------------------------------------------------
Commercial Metals Co. 15,030 $ 434,217
Eaton Corp. 6,420 604,892
Timken Co. 47,509 1,689,420
------------
$ 2,728,529
- ----------------------------------------------------------------------------------------------------------------
Major Banks - 2.7%
- ----------------------------------------------------------------------------------------------------------------
Bank of America Corp. 76,321 $ 3,867,948
JPMorgan Chase & Co. 64,730 2,881,780
PNC Financial Services Group, Inc. 9,990 702,996
Regions Financial Corp. 21,759 681,057
------------
$ 8,133,781
- ----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Tenet Healthcare Corp. 243,909 $ 826,852
- ----------------------------------------------------------------------------------------------------------------
Metals & Mining - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Nucor Corp. 8,310 $ 439,599
Southern Copper Corp. (l) 6,970 733,593
------------
$ 1,173,192
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. 6,010 $ 186,310
- ----------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 1.8%
- ----------------------------------------------------------------------------------------------------------------
Citigroup, Inc. 66,813 $ 3,132,193
Countrywide Financial Corp. (l) 40,099 795,965
Fannie Mae 12,320 808,315
New York Community Bancorp, Inc. 34,320 607,121
------------
$ 5,343,594
- ----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.7%
- ----------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co. 8,260 $ 240,779
Eli Lilly & Co. 3,182 182,488
Johnson & Johnson 22,280 1,376,681
Merck & Co., Inc. 27,613 1,385,344
Pfizer, Inc. 64,890 1,611,868
Wyeth 7,980 369,474
------------
$ 5,166,634
- ----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Deluxe Corp. 10,520 $ 399,970
- ----------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Frontline Ltd. (l) 17,840 $ 833,485
- ----------------------------------------------------------------------------------------------------------------
Real Estate - 15.1%
- ----------------------------------------------------------------------------------------------------------------
Alexandria Real Estate Equities, Inc., REIT 20,156 $ 1,881,159
AvalonBay Communities, Inc., REIT 12,660 1,448,051
BRE Properties, Inc., REIT (l) 30,105 1,672,032
Developers Diversified Realty Corp., REIT 29,788 1,593,062
Douglas Emmett, Inc., REIT (l) 14,327 350,295
EastGroup Properties, Inc., REIT 30,937 1,312,657
Equity Residential, REIT 28,643 1,152,594
General Growth Properties, Inc., REIT 31,415 1,561,640
GMH Communities Trust, REIT 173,057 1,360,228
Health Care Property Investors, Inc., REIT 40,994 1,247,037
Highwoods Properties, Inc., REIT (l) 49,985 1,783,965
Host Hotels & Resorts, Inc., REIT 66,216 1,475,955
Kimco Realty Corp., REIT 44,196 1,892,473
Lexington Corporate Properties Trust, REIT 104,196 2,154,773
Macerich Co., REIT 27,765 2,255,073
Medical Properties Trust, Inc., REIT (l) 110,821 1,492,759
Nationwide Health Properties, Inc., REIT 37,330 1,035,908
Pennsylvania Real Estate Investment Trust, REIT (l) 61,217 2,315,839
Plum Creek Timber Co., Inc., REIT 50,985 2,137,801
ProLogis, REIT 37,826 2,275,612
Public Storage, Inc., REIT 16,445 1,246,202
Regency Centers Corp., REIT 19,774 1,373,700
Simon Property Group, Inc., REIT 33,955 3,223,009
SL Green Realty Corp., REIT 19,279 2,149,801
Ventas, Inc., REIT 67,360 2,565,069
Vornado Realty Trust, REIT 20,896 2,227,305
------------
$ 45,183,999
- ----------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.2%
- ----------------------------------------------------------------------------------------------------------------
RadioShack Corp. 27,590 $ 655,814
- ----------------------------------------------------------------------------------------------------------------
Telephone Services - 1.7%
- ----------------------------------------------------------------------------------------------------------------
AT&T, Inc. 23,260 $ 927,376
Citizens Communications Co. 32,550 472,301
Embarq Corp. 26,719 1,667,800
Qwest Communications International, Inc. (a) 91,670 820,447
Verizon Communications, Inc. 30,960 1,296,605
------------
$ 5,184,529
- ----------------------------------------------------------------------------------------------------------------
Tobacco - 0.8%
- ----------------------------------------------------------------------------------------------------------------
Altria Group, Inc. 26,810 $ 1,860,882
Reynolds American, Inc. (l) 9,368 619,412
------------
$ 2,480,294
- ----------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.5%
- ----------------------------------------------------------------------------------------------------------------
Duke Energy Corp. 23,680 $ 434,291
Edison International 19,170 1,010,451
FirstEnergy Corp. 22,240 1,366,426
FPL Group, Inc. 5,610 330,092
NRG Energy, Inc. (a) 36,630 1,395,237
------------
$ 4,536,497
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $122,303,840) $119,973,214
- ----------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 1.9% (g)(r)
- ----------------------------------------------------------------------------------------------------------------
Automotive - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Ford Motor Co., Term Loan B, 8.36%, 2031 $ 927,335 $ 869,183
Goodyear Tire & Rubber, Second Lien Term Loan, 6.85%, 2014 195,011 183,880
Mark IV Industries, Inc., Second Lien Term Loan, 11.1%, 2011 300,597 281,559
------------
$ 1,334,622
- ----------------------------------------------------------------------------------------------------------------
Broadcasting - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Gray Television, Inc., Term Loan B, 6.86%, 2014 $ 142,139 $ 133,167
Univison Communications, Inc., Term Loan B, 2014 (o) 25,497 23,534
Univison Communications, Inc., Term Loan B, 7.61%, 2014 396,627 366,087
------------
$ 522,788
- ----------------------------------------------------------------------------------------------------------------
Building - 0.0%
- ----------------------------------------------------------------------------------------------------------------
Building Materials Corp. Second Lien Term Loan, 2014 (o) $ 61,841 $ 50,826
- ----------------------------------------------------------------------------------------------------------------
Cable TV - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Charter Communications, Inc., Term Loan, 7.36%, 2013 $ 156,102 $ 147,435
CSC Holdings, Inc., Term Loan B, 7.07%, 2013 199,273 190,929
MCC Iowa LLC Mediacom, Term Loan A, 7.05%, 2012 181,685 168,740
------------
$ 507,104
- ----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Celanese AG, Term Loan, 7.11%, 2014 $ 329,459 $ 317,653
- ----------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.0%
- ----------------------------------------------------------------------------------------------------------------
Jarden Corp., Term Loan B, 2008 (o) $ 83,108 $ 79,618
- ----------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Dean Foods, Term Loan B, 6.86%, 2014 $ 592,550 $ 573,384
- ----------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., Term Loan, 7.12%, 2012 $ 157,141 $ 150,159
Georgia-Pacific Corp., Term Loan B-2, 7.11%, 2012 19,603 18,732
------------
$ 168,891
- ----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Community Health Systems, Term Loan, 7.76%, 2014 $ 200,576 $ 192,446
Community Health Systems, Term Loan B, 2014 (o) 13,228 12,692
HCA, Inc., Term Loan B, 7.61%, 2013 626,412 602,642
------------
$ 807,780
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., Term Loan B, 7.07%, 2014 $ 211,417 $ 200,582
- ----------------------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., Letter of Credit, 5.32%, 2012 $ 106,575 $ 103,431
Allied Waste North America, Inc., Term Loan B, 6.84%, 2012 202,575 196,599
------------
$ 300,030
- ----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Idearc, Inc., Term Loan B, 7.36%, 2014 $ 680,356 $ 656,544
- ----------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Michaels Stores, Term Loan B, 7.63%, 2013 $ 285,409 $ 268,427
- ----------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $6,046,050) $ 5,788,249
- ----------------------------------------------------------------------------------------------------------------
Money Market Funds (v) - 2.5%
- ----------------------------------------------------------------------------------------------------------------
MFS Institutional Money Market Portfolio, 5.296%
(Identified Cost, $7,413,316) 7,413,316 $ 7,413,316
- ----------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 9.9%
- ----------------------------------------------------------------------------------------------------------------
Citigroup Global Markets, Inc. Repurchase Agreement, 5.3%,
dated 8/31/07, due 9/04/07, total to be received $29,542,530
(secured by U.S. Treasury and Federal Agency obligations and
Mortgage Backed securities in a jointly traded account), at
Cost 29,525,143 $ 29,525,143
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $333,282,142) (k) $326,673,212
- ----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (9.1)% (27,256,443)
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $299,416,769
- ----------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(k) As of August 31, 2007, the fund held securities fair valued in accordance with the policies adopted by the
Board of Trustees, aggregating $160,980,650 and 49.28% of market value. An independent pricing service
provided an evaluated bid for 46.18% of the market value.
(l) All or a portion of this security is on loan.
(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 $20,098,993, representing
6.7% 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.
The following abbreviations are used in this report and are defined:
CLN Credit-Linked Note.
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported
at period end.
REIT Real Estate Investment Trust
TIPS Treasury Inflation Protected Security
FUTURES CONTRACTS OUTSTANDING AT 8/31/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
U.S. Treasury Note 10 yr (Short) 24 $2,617,125 Dec-07 $(12,646)
At August 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 8/31/07 (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, including $44,209,299 of securities on
loan (identified cost, $333,282,142) $326,673,212
Receivable for daily variation margin on open futures contracts 9,375
Receivable for investments sold 266,081
Receivable for fund shares sold 1,773,347
Interest and dividends receivable 3,039,379
Receivable from investment adviser 109,315
Other assets 721
- ------------------------------------------------------------------------------------------------------
Total assets $331,871,430
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Payable to custodian $21,851
Distributions payable 1,075,612
Payable for investments purchased 665,728
Payable for fund shares reacquired 1,107,362
Collateral for securities loaned, at value (c) 29,525,143
Payable to affiliates
Management fee 10,593
Shareholder servicing costs 11,016
Distribution and service fees 8,380
Administrative services fee 300
Payable for independent trustees' compensation 263
Accrued expenses and other liabilities 28,413
- ------------------------------------------------------------------------------------------------------
Total liabilities $32,454,661
- ------------------------------------------------------------------------------------------------------
Net assets $299,416,769
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $304,192,219
Unrealized appreciation (depreciation) on investments (6,621,576)
Accumulated net realized gain (loss) on investments 1,811,264
Undistributed net investment income 34,862
- ------------------------------------------------------------------------------------------------------
Net assets $299,416,769
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 28,403,046
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $204,750,454
Shares outstanding 19,417,553
- ------------------------------------------------------------------------------------------------------
Net asset value per share $10.54
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $11.07
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $92,583,861
Shares outstanding 8,788,024
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.54
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $2,082,454
Shares outstanding 197,469
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $10.55
- ------------------------------------------------------------------------------------------------------
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 and Class C shares.
(c) Non-cash collateral not included.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 8/31/07 (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 $5,548,053
Dividends 1,926,540
Foreign taxes withheld (3,936)
- -------------------------------------------------------------------------------------------------------
Total investment income $7,470,657
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $909,611
Distribution and service fees 708,381
Shareholder servicing costs 102,006
Administrative services fee 28,388
Independent trustees' compensation 2,755
Custodian fee 28,302
Shareholder communications 19,968
Auditing fees 25,781
Legal fees 2,402
Miscellaneous 46,584
- -------------------------------------------------------------------------------------------------------
Total expenses $1,874,178
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (139)
Reduction of expenses by investment adviser (261,006)
- -------------------------------------------------------------------------------------------------------
Net expenses $1,613,033
- -------------------------------------------------------------------------------------------------------
Net investment income $5,857,624
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $1,982,213
Futures contracts (29,418)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments $1,952,795
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(12,984,479)
Futures contracts (12,646)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(12,997,125)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $(11,044,330)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $(5,186,706)
- -------------------------------------------------------------------------------------------------------
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 PERIOD ENDED
8/31/07 2/28/07(c)
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income $5,857,624 $2,909,418
Net realized gain (loss) on investments 1,952,795 853,945
Net unrealized gain (loss) on investments (12,997,125) 6,375,549
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $(5,186,706) $10,138,912
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------
From net investment income
Class A $(4,250,910) $(2,272,559)
Class C (1,532,500) (653,322)
Class I (56,806) (72,756)
From net realized gain on investments
Class A (561,842) (29,122)
Class C (241,389) (10,423)
Class I (7,204) (541)
- ------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(6,650,651) $(3,038,723)
- ------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $88,031,839 $216,122,098
- ------------------------------------------------------------------------------------------------------
Total change in net assets $76,194,482 $223,222,287
- ------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------
At beginning of period 223,222,287 --
At end of period (including undistributed net investment
income of $34,862 and $17,454, respectively) $299,416,769 $223,222,287
- ------------------------------------------------------------------------------------------------------
(c) For the period from the commencement of the fund's investment operations, May 26, 2006, through the stated
period end.
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
ENDED PERIOD ENDED
CLASS A 8/31/07 2/28/07(c)
(UNAUDITED)
Net asset value, beginning of period $10.95 $10.00
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income (d) $0.24 $0.37
Net realized and unrealized gain (loss) on investments (0.38) 0.93
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $(0.14) $1.30
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $(0.35)
From net realized gain on investments and
foreign currency transactions (0.03) (0.00)(w)
- ----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.27) $(0.35)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.54 $10.95
- ----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (1.31)(n) 13.20(n)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.13(a) 1.36(a)
Expenses after expense reductions (f) 0.95(a) 0.95(a)
Net investment income 4.39(a) 4.45(a)
Portfolio turnover 35 46
Net assets at end of period (000 Omitted) $204,750 $156,447
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS C 8/31/07 2/28/07(c)
(UNAUDITED)
Net asset value, beginning of period $10.94 $10.00
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income (d) $0.20 $0.30
Net realized and unrealized gain (loss) on investments (0.37) 0.93
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $(0.17) $1.23
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net investment income $(0.20) $(0.29)
From net realized gain on investments and
foreign currency transactions (0.03) (0.00)(w)
- ----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.23) $(0.29)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.54 $10.94
- ----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) (1.57)(n) 12.51(n)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.83(a) 2.01(a)
Expenses after expense reductions (f) 1.65(a) 1.65(a)
Net investment income 3.69(a) 3.67(a)
Portfolio turnover 35 46
Net assets at end of period (000 Omitted) $92,584 $64,316
- ----------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED PERIOD ENDED
CLASS I 8/31/07 2/28/07(c)
(UNAUDITED)
Net asset value, beginning of period $10.95 $10.00
- ----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income (d) $0.26 $0.41
Net realized and unrealized gain (loss) on investments (0.37) 0.91
- ----------------------------------------------------------------------------------------------------------
Total from investment operations $(0.11) $1.32
- ----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
From net investment income $(0.26) $(0.37)
From net realized gain on investments and
foreign currency transactions (0.03) (0.00)(w)
- ----------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.29) $(0.37)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.55 $10.95
- ----------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) (1.07)(n) 13.45(n)
- ----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.83(a) 1.29(a)
Expenses after expense reductions (f) 0.65(a) 0.65(a)
Net investment income 4.70(a) 4.84(a)
Portfolio turnover 35 46
Net assets at end of period (000 Omitted) $2,082 $2,459
- ----------------------------------------------------------------------------------------------------------
(a) Annualized.
(c) For the period from the commencement of the fund's investment operations, May 26, 2006, through the
stated period end.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(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 Diversified Income Fund (the fund) is a series of MFS Series Trust XIII
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest in foreign securities, including securities of emerging market
issuers. Investments in foreign securities are vulnerable to the effects of
changes in the relative values of the local currency and the U.S. dollar and to
the effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - 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. Securities and other assets generally valued on the basis of
information from an independent pricing service may also be valued at a
broker-dealer bid quotation. The values of foreign securities and other assets
and liabilities expressed in foreign currencies are converted to U.S. dollars
using the mean of bid and asked prices for rates reported by an independent
pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign equity securities may often be valued at fair
value. The adviser may rely on independent pricing services or other
information (such as the correlation with price movements of similar securities
in the same or other markets; the type, cost and investment characteristics of
the security; the business and financial condition of the issuer; and trading
and other market data) to assist in determining whether to fair value and at
what value to fair value an investment. The value of an investment for purposes
of calculating the fund's net asset value can differ depending on the source
and method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from quoted
or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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.
INFLATION-ADJUSTED DEBT SECURITIES - The fund invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The fund may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the
debt security is typically equal to the inflation-adjusted principal amount, or
the security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts.
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.
SECURITY LOANS - JPMorgan Chase and Co. ("Chase"), as lending agent, may loan
the securities of the fund to certain qualified institutions (the "Borrowers")
approved by the fund. The loans are collateralized at all times by cash and/or
U.S. Treasury securities in an amount at least equal to the market value of the
securities loaned. Security lending activity through Chase is further
collateralized by an irrevocable standby letter of credit. Chase provides the
fund with indemnification against Borrower default. The fund bears the risk of
loss with respect to the investment of cash collateral. On loans collateralized
by cash, the cash collateral is invested in a money market fund or short-term
securities. A portion of the income generated upon investment of the collateral
is remitted to the Borrowers, and the remainder is allocated between the fund
and the lending agent. On loans collateralized by U.S. Treasury securities, a
fee is received from the Borrower, and is allocated between the fund and the
lending agents. Net income from securities lending is included in interest
income on the Statement of Operations. The dividend and interest income earned
on the securities loaned is accounted for in the same manner as other dividend
and interest income.
At August 31, 2007, the value of securities loaned was $44,209,299. These loans
were collateralized by cash of $29,525,143 and U.S. Treasury obligations of
$15,537,635.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The fund may invest in loans and loan
participations or other receivables. These investments may include standby
financing commitments, including revolving credit facilities, which obligate
the fund to supply additional cash to the borrower on demand. Loan
participations involve a risk of insolvency of the lending bank or other
financial intermediary.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund earns certain fees in connection with its floating rate
loan purchasing activities. These fees are in addition to interest payments
earned and may include amendment fees, commitment fees, facility fees, consent
fees, and prepayment fees. These fees are recorded on an accrual basis as
income in the accompanying financial statements. 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.
Dividends received on REITs that represent a return of capital or capital gain
are recorded as a reduction of cost of investments or as a realized gain,
respectively.
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 August 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. 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:
2/28/07
Ordinary income (including any
short-term capital gains) $3,038,723
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $333,322,286
----------------------------------------------------------
Gross appreciation $5,903,026
Gross depreciation (12,552,100)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(6,649,074)
AS OF 2/28/07
Undistributed ordinary income 1,539,424
Other temporary differences (722,286)
Net unrealized appreciation (depreciation) 6,244,769
The aggregate cost above includes prior fiscal year end tax adjustments.
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.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
management and related administrative services and facilities to the fund.
The management fee is computed daily and paid monthly at an annual rate of
0.65% of the fund's average daily net assets. The adviser has engaged a sub-
adviser for the real estate related component of the fund: Sun Capital Advisers
LLC, an affiliate of the adviser, referred to as Sun Capital or the
sub-adviser. MFS pays a sub-advisory fee in an amount equal to 0.30% annually
of the average daily net asset value of the fund's assets managed by the sub-
adviser.
The investment adviser has agreed in writing to pay a portion of the fund's
operating expenses, exclusive of certain other fees and expenses, such that
total annual fund operating expenses do not exceed the following rates annually
of the fund's average daily net assets with respect to each class:
CLASS A CLASS C CLASS I
0.95% 1.65% 0.65%
This written agreement will continue through June 30, 2008 unless changed or
rescinded by the fund's Board of Trustees. For the six months ended August 31,
2007, this reduction amounted to $260,347 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 $113,972 for the six months ended August 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 A 0.10% 0.25% 0.35% 0.30% $290,958
Class C 0.75% 0.25% 1.00% 1.00% 417,423
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $708,381
(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
August 31, 2007 based on each class' average daily net assets. 0.05% of the Class A distribution fee is
currently being paid by the fund. Payment of the remaining 0.05% of the Class A distribution fee is not yet in
effect and will be implemented on such date as the fund's Board of Trustees may determine.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
All contingent deferred sales charges are paid to MFD and during the six
months ended August 31, 2007, were as follows:
AMOUNT
Class A $3,674
Class C 22,816
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 August 31, 2007, the fee was $66,574,
which equated to 0.0476% 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 August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $35,432. 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 August 31,
2007 was equivalent to an annual effective rate of 0.0203% of the fund's
average daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC.
OTHER - This fund and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended August 31, 2007, the fee paid to Tarantino
LLC was $672. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $659, which is
shown as a reduction of total expenses in the Statement of Operations.
Additionally, MFS has agreed to bear all expenses associated with office space,
other administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $53,265,662 $26,409,737
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $128,136,745 $66,039,696
- -------------------------------------------------------------------------------
(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 PERIOD ENDED
8/31/07 2/28/07(c)
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 7,421,441 $81,022,309 15,839,726 $168,001,449
Class C 3,394,764 37,065,047 6,062,654 64,640,226
Class I 33,885 371,565 330,293 3,408,157
- -----------------------------------------------------------------------------------------------------------
10,850,090 $118,458,921 22,232,673 $236,049,832
Shares issued to shareholders in
reinvestment of distributions
Class A 332,415 $3,619,410 169,948 $1,832,412
Class C 91,953 1,000,086 35,102 379,283
Class I 5,861 63,918 6,874 73,117
- -----------------------------------------------------------------------------------------------------------
430,229 $4,683,414 211,924 $2,284,812
Shares reacquired
Class A (2,624,490) $(28,176,464) (1,721,487) $(18,641,988)
Class C (578,048) (6,209,515) (218,401) (2,353,187)
Class I (66,810) (724,517) (112,634) (1,217,371)
- -----------------------------------------------------------------------------------------------------------
(3,269,348) $(35,110,496) (2,052,522) $(22,212,546)
Net change
Class A 5,129,366 $56,465,255 14,288,187 $151,191,873
Class C 2,908,669 31,855,618 5,879,355 62,666,322
Class I (27,064) (289,034) 224,533 2,263,903
- -----------------------------------------------------------------------------------------------------------
8,010,971 $88,031,839 20,392,075 $216,122,098
(c) For the period from the commencement of the fund's investment operations, May 26, 2006, through the
stated period end.
(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 year six
months ended August 31, 2007, the fund's commitment fee and interest expense
were $401 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 and investment sub-advisory agreement among MFS Series Trust
XIII, on behalf of the Fund, MFS and Sun Capital Advisers LLC ("Sun Capital")
(together, the "Agreements"). 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 agreements 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 Agreements by independent legal counsel,
from whom they received separate legal advice and with whom they met separately
from MFS and Sun Capital 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
Agreements, 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 agreements for the Fund were 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 and Sun Capital, as applicable, under the
Agreements 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 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
peer funds identified by objective criteria suggested by MFS, (ii) information
provided by MFS on the advisory fees of comparable portfolios of other clients
of MFS, including institutional separate accounts and other clients, (iii)
information as to whether and to what extent applicable expense waivers,
reimbursements or fee "breakpoints" are observed for the Fund, (iv) 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, (v) MFS' views regarding the outlook for
the mutual fund industry and the strategic business plans of MFS, (vi)
descriptions of various functions performed by MFS for the Funds, such as
compliance monitoring and portfolio trading practices, (vii) 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, and
(viii) information regarding the overall organization of Sun Capital, including
information about Sun Capital personnel providing investment advisory services
to the Fund. The comparative 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 or Sun
Capital.
The Trustees' conclusion as to the continuation of the Agreements 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.
The Fund commenced operations on May 26, 2006 and has a limited operating
history and performance record. As a result, the Trustees did not receive
information provided by Lipper Inc. on the investment performance of the Fund.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings.
After reviewing this information and related factors, the Trustees concluded,
within the context of their overall conclusions regarding the investment
advisory agreement, that they were satisfied with MFS' 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, sub-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 and/ or
Sun Capital. The Trustees noted that MFS (and not the Fund) pays Sun Capital
its sub-advisory fee from its advisory fees. The Trustees considered 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
expense limitation), the Fund's effective advisory fee 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 and sub-
advisory fee rate schedules are not currently subject to any breakpoints.
Taking into account the expense limitation noted above, the Trustees determined
not to recommend any advisory fee or sub-advisory fee breakpoints for the Fund
at this time.
The Trustees also considered information prepared by MFS and Sun Capital
relating to MFS' and Sun Capital's costs and profits with respect to the Fund,
and with respect to 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
Agreements, that the advisory fee charged to the Fund and the sub-advisory fee
paid by MFS to Sun Capital represent reasonable compensation in light of the
services being provided by MFS and Sun Capital to the Fund.
In addition, the Trustees considered MFS' and Sun Capital's 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, Sun Capital and their
ultimate parent, Sun Life Financial Inc. The Trustees also considered the
advantages and possible disadvantages to the Fund of having an adviser and
sub-adviser that also serve 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 agreements, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS and Sun Capital. 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' and Sun Capital's 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 Fund were satisfactory.
The Trustees also considered benefits to MFS and Sun Capital 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. The Trustees noted that Sun Capital may
obtain third-party research with soft dollar commissions. Additionally, the
Trustees considered so-called "fall-out benefits" to MFS and Sun Capital such
as reputational value derived from serving as an 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 and MFS' investment sub-advisory agreement with Sun Capital
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) GOVERNMENT SECURITIES FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------------
EXPENSE TABLE 3
- ------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- ------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 10
- ------------------------------------------------------------------
STATEMENT OF OPERATIONS 13
- ------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 14
- ------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 15
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 24
- ------------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 37
- ------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 41
- ------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 41
- ------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
8/31/07
MFG-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)
October 15, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 98.4%
Cash & Other Net Assets 1.6%
FIXED INCOME SECTORS (i)
Mortgage-Backed Securities 49.7%
------------------------------------------------
U.S. Government Agencies 24.7%
------------------------------------------------
U.S. Treasury Securities 22.1%
------------------------------------------------
Municipal Bonds 1.9%
------------------------------------------------
CREDIT QUALITY OF BONDS (r)
AAA 100.0%
------------------------------------------------
PORTFOLIO FACTS
Average Duration (d,i) 4.5
------------------------------------------------
Average Life (i,m) 6.3 yrs.
------------------------------------------------
Average Maturity (i,m) 13.5 yrs.
------------------------------------------------
Average Credit Quality of Rated
Securities (long-term) (a) AAA
------------------------------------------------
Average Credit Quality of Rated
Securities (short-term) (a) A-1
------------------------------------------------
(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this 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 08/31/07.
Percentages are based on net assets as of 08/31/07, 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,
March 1, 2007 through August 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 March 1, 2007 through August 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 3/01/07-
Class Ratio 3/01/07 8/31/07 8/31/07
- --------------------------------------------------------------------------------
Actual 0.75% $1,000.00 $1,018.20 $3.80
A -----------------------------------------------------------------------
Hypothetical(h) 0.75% $1,000.00 $1,021.37 $3.81
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,014.40 $7.60
B -----------------------------------------------------------------------
Hypothetical(h) 1.50% $1,000.00 $1,017.60 $7.61
- --------------------------------------------------------------------------------
Actual 1.50% $1,000.00 $1,014.40 $7.60
C -----------------------------------------------------------------------
Hypothetical(h) 1.50% $1,000.00 $1,017.60 $7.61
- --------------------------------------------------------------------------------
Actual 0.50% $1,000.00 $1,019.40 $2.54
I -----------------------------------------------------------------------
Hypothetical(h) 0.50% $1,000.00 $1,022.62 $2.54
- --------------------------------------------------------------------------------
Actual 1.00% $1,000.00 $1,016.90 $5.07
R -----------------------------------------------------------------------
Hypothetical(h) 1.00% $1,000.00 $1,020.11 $5.08
- --------------------------------------------------------------------------------
Actual 1.60% $1,000.00 $1,012.80 $8.10
R1 -----------------------------------------------------------------------
Hypothetical(h) 1.60% $1,000.00 $1,017.09 $8.11
- --------------------------------------------------------------------------------
Actual 1.25% $1,000.00 $1,015.60 $6.33
R2 -----------------------------------------------------------------------
Hypothetical(h) 1.25% $1,000.00 $1,018.85 $6.34
- --------------------------------------------------------------------------------
Actual 1.15% $1,000.00 $1,015.10 $5.83
R3 -----------------------------------------------------------------------
Hypothetical(h) 1.15% $1,000.00 $1,019.36 $5.84
- --------------------------------------------------------------------------------
Actual 0.90% $1,000.00 $1,017.40 $4.56
R4 -----------------------------------------------------------------------
Hypothetical(h) 0.90% $1,000.00 $1,020.61 $4.57
- --------------------------------------------------------------------------------
Actual 0.60% $1,000.00 $1,015.70 $3.04
R5 -----------------------------------------------------------------------
Hypothetical(h) 0.60% $1,000.00 $1,022.12 $3.05
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads). If
these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
8/31/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Bonds - 95.4%
- ----------------------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ----------------------------------------------------------------------------------------------------------------------------------
Agency - Other - 6.8%
- ----------------------------------------------------------------------------------------------------------------------------------
Financing Corp., 10.7%, 2017 $ 14,360,000 $ 20,605,673
Financing Corp., 9.4%, 2018 11,750,000 15,753,566
Financing Corp., 9.8%, 2018 14,975,000 20,611,949
Financing Corp., 10.35%, 2018 15,165,000 21,673,894
Financing Corp., STRIPS, 0%, 2017 18,780,000 11,305,203
--------------
$ 89,950,285
- ----------------------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 49.7%
- ----------------------------------------------------------------------------------------------------------------------------------
Fannie Mae, 4.35%, 2013 $ 916,510 $ 879,579
Fannie Mae, 4.374%, 2013 2,555,642 2,444,218
Fannie Mae, 4.5%, 2019 49,425,225 47,499,440
Fannie Mae, 4.543%, 2013 1,460,990 1,408,843
Fannie Mae, 4.547%, 2014 3,538,770 3,391,699
Fannie Mae, 4.56%, 2015 2,359,045 2,263,076
Fannie Mae, 4.6%, 2014 1,826,695 1,768,260
Fannie Mae, 4.62%, 2015 3,371,456 3,251,677
Fannie Mae, 4.665%, 2015 1,592,354 1,537,353
Fannie Mae, 4.666%, 2014 8,524,558 8,222,458
Fannie Mae, 4.69%, 2015 1,297,804 1,255,495
Fannie Mae, 4.7%, 2015 1,826,899 1,767,421
Fannie Mae, 4.73%, 2012 2,794,467 2,741,317
Fannie Mae, 4.74%, 2015 1,801,390 1,730,258
Fannie Mae, 4.77%, 2014 1,574,589 1,517,989
Fannie Mae, 4.78%, 2015 1,965,259 1,905,807
Fannie Mae, 4.786%, 2012 826,376 808,404
Fannie Mae, 4.79%, 2012 - 2015 13,280,975 13,063,138
Fannie Mae, 4.81%, 2015 1,691,777 1,643,395
Fannie Mae, 4.815%, 2015 1,968,000 1,896,094
Fannie Mae, 4.82%, 2014 - 2015 6,621,760 6,420,959
Fannie Mae, 4.839%, 2014 9,977,854 9,695,252
Fannie Mae, 4.845%, 2013 3,788,536 3,699,975
Fannie Mae, 4.85%, 2015 1,450,438 1,416,186
Fannie Mae, 4.87%, 2015 1,384,431 1,351,426
Fannie Mae, 4.871%, 2014 5,709,958 5,566,621
Fannie Mae, 4.88%, 2020 1,330,957 1,304,485
Fannie Mae, 4.89%, 2015 1,281,435 1,253,738
Fannie Mae, 4.92%, 2014 1,336,330 1,323,802
Fannie Mae, 4.925%, 2015 5,393,304 5,243,582
Fannie Mae, 4.935%, 2014 793,749 776,128
Fannie Mae, 4.996%, 2017 4,521,185 4,406,302
Fannie Mae, 5%, 2013 - 2027 48,626,967 48,007,820
Fannie Mae, 5.05%, 2017 1,897,000 1,857,706
Fannie Mae, 5.06%, 2013 1,512,994 1,490,136
Fannie Mae, 5.09%, 2016 600,000 589,472
Fannie Mae, 5.1%, 2014 1,985,060 1,969,820
Fannie Mae, 5.3%, 2017 797,645 794,149
Fannie Mae, 5.369%, 2013 1,966,381 1,999,770
Fannie Mae, 5.423%, 2016 2,981,799 2,976,185
Fannie Mae, 5.471%, 2015 2,543,055 2,548,171
Fannie Mae, 5.5%, 2017 - 2035 202,888,051 199,091,874
Fannie Mae, 5.78%, 2008 3,209,313 3,207,041
Fannie Mae, 6%, 2017 - 2037 50,371,402 50,552,359
Fannie Mae, 6.5%, 2016 - 2036 26,992,211 27,514,375
Fannie Mae, 7.5%, 2024 - 2031 667,500 699,187
Freddie Mac, 4%, 2024 2,773,631 2,739,129
Freddie Mac, 4.375%, 2015 7,052,702 6,904,388
Freddie Mac, 4.5%, 2013 - 2021 8,781,615 8,731,873
Freddie Mac, 5%, 2016 - 2027 42,062,452 41,924,902
Freddie Mac, 5.5%, 2024 - 2035 49,493,899 48,551,976
Freddie Mac, 6%, 2017 - 2036 24,419,643 24,509,698
Freddie Mac, 6.5%, 2016 - 2037 13,580,056 13,793,721
Ginnie Mae, 5.5%, 2033 - 2034 25,717,809 25,304,421
--------------
$ 659,212,550
- ----------------------------------------------------------------------------------------------------------------------------------
Municipals - 1.9%
- ----------------------------------------------------------------------------------------------------------------------------------
California Educational Facilities Authority Rev. (Stanford University), "T-1", 5%, 2039 $ 12,420,000 $ 13,263,939
Puerto Rico Highway and Transportation Authority Rev., "N", FGIC, 5.25%, 2039 11,485,000 12,521,751
--------------
$ 25,785,690
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 17.6%
- ----------------------------------------------------------------------------------------------------------------------------------
Aid-Egypt, 4.45%, 2015 $ 7,118,000 $ 6,866,165
Empresa Energetica Cornito Ltd., 6.07%, 2010 5,289,000 5,393,088
Fannie Mae, 3.125%, 2007 25,000,000 24,850,625
Fannie Mae, 4.25%, 2007 30,000,000 29,948,460
Fannie Mae, 4.625%, 2013 3,286,000 3,239,234
Farmer Mac, 5.5%, 2011 (n) 11,110,000 11,371,852
Federal Home Loan Bank, 4.625%, 2008 34,255,000 34,168,472
Federal Home Loan Bank, 5%, 2008 15,000,000 14,993,730
Freddie Mac, 4.875%, 2013 2,121,000 2,117,577
Freddie Mac, 6.625%, 2009 11,515,000 11,932,338
Small Business Administration, 4.34%, 2024 3,802,869 3,613,092
Small Business Administration, 4.72%, 2024 4,502,291 4,365,987
Small Business Administration, 4.76%, 2025 7,670,384 7,417,690
Small Business Administration, 4.77%, 2024 5,322,975 5,187,718
Small Business Administration, 4.86%, 2024 - 2025 8,608,466 8,404,474
Small Business Administration, 4.87%, 2024 5,021,906 4,905,167
Small Business Administration, 4.88%, 2024 3,088,203 3,020,507
Small Business Administration, 4.89%, 2023 6,218,920 6,107,356
Small Business Administration, 4.98%, 2023 2,520,288 2,489,031
Small Business Administration, 4.99%, 2024 4,645,244 4,580,003
Small Business Administration, 5.11%, 2025 4,546,963 4,507,421
Small Business Administration, 5.52%, 2024 3,820,421 3,857,500
Small Business Administration, 6.07%, 2022 3,022,862 3,097,386
Small Business Administration, 6.34%, 2021 3,153,301 3,246,115
Small Business Administration, 6.35%, 2021 2,809,561 2,892,361
Small Business Administration, 6.44%, 2021 2,878,222 2,969,079
Small Business Administration, 6.625%, 2021 3,000,970 3,110,563
Small Business Administration, 8.625%, 2011 107,277 109,596
Small Business Administration, 8.8%, 2011 90,291 91,684
Small Business Administration, 9.05%, 2009 16,523 16,705
Small Business Administration, 9.1%, 2009 12,768 13,010
Small Business Administration, 9.25%, 2010 34,989 35,731
Small Business Administration, 9.3%, 2010 86,243 87,803
Small Business Administration, 9.5%, 2010 71,699 72,788
Small Business Administration, 9.65%, 2010 103,409 105,278
Small Business Administration, 9.7%, 2010 51,101 51,844
Small Business Administration, 9.9%, 2008 15,121 15,253
Small Business Administration, 10.05%, 2008 - 2009 4,560 4,629
U.S. Department of Housing & Urban Development, 6.36%, 2016 7,000,000 7,221,228
U.S. Department of Housing & Urban Development, 6.59%, 2016 6,599,000 6,686,476
--------------
$ 233,165,016
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 19.4%
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 7.5%, 2016 $ 11,740,000 $14,274,185
U.S. Treasury Bonds, 6.25%, 2023 15,238,000 17,562,984
U.S. Treasury Bonds, 6.875%, 2025 1,307,000 1,616,901
U.S. Treasury Bonds, 6%, 2026 26,483,000 30,076,823
U.S. Treasury Bonds, 5.25%, 2028 1,139,000 1,196,039
U.S. Treasury Bonds, 6.25%, 2030 6,166,000 7,338,021
U.S. Treasury Bonds, STRIPS, 0%, 2021 14,612,000 7,246,894
U.S. Treasury Bonds, STRIPS, 0%, 2027 8,016,000 2,967,740
U.S. Treasury Notes, 5.5%, 2008 16,147,000 16,237,827
U.S. Treasury Notes, 6%, 2009 4,566,000 4,719,390
U.S. Treasury Notes, 6.5%, 2010 (f) 25,197,000 26,525,739
U.S. Treasury Notes, 5.125%, 2011 80,568,000 83,142,389
U.S. Treasury Notes, 4%, 2014 19,976,000 19,595,217
U.S. Treasury Notes, TIPS, 3.875%, 2009 10,538,907 10,684,638
U.S. Treasury Notes, TIPS, 2.375%, 2017 13,837,341 13,820,045
--------------
$ 257,004,832
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $1,273,634,123) $1,265,118,373
- ----------------------------------------------------------------------------------------------------------------------------------
Money Market Funds (v) - 4.3%
- ----------------------------------------------------------------------------------------------------------------------------------
MFS Institutional Money Market Portfolio, 5.296%, at cost and net asset value 57,193,048 $ 57,193,048
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,330,827,171) (k) $1,322,311,421
- ----------------------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.3% 4,188,404
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $1,326,499,825
- ----------------------------------------------------------------------------------------------------------------------------------
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(k) As of August 31, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of Trustees,
aggregating $1,253,587,246 and 94.80% of market value. All of these security values were provided by an independent pricing
service using an evaluated bid.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary
course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the
aggregate value of these securities was $11,371,852 representing 0.86% of net assets.
(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.
FUTURES CONTRACTS OUTSTANDING AT AUGUST 31, 2007:
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
U.S. Treasury Bond (Short) 224 $24,990,000 Dec-07 $(25,284)
U.S. Treasury Note 5 yr (Long) 175 18,673,047 Dec-07 (36,160)
U.S. Treasury Note 10 yr (Long) 371 40,456,391 Dec-07 192,911
- ------------------------------------------------------------------------------------------
$131,467
========
At August 31, 2007, the fund had sufficient cash and/or securities to cover any commitments
under these derivative contracts.
The following abbreviations are used in this report and are defined:
STRIPS Separate Trading of Registered Interest and Principal of Securities
TIPS Treasury Inflation Protected Security
INSURER
FGIC Financial Guaranty Insurance Co.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/07 (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
Unaffiliated issuers (identified cost, $1,273,634,123) $1,265,118,373
Affiliated issuers (identified cost, $57,193,048) 57,193,048
Total investments, at value (identified cost, $1,330,827,171) 1,322,311,421
Cash 10,917
Receivable for fund shares sold 5,418,944
Interest and dividends receivable 9,108,649
Other assets 5,801
- -----------------------------------------------------------------------------------------------------
Total assets $1,336,855,732
- -----------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Distributions payable $5,107,249
Payable for daily variation margin on open futures contracts 107,406
Payable for fund shares reacquired 4,309,840
Payable to affiliates
Management fee 21,815
Shareholder servicing costs 452,477
Distribution and service fees 17,423
Administrative services fee 1,146
Retirement plan administration and services fees 204
Payable for independent trustees' compensation 130,717
Accrued expenses and other liabilities 207,630
- -----------------------------------------------------------------------------------------------------
Total liabilities $10,355,907
- -----------------------------------------------------------------------------------------------------
Net assets $1,326,499,825
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -----------------------------------------------------------------------------------------------------
Paid-in capital $1,411,137,396
Unrealized appreciation (depreciation) on investments (8,384,283)
Accumulated net realized gain (loss) on investments (76,458,578)
Undistributed net investment income 205,290
- -----------------------------------------------------------------------------------------------------
Net assets $1,326,499,825
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 140,678,824
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- -----------------------------------------------------------------------------------------------------
Net assets $712,706,417
Shares outstanding 75,571,475
- -----------------------------------------------------------------------------------------------------
Net asset value per share $9.43
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $9.90
- -----------------------------------------------------------------------------------------------------
Class B shares
- -----------------------------------------------------------------------------------------------------
Net assets $101,817,279
Shares outstanding 10,812,814
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.42
- -----------------------------------------------------------------------------------------------------
Class C shares
- -----------------------------------------------------------------------------------------------------
Net assets $27,187,650
Shares outstanding 2,875,187
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.46
- -----------------------------------------------------------------------------------------------------
Class I shares
- -----------------------------------------------------------------------------------------------------
Net assets $455,743,936
Shares outstanding 48,338,340
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.43
- -----------------------------------------------------------------------------------------------------
Class R shares
- -----------------------------------------------------------------------------------------------------
Net assets $6,065,619
Shares outstanding 643,525
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.43
- -----------------------------------------------------------------------------------------------------
Class R1 shares
- -----------------------------------------------------------------------------------------------------
Net assets $1,646,423
Shares outstanding 174,732
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.42
- -----------------------------------------------------------------------------------------------------
Class R2 shares
- -----------------------------------------------------------------------------------------------------
Net assets $846,421
Shares outstanding 89,859
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.42
- -----------------------------------------------------------------------------------------------------
Class R3 shares
- -----------------------------------------------------------------------------------------------------
Net assets $5,968,983
Shares outstanding 633,556
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.42
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class R4 shares
- -----------------------------------------------------------------------------------------------------
Net assets $11,768,854
Shares outstanding 1,247,977
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.43
- -----------------------------------------------------------------------------------------------------
Class R5 shares
- -----------------------------------------------------------------------------------------------------
Net assets $2,748,243
Shares outstanding 291,359
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $9.43
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 8/31/07 (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 income $34,040,842
Income distributions from affiliated issuers 552,682
- -----------------------------------------------------------------------------------------
Total investment income $34,593,524
- -----------------------------------------------------------------------------------------
Expenses
Management fee $2,668,778
Distribution and service fees 1,647,195
Program manager fees 133
Shareholder servicing costs 893,273
Administrative services fee 117,282
Retirement plan administration and services fees 15,505
Independent trustees' compensation 20,535
Custodian fee 80,851
Shareholder communications 57,368
Auditing fees 25,510
Legal fees 11,661
Miscellaneous 131,472
- -----------------------------------------------------------------------------------------
Total expenses $5,669,563
- -----------------------------------------------------------------------------------------
Fees paid indirectly (1,985)
Reduction of expenses by investment adviser (670,964)
- -----------------------------------------------------------------------------------------
Net expenses $4,996,614
- -----------------------------------------------------------------------------------------
Net investment income $29,596,910
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -----------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transaction income $(3,794,354)
Futures contracts 1,869,770
- -----------------------------------------------------------------------------------------
Net realized gain (loss) on investments $(1,924,584)
- -----------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(4,249,855)
Futures contracts (14,788)
- -----------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments $(4,264,643)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $(6,189,227)
- -----------------------------------------------------------------------------------------
Change in net assets from operations $23,407,683
- -----------------------------------------------------------------------------------------
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
8/31/07 2/28/07
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------
Net investment income $29,596,910 $57,587,166
Net realized gain (loss) on investments (1,924,584) (4,488,989)
Net unrealized gain (loss) on investments (4,264,643) 8,283,788
- -------------------------------------------------------------------------------------------------
Change in net assets from operations $23,407,683 $61,381,965
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------
From net investment income
Class A $(16,686,073) $(34,710,885)
Class B (2,175,707) (5,536,265)
Class C (524,945) (1,162,820)
Class I (10,956,443) (18,749,306)
Class R (184,834) (500,675)
Class R1 (23,211) (13,926)
Class R2 (28,644) (30,894)
Class R3 (95,216) (112,323)
Class R4 (217,355) (215,531)
Class R5 (22,226) (2,443)
Class 529A (883) (15,334)
Class 529B (695) (13,460)
Class 529C (447) (7,793)
- -------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(30,916,679) $(61,071,655)
- -------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(6,294,296) $(72,725,449)
- -------------------------------------------------------------------------------------------------
Total change in net assets $(13,803,292) $(72,415,139)
- -------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------
At beginning of period 1,340,303,117 1,412,718,256
At end of period (including undistributed net investment
income of $205,290 and $1,525,059, respectively) $1,326,499,825 $1,340,303,117
- -------------------------------------------------------------------------------------------------
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 2/28 AND 2/29
ENDED ------------------------------------------------------------
CLASS A 8/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $9.48 $9.47 $9.65 $9.84 $10.03 $9.73
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.21 $0.40 $0.39 $0.36 $0.29 $0.39
Net realized and unrealized gain (loss)
on investments (0.04) 0.04 (0.17) (0.19) (0.08) 0.42
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.17 $0.44 $0.22 $0.17 $0.21 $0.81
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.22) $(0.43) $(0.40) $(0.36) $(0.40) $(0.51)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.43 $9.48 $9.47 $9.65 $9.84 $10.03
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.82(n) 4.75 2.28 1.81 2.19 8.54
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.85(a) 0.88 0.90 0.93 1.00 0.98
Expenses after expense reductions (f) 0.75(a) 0.78 0.80 0.83 0.95 0.93
Net investment income 4.44(a) 4.29 4.03 3.75 2.94 3.97
Portfolio turnover 21 14 73 126 143 134
Net assets at end of period (000 Omitted) $712,706 $731,126 $826,001 $932,879 $803,974 $927,886
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28 AND 2/29
ENDED ------------------------------------------------------------
CLASS B 8/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $9.47 $9.46 $9.64 $9.83 $10.02 $9.72
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.33 $0.31 $0.29 $0.24 $0.33
Net realized and unrealized gain (loss)
on investments (0.04) 0.04 (0.16) (0.18) (0.09) 0.41
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.13 $0.37 $0.15 $0.11 $0.15 $0.74
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.18) $(0.36) $(0.33) $(0.30) $(0.34) $(0.44)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.42 $9.47 $9.46 $9.64 $9.83 $10.02
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 1.44(n) 3.97 1.52 1.12 1.53 7.84
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.60(a) 1.64 1.65 1.62 1.64 1.63
Expenses after expense reductions (f) 1.50(a) 1.54 1.55 1.52 1.59 1.58
Net investment income 3.68(a) 3.55 3.27 3.03 2.42 3.32
Portfolio turnover 21 14 73 126 143 134
Net assets at end of period (000 Omitted) $101,817 $124,277 $175,207 $233,734 $255,512 $408,553
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28 AND 2/29
ENDED ------------------------------------------------------------
CLASS C 8/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $9.51 $9.50 $9.68 $9.87 $10.06 $9.76
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.33 $0.32 $0.29 $0.25 $0.33
Net realized and unrealized gain (loss)
on investments (0.04) 0.04 (0.17) (0.18) (0.10) 0.41
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.13 $0.37 $0.15 $0.11 $0.15 $0.74
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.18) $(0.36) $(0.33) $(0.30) $(0.34) $(0.44)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.46 $9.51 $9.50 $9.68 $9.87 $10.06
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(t) 1.44(n) 3.97 1.52 1.13 1.54 7.81
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.60(a) 1.64 1.65 1.62 1.64 1.63
Expenses after expense reductions (f) 1.50(a) 1.54 1.55 1.52 1.59 1.58
Net investment income 3.68(a) 3.55 3.27 2.95 2.47 3.32
Portfolio turnover 21 14 73 126 143 134
Net assets at end of period (000 Omitted) $27,188 $27,529 $35,768 $44,692 $63,609 $110,096
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28 AND 2/29
ENDED -----------------------------------------------------------------
CLASS I 8/31/07 2007 2006 2005 2004 2003
(UNAUDITED)
Net asset value, beginning of period $9.48 $9.47 $9.65 $9.84 $10.03 $9.73
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.22 $0.42 $0.41 $0.39 $0.25 $0.33
Net realized and unrealized gain (loss)
on investments (0.04) 0.04 (0.17) (0.19) (0.00)(g)(w) 0.51
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.18 $0.46 $0.24 $0.20 $0.25 $0.84
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.23) $(0.45) $(0.42) $(0.39) $(0.44) $(0.54)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.43 $9.48 $9.47 $9.65 $9.84 $10.03
- ----------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.94(n) 5.01 2.54 2.14 2.55 8.92
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.60(a) 0.63 0.65 0.60 0.67 0.63
Expenses after expense reductions (f) 0.50(a) 0.53 0.55 0.50 0.62 0.58
Net investment income 4.69(a) 4.54 4.34 4.09 2.57 3.64
Portfolio turnover 21 14 73 126 143 134
Net assets at end of period (000 Omitted) $455,744 $432,536 $359,623 $279,080 $168,124 $33,682
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28 AND 2/29
ENDED -----------------------------------------------------
CLASS R 8/31/07 2007 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $9.48 $9.47 $9.65 $9.84 $10.03 $10.03
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.20 $0.38 $0.36 $0.34 $0.18 $0.16
Net realized and unrealized gain (loss)
on investments (0.04) 0.03 (0.17) (0.18) 0.02(g) (0.08)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.16 $0.41 $0.19 $0.16 $0.20 $0.08
- ----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------
From net investment income $(0.21) $(0.40) $(0.37) $(0.35) $(0.39) $(0.08)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.43 $9.48 $9.47 $9.65 $9.84 $10.03
- ----------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.69(n) 4.49 2.03 1.63 2.05 0.78(n)
- ----------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.10(a) 1.14 1.15 1.11 1.19 1.13(a)
Expenses after expense reductions (f) 1.00(a) 1.03 1.05 1.01 1.14 1.08(a)
Net investment income 4.19(a) 4.03 3.76 3.64 1.87 3.04(a)
Portfolio turnover 21 14 73 126 143 134
Net assets at end of period (000 Omitted) $6,066 $9,995 $11,751 $9,411 $6,188 $79
- ----------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28
ENDED ------------------
CLASS R1 8/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $9.48 $9.46 $9.57
- -----------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.32 $0.29
Net realized and unrealized gain (loss)
on investments (0.05) 0.05 (0.12)(g)
- -----------------------------------------------------------------------------------
Total from investment operations $0.12 $0.37 $0.17
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------
From net investment income $(0.18) $(0.35) $(0.28)
- -----------------------------------------------------------------------------------
Net asset value, end of period $9.42 $9.48 $9.46
- -----------------------------------------------------------------------------------
Total return (%) (r)(s) 1.28(n) 3.98 1.82(n)
- -----------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.71(a) 1.82 1.85(a)
Expenses after expense reductions (f) 1.60(a) 1.62 1.68(a)
Net investment income 3.59(a) 3.45 3.25(a)
Portfolio turnover 21 14 73
Net assets at end of period (000 Omitted) $1,646 $586 $192
- -----------------------------------------------------------------------------------
SIX MONTHS YEARS ENDED 2/28
ENDED ------------------
CLASS R2 8/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $9.47 $9.46 $9.57
- -----------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.35 $0.31
Net realized and unrealized gain (loss)
on investments (0.04) 0.04 (0.11)(g)
- -----------------------------------------------------------------------------------
Total from investment operations $0.15 $0.39 $0.20
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------
From net investment income $(0.20) $(0.38) $(0.31)
- -----------------------------------------------------------------------------------
Net asset value, end of period $9.42 $9.47 $9.46
- -----------------------------------------------------------------------------------
Total return (%) (r)(s) 1.56(n) 4.23 2.13(n)
- -----------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.38(a) 1.52 1.55(a)
Expenses after expense reductions (f) 1.25(a) 1.27 1.34(a)
Net investment income 3.96(a) 3.80 3.60(a)
Portfolio turnover 21 14 73
Net assets at end of period (000 Omitted) $846 $1,239 $358
- -----------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28 AND 2/29
ENDED ----------------------------------------
CLASS R3 8/31/07 2007 2006 2005 2004(i)
(UNAUDITED)
Net asset value, beginning of period $9.48 $9.47 $9.65 $9.84 $9.69
- ---------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.37 $0.35 $0.38 $0.02
Net realized and unrealized gain (loss)
on investments (0.05) 0.03 (0.18) (0.25) 0.23(g)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations $0.14 $0.40 $0.17 $0.13 $0.25
- ---------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------
From net investment income $(0.20) $(0.39) $(0.35) $(0.32) $(0.10)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.42 $9.48 $9.47 $9.65 $9.84
- ---------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 1.51(n) 4.34 1.82 1.38 2.58(n)
- ---------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.26(a) 1.37 1.40 1.36 1.42(a)
Expenses after expense reductions (f) 1.15(a) 1.17 1.24 1.26 1.37(a)
Net investment income 4.03(a) 3.89 3.64 3.99 0.72(a)
Portfolio turnover 21 14 73 126 143
Net assets at end of period (000 Omitted) $5,969 $3,928 $1,392 $422 $41
- ---------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28
ENDED ------------------
CLASS R4 8/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $9.48 $9.48 $9.58
- -----------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income (d) $0.20 $0.39 $0.36
Net realized and unrealized gain (loss)
on investments (0.04) 0.02 (0.11)(g)
- -----------------------------------------------------------------------------------
Total from investment operations $0.16 $0.41 $0.25
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------
From net investment income $(0.21) $(0.41) $(0.35)
- -----------------------------------------------------------------------------------
Net asset value, end of period $9.43 $9.48 $9.48
- -----------------------------------------------------------------------------------
Total return (%) (r)(s) 1.74(n) 4.49 2.64(n)
- -----------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.00(a) 1.02 1.05(a)
Expenses after expense reductions (f) 0.90(a) 0.92 0.95(a)
Net investment income 4.29(a) 4.15 4.02(a)
Portfolio turnover 21 14 73
Net assets at end of period (000 Omitted) $11,769 $8,108 $1,305
- -----------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 2/28
ENDED ------------------
CLASS R5 8/31/07 2007 2006(i)
(UNAUDITED)
Net asset value, beginning of period $9.51 $9.47 $9.58
- -----------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income (d) $0.21 $0.42 $0.37
Net realized and unrealized gain (loss)
on investments (0.06) 0.06 (0.10)(g)
- -----------------------------------------------------------------------------------
Total from investment operations $0.15 $0.48 $0.27
- -----------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -----------------------------------------------------------------------------------
From net investment income $(0.23) $(0.44) $(0.38)
- -----------------------------------------------------------------------------------
Net asset value, end of period $9.43 $9.51 $9.47
- -----------------------------------------------------------------------------------
Total return (%) (r)(s) 1.57(n) 5.24 2.81(n)
- -----------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.70(a) 0.73 0.75(a)
Expenses after expense reductions (f) 0.60(a) 0.63 0.65(a)
Net investment income 4.54(a) 4.44 4.20(a)
Portfolio turnover 21 14 73
Net assets at end of period (000 Omitted) $2,748 $54 $51
- -----------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years
resulted in a per share impact of less than $0.01.
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) The per share amount is not in accordance with the net realized and unrealized
gain/loss for the period because of the timing of sales of fund shares and the
per share amount of realized and unrealized gains and losses at such time.
(i) For the period from the class' inception, December 31, 2002 (Class R), October
31, 2003 (Class R3), 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 Government Securities Fund (the fund) is a series of MFS Series Trust XIII
(the trust). The trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENT VALUATIONS - Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. 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. Securities and other assets generally valued on the basis of
information from an independent pricing service may also be valued at a
broker-dealer bid quotation. Values obtained from pricing services can utilize
both dealer-supplied valuations and electronic data processing techniques,
which take into account factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign equity securities may often be valued at fair
value. The adviser may rely on independent pricing services or other
information (such as the correlation with price movements of similar securities
in the same or other markets; the type, cost and investment characteristics of
the security; the business and financial condition of the issuer; and trading
and other market data) to assist in determining whether to fair value and at
what value to fair value an investment. The value of an investment for purposes
of calculating the fund's net asset value can differ depending on the source
and method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from quoted
or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
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.
INFLATION-ADJUSTED DEBT SECURITIES - The fund invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The fund may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the debt
security is typically equal to the inflation-adjusted principal amount, or the
security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include futures contracts.
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.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Some securities may be purchased on a "when-issued" or "forward
delivery" basis, which means that the securities will be delivered to the fund
at a future date, usually beyond customary settlement time. Interest income is
recorded on the accrual basis. All premium and discount is amortized or
accreted for financial statement purposes in accordance with U.S. generally
accepted accounting principles. All discount is accreted for tax reporting
purposes as required by federal income tax regulations.
The fund may receive proceeds from litigation settlements. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations.
The fund may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date. Although the unit
price has been established, the principal value has not been finalized.
However, the principal amount of the commitments will not fluctuate more than
0.01%. The fund holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
fund may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to settlement date, which is in addition to the risk
of decline in the value of the fund's other assets. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities.
The fund may enter into "TBA" (to be announced) sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended August 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 and amortization and accretion of debt securities.
The tax character of distributions made during the current period will be
determined at fiscal year end.
2/28/07
Ordinary income (including any
short-term capital gains) $61,071,655
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 8/31/07
Cost of investments $1,331,274,447
---------------------------------------------------------------
Gross appreciation $10,275,567
Gross depreciation (19,238,593)
---------------------------------------------------------------
Net unrealized appreciation (depreciation) $(8,963,026)
AS OF 2/28/07
Undistributed ordinary income $6,756,987
Capital loss carryforwards (60,854,630)
Post-October capital loss deferral (1,666,723)
Other temporary differences (5,633,750)
Net unrealized appreciation (depreciation) (15,730,459)
The aggregate cost above includes prior fiscal year end tax adjustments.
As of February 28, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
2/29/08 $(15,270,459)
2/28/09 (3,477,230)
2/28/11 (11,527,172)
2/29/12 (5,729,829)
2/28/13 (11,095,767)
2/28/14 (6,955,037)
2/28/15 (6,799,136)
----------------------------------------
Total $(60,854,630)
The availability of a portion of the capital loss carryforwards, which were
acquired on November 19, 2004 in connection with the MFS Government Mortgage
Fund merger, may be limited in a given year.
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the fund's financial statements.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B shares will convert to Class A shares approximately eight
years after purchase. Class 529A, Class 529B, and Class 529C shares closed on
March 31, 2007.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
management and related administrative services and facilities to the fund. The
management fee is computed daily and paid monthly at an annual rate of 40% of
the fund's average daily net assets. As part of a settlement agreement with the
New York Attorney General concerning market timing and related matters, MFS has
agreed to reduce the management fee to 0.30% of the fund's average daily net
assets for the period March 1, 2004 through February 28, 2009. For the six
months ended August 31, 2007, this waiver amounted to $667,157 and is reflected
as a reduction of total expenses in the Statement of Operations.
The investment adviser has agreed in writing to pay a portion of the fund's
operating expenses, exclusive of certain other fees and expenses, such that
total annual fund operating expenses do not exceed the following rates annually
of the fund's average daily net assets.
CLASS A CLASS B CLASS C CLASS I CLASS R CLASS R1 CLASS R2 CLASS R3 CLASS R4 CLASS R5
0.80% 1.55% 1.55% 0.55% 1.05% 1.65% 1.30% 1.20% 0.95% 0.65%
This written agreement may be rescinded only upon consent of the fund's Board
of Trustees. For the six months ended August 31, 2007, the fund's actual
operating expense did not exceed the limit and therefore, the investment
adviser did not pay any portion of the fund's expenses.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $19,786 and $9 for the six months ended August
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% 0.25% $900,225
Class B 0.75% 0.25% 1.00% 1.00% 559,184
Class C 0.75% 0.25% 1.00% 1.00% 134,924
Class R 0.25% 0.25% 0.50% 0.50% 21,140
Class R1 0.50% 0.25% 0.75% 0.75% 4,565
Class R2 0.25% 0.25% 0.50% 0.50% 3,452
Class R3 0.25% 0.25% 0.50% 0.50% 11,216
Class R4 -- 0.25% 0.25% 0.25% 12,094
Class 529A 0.25% 0.25% 0.50% 0.35% 74
Class 529B 0.75% 0.25% 1.00% 1.00% 193
Class 529C 0.75% 0.25% 1.00% 1.00% 128
- ----------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,647,195
(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 August 31, 2007 based on each class' average daily net assets. Payment of the 0.10% annual
Class A distribution fee is not yet in effect and will be implemented on such date as the fund's Board
of Trustees may determine. 0.10% of the Class 529A distribution fee was being paid prior to the closure
of the share class.
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 August
31, 2007, were as follows:
AMOUNT
Class A $5,853
Class B $79,984
Class C $1,992
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 August 31, 2007, were as follows:
AMOUNT
Class 529A $53
Class 529B 48
Class 529C 32
---------------------------------------------
Total Program Manager Fees $133
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 August 31,2007, the fee was $322,079,
which equated to 0.0483% 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 August 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $571,194. 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 August 31, 2007, the fund did
not incur any expenses under this agreement.
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 August 31,
2007 was equivalent to an annual effective rate of 0.0176% of the fund's
average daily net assets.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain retirement plan
administration and services with respect to certain shares. These services
include various administrative, recordkeeping, and communication/educational
services with respect to the retirement plans which invest in these shares, and
may be provided directly by MFS or by a third party. MFS may subsequently pay
all, or a portion, of the retirement plan administration and services fee to
affiliated or unaffiliated third parties. For the six months ended August 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% $2,193
Class R2 0.40% 0.25% 0.25% 1,888
Class R3 0.25% 0.15% 0.15% 3,705
Class R4 0.15% 0.15% 0.15% 7,257
Class R5 0.10% 0.10% 0.10% 462
- -------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $15,505
(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 August 31, 2007, the waiver amounted to $565 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
$3,904. The fund also has an unfunded retirement benefit deferral plan for
certain independent trustees which resulted in an expense of $1,490. Both
amounts are included in independent trustees' compensation for the six months
ended August 31, 2007. The liability for deferred retirement benefits payable
to certain independent trustees under both plans amounted to $129,144 at August
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 August 31, 2007, the fee paid to Tarantino
LLC was $3,302. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $3,242, which is
shown as a reduction of total expenses in the Statement of Operations.
Additionally, MFS has agreed to bear all expenses associated with office space,
other administrative support, and supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $218,834,546 $162,446,429
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $59,751,040 $131,007,871
- -------------------------------------------------------------------------------
(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
8/31/07 2/28/07
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 10,298,662 $96,414,855 11,285,264 $105,743,019
Class B 754,968 7,073,837 1,456,037 13,596,301
Class C 543,634 5,121,698 451,650 4,244,843
Class I 3,294,976 30,836,613 7,108,258 66,709,361
Class R 212,999 2,001,402 438,726 4,110,964
Class R1 157,398 1,481,615 107,909 1,010,776
Class R2 98,405 925,171 178,491 1,672,669
Class R3 425,770 3,980,771 566,006 5,301,972
Class R4 735,327 6,888,263 1,323,023 12,405,415
Class R5 340,158 3,206,013 -- --
Class 529A (c) -- -- 5,924 55,565
Class 529B (c) -- -- 1,011 9,420
Class 529C (c) -- -- 874 8,240
- ---------------------------------------------------------------------------------------------------
16,862,297 $157,930,238 22,923,173 $214,868,545
Shares issued to shareholders in
reinvestment of distributions
Class A 1,267,226 $11,903,259 2,638,948 $24,744,925
Class B 193,434 1,815,319 479,290 4,484,566
Class C 43,723 411,974 95,876 901,006
Class I 1,151,131 10,810,301 1,999,288 18,748,667
Class R 17,062 160,320 46,568 436,339
Class R1 2,123 19,893 1,451 13,630
Class R2 2,967 27,793 3,276 30,732
Class R3 9,274 87,008 11,854 111,221
Class R4 20,860 195,720 22,714 213,544
Class R5 1,770 16,592 261 2,443
Class 529A (c) 93 883 1,633 15,282
Class 529B (c) 73 695 1,418 13,272
Class 529C (c) 47 447 828 7,787
- ---------------------------------------------------------------------------------------------------
2,709,783 $25,450,204 5,303,405 $49,723,414
Shares reacquired
Class A (13,083,643) $(122,580,497) (24,024,930) $(224,930,513)
Class B (3,258,883) (30,514,664) (7,334,208) (68,583,138)
Class C (607,021) (5,703,641) (1,418,028) (13,309,913)
Class I (1,727,999) (16,217,621) (1,458,523) (13,641,690)
Class R (641,141) (5,976,646) (671,979) (6,303,837)
Class R1 (46,614) (437,482) (67,787) (635,778)
Class R2 (142,259) (1,331,609) (88,895) (834,531)
Class R3 (216,021) (2,031,267) (310,344) (2,910,384)
Class R4 (363,052) (3,425,826) (628,599) (5,914,599)
Class R5 (56,258) (526,227) -- --
Class 529A (c) (38,970) (369,664) (11,040) (102,491)
Class 529B (c) (35,666) (338,234) (12,793) (119,862)
Class 529C (c) (23,234) (221,360) (3,286) (30,672)
- ---------------------------------------------------------------------------------------------------
(20,240,761) $(189,674,738) (36,030,412) $(337,317,408)
Net change
Class A (1,517,755) $(14,262,383) (10,100,718) $(94,442,569)
Class B (2,310,481) (21,625,508) (5,398,881) (50,502,271)
Class C (19,664) (169,969) (870,502) (8,164,064)
Class I 2,718,108 25,429,293 7,649,023 71,816,338
Class R (411,080) (3,814,924) (186,685) (1,756,534)
Class R1 112,907 1,064,026 41,573 388,628
Class R2 (40,887) (378,645) 92,872 868,870
Class R3 219,023 2,036,512 267,516 2,502,809
Class R4 393,135 3,658,157 717,138 6,704,360
Class R5 285,670 2,696,378 261 2,443
Class 529A (c) (38,877) (368,781) (3,483) (31,644)
Class 529B (c) (35,593) (337,539) (10,364) (97,170)
Class 529C (c) (23,187) (220,913) (1,584) (14,645)
- ---------------------------------------------------------------------------------------------------
(668,681) $(6,294,296) (7,803,834) $(72,725,449)
(c) Class 529A, Class 529B, and Class 529C shares closed on March 31, 2007.
The fund is one of several mutual funds in which the MFS funds-of-funds may
invest. The MFS funds-of-funds do not invest in the underlying MFS funds for
the purpose of exercising management or control. At the end of the period, the
MFS Conservative Allocation Fund, the MFS Growth Allocation Fund and MFS
Moderate Allocation Fund were the owners of record of approximately 6%, 11%,
and 17% respectively, of the value of outstanding voting shares.
In addition, the MFS Lifetime 2010 Fund, the MFS Lifetime 2020 Fund, the MFS
Lifetime 2030 Fund, and the MFS Lifetime Retirement 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 August 31, 2007, the fund's commitment fee and interest expense were
$4,171 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
August 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 -- 220,831,113 (163,638,065) 57,193,048
CAPITAL GAIN
DISTRIBUTIONS
FROM
REALIZED UNDERLYING DIVIDEND ENDING
AFFILIATE GAIN (LOSS) FUNDS INCOME VALUE
MFS Institutional Money
Market Portfolio -- -- $552,682 $57,193,048
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 1st 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 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.
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
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, as amended, 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 XIII
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: October 16, 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: October 16, 2007
----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: October 16, 2007
----------------
* Print name and title of each signing officer under his or her signature.