<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[Graphic Omitted]
MFS(R) HIGH YIELD
OPPORTUNITIES FUND
SEMIANNUAL REPORT o JULY 31, 2000
-----------------------------------
MUTUAL FUND GIFT KITS (see page 35)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 28
Trustees and Officers ..................................................... 37
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large decline,
as they did very dramatically this past spring, there's a flurry of information
on "how to deal with market volatility" -- both in the popular press and from
those of us in the investment business. Our own thinking on this is that, first,
for long-term investors volatility is not necessarily something to be feared;
occasional volatility may in fact be healthy for the markets.
Second, our experience has been that when markets begin to fall, it's often too
late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market volatility
in stride, here are some points you may want to consider the next time you talk
with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with very
high prices, relative to their earnings, or with business concepts that looked
great in the euphoria of a booming market but in the end appeared to have no
fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask how
they fared in previous periods of volatility, as well as in the good times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over nearly
all long-term periods -- 5, 10, 20 years, and more -- stock and bond returns, as
represented by most common indices, have been positive and have considerably
outpaced inflation. Investing is the best way we know of to make your money work
for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading. In
our view, traders who buy securities with the intention of selling them at a
profit in a matter of hours, days, or weeks are gambling. We believe this seldom
turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy, because
only in retrospect do we know when that right time really was. Periods of
volatility are probably the worst times to make an investment decision. Faced
with turmoil in the markets, many investors have opted to simply stay on the
sidelines.
On the other hand, we think one of the best techniques for investing is through
automatic monthly or quarterly deductions from a checking or savings account.
This approach has at least three major benefits. First, you can formulate a
long-term plan -- how much to invest, how often, and into what portfolios -- in
a calm, rational manner, working with your investment professional. Second, with
this approach you invest regularly without agonizing over the decision each time
you buy shares.
And, third, if you invest equal amounts of money at regular intervals, you'll be
taking advantage of a strategy called dollar-cost averaging: by investing a
fixed amount while the share cost fluctuates, you end up with an average share
cost to you that is lower than the average share price over your investment
period.(1) If all this sounds familiar, it's probably because you're already
taking advantage of dollar-cost averaging by investing regularly for retirement
through a 401(k) or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, i.e., move money into whatever asset class appears
to be outperforming at the moment -- small, mid, or large cap; growth or value;
United States or international; stocks or bonds. The problem with this approach
is that by the time a particular area is generally recognized as "hot," you may
have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out of
10 years.(2) For the decade, the MSCI EAFE's average annual performance was 23%,
compared to 18% for the S&P 500. Going into the 1990s, then, an investor looking
only at recent performance might have favored international investments over
U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We would
suggest that one way to potentially profit from swings in the market -- to
potentially be invested in various asset classes before the market shifts in
their favor -- is with a diversified portfolio covering several asset classes.
If you haven't already done so, we encourage you to discuss these thoughts with
your investment professional and factor them into your long-range financial
planning. Hopefully, the next time the markets appear to be going wild, you'll
feel confident enough in your plan to view periods of volatility as a time of
potential opportunity -- or perhaps just a time to sit back and do nothing.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
August 15, 2000
------------
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Sources: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged,
market-capitalization-weighted total return index that measures the
performance of the same developed-country global stock markets included in
the MSCI World Index but excludes the United States, Canada, and the South
African mining component. The S&P 500 is a popular, unmanaged index of
common stock total return performance. It is not possible to invest directly
in an index. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
A prospectus containing more complete information on any MFS product, including
all charges and expenses, can be obtained from your investment professional.
Please read it carefully before you invest or send money. Investments in mutual
funds will fluctuate and may be worth more or less upon redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Robert J. Manning]
Robert J. Manning
For the six months ended July 31, 2000, Class A shares of the fund provided a
total return of 3.48%, Class B shares 3.02%, Class C shares 3.15%, and Class I
shares 3.63%. These returns assume the reinvestment of distributions but exclude
the effects of any sales charges and compare to a -0.03% return for the fund's
benchmark, the Lehman Brothers High Yield Bond Index (the Lehman Index), an
unmanaged index of noninvestment-grade corporate debt. The fund's returns also
compare to a -0.95% return over the same period for the average high current
yield fund tracked by Lipper Inc., an independent firm that reports mutual fund
performance.
Q. DESPITE THE DIFFICULT ENVIRONMENT FOR HIGH-YIELD SECURITIES, THE FUND
OUTPACED THE LEHMAN INDEX. WHAT FACTORS DO YOU ATTRIBUTE TO THIS SUCCESS?
A. In a market where most high-yield bonds traded lower, the portfolio's
performance compared to its benchmark benefited from a number of factors.
First, favorable security selection and industry diversification were
positive contributors. Second, our successful avoidance of the credit
problems, rating downgrades, and bankruptcies that hurt a variety of
industries really aided the fund's relative results. Finally, we weren't
afraid to lock in profits on a number of subscription warrants -- securities
issued with a bond or preferred stock that entitles the holder to buy a
proportionate amount of common stock at a specified price. Some of these
warrants, such as Jazztel PLC, spiked up dramatically early in the period.
We could have been tempted to hold on to all of these positions given the
strong fundamental outlook for these companies, but because we weren't
comfortable with the additional risk, we decided to reduce our exposure.
Many of these telecommunications and technology stock prices have
subsequently come down quite a bit following the selloff in the equity
market during the second quarter.
Q. HOW DID YOU MANAGE TO AVOID CREDIT DEFAULTS?
A. The key is MFS Original Research(R). We believe MFS' research capabilities
are second to none in the industry. Our portfolio is backed by a large group
of investment professionals dedicated exclusively to the high-income market.
Our research analysts use a variety of models to analyze the credit risk and
business prospects of the companies they cover. Similar to our equity
research process, our analysis is a research intensive, company-by-company,
bottom-up approach. First, we look at a company's business risks, then we
consider the financial risks. Finally, we look at all the different ways of
investing in the company and how the market is pricing each one of the
securities. From this analysis, we try to pick the bond that offers the best
risk-adjusted return for our shareholders.
Q. MOODY'S RECENTLY ISSUED A REPORT INDICATING THAT THEY ANTICIPATE AN
INCREASE IN THE NUMBER OF DEFAULTS IN THE HIGH-YIELD MARKET FOR 2001. DO
YOU AGREE WITH THIS REPORT? WHAT'S YOUR OUTLOOK FOR DEFAULTS?
A. While it appears that the number of defaults has picked up recently, we
don't see the default rate increasing to 8.4% by June of 2001, as Moody's
report suggested. In fact, we feel the total number of defaults will trend
downward during this period for a couple of reasons. First, many of the
anticipated defaults are the result of a loose issuance period, during which
the high-yield market issued a record amount of debt in 1998. As it turned
out, we found that many of these companies possessed weak business plans.
Today, the supply of bonds is much lower, and underwriters are conducting
more stringent credit analysis of issuers. It's also important to point out
that Moody's calculates default rates differently than other companies; they
include emerging-market debt, convertible securities, and even
investment-grade debt. While the possibility of high-visibility defaults
adds "headline" risk to the market -- meaning the overall high-yield market
may react negatively to a particular default -- we see this as a short-term
phenomenon. We strive to avoid such problems by using our Original
Research(SM) process, which focuses on company fundamentals.
Q. WHICH HOLDINGS PROVIDED STRONG CONTRIBUTIONS TO TOTAL RETURN?
A. Last year, we saw significant selling pressure in some energy refiners as a
major buying opportunity. Viewing this selloff as a short-term situation, we
stepped in to buy some distressed securities that we believed were ready to
turn around in a highly cyclical business. Sterling Chemical and Lyondell
Chemical produced strong results during the period following an improvement
in their financial results due to higher prices for their core products,
stronger demand for chemicals, and successful cost reduction programs.
Lyondell also benefited from successfully closing a large asset sale and
using the proceeds to pay down some of its debt. Another holding that
provided a boost to performance was Esat Holdings Ltd. Though this
telecommunications company is no longer in the portfolio, its bonds
appreciated dramatically following British Telecom's buyout offer earlier in
the year, thus providing a nice return for the fund.
Q. WHICH HOLDINGS HURT PERFORMANCE?
A. Our holdings in scrap metal trader Metal Management was hurt by weakness in
the overall steel market. Our position in PSINet Inc., an Internet access
provider, was down almost 15% during the period. Bond issues in companies
such as this will often trade similarly to the company's equity shares
because they tend to reinvest much of their cash into business expansion
rather than building cash reserves or paying down debt. As a result, our
holding in PSINet suffered during the selloff we experienced in the
technology and Internet sectors in the second quarter.
Q. HOW DID THE FUND'S INVESTMENTS IN EMERGING MARKETS AFFECT PERFORMANCE?
A. Emerging-markets fixed-income securities produced generally solid returns
over the past six months. Our performance benefited primarily from good
security selection and the remarkable recovery in Russian bonds.
Overweighted positions in Russia, Brazil, and Algeria were major
contributors to the fund's return. In addition, our underweighting in
Argentina and avoidance of default or near-default situations in Nigeria,
Ivory Coast, Ecuador, and Ukraine aided total return.
Q. WHAT'S YOUR OUTLOOK FOR THE HIGH-YIELD MARKET IN THE COMING MONTHS?
A. It's difficult to rule out further volatility given the uncertain
interest-rate environment. However, the high-income market has been weak for
quite some time now, and yield spreads -- the yield difference between
noninvestment-grade debt and Treasuries -- have widened significantly during
the past year, making the yields on high-income bonds very attractive to us
relative to other fixed-income securities. In addition, we believe the
economy will remain healthy and corporate earnings will remain strong, which
could bode well for high-yield bond prices. Historically, our research has
shown that the high-yield market has closely tracked corporate earnings.
Given this environment, we continue to view the telecom and media industries
as defensive positions that also offer compelling growth opportunities.
Despite what happens to the economy, we don't believe that people are likely
to turn off their cable or mobile phones. In addition, we're pretty
comfortable that the Federal Reserve Board is either done raising interest
rates or is near the end of its tightening cycle.
/s/ Robert J. Manning
Robert J. Manning
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecast can be guaranteed.
It is not possible to invest directly in an index.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
--------------------------------------------------------------------------------
ROBERT J. MANNING IS SENIOR VICE PRESIDENT, CHIEF FIXED INCOME
STRATEGIST, AND DIRECTOR OF FIXED INCOME RESEARCH OF MFS INVESTMENT
MANAGEMENT(R). HE IS PORTFOLIO MANAGER OF MFS(R) HIGH INCOME FUND,
MFS(R) HIGH YIELD OPPORTUNITIES FUND, AND MFS(R) SPECIAL VALUE TRUST, A
CLOSED-END FUND.
MR. MANNING JOINED MFS IN 1984 AS A RESEARCH ANALYST IN THE HIGH YIELD BOND
DEPARTMENT. HE WAS NAMED VICE PRESIDENT IN 1988, PORTFOLIO MANAGER IN 1992,
SENIOR VICE PRESIDENT IN 1993, AND CHIEF FIXED INCOME STRATEGIST AND DIRECTOR
OF FIXED INCOME RESEARCH IN 1999. HE IS A GRADUATE OF THE UNIVERSITY OF
LOWELL AND EARNED A MASTER OF SCIENCE DEGREE IN FINANCE FROM BOSTON COLLEGE.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY AN
INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A GLOBAL, COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
This 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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your investment professional, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS HIGH CURRENT INCOME.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JULY 1, 1998
CLASS INCEPTION: CLASS A JULY 1, 1998
CLASS B JULY 1, 1998
CLASS C JULY 1, 1998
CLASS I JULY 1, 1998
SIZE: $45.7 MILLION NET ASSETS AS OF JULY 31, 2000
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Investment results reflect the percentage change in net
asset value, including the reinvestment of dividends. (See Notes to Performance
Summary.)
TOTAL RATES OF RETURN THROUGH JULY 31, 2000
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year Life*
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +3.48% + 9.94% +6.97%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- + 9.94% +3.29%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -- + 4.72% +0.90%
-----------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year Life*
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +3.02% + 9.21% +5.63%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- + 9.21% +2.66%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -- + 5.26% +1.04%
-----------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year Life*
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +3.15% + 9.25% +5.46%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- + 9.25% +2.58%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -- + 8.26% +2.58%
-----------------------------------------------------------------------------------------------------
*For the period from the commencement of the fund's investment operations, July 1, 1998, through July 31, 2000.
<CAPTION>
CLASS I
6 Months 1 Year Life*
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +3.63% +10.37% +8.37%
-----------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge -- +10.37% +3.94%
-----------------------------------------------------------------------------------------------------
*For the period from the commencement of the fund's investment operations, July 1, 1998, through July 31, 2000.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge. Class B Share Performance Including
Sales Charge takes into account the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%. Class
C Share Performance Including Sales Charge takes into account the deduction of
the 1% CDSC applicable to Class C shares redeemed within 12 months. Class I
shares have no sales charge and are only available to certain institutional
investors.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and waivers
may be rescinded at any time. See the prospectus for details. All results are
historical and assume the reinvestment of capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
Lower-rated securities may provide greater returns, but they are also associated
with greater-than-average risk. These risks may increase share price volatility.
See the prospectus for details.
Investments in foreign and emerging-market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging-market securities may be favorably or unfavorably affected
by changes in interest rates and currency exchange rates, market conditions, and
the economic and political conditions of the countries where investments are
made. These risks may increase share price volatility. See the prospectus for
details.
PORTFOLIO CONCENTRATION AS OF JULY 31, 2000
PORTFOLIO STRUCTURE
High Yield Corporates 65.5%
Emerging Markets 22.4%
Cash 7.0%
Domestic Equity 3.3%
International Equity 0.8%
High Grade Corporates 0.6%
Municipal 0.4%
This portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- July 31, 2000
<TABLE>
<CAPTION>
Bonds - 85.6%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 53.2%
Aerospace - 1.1%
Argo Tech Corp., 8.625s, 2007 $ 325 $ 243,750
K & F Industries, Inc., 9.25s, 2007 275 263,313
-----------
$ 507,063
--------------------------------------------------------------------------------------------------
Building - 2.4%
Formica Corp., 10.875s, 2009 $ 280 $ 217,000
MMI Products, Inc., 11.25s, 2007 205 202,437
Nortek, Inc., 9.875s, 2004 175 168,875
Williams Scotsman, Inc., 9.875s, 2007 575 517,500
-----------
$ 1,105,812
--------------------------------------------------------------------------------------------------
Business Services - 1.5%
Anacomp, Inc., 10.875s, 2004 $ 150 $ 101,250
Flextronics International Ltd., 9.875s, 2010## 500 510,000
Pierce Leahy Corp., 11.125s, 2006 85 87,338
-----------
$ 698,588
--------------------------------------------------------------------------------------------------
Chemicals - 2.8%
Huntsman ICI Chemicals, 0s, 2009 $ 475 $ 156,750
Huntsman ICI Chemicals, 10.125s, 2009 110 111,925
Lyondell Chemical Co., 9.625s, 2007 150 150,000
Lyondell Chemical Co., 9.875s, 2007 100 100,000
Lyondell Chemical Co., 10.875s, 2009 175 176,750
Sovereign Specialty Chemicals, 11.875s, 2010## 275 284,625
Sterling Chemicals, Inc., 11.75s, 2006 125 100,000
Sterling Chemicals, Inc., 12.375s, 2006 65 66,950
Sterling Chemicals, Inc., 0s to 2001, 13.5 to 2008 295 126,850
-----------
$ 1,273,850
--------------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.8%
General Binding Corp., 9.375s, 2008 $ 500 $ 350,000
Remington Products Co. LLC, 11s, 2006 115 98,900
Samsonite Corp., 10.75s, 2008 520 427,700
Simmons Co., 10.25s, 2009 260 236,600
Synthetic Industries, Inc., 13s, 2000 175 172,375
-----------
$ 1,285,575
--------------------------------------------------------------------------------------------------
Container, Forest and Paper Products - 2.4%
Applied Extrusion Technologies, Inc., 11.5s, 2002 $ 150 $ 147,750
Consolidated Container Co., 10.125s, 2009 50 50,125
Gaylord Container Corp., 9.75s, 2007 50 41,000
Gaylord Container Corp., 9.875s, 2008 280 176,400
Huntsman Packaging Corp., 13s, 2010## 65 67,437
Riverwood International Corp., 10.25s, 2006 125 123,125
Riverwood International Corp., 10.875s, 2008 300 273,000
Silgan Holdings, Inc., 9s, 2009 225 205,875
-----------
$ 1,084,712
--------------------------------------------------------------------------------------------------
Energy - 2.2%
Cheasapeake Energy Corp., 9.625s, 2005 $ 260 $ 254,150
Continental Resources, Inc., 10.25s, 2008 25 22,500
Gothic Production Corp., 11.125s, 2005 200 206,000
P&L Coal Holdings Corp., 9.625s, 2008 400 379,000
Pioneer Natural Resources Co., 9.625s, 2010 135 140,400
-----------
$ 1,002,050
--------------------------------------------------------------------------------------------------
Financial Institutions - 0.2%
Willis Corroon Corp., 9s, 2009 $ 85 $ 75,225
--------------------------------------------------------------------------------------------------
Gaming and Hotels - 2.4%
Aztar Corp., 8.875s, 2007 $ 235 $ 223,250
Boyd Gaming Corp., 9.5s, 2007 250 240,000
Coast Hotels & Casinos, Inc., 9.5s, 2009 125 119,375
Isle of Capri Casinos, Inc., 8.75s, 2009 250 226,250
Mandalay Resort Group, 10.25s, 2007 135 136,012
Prime Hospitality Corp., 9.75s, 2007 150 147,000
Santa Fe Hotel, Inc., 11s, 2000 25 24,813
-----------
$ 1,116,700
--------------------------------------------------------------------------------------------------
Industrial - 4.0%
Actuant Finance Corp., 13s, 2009 $ 200 $ 202,250
Allied Waste North America, Inc., 10s, 2009 75 65,250
Blount, Inc., 13s, 2009 250 251,562
Columbus McKinnon Corp., 8.5s, 2008 175 152,250
Day International Group, Inc., 11.125s, 2005 42 41,265
Hayes Wheels International, Inc., 11s, 2006 160 160,800
Haynes International, Inc., 11.625s, 2004 350 262,500
International Knife & Saw, Inc., 11.375s, 2006 50 26,000
Mesa County, CO, 8.5s, 2006* 250 187,500
Motors & Gears, Inc., 10.75s, 2006 25 24,313
Numatics, Inc., 9.625s, 2008 275 214,500
Oxford Automotive, Inc., 10.125s, 2007 35 31,150
Simonds Industries, Inc., 10.25s, 2008 100 80,000
Thermadyne Holdings Corp., 0s to 2003, 12.5s to 2008 120 43,200
Thermadyne Manufacturing/Capital Corp., 9.875s, 2008 100 76,875
-----------
$ 1,819,415
--------------------------------------------------------------------------------------------------
Media - 7.0%
Avalon Cable Holdings LLC, 0s to 2003, 11.875s to 2008 $ 100 $ 67,000
Benedek Communications Corp., 0s to 2001, 13.25s to 2006 200 154,000
CD Radio, Inc., 14.5s, 2009 250 231,250
Charter Communications Holdings, 0s to 2004, 9.92s to 2011 825 474,375
Citadel Broadcasting Co., 9.25s, 2008 125 123,125
Classic Cable, Inc., 10.5s, 2010 60 51,600
Cumulus Media, Inc., 10.375s, 2008 45 40,500
Frontiervision Holding LP, 0s to 2001, 11.87s to 2007 100 87,500
Frontiervision Operating Partnership LP, 11s, 2006 70 71,050
Granite Broadcasting Corp., 10.375s, 2005 9 8,460
LIN Holdings Corp., 0s to 2003, 10s to 2008 740 495,800
NTL Communications Corp., 0s to 2003, 12.375s to 2008 655 432,300
NTL, Inc., 0s to 2003, 9.75s to 2008## 55 34,925
Paxson Communications Corp., 11.625s, 2002 295 301,637
Telemundo Holdings, Inc., 0s to 2003, 11.5s to 2008 300 213,000
XM Satellite Radio, Inc., 14s, 2010## 300 279,750
Young Broadcasting, Inc., 8.75s, 2007 125 116,875
-----------
$ 3,183,147
--------------------------------------------------------------------------------------------------
Medical and Health Technology and Services
Alaris Medical, Inc., 0s to 2003, 11.125s to 2008## $ 75 $ 12,750
--------------------------------------------------------------------------------------------------
Metals and Minerals - 2.6%
Doe Run Resources Corp., 11.25s, 2005 $ 65 $ 26,000
Jorgensen (Earle M.) Co., 9.5s, 2005 150 130,500
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 50 48,062
Kaiser Aluminum & Chemical Corp., 12.75s, 2003 200 180,500
Metal Management, Inc., 10s, 2008 285 142,500
Metallurg Holdings, Inc., 0s to 2003, 12.75s to 2008 200 51,000
Metallurg, Inc., 11s, 2007 425 354,875
Northwestern Steel & Wire Co., 9.5s, 2001 150 62,250
Renco Steel Holdings, Inc., 10.875s, 2005 75 65,438
WCI Steel, Inc., 10s, 2004 110 104,500
-----------
$ 1,165,625
--------------------------------------------------------------------------------------------------
Retail - 1.8%
J.Crew Group, Inc., 0s to 2002, 13.125s to 2008 $ 715 $ 387,888
J.Crew Operating Corp., 10.375s, 2007 50 41,500
Musicland Group, Inc., 9s, 2003 400 372,000
-----------
$ 801,388
--------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
Jitney-Jungle Stores of America, Inc., 12s, 2006** $ 45 $ 5,850
Pathmark Stores, Inc., 11.625s, 2002** 75 21,750
Pathmark Stores, Inc., 10.75s, 2003** 103 5,150
Penn Traffic Co., 11s, 2009 0 309
-----------
$ 33,059
--------------------------------------------------------------------------------------------------
Telecommunications - 19.8%
Adelphia Communications Corp., 9.375s, 2009 $ 200 $ 182,000
Allegiance Telecommunications, Inc., 0s to 2003,
11.75s to 2008 225 165,375
Allegiance Telecommunications, Inc., 12.875s, 2008 155 167,400
AMSC Acquisition Co., Inc., 12.25s, 2008 295 219,775
Caprock Communications Corp., 11.5s, 2009 90 55,800
Centennial Cellular Operating Co., 10.75s, 2008 235 226,187
Cybernet Internet Services International, 14s, 2009 45 18,900
Dobson Communications Corp., 10.875s, 2010## 105 103,163
DTI Holdings, Inc., 0s to 2003, 12.5s to 2008 125 50,313
Exodus Communications, Inc., 11.25s, 2008 75 74,625
Exodus Communications, Inc., 10.75s, 2009 135 130,950
Exodus Communications, Inc., 11.625s, 2010## 325 325,000
Focal Communications Corp., 0s to 2003, 12.125s to 2008 305 199,775
Focal Communications Corp., 11.875s, 2010## 310 308,450
Globix Corp., 12.5s, 2010 220 176,000
Hyperion Telecommunications, Inc., 12.25s, 2004 150 147,000
Hyperion Telecommunications, Inc., 12s, 2007 120 101,400
ICG Holdings, Inc., 0s to 2001, 12.5s to 2006 150 120,000
Impsat Corp., 12.375s, 2008 50 40,500
ITC Deltacom, Inc., 9.75s, 2008 225 204,750
Leap Wireless International, Inc., 14.5s, 2010## 600 252,000
Level 3 Communications, Inc., 9.125s, 2008 450 390,375
Madison River, 13.25s, 2010## 225 205,875
McCaw International Ltd., 0s to 2002, 13s to 2007 350 269,500
Metricom, Inc., 13s, 2010 225 164,250
Metromedia Fiber Network, Inc., 10s, 2008 455 439,600
MGC Communications, Inc., 13s, 2010## 425 403,750
MJD Communications, Inc., 9.5s, 2008 60 52,800
Nextel Communications, Inc., 0s to 2003, 9.95s to 2008 375 272,812
Nextel International, Inc., 0s to 2003, 12.125s to 2008 15 9,450
Nextel International Inc., 12.75s, 2010 150 147,933
Nextlink Communications, Inc., 10.75s, 2009 100 98,000
Nextlink Communications, Inc., 0s to 2004, 12.25s to 2009 325 199,875
North Point Communications, 12.875s, 2010## 225 155,250
Northeast Optic Network, 12.75s, 2008 10 9,350
PSINet, Inc., 11s, 2009 600 480,000
Rhythms Netconnections, Inc., 12.75s, 2009 75 49,500
SBA Communications Corp., 0s to 2003, 12s to 2008 435 315,375
Spectrasite Holdings, Inc., 0s to 2004, 11.25s to 2009 600 354,000
Spectrasite Holdings, Inc., 10.75s, 2010## 125 125,000
Telecorp PCS, Inc., 10.625s, 2010 150 152,625
Teligent, Inc., 11.5s, 2007 175 129,500
Time Warner Telecommunications LLC, 9.75s, 2008 175 167,563
Triton PCS, Inc., 0s to 2003, 11s to 2008 265 196,100
Verio, Inc., 11.25s, 2008 120 138,900
Verio, Inc., 10.625s, 2009 50 57,500
Viatel, Inc., 11.25s, 2008 150 90,000
Viatel, Inc., 0s to 2003, 12.5s to 2008 425 148,750
Voicestream Wire, 10.375s, 2009 165 176,962
Worldwide Fiber, Inc., 12s, 2009 450 405,000
-----------
$ 9,074,958
--------------------------------------------------------------------------------------------------
Utilities - Electric - 0.1%
International Utility Structures, 10.75s, 2008 $ 75 $ 61,500
--------------------------------------------------------------------------------------------------
Total U.S. Bonds $24,301,417
------------------------------------------------------------------------------------------------
Foreign Bonds - 32.4%
Algeria - 2.0%
Algeria Chase Manhattan, 6.813s, 2004 (Financial Institutions) $ 575 $ 494,500
Algerian Repurchase Loan Agreement, 1s, 2010+ JPY 19,250 117,614
Algerian Tranche, 6.813s, 2004 $ 385 311,850
-----------
$ 923,964
--------------------------------------------------------------------------------------------------
Argentina - 2.5%
Autopistas del Sol S.A., 10.25s, 2009 (Industrial)## $ 120 $ 94,200
Cablevision S.A., 13.75s, 2007 (Media)## 50 48,437
Mastellone Hermanos S.A., 11.75s, 2008 (Food and
Beverage Products) 170 129,200
Republic of Argentina, 11.75s, 2015 210 193,830
Republic of Argentina, 12.125s, 2019 240 230,880
Republic of Argentina, 9.75s, 2027 360 285,120
Republic of Argentina, 10.25s, 2030 200 164,400
-----------
$ 1,146,067
--------------------------------------------------------------------------------------------------
Belgium - 1.0%
Hermes Europe Railtel B.V., 10.375s, 2009 (Telecommunications) $ 150 $ 115,500
Tele1 Europe B.V., 13s, 2009 (Telecommunications) 335 340,025
-----------
$ 455,525
--------------------------------------------------------------------------------------------------
Bermuda - 0.7%
Global Crossing Holdings Ltd., 9.625s, 2008
(Telecommunications) $ 325 $ 316,875
--------------------------------------------------------------------------------------------------
Brazil - 4.1%
Banco Nacional de Desenvolvi, 12.554s, 2008
(Financial Institutions)+ $ 110 $ 103,400
Federal Republic of Brazil, 7.438s, 2009 60 50,729
Federal Republic of Brazil, 7.438s, 2012 475 352,440
Federal Republic of Brazil, 8s, 2014 502 373,303
Federal Republic of Brazil, 12.75s, 2020 305 298,442
Federal Republic of Brazil, 7.375s, 2024 55 43,244
Federal Republic of Brazil, 10.125s, 2027 130 103,090
Federal Republic of Brazil, 12.25s, 2030 595 561,085
-----------
$ 1,885,733
--------------------------------------------------------------------------------------------------
Bulgaria - 0.2%
National Republic of Bulgaria, 7.063s, 2024 $ 113 $ 91,671
--------------------------------------------------------------------------------------------------
Canada - 1.3%
GT Group Telecommunications, Inc., 0s to 2005,
13.25s to 2010 (Telecommunications)## $ 750 $ 397,500
PCI Chemicals Canada, Inc., 9.25s, 2007 (Chemicals) 35 22,050
Russel Metals, Inc., 10s, 2009 (Metals & Minerals) 185 175,981
-----------
$ 595,531
--------------------------------------------------------------------------------------------------
Colombia - 0.7%
Republic of Colombia, 11.75s, 2020 $ 370 $ 320,050
--------------------------------------------------------------------------------------------------
Germany - 0.8%
Callahan Nordrhein Westfallen, 14s, 2010 (Media)## $ 375 $ 367,500
--------------------------------------------------------------------------------------------------
Grand Cayman Islands - 0.2%
APP Finance IX Ltd., 10.563s, 2001 (Forest and Paper Products) $ 100 $ 77,000
--------------------------------------------------------------------------------------------------
Indonesia - 0.3%
Indah Kiat Finance Mauritius Ltd., 10s, 2007 (Forest
and Paper Products) $ 200 $ 113,000
--------------------------------------------------------------------------------------------------
Luxembourg - 0.4%
Millicom International Cellular Communications Corp.,
0s to 2001, 13.50s to 2006 (Telecommunications) $ 200 $ 175,000
--------------------------------------------------------------------------------------------------
Mexico - 2.2%
Bepensa S.A., 9.75s, 2004 (Sovereign Bonds)## $ 160 $ 146,000
Cydsa S.A., 9.375s, 2002 (Industrial) 270 226,800
Grupo Iusacell S.A., 14.25s, 2006 (Telecommunications) 120 129,000
Grupo Minero Mexico S.A. de CV, 8.25s, 2008 (Metals
and Minerals) 280 228,900
Satelites Mexicanos S.A. de CV, 10.125s, 2004 (Telecommunications) 150 105,000
TFM S.A. de CV, 0s to 2002, 11.75s to 2009 (Transportation) 210 161,700
-----------
$ 997,400
--------------------------------------------------------------------------------------------------
Netherlands - 3.3%
Completel Europe N.V., 14s, 2009 (Telecommunications) $ 225 $ 108,000
Netia Holdings B.V., 10.25s, 2007 (Telecommunications) 80 67,800
Slovak Wireless Finance Co., 11.25s, 2007 (Telecommunications)## EUR 165 156,329
United International Holdings, 0s to 2003, 10.75s to
2008 (Media) $ 315 228,375
United Pan-Europe Commerce N.V., 10.875s, 2009 (Media) 175 148,750
United Pan-Europe Commerce N.V., 11.25s, 2010 (Media) 85 72,675
United Pan-Europe Commerce N.V., 0s to 2005, 13.75s to
2010 (Media) 685 308,250
Versatel Telecom B.V., 13.25s, 2008(Telecommunications) 400 410,000
-----------
$ 1,500,179
--------------------------------------------------------------------------------------------------
Norway - 0.1%
Ocean Rig Norway As, 10.25s, 2008 (Energy) $ 75 $ 65,625
--------------------------------------------------------------------------------------------------
Panama - 0.4%
Republic of Panama, 10.75s, 2020 $ 200 $ 200,000
--------------------------------------------------------------------------------------------------
Philippines - 0.2%
Republic of Philippines, 9.875s, 2019 $ 120 $ 96,000
--------------------------------------------------------------------------------------------------
Poland - 0.1%
PTC International Finance B.V. 0s to 2002, 10.75s to
2007 (Telecommunications) $ 55 $ 39,325
--------------------------------------------------------------------------------------------------
Russia - 5.2%
Government of Russia, 8.75s, 2005## $ 60 $ 47,850
Government of Russia, 10s, 2007## 230 179,975
Government of Russia, 12.75s, 2028## 300 264,750
Russia Principal Loans, 7.94s, 2015 300 99,390
Russia Principal Loans, 7.94s, 2020+ 5,445 1,790,316
-----------
$ 2,382,281
--------------------------------------------------------------------------------------------------
South Korea - 1.0%
Cho Hung Bank, 11.5s, 2010 (Banks and Credit Cos.)## $ 40 $ 39,200
Hanvit Bank, 12.75s, 2010 (Banks and Credit Cos.)## 415 418,113
-----------
$ 457,313
--------------------------------------------------------------------------------------------------
Turkey - 0.1%
Republic of Turkey, 11.875s, 2030 $ 34 $ 36,933
--------------------------------------------------------------------------------------------------
United Kingdom - 3.6%
British Telecom PLC, 11.875s, 2008
(Telecommunications) $ 220 $ 258,137
Dolphin Telecom PLC, 0s to 2003, 11.50 to 2008
(Telecommunications) 775 279,000
Global Tele-Systems Ltd., 10.875s, 2008
(Telecommunications) 75 52,500
Jazztel PLC, 13.25s, 2009 (Telecommunications) EUR 75 63,935
Jazztel PLC, 14s, 2009 (Telecommunications) $ 310 279,000
Ono Finance PLC, 13s, 2009 (Media) 355 331,925
Telewest Communications PLC, 9.875s, 2010 (Media)## 50 48,000
Telewest Communications PLC, 11.375s, 2010 (Media)## 625 345,313
-----------
$ 1,657,810
--------------------------------------------------------------------------------------------------
Venezuela - 2.0%
Republic of Venezuela, 9.25s, 2027 $ 1,380 $ 926,670
--------------------------------------------------------------------------------------------------
Total Foreign Bonds $14,827,452
--------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $40,423,208) $39,128,869
--------------------------------------------------------------------------------------------------
Stocks - 1.1%
--------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------
U.S. Stocks
Telecommunications
Classic Communications, Inc.##* 150 $ 900
--------------------------------------------------------------------------------------------------
Foreign Stocks - 1.1%
Netherlands - 1.0%
Completel Europe N.V. (Telecommunications)* 22,500 $ 258,522
Completel Europe N.V. (Telecommunications)* 11,250 112,500
Versatel Telecom Internaional N.V.
(Telecommunications)* 2,621 83,872
-----------
$ 454,894
--------------------------------------------------------------------------------------------------
Sweden - 0.1%
Tele1 Europe Holdings AB, ADR (Telecommunications)* * 2,201 $ 28,888
--------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 483,782
--------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $391,649) $ 484,682
--------------------------------------------------------------------------------------------------
Preferred Stock - 2.9%
--------------------------------------------------------------------------------------------------
Media - 1.5%
CSC Holdings, Inc., 11.125s# 5,002 $ 527,711
Paxson Communications Corp., 13.25s 10 97,000
Primedia, Inc., 8.625s 650 55,900
-----------
$ 680,611
--------------------------------------------------------------------------------------------------
Telecommunications - 1.4%
Crown Castle International Corp., 12.75s 366 $ 375,150
Global Crossings Holdings Ltd., 10.5s 1,000 99,000
Nextel Communications, Inc., 11.125s 191 187,180
-----------
$ 661,330
--------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $1,311,663) $ 1,341,941
--------------------------------------------------------------------------------------------------
Warrants - 0.2%
--------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
--------------------------------------------------------------------------------------------------
Cybernet Internet Services International (Telecommunications)* 45 $ 900
DTI Holdings, Inc. (Telecommunications)* 625 6
Jazztel PLC (Telecommunications)##* 475 48,301
Leap Wireless International, Inc.
(Telecommunications)* 600 3,000
Metricom, Inc. (Telecommunications)* 225 1,800
Motient Corp. (Telecommunications)##* 295 11,800
Ono Finance PLC (Media)* 175 19,250
Sirius Satellite Radio Inc. (Telecommunications)* 300 30,000
--------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $98,903) $ 115,057
--------------------------------------------------------------------------------------------------
Convertible Bond - 0.7%
--------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------
Energy - 0.7%
Lomak Petroleum, Inc., 6s, 2007, (Identified Cost $330,000) $ 500 $ 330,000
--------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.1%
--------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage, due 8/01/00, at Amortized Cost $ 3,700 $ 3,700,000
--------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $46,255,423) $45,100,549
Other Assets, Less Liabilities - 1.4% 632,529
--------------------------------------------------------------------------------------------------
Net Assets - 100.0% $45,733,078
--------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security -- in default.
# Payment-in-kind security.
## SEC Rule 144A restriction.
+ Restricted security.
</TABLE>
Abbreviations have been used throughout this report to indicate amounts shown in
currencies other than the U.S. dollar. A list of abbreviations is shown below.
EUR = European Currency Unit
JPY = Japanese Yen
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
--------------------------------------------------------------------------
JULY 31, 2000
--------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $46,255,423) $45,100,549
Cash 4,280
Foreign currency, at value (identified cost, $4,280) 2,457
Net receivable for forward foreign currency exchange
contracts to sell 2,211
Net receivable for forward foreign currency exchange
contracts closed or subject to master netting agreements 2,366
Receivable for investments sold 694,093
Receivable for fund shares sold 425,037
Interest and dividends receivable 985,192
Other assets 1
-----------
Total assets $47,216,186
-----------
Liabilities:
Distributions payable $ 189,391
Payable for investments purchased 1,089,738
Payable for fund shares reacquired 198,905
Payable to affiliates -
Management fee 2,420
Distribution and service fee 2,654
-----------
Total liabilities $ 1,483,108
-----------
Net assets $45,733,078
===========
Net assets consist of:
Paid-in capital $46,640,889
Unrealized depreciation on investments and tranlation of
assets and liabilities in
foreign currencies (1,150,401)
Accumulated undistributed net realized gain on investments
and foreign currency transactions 253,868
Accumulated net investment loss (11,278)
-----------
Total $45,733,078
===========
Shares of beneficial interest outstanding 5,308,194
=========
Class A shares:
Net asset value per share
(net assets of $20,161,156 / 2,340,744 shares of
beneficial interest outstanding) $ 8.61
======
Offering price per share (100 / 95.25 of net asset value
per share) $ 9.04
======
Class B shares:
Net asset value and offering price per share
(net assets of $19,112,504 / 2,216,137 shares of
beneficial interest outstanding) $ 8.62
======
Class C shares:
Net asset value and offering price per share
(net assets of $6,390,808 / 743,403 shares of
beneficial interest outstanding) $ 8.60
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $68,610 / 7,910 shares of
beneficial interest outstanding) $ 8.67
======
On sales of $100,000 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.
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
--------------------------------------------------------------------------
SIX MONTHS ENDED JULY 31, 2000
--------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 1,950,662
Dividends 8,053
------------
Total investment income $ 1,958,715
------------
Expenses -
Management fee $ 107,006
Trustees' compensation 2,829
Shareholder servicing agent fee 16,451
Distribution and service fee (Class A) 20,877
Distribution and service fee (Class B) 79,241
Distribution and service fee (Class C) 25,392
Administrative fee 2,784
Custodian fee 15,672
Printing 25,627
Postage 1,972
Auditing fees 7,500
Registration fees 44,070
Miscellaneous 5,585
------------
Total expenses $ 355,006
Fees paid indirectly (5,880)
Reduction of expenses by investment adviser (116,611)
------------
Net expenses $ 232,515
------------
Net investment income $ 1,726,200
------------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 540,369
Foreign currency transactions 6,858
------------
Net realized gain on investments and foreign
currency transactions $ 547,227
------------
Change in unrealized depreciation -
Investments $ (1,341,889)
Translation of assets and liabilities in
foreign currencies (729)
------------
Net unrealized loss on investments and foreign
currency translation $ (1,342,618)
------------
Net realized and unrealized loss on investments
and foreign currency $ (795,391)
------------
Increase in net assets from operations $ 930,809
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JULY 31, 2000 JANUARY 31, 2000
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 1,726,200 $ 1,375,462
Net realized gain on investments and foreign currency
transactions 547,227 73,101
Net unrealized gain (loss) on investments and foreign
currency translation (1,342,618) 257,930
------------ ------------
Increase in net assets from operations $ 930,809 $ 1,706,493
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (664,477) $ (423,175)
From net investment income (Class B) (825,519) (731,925)
From net investment income (Class C) (265,488) (181,916)
From net investment income (Class I) (3,929) (541)
------------ ------------
Total distributions declared to shareholders $ (1,759,413) $ (1,337,557)
------------ ------------
Net increase in net assets from fund share transactions $ 22,846,228 $ 16,045,979
------------ ------------
Total increase in net assets $ 22,017,624 $ 16,414,915
Net assets:
At beginning of period 23,715,454 7,300,539
------------ ------------
At end of period (including accumulated net investment loss
and accumulated distributions in excess of net investment
income of $(11,278) and $33,280, respectively) $ 45,733,078 $ 23,715,454
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JULY 31, 2000 JANUARY 31, 2000 JANUARY 31, 1999*
(UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 8.79 $ 8.53 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.45 $ 0.91 $ 0.54
Net realized and unrealized gain (loss) on investments
and foreign currency (0.15) 0.25 (1.50)
------ ------ ------
Total from investment operations $ 0.30 $ 1.16 $(0.96)
------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.48) $(0.90) $(0.50)
In excess of net investment income -- -- (0.01)
------ ------ ------
Total distributions declared to shareholders $(0.48) $(0.90) $(0.51)
------ ------ ------
Net asset value - end of period $ 8.61 $ 8.79 $ 8.53
====== ====== ======
Total return(+) 3.48%++ 14.17% (9.45)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.04%+ 1.02% 1.00%+
Net investment income 10.90%+ 10.62% 10.25%+
Portfolio turnover 58% 158% 127%
Net assets at end of period (000 Omitted) $20,161 $8,028 $2,052
(S) The investment adviser has voluntarily agreed under a temporary expense agreement to pay all of the fund's operating
expenses, exclusive of management and distribution and service fees. To the extent that actual expenses were over this
limitation, the net investment income per share and the ratios would have been:
Net investment income $ 0.42 $ 0.83 $ 0.33
Ratios (to average net assets):
Expenses 1.75%+ 2.00% 4.90%+
Net investment income 10.19%+ 9.64% 6.35%+
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JULY 31, 2000 JANUARY 31, 2000 JANUARY 31, 1999*
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
CLASS B
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 8.81 $ 8.54 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.44 $ 0.86 $ 0.47
Net realized and unrealized gain (loss) on
investments and foreign currency (0.18) 0.25 (1.45)
------ ------ ------
Total from investment operations $ 0.26 $ 1.11 $(0.98)
------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.45) $(0.84) $(0.47)
In excess of net investment income -- -- (0.01)
------ ------ ------
Total distributions declared to shareholders $(0.45) $(0.84) $(0.48)
------ ------ ------
Net asset value - end of period $ 8.62 $ 8.81 $ 8.54
====== ====== ======
Total return 3.02%++ 13.54% (9.69)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.69%+ 1.67% 1.65%+
Net investment income 10.19%+ 9.94% 9.60%+
Portfolio turnover 58% 158% 127%
Net assets at end of period (000 Omitted) $19,113 $12,367 $4,308
(S) The investment adviser has voluntarily agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management and distribution and service fees. To the extent that actual expenses were over this limitation,
the net investment income per share and the ratios would have been:
Net investment income $ 0.41 $ 0.78 $ 0.28
Ratios (to average net assets):
Expenses 2.40%+ 2.65% 5.55%+
Net investment income 9.48%+ 8.96% 5.70%+
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JULY 31, 2000 JANUARY 31, 2000 JANUARY 31, 1999*
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
CLASS C
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 8.78 $ 8.52 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.45 $ 0.85 $ 0.47
Net realized and unrealized gain (loss) on
investments and foreign currency (0.18) 0.25 (1.47)
------ ------ ------
Total from investment operations $ 0.27 $ 1.10 $(1.00)
------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.45) $(0.84) $(0.47)
In excess of net investment income -- -- (0.01)
------ ------ ------
Total distributions declared to shareholders $(0.45) $(0.84) $(0.48)
------ ------ ------
Net asset value - end of period $ 8.60 $ 8.78 $ 8.52
====== ====== ======
Total return 3.15%++ 13.45% (9.89)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 1.69%+ 1.67% 1.65%+
Net investment income 10.22%+ 9.93% 9.60%+
Portfolio turnover 58% 158% 127%
Net assets at end of period (000 Omitted) $6,391 $3,251 $941
(S) The investment adviser has voluntarily agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management and distribution and service fees. To the extent that actual expenses were over this limitation,
the net investment income per share and the ratios would have been:
Net investment income $ 0.42 $ 0.77 $ 0.27
Ratios (to average net assets):
Expenses 2.40%+ 2.65% 5.55%+
Net investment income 9.51%+ 8.95% 5.54%+
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED PERIOD ENDED
JULY 31, 2000 JANUARY 31, 2000 JANUARY 31, 1999*
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------------------
CLASS I
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $ 8.85 $ 8.56 $10.00
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.49 $ 0.97 $ 0.64
Net realized and unrealized gain (loss) on
investments and foreign currency (0.17) 0.25 (1.55)
------ ------ ------
Total from investment operations $ 0.32 $ 1.22 $(0.91)
------ ------ ------
Less distributions declared to shareholders --
From net investment income $(0.50) $(0.93) $(0.53)
------ ------ ------
Total distributions declared to shareholders $(0.50) $(0.93) $(0.53)
------ ------ ------
Net asset value - end of period $ 8.67 $ 8.85 $ 8.56
====== ====== ======
Total return 3.63%++ 14.87% (8.96)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses 0.69%+ 0.67% 0.65%+
Net investment income 11.19%+ 10.43% 11.10%+
Portfolio turnover 58% 158% 127%
$
Net assets at end of period (000 Omitted) $ 68 $ 70 --
(S) The investment adviser has voluntarily agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management and distribution and service fees. To the extent that actual expenses were over this limitation,
the net investment income per share and the ratios would have been:
Net investment income $ 0.46 $ 0.78 $ 0.41
Ratios (to average net assets):
Expenses 1.40%+ 1.65% 4.55%+
Net investment income 10.48%+ 9.45% 7.20%+
* For the period from the commencement of the fund's investment operations, July 1, 1998, through January 31, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS High Yield Opportunities Fund (the fund) is a diversified series of MFS
Series Trust III (the trust). The trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The fund can invest up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions. The fund can invest in
foreign securities. Investments in foreign securities are vulnerable to the
effects of changes in the relative values of the local currency and the U.S.
dollar and to the effects of changes in each country's legal, political, and
economic environment.
Investment Valuations - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues, and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to 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, without exclusive reliance upon
exchange or over-the-counter prices. Equity securities listed on securities
exchanges or reported through the NASDAQ system are reported at market value
using last sale prices. Unlisted equity securities or listed equity securities
for which last sale prices are not available are reported at market value using
last quoted bid prices. Short-term obligations, which mature in 60 days or
less, are valued at amortized cost, which approximates market value. Securities
for which there are no such quotations or valuations are valued in good faith,
at fair value, by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Forward Foreign Currency Exchange Contracts - The fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The fund may enter into
forward contracts for hedging purposes as well as for non-hedging purposes. For
hedging purposes, the fund may enter into contracts to deliver or receive
foreign currency it will receive from or require for its normal investment
activities. The fund may also use contracts in a manner intended to protect
foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the fund may
enter into contracts with the intent of changing the relative exposure of the
fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
Indexed Securities - The fund may invest in indexed securities whose value may
be linked to foreign currencies, interest rates, commodities, indices, or other
financial indicators. Indexed securities are fixed-income securities whose
proceeds at maturity (principal-indexed securities) or interest rates
(coupon-indexed securities) rise and fall according to the change in one or more
specified underlying instruments. Indexed securities may be more volatile than
the underlying instrument itself.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date. The fund uses the effective
interest method for reporting interest income on payment-in-kind (PIK) bonds.
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.
Legal fees and other related expenses incurred to preserve and protect the value
of a security owned are added to the cost of the security; other legal fees are
expensed. Capital infusions made directly to the security issuer, which are
generally non-recurring, incurred to protect or enhance the value of high-yield
debt securities, are reported as additions to the cost basis of the security.
Costs that are incurred to negotiate the terms or conditions of capital
infusions or that are expected to result in a plan of reorganization are
reported as realized losses. Ongoing costs incurred to protect or enhance an
investment, or costs incurred to pursue other claims or legal actions, are
expensed.
Fees Paid Indirectly - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount is shown as a reduction of total expenses on the Statement of
Operations.
Tax Matters and Distributions - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
At January 31, 2000, the fund, for federal income tax purposes, had a capital
loss carryforward of $260,091, which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on January 31, 2007.
Multiple Classes of Shares of Beneficial Interest - The fund offers multiple
classes of shares that differ in their respective distribution and service fees.
All shareholders bear the common expenses of the fund based on the value of
settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B shares will convert to Class A shares approximately eight
years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.65% of
the fund's average daily net assets. The investment adviser has voluntarily
agreed to pay the fund's operating expenses exclusive of management and
distribution fees such that the fund's aggregate expenses do not exceed 0.00% of
its average daily net assets. This is reflected as a reduction of total expenses
in the Statement of Operations.
The fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the fund, 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, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The fund has an unfunded defined benefit plan
for all of its independent Trustees. Included in Trustees' compensation is a net
periodic pension expense of $609 for the six months ended July 31, 2000.
Administrator - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund incurs an administrative fee at
the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$13,696 for the six months ended July 31, 2000, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD up to 0.35% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.10% per annum of the fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $427 for the six months ended July 31,
2000. Fees incurred under the distribution plan during the six months ended July
31, 2000, were 0.35% of average daily net assets attributable to Class A shares
on an annualized basis.
The fund's distribution plan provides that the fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $60 and $0 for Class B and Class C shares, respectively, for the six
months ended July 31, 2000. Fees incurred under the distribution plan during the
six months ended July 31, 2000, were 1.00% of average daily net assets
attributable to Class B and Class C shares, on an annualized basis.
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 following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended July 31,
2000, were $3, $66,574, and $1,360 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the fund's average daily net assets at an annual rate of 0.10%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$37,768,921 and $18,141,453, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $46,255,423
-----------
Gross unrealized depreciation $(2,658,232)
Gross unrealized appreciation 1,503,358
-----------
Net unrealized appreciation (depreciation) $(1,154,874)
===========
(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:
<TABLE>
<CAPTION>
Class A shares
SIX MONTHS ENDED JULY 31, 2000 YEAR ENDED JANUARY 31, 2000
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,556,342 $ 13,536,851 926,152 $ 8,065,844
Shares issued to shareholders
in reinvestment of distributions 40,940 355,352 26,859 233,803
Shares reacquired (169,696) (1,484,803) (280,483) (2,426,245)
------------ ------------ ------------ ------------
Net increase 1,427,586 $ 12,407,400 672,528 $ 5,873,402
============ ============ ============ ============
<CAPTION>
Class B shares
SIX MONTHS ENDED JULY 31, 2000 YEAR ENDED JANUARY 31, 2000
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,149,028 $ 10,105,994 1,133,503 $ 9,871,806
Shares issued to shareholders
in reinvestment of distributions 31,435 274,281 26,955 234,925
Shares reacquired (368,479) (3,231,766) (260,485) (2,271,695)
------------ ------------ ------------ ------------
Net increase 811,984 $ 7,148,509 899,973 $ 7,835,036
============ ============ ============ ============
<CAPTION>
Class C shares
SIX MONTHS ENDED JULY 31, 2000 YEAR ENDED JANUARY 31, 2000
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 464,122 $ 4,073,195 346,571 $ 3,033,411
Shares issued to shareholders
in reinvestment of distributions 15,752 137,009 9,530 82,784
Shares reacquired (106,670) (919,889) (96,295) (848,660)
------------ ------------ ------------ ------------
Net increase 373,204 $ 3,290,315 259,806 $ 2,267,535
============ ============ ============ ============
<CAPTION>
Class I shares
SIX MONTHS ENDED JULY 31, 2000 YEAR ENDED JANUARY 31, 2000
-------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold -- $ -- 7,892 $ 70,000
Shares issued to shareholders
in reinvestment of distributions 1 4 1 6
------------ ------------ ------------ ------------
Net increase 1 $ 4 7,893 $ 70,006
============ ============ ============ ============
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made for temporary financing needs. Interest is charged to
each fund, based on its borrowings, at a rate equal to the bank's base rate. In
addition, a commitment fee, based on the average daily unused portion of the
line of credit, is allocated among the participating funds at the end of each
quarter. The commitment fee allocated to the fund for the six months ended July
31, 2000, was $7.
(7) Financial Instruments
The fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts. The notional or
contractual amounts of these instruments represent the investment the fund has
in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these instruments is meaningful only when all related and
offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
CONTRACTS TO IN EXCHANGE CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE APPRECIATION
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 09/13/00 EUR 75,028 $71,907 $69,696 $ 2,211
------- ------- -------
</TABLE>
At July 31, 2000, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $(5,259) with
Deutsche Bank and $7,625 with Merrill Lynch.
At July 31, 2000, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
(8) Restricted Securities
The fund may invest not more than 15% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At July 31, 2000, the
fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 4.4% of net assets which may not be publicly sold
without registration under the Securities Act of 1933. The fund does not have
the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith, at fair value, by the Trustees.
<TABLE>
<CAPTION>
DATE OF PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Algerian Repurchase
Loan Agreement, 1s, 2010 1/24/00 $19,250,000 $ 108,587 $ 117,614
Banco Nacional de Desenvolvi, 12.554s, 2008 5/4/00 110,000 99,000 103,400
Russia Principal Loans, 7.94s, 2020 9/22/99-7/25/00 5,445,000 1,302,548 1,790,316
----------
$2,011,330
==========
</TABLE>
<PAGE>
<TABLE>
MFS(R) HIGH YIELD OPPORTUNITIES FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives + - Chairman and Chief Executive Stephen E. Cavan*
Officer, Eastern Enterprises (diversified services
company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Lawrence T. Perera + - Partner, Hemenway & Barnes
(attorneys) CUSTODIAN
State Street Bank and Trust Company
William J. Poorvu + - Adjunct Professor, Harvard
University Graduate School of Business INVESTOR INFORMATION
Administration For information on MFS mutual funds, call your
investment professional or, for an information
Charles W. Schmidt + - Private Investor kit, call toll free: 1-800-637-2929 any business
day from 9 a.m. to 5 p.m. Eastern time (or leave a
Arnold D. Scott* - Senior Executive Vice message anytime).
President, Director, and Secretary, MFS Investment
Management INVESTOR SERVICE
MFS Service Center, Inc.
Jeffrey L. Shames* - Chairman and Chief Executive P.O. Box 2281
Officer, MFS Investment Management Boston, MA 02107-9906
Elaine R. Smith + - Independent Consultant For general information, call toll free:
1-800-225-2606 any business day from 8 a.m. to 8
David B. Stone + - Chairman, North American p.m. Eastern time.
Management Corp. (investment adviser)
For service to speech- or hearing-impaired, call
INVESTMENT ADVISER toll free: 1-800-637-6576 any business day from 9
Massachusetts Financial Services Company a.m. to 5 p.m. Eastern time. (To use this service,
500 Boylston Street your phone must be equipped with a
Boston, MA 02116-3741 Telecommunications Device for the Deaf.)
DISTRIBUTOR For share prices, account balances, exchanges, or
MFS Fund Distributors, Inc. stock and bond outlooks, call toll free:
500 Boylston Street 1-800-MFS-TALK (1-800-637-8255) anytime from a
Boston, MA 02116-3741 touch-tone telephone.
CHAIRMAN AND PRESIDENT WORLD WIDE WEB
Jeffrey L. Shames* www.mfs.com
PORTFOLIO MANAGER
Robert J. Manning*
TREASURER
James O. Yost*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
+ Independent Trustee
* MFS Investment Management
</TABLE>
<PAGE>
MFS(R) HIGH YIELD OPPORTUNITIES FUND ------------
BULK RATE
U.S. POSTAGE
PAID
MFS
[Logo] M F S(R) ------------
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MHO-3 9/00 3.9M 70/270/370/870
