<PAGE>
[LOGO] MFS (SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) BOND FUND
ANNUAL REPORT o APRIL 30, 1998
[graphic omitted]
NOW TWO MFS(R) IRA CHOICES (see page 39)
<PAGE>
IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS INVESTMENT MANAGEMENT(SM)
[Photo of A. Keith Brodkin] On February 2, 1998, Keith Brodkin, a friend and
leader to everyone at MFS, died unexpectedly at
age 62. His thoughtful letters to shareholders on
the markets and economy have been an integral
part of MFS shareholder reports like this one for
many years.
Keith joined MFS in 1970 as the firm's first
fixed-income manager, managing the
bond portion of MFS(R) Total Return Fund. He went on to manage our first pure
bond fund, MFS(R) Bond Fund, when it was introduced in 1974, and he was
considered a pioneer in the art of active bond management.
Keith was named President and Chief Investment Officer of MFS in 1987 and
four years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $80 billion
today entrusted to us by three million individual and institutional investors
worldwide. Under Keith's leadership, MFS has carefully but steadily built its
domestic and international investment capabilities through the introduction
of a range of new products and a still-growing staff that now numbers over
100 equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
A Discussion with the Portfolio Manager ................................... 4
Portfolio Manager's Profile ............................................... 7
Fund Facts ................................................................ 8
Performance Summary ....................................................... 8
Portfolio Concentration ................................................... 11
Federal Tax Information ................................................... 11
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 20
Notes to Financial Statements ............................................. 28
Independent Auditors' Report .............................................. 38
Now two MFS(R) IRA choices ................................................ 39
The MFS Family of Funds(R) ................................................ 40
Trustees and Officers ..................................................... 41
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED APRIL 30, 1998, CLASS A SHARES OF THE FUND PROVIDED
A TOTAL RETURN AT NET ASSET VALUE OF 11.36%, CLASS B SHARES 10.52%, CLASS C
SHARES 10.54%, AND CLASS I SHARES 11.72%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND BENEFITED FROM ITS OVERWEIGHTINGS IN INVESTMENT-GRADE CORPORATE
BONDS AND HIGH-YIELD SECURITIES. ON AVERAGE, THE FUND HAD A 50% WEIGHTING
IN INVESTMENT-GRADE CORPORATE BONDS AND 20% IN HIGH-YIELD BONDS.
o OTHER THAN THE SELL-OFF IN THE ASIAN MARKET AND ISOLATED INCIDENTS
PARTICULAR TO CERTAIN COMPANIES, THE CORPORATE MARKET PERFORMED WELL DURING
THE PERIOD, HELPED BY STEADY ECONOMIC GROWTH AND A LACK OF INFLATIONARY
PRESSURES.
o THE FUND'S LARGEST INDUSTRY EXPOSURE IS TO THE MEDIA SECTOR, THE CREDIT
QUALITY OF WHICH CONTINUES TO IMPROVE AS CONSOLIDATION IN THE BUSINESS HAS
CONTINUED AND COMPANIES HAVE GROWN STRONGER.
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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:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a market correction is possible in the near term. In such a
correction, equity prices would remain relatively flat or decline, possibly for
an extended period.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive than
most fixed-income investments, while low inflation helps control companies'
costs, such as for raw materials, wages, and benefits. The near-term outlook for
a continuation of this environment appears relatively favorable. However, this
year has seen a marked slowdown in corporate earnings. This means that as equity
prices continue to rise, price-to-earnings (P/E) ratios, or the amount an
investor pays for a stock in relation to the company's earnings per share, also
go up. A year ago, the average P/E ratio for stocks in the unmanaged Standard &
Poor's 500 Composite Index stood at approximately 21; this spring, the average
P/E was 33% higher, at about 28. In some cases, such as with some of the newer
companies associated with the Internet, P/Es have soared to levels that are
unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow, it is
possible that some of these valuations can be supported. We expect corporate
earnings to grow 8% to 10% this year. However, just as no one can predict market
cycles, so too no one can predict economic cycles -- except to say that these
cycles do exist and that an economic slowdown at some point is inevitable.
Given this reality, we believe it is prudent to remind investors of the need to
take a long-term view and to diversify their investments across a range of asset
classes, including mutual funds that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide the
broadest possible coverage of industry sectors and individual companies, MFS
continues to increase the number of full-time research analysts. These analysts
thoroughly investigate each company's earnings potential and position in its
industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation. Every
year, both fixed-income and equity managers meet with thousands of credit
issuers and companies. They also attend many presentations, closely follow
sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research to both
the equity and fixed-income markets is the best way to provide favorable
long-term performance for our shareholders -- regardless of changes in the
overall market environment.
We appreciate your support 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
May 14, 1998
JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED
MFS IN 1983. AFTER FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO
MANAGER, HE WAS NAMED CHIEF EQUITY OFFICER IN 1987 AND PRESIDENT AND A
MEMBER OF THE BOARD OF DIRECTORS IN 1993. MR. SHAMES WAS APPOINTED
CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY 1998.
<PAGE>
A DISCUSSION WITH THE PORTFOLIO MANAGER
[Photo of Geoffrey L. Kurinsky]
Geoffrey L. Kurinsky
For the 12 months ended April 30, 1998, Class A shares of the Fund provided a
total return of 11.36%, Class B shares 10.52%, Class C shares 10.54%, and Class
I shares 11.72%. These returns include the reinvestment of distributions but
exclude the effects of any sales charges and compare to an 11.27% return for the
Lehman Brothers Government/Corporate Bond Index (the Lehman Index), an
unmanaged, market-value-weighted index of U.S. Treasury and government-agency
securities (excluding mortgage-backed securities) and investment-grade debt
obligations of domestic corporations.
Q. COULD YOU TALK ABOUT SOME OF THE THINGS THAT HAVE AFFECTED PERFORMANCE THIS
YEAR?
A. The Fund was helped by the fact that, for most of the year, we had
overweightings in investment-grade corporate bonds and high-yield securities.
This was the main reason the Fund performed well against its benchmark. We
had, on average, a 50% weighting in investment-grade corporates during the
period, compared to a normal exposure of about 35%. We also had roughly 20%
in the high-yield market throughout most of the year, which is the Fund's
maximum allocation. Usually, we might have something closer to 5% or 10% in
this market. On the other hand, when the Asian crisis erupted last fall,
corporate yield spreads widened significantly. We had about a 3% position in
Asia, specifically in Thailand, Indonesia, and Hong Kong. This cost the Fund
about 40 basis points (0.40%) as spreads widened to U.S. Treasuries, although
we did reduce our exposure to those markets late last summer, ahead of the
decline in the fourth quarter.
Q. AS LONG AS WE'RE TALKING ABOUT OVERSEAS HOLDINGS, WHAT ABOUT OTHER PARTS OF
THE WORLD?
A. We had almost no allocation to the nondollar markets for almost the whole
period. Our view has been that yields have converged among the United States
and Germany and the other European countries, with basically a 6% yield most
everywhere, and we think the United States is the most attractive market.
Inflation patterns here are positive, the economy is strong, and we are the
market leaders in many major industries, most notably in technology and
telecommunications.
Q. OVERALL, HOW WOULD YOU DESCRIBE THE FIXED-INCOME ENVIRONMENT OVER THE PAST 12
MONTHS?
A. It's been a very friendly environment. In fact, other than the sell-off in
the Asian market and isolated incidents particular to certain companies, the
corporate market did well all year, with steady economic growth and a lack of
inflationary pressures. We expect the environment of a gradual move to lower
interest rates to continue.
Q. COULD YOU TALK ABOUT SOME OF THE FUND'S MAJOR INDUSTRY SECTORS?
A. Our largest exposure by far is in the media sector, the credit quality of
which continues to improve. This was a "BB" high-yield sector in the mid
1990s; it crossed over to investment grade, or "BBB," in the past couple of
years, and we think it will migrate still higher toward "BBB-plus." There has
been a lot of consolidation in this business, and the players have gotten
larger and stronger. Companies' cash flows have been strong, and they've been
able to take out some of their older, higher-coupon debt. Holdings here
include Time Warner, Telecommunications, Inc., and Continental Cablevision.
Q. WHAT ABOUT OTHER CROSSOVER BONDS?
A. In these issues, which have a high "BB" rating and the potential to move up
to investment-grade status, we've been focusing on a few new companies such
as McDermott, an oil services company, and Columbia Healthcare, which has
gone through a lot of problems. We bought Columbia after it began getting a
lot of government scrutiny and prices of its bonds declined. Our general view
is that this company has great assets; in many areas, a Columbia-affiliated
hospital is the only one in its market.
Q. WHAT IS THE FUND'S DURATION, THAT IS, ITS SENSITIVITY TO CHANGES IN
INTEREST RATES?
A. It's about seven years, which is about the longest we can get to. This is a
reflection of our view that, with inflation at about 1.5%, and 10-year U.S.
Treasuries at around 5.5% and perhaps moving down a little, it's a very
attractive environment for fixed-income securities.
Q. NOW THAT YOU MENTIONED INFLATION, WHAT'S YOUR OUTLOOK THERE?
A. The best indicator of inflation is the employment cost index, which includes
both wages and benefits and whose rate of increase in the first quarter
declined to 0.7%. The other reliable indicator is the gross domestic product
deflator, a measure of inflation of all goods and services, which is rising
at its lowest percentage since the 1950s. So, basically, there are no
inflationary pressures in the U.S. economy.
Q. YOU SAID YOU SEE NO PRESSURE FROM INFLATION ON INTEREST RATES, BUT WHAT
RISKS DO YOU SEE GOING FORWARD?
A. The biggest risks are the economy's growing too fast and the Asian slowdown
that people are counting on not developing. If the economy continues to be
strong, the Federal Reserve Board (the Fed) could be forced to raise
short-term interest rates, even if there still are no inflation pressures. If
economic growth continues at a 4% to 5% annual rate, there's no Asian-
induced slowdown, and we start to see some early signs of inflation, the Fed
will act very quickly, with higher interest rates the likely result.
Q. OVERALL, WHAT KIND OF ENVIRONMENT DO YOU SEE FOR THE FIXED-INCOME MARKETS
GOING FORWARD?
A. If interest rates and inflation remain steady and the U.S. economy
continues to grow at a moderate pace, which is what we expect, it will be a
positive environment for investment-grade corporate and high-yield bonds,
as well as for some of the emerging markets, which are very sensitive to
changes in short-term interest rates.
/s/ Geoffrey L. Kurinsky
Geoffrey L. Kurinsky
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
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 forecasts can be guaranteed.
PORTFOLIO MANAGER'S PROFILE
GEOFFREY L. KURINSKY IS A SENIOR VICE PRESIDENT AND A MEMBER OF THE
FIXED INCOME MANAGEMENT GROUP OF MFS(R) INVESTMENT MANAGEMENT(SM). HE IS
PORTFOLIO MANAGER OF MFS BOND FUND AND ALSO MANAGES THE U.S. HIGH-GRADE
FIXED-INCOME PORTIONS OF MFS(R) TOTAL RETURN FUND AND MFS(R) WORLD ASSET
ALLOCATION(SM) FUND. HE JOINED MFS AS A PORTFOLIO MANAGER IN THE FIXED
INCOME DEPARTMENT IN 1987 AND WAS NAMED VICE PRESIDENT IN 1989 AND
SENIOR VICE PRESIDENT IN 1993. HE IS A GRADUATE OF THE UNIVERSITY OF
MASSACHUSETTS AND HOLDS AN M.B.A. IN FINANCE FROM BOSTON UNIVERSITY.
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 financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
FUND FACTS
OBJECTIVE: SEEKS AS HIGH A LEVEL OF CURRENT INCOME AS IS BELIEVED
TO BE CONSISTENT WITH PRUDENT INVESTMENT RISK. AS A
SECONDARY OBJECTIVE, THE FUND STRIVES TO PROTECT
SHAREHOLDERS' CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: MAY 8, 1974
CLASS INCEPTION: CLASS A MAY 8, 1974
CLASS B SEPTEMBER 7, 1993
CLASS C JANUARY 3, 1994
CLASS I JANUARY 2, 1997
SIZE: $947.4 MILLION NET ASSETS AS OF APRIL 30, 1998
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS Bond Fund -- Class A shares in comparison to various market
indicators. Class A share performance results reflect the deduction of the 4.75%
maximum sales charge; benchmark comparisons are unmanaged and do not reflect any
fees or expenses. The performance of other share classes will be greater than or
less than the line shown, based on the differences in charges and fees paid by
shareholders investing in different classes. It is not possible to invest
directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 5-year period ended April 30, 1998)
MFS LEHMAN BROTHERS CONSUMER
BOND GOVERNMENT/ PRICE
FUND - CORPORATE BOND INDEX -
CLASS A INDEX U.S.
--------------------------------------------------------------
4/93 $ 9,523 $10,000 $10,000
4/94 9,665 10,115 10,236
4/95 10,417 10,814 10,549
4/96 11,320 11,750 10,845
4/97 12,338 12,539 11,125
4/98 13,826 13,951 11,285
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended April 30, 1998)
MFS LEHMAN BROTHERS CONSUMER
BOND GOVERNMENT/ PRICE
FUND - CORPORATE BOND INDEX -
CLASS A INDEX U.S.
--------------------------------------------------------------
4/88 $ 9,523 $10,000 $10,000
4/90 10,968 11,688 11,008
4/92 14,088 14,869 11,913
4/94 16,329 17,220 12,587
4/96 19,125 20,003 13,337
4/98 23,213 23,751 13,877
AVERAGE ANNUAL TOTAL RETURNS AS OF APRIL 30, 1998
CLASS A INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return +11.36% +9.67% +7.74% +9.31%
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SEC Results + 6.07% +7.90% +6.70% +8.78%
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CLASS B INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return +10.52% +8.86% +6.98% +8.93%
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SEC Results + 6.52% +8.00% +6.65% +8.93%
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CLASS C INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return +10.54% +8.90% +7.07% +8.98%
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SEC Results + 9.54% +8.90% +7.07% +8.98%
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CLASS I INVESTMENT RESULTS
(net asset value change including
reinvested distributions)
1 Year 3 Years 5 Years 10 Years/Life
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Average Annual Total Return +11.72% +9.86% +7.85% +9.37%
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COMPARATIVE INDICES
1 Year 3 Years 5 Years 10 Years/Life
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Average corporate debt
"BBB"-rated fund* +11.56% +9.79% +7.87% +9.31%
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Lehman Brothers Government/
Corporate Bond Index+ +11.27% +8.86% +6.89% +9.04%
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Consumer Price Index**+ + 1.44% +2.27% +2.45% +3.33%
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* Source: Lipper Analytical Services, Inc.
+ Source: CDA Wiesenberger.
** The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class B
share ("B") SEC results reflect the applicable contingent deferred sales charge
(CDSC), which declines over six years from 4% to 0%. Class C shares ("C") have
no initial sales charge but, like B, have higher annual fees and expenses than
A. C SEC results reflect the 1% CDSC applicable to shares redeemed within 12
months. Class I shares ("I") have no sales charge or Rule 12b-1 fees and are
only available to certain institutional investors.
B and C results include the performance and the operating expenses (e.g., Rule
12b-1 fees) of A for periods prior to the inception of B and C. Because
operating expenses of B and C are higher than those of A, B and C performance
generally would have been lower than A performance. The A performance included
in the B and C SEC performance has been adjusted to reflect the CDSC generally
applicable to B and C rather than the initial sales charge generally applicable
to A.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been higher
than A performance. The A performance included in the I performance has been
adjusted to reflect the fact that I have no initial sales charge.
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 dividends and capital gains.
PORTFOLIO CONCENTRATION AS OF APRIL 30, 1998
LARGEST SECTORS
Investment-grade corporate bonds 48.5%
High-yield bonds 20.0%
U.S. Treasuries 12.8%
Mortgage-backed securities 12.1%
Emerging market bonds 3.5%
Other 3.1%
FEDERAL TAX INFORMATION
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
<PAGE>
PORTFOLIO OF INVESTMENTS -- April 30, 1998
<TABLE>
<CAPTION>
Bonds - 98.2%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C>
U.S. Bonds - 66.7%
Aerospace - 0.8%
Be Aerospace Incorporated, 8s, 2008## $ 3,085 $ 3,046,438
K & F Inds Inc., 9.25s, 2007 2,000 2,080,000
Northrup Grumman Corp., 9.375s, 2024 2,200 2,597,540
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$ 7,723,978
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Airlines - 4.9%
Airplane Pass-Through Trust, 10.875s, 2019+ $ 1,500 $ 1,689,870
Continental Airlines Pass-Through Trust, 6.41s, 2007 1,000 1,002,400
Continental Airlines Pass-Through Trust, 6.648s, 2017 2,800 2,781,156
Continental Airlines Pass-Through Trust, 7.461s, 2015 991 1,053,269
Continental Airlines, Inc., 9.5s, 2001 - 2013 10,405 11,510,472
Continental Airlines, Inc., 10.22s, 2014 5,219 6,354,248
Jet Equipment Trust, 8.64s, 2012## 1,993 2,248,196
Jet Equipment Trust, 10.69s, 2015## 2,390 3,097,798
Jet Equipment Trust, 11.44s, 2014## 3,500 4,664,730
Northwest Airlines, Inc., 7.625s, 2005 4,300 4,272,265
Northwest Airlines, Inc., 8.7s, 2007 1,000 1,035,360
United Airlines Pass-Through Trust, 7.27s, 2013+ 6,385 6,585,065
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$ 46,294,829
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Automotive - 1.3%
Ford Motor Co. Delaware, 6.625s, 2028 $ 5,980 $ 5,805,504
Ford Motor Credit Company, 6.125s, 2003 5,450 5,432,396
Hayes Wheels International, Inc., 9.125s, 2007 1,350 1,417,500
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$ 12,655,400
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Banks and Credit Companies - 5.1%
ADVANTA Corp., 6.9s, 1999 $ 9,475 $ 9,306,061
ADVANTA Corp., 6.925s, 2002 2,475 2,269,649
BT Institutional Capital Trust, 7.75s, 2026## 3,000 3,066,090
Capital One Financial Corp., 7.25s, 2003 2,675 2,700,974
Chase Manhattan Corp. New, 6.375s, 2008 1,596 1,583,838
Colonial Capital II, 8.92s, 2027 1,640 1,792,405
First Chicago NBD Institutional Capital, 7.95s, 2026## 1,300 1,358,136
MBNA Capital, 8.278s, 2026 6,450 6,733,671
Providian National Bank, 6.7s, 2003 3,650 3,678,516
Riggs Capital II, 8.875s, 2027 3,580 3,887,307
Riggs National Corp., 8.5s, 2006 1,250 1,310,025
Socgen Real Estate Co., 7.64s, 2049## 4,800 4,769,760
State Street Bank & Trust I, 7.94s, 2026## 2,450 2,604,179
Washington Mutual Capital I, 8.375s, 2027 3,000 3,220,500
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$ 48,281,111
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Building - 1.6%
American Standard Inc., 7.125s, 2003 $ 1,195 $ 1,159,150
American Standard Inc., 7.625s, 2010 1,195 1,159,150
Building Materials Corp., 8.625s, 2006 1,000 1,030,000
Nortek, Inc., 9.25s, 2007 2,110 2,183,850
Owens Corning Fiberglass Corp., 8.875s, 2002 5,650 6,115,843
Owens Corning Fiberglass Corp., 9.9s, 2015## 1,437 1,627,567
Williams Scotsman, Inc., 9.875s, 2007 2,110 2,194,400
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$ 15,469,960
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Chemicals - 1.2%
Solutia, Inc., 7.375s, 2027 $ 11,150 $ 11,377,795
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Consumer Goods and Services - 1.5%
Fingerhut Cos., Inc., 7.375s, 1999 $ 1,600 $ 1,624,336
Heinz H J Co., 6s, 2008 1,500 1,479,000
Kindercare Learning Centers, Inc., 9.5s, 2009 1,825 1,875,187
Nabisco, Inc., 6.375s, 2035 2,270 2,230,888
Philip Morris Cos., Inc., 7.75s, 2027 2,150 2,265,928
Revlon Consumer Products Corp., 8.625s, 2008## 5,000 5,075,000
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$ 14,550,339
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Containers - 0.2%
Gaylord Container Corp., 9.75s, 2007 $ 1,350 $ 1,366,875
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Corporate Asset Backed - 0.7%
BCF LLC, 7.75s, 2026## $ 2,437 $ 2,392,716
Merrill Lynch Mortgage Investors, Inc., 8.16s, 2022+ 2,000 1,909,063
Merrill Lynch Mortgage Investors, Inc., 8.3s, 2011 974 970,894
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 299 300,722
Merrill Lynch Mortgage Investors, Inc., 10s, 2011 606 613,078
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$ 6,186,473
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Financial Institutions - 6.2%
Bear Stearns, Inc., 6.2s, 2003 $ 3,580 $ 3,567,792
Bear Stearns, Inc., 6.75s, 2007 3,300 3,353,394
Capital One Bank Medium Term Senior, 6.7s, 2008 2,390 2,383,021
Contifinancial Corp., 7.5s, 2002 3,320 3,304,230
First Empire Capital Trust I, 8.234s, 2027 5,675 6,098,014
First Merchants Acceptance Corp., 9.5s, 2006** 1,200 480,000
Goldman Sachs Group LP, 5.9s, 2003## 4,800 4,702,368
Greenpoint Capital Trust I, 9.1s, 2027 1,250 1,373,650
Lehman Brothers Incorporated, 6.5s, 2008 2,800 2,784,264
Lehman Brothers, Inc., 7.5s, 2026 11,800 12,801,584
Leucadia Capital Trust, 8.65s, 2027 2,000 2,143,480
Nationwide Mutual Life Insurance Co., 7.5s, 2024## 6,440 6,435,106
Paine Webber Group Incorporated, 6.55s, 2008 1,550 1,543,273
Salomon, Inc., 7.2s, 2004 1,260 1,307,363
Salomon, Inc., 7.375s, 2007 4,999 5,301,240
United Companies Financial Corp., 7.7s, 2004 1,300 1,271,569
------------
$ 58,850,348
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Forest and Paper Products - 1.7%
Boise Cascade Co., 7.43s, 2005 $ 5,000 $ 5,157,250
Georgia Pacific Corp., 9.875s, 2021 7,850 8,823,479
U.S. Timberlands, 9.625s, 2007 2,000 2,060,000
------------
$ 16,040,729
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Industrial - 0.8%
Burlington Industries, Inc. New, 7.25s, 2027 $ 1,500 $ 1,553,070
Frontiervision Operating Partns Lp, 11s, 2006 2,110 2,342,100
Lowes Cos., Inc., 6.875s, 2028 1,120 1,124,032
Stellex Inds Incorporated, 9.5s, 2007 2,000 2,040,000
------------
$ 7,059,202
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Insurance - 4.1%
Atlantic Mutual Insurance Company, 8.15s, 2028## $ 5,490 $ 5,516,242
Equitable Life Assurance Society, 7.7s, 2015## 4,435 4,776,096
Fairfax Financial Holdings Limited, 7.375s, 2018 3,100 3,095,350
Providian Capital I, 9.525s, 2027## 5,750 6,407,972
Safeco Capital Trust I, 8.072s, 2037 12,525 13,150,749
Travelers Capital III, 7.75s, 2036 5,875 6,114,289
------------
$ 39,060,698
- --------------------------------------------------------------------------------------------------------
Media/Entertainment - 9.7%
Circus Circus Enterprises, Inc., 6.45s, 2006 $ 3,750 $ 3,504,375
Circus Circus Enterprises, Inc., 6.7s, 2096 3,000 2,881,950
Circus Circus Enterprises, Inc., 7s, 2036 4,774 4,815,677
Hearst Argyle Television, Inc., 7s, 2018 1,550 1,521,356
Hearst Argyle Television, Inc., 7.5s, 2027 13,908 14,493,527
News America Holdings, Inc., 6.75s, 2038## 2,400 2,370,432
News America Holdings, Inc., 7.75s, 2045 6,000 6,268,200
News America Holdings, Inc., 8s, 2016 7,050 7,637,547
News America Holdings, Inc., 10.125s, 2012 6,825 7,946,279
Outdoor Systems, Inc., 8.875s, 2007 1,500 1,548,750
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 3,450 3,391,971
Time Warner, Inc., 0s to 2016, 8.3s to 2036 13,771 4,044,405
Time Warner, Inc., 6.95s, 2028 5,370 5,255,082
Time Warner, Inc., 8.11s, 2006 3,350 3,657,563
Time Warner, Inc., 9.125s, 2013 3,260 3,904,013
Time Warner, Inc., 9.15s, 2023 15,132 18,545,023
------------
$ 91,786,150
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 0.9%
Columbia/HCA Healthcare Corp., 6.5s, 1999 $ 1,650 $ 1,629,870
Columbia/HCA Healthcare Corp., 6.875s, 2001 1,200 1,172,376
Columbia/HCA Healthcare Corp., 7.69s, 2025 3,500 3,341,835
Tenet Healthcare Corp., 8.625s, 2003 - 2007 2,125 2,214,375
------------
$ 8,358,456
- --------------------------------------------------------------------------------------------------------
Metal Fabrication - 0.1%
Metals USA, Inc., 8.625s, 2008## $ 1,350 $ 1,323,000
- --------------------------------------------------------------------------------------------------------
Oil Services - 1.2%
Clark Refining & Marketing Inc., 8.375s, 2007 $ 1,125 $ 1,140,820
KCS Energy, 8.875s, 2008 1,125 1,108,125
Mcdermott, Inc., 9.375s, 2002 5,000 5,344,900
Ultramar Diamond Shamrock Corp., 7.2s, 2017 2,550 2,591,285
Vintage Petroleum, Inc., 8.625s, 2009 1,125 1,164,375
------------
$ 11,349,505
- --------------------------------------------------------------------------------------------------------
Oils - 3.1%
Belco Oil & Gas Corp., 8.875s, 2007 $ 1,125 $ 1,141,875
Cliffs Drilling Co., 10.25s, 2003 1,125 1,209,375
Gulf Canada, 9.25s, 2004 1,680 1,762,572
Lasmo USA, Inc., 7.125s, 2003 1,874 1,912,651
Lasmo USA, Inc., 7.3s, 2027 2,686 2,652,184
Lasmo USA, Inc., 8.375s, 2023 1,000 1,055,100
Occidental Petroleum Corporation, 7.2s, 2028 5,000 4,984,000
Petroleum Geo Services A/S, 7.125s, 2028 5,875 5,846,506
Sun Co., Inc., 9s, 2024 1,950 2,360,904
Synder Oil Corp., 8.75s, 2007 3,000 3,075,000
Transocean Offshore, Inc., 8s, 2027 1,985 2,249,997
Wiser Oil Company Delaware, 9.5s, 2007 1,125 1,080,000
------------
$ 29,330,164
- --------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.4%
JDN Reality Corp., 6.95s, 2007 $ 3,300 $ 3,270,861
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.0%
Hilton Hotels Corp., 7.95s, 2007 $ 8,300 $ 8,589,006
Mirage Resorts, Inc., 6.75s, 2007 1,260 1,237,849
------------
$ 9,826,855
- --------------------------------------------------------------------------------------------------------
Retail - 0.1%
Cole National Group, Inc., 8.625s, 2007 $ 665 $ 671,650
- --------------------------------------------------------------------------------------------------------
Special Products and Services - 0.2%
Polymer Group, Inc., 9s, 2007 $ 2,000 $ 2,065,000
- --------------------------------------------------------------------------------------------------------
Steel - 0.3%
Alaska Steel Holdings Corp., 9.125s, 2006 $ 2,500 $ 2,637,500
- --------------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
Kroger Co., 6.375s, 2008 $ 1,500 $ 1,476,750
Marsh Supermarkets, Inc., 8.875s, 2007 1,500 1,545,000
------------
$ 3,021,750
- --------------------------------------------------------------------------------------------------------
Telecommunications - 8.9%
Airtouch, 6.65s, 2008 $ 4,780 $ 4,815,850
Allbritton Communications Company, 8.875s, 2008 2,110 2,104,725
Century Communications Corporation, 0s, 2008 5,000 2,187,500
Chancellor Media Corp., 8.75s, 2007 1,500 1,552,500
Continental Cablevision, Inc., 9s, 2008 4,100 4,754,114
Continental Cablevision, Inc., 11s, 2007 17,414 19,139,205
EchoStar Communications Corp., 0s to 1999, 12.875s to 2004 1,350 1,292,625
Fox/Liberty Networks LLC, Inc., 8.875s, 2007 1,500 1,530,000
Intermedia Communications, Inc., 0s to 2002, 11.125s to 2007 2,610 1,918,350
ITC Deltacom, Inc., 11s, 2007 325 368,875
Level 3 Commerce Incorporated, 9.125s, 2008## 1,000 990,000
Lin Television Corp., 8.375s, 2008## 1,350 1,356,750
Nextel International Incorporated, 0s to 2003, 12.12s to 2008## 2,000 1,200,000
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008## 1,820 1,128,400
Qwest Communications International, Inc., 0s to 2003,
8.29s to 2008## 3,300 2,268,750
TCI Communications Financing III, 9.65s, 2027 4,650 5,496,765
TCI Communications Incorporated, 6.375s, 2003 4,660 4,655,993
TCI Communications Incorporated, 8s, 2005 1,910 2,059,171
Tele Communications, Inc., 6.34s, 2002 4,800 4,762,896
U.S. Cellular Corp., 7.25s, 2007 1,635 1,681,287
U.S. West Capital Funding, Inc., 7.3s, 2007 2,000 2,128,000
U.S. West Capital Funding, Inc., 7.9s, 2027 1,190 1,345,021
Western Wireless Corp., 10.5s, 2007 2,000 2,165,000
WorldCom, Inc., 8.875s, 2006 12,000 13,079,640
------------
$ 83,981,417
- --------------------------------------------------------------------------------------------------------
Transportation - 0.3%
Federal Express Corp., 7.65s, 2014 $ 2,956 $ 3,158,105
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 8.3%
AEP Generating, 9.82s, 2022 $ 348 $ 448,469
Beaver Valley Funding Corp., 9s, 2017 7,244 8,197,165
CalEnergy Co., Inc., 7.63s, 2007 1,800 1,790,388
Cleveland Electric Illuminating Co., 7.88s, 2017## 3,910 4,128,530
Cleveland Electric Illuminating Co., 9s, 2023 5,328 5,798,409
Comed Financing II, 8.5s, 2027 2,500 2,652,125
Commonwealth Edison Co., 7.625s, 2007 4,010 4,242,299
Edison Mission Energy, 7.33s, 2008## 725 758,894
Long Island Lighting Co., 8.2s, 2023 5,600 5,968,592
Montana Power Co., 7.875s, 2026 1,000 1,114,980
Niagara Mohawk Power Corp., 7.75s, 2006 5,000 5,317,350
Niagara Mohawk Power Corp., 8.5s, 2023 5,500 5,873,395
Niagara Mohawk Power Corp., 8.77s, 2018 350 379,554
North Atlantic Energy, 9.05s, 2002 4,192 4,301,663
Salton Sea Funding Corp., 6.69s, 2000 1,673 1,679,199
Salton Sea Funding Corp., 7.37s, 2005 2,655 2,707,516
Salton Sea Funding Corp., 7.84s, 2010 3,775 4,036,758
Salton Sea Funding Corp., 8.3s, 2011 1,500 1,633,905
Seabrook Station - Unit 1, 7.83s, 2019 7,272 7,589,231
Texas Utilities Co., 6.375s, 2008## 4,890 4,786,674
United Illuminating Co., 6.25s, 2002 1,510 1,490,566
Waterford 3 Funding Corp., 8.09s, 2017 4,000 4,163,800
------------
$ 79,059,462
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.8%
California Energy, Inc., 10.25s, 2004 $ 2,350 $ 2,521,315
Coastal Corp., 7.42s, 2037 2,000 2,055,460
Consumers Energy Co., 6.375s, 2008## 1,910 1,885,457
Louis Dreyfus Natural Gas Corp., 6.875s, 2007 2,950 2,918,435
Tennessee Gas Pipeline Co., 7.625s, 2037 4,000 4,284,040
Texas Gas Transmission Corp., 7.25s, 2027 3,645 3,745,529
------------
$ 17,410,236
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $632,167,848
- --------------------------------------------------------------------------------------------------------
Foreign Bonds - 5.3%
Argentina - 0.5%
Hidroelectrica Alicura, 8.375s, 1999 (Utilities -
Electric)## $ 4,325 $ 4,303,375
- --------------------------------------------------------------------------------------------------------
Bulgaria - 0.5%
National Republic of Bulgaria, 6.563s, 2024 $ 5,940 $ 4,841,100
- --------------------------------------------------------------------------------------------------------
Canada - 0.2%
Rogers Cantel, Inc., 9.375s, 2008
(Telecommunications) $ 1,350 $ 1,397,250
- --------------------------------------------------------------------------------------------------------
Chile - 0.3%
Empresa Nacional De Electric, 7.325s, 2037
(Utilities - Electric) $ 2,367 $ 2,382,930
- --------------------------------------------------------------------------------------------------------
China - 0.6%
Dao Heng Bank Ltd., 7.75s, 2007 (Bank and Credit
Companies)## $ 6,750 $ 6,083,842
- --------------------------------------------------------------------------------------------------------
Colombia
Republic of Colombia, 8.75s, 1999 $ 110 $ 112,888
- --------------------------------------------------------------------------------------------------------
Finland - 0.4%
Upm Kymmene Corp., 7.45s, 2027 (Forest and Paper
Products)## $ 3,300 $ 3,357,321
- --------------------------------------------------------------------------------------------------------
Germany - 0.3%
Vnesheconombank, 6.719s, 2015 (Bank and Credit
Companies) $ 4,000 $ 2,875,000
- --------------------------------------------------------------------------------------------------------
Mexico - 0.5%
Banco Commercial S.A., 8.25s, 2007##
(Bank and Credit Companies) $ 1,820 $ 1,886,066
Corporacion Andina De Fomento, 7.1s, 2003
(Bank and Credit Companies) 1,672 1,693,234
Satelites Mexicanos S A De C V, 10.125s, 2004##
(Telecommunications) 1,350 1,378,688
------------
$ 4,957,988
- --------------------------------------------------------------------------------------------------------
Panama - 0.3%
Republic of Panama, 8.25s, 2008 $ 2,740 $ 2,705,750
- --------------------------------------------------------------------------------------------------------
South Korea - 1.4%
Republic of Korea, 8.875s, 2008 $ 13,680 $ 13,644,432
- --------------------------------------------------------------------------------------------------------
Thailand - 0.3%
Jasmine Submarine Telecom Ltd., 8.483s, 2011##
(Telecommunications) $ 3,429 $ 3,040,587
- --------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 49,702,463
- --------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 1.7%
Federal Home Loan Pc, 9.5s, 2001 $ 5 $ 4,967
Federal National Mortgage Assn., 6.5s, 2013 16,282 16,337,704
- --------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 16,342,671
- --------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 24.5%
Government National Mortgage Association - 10.4%
GNMA, 7s, 2022 - 2028 $ 9,191 $ 9,299,815
GNMA, 7.5s, 2006 - 2027 34,167 35,096,050
GNMA, 8s, 2024 - 2027 51,427 53,302,990
GNMA, 13.25s, 2023 682 686,643
------------
$ 98,385,498
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 14.1%
U.S. Treasury Bonds, 6.125s, 2027 $ 23,904 $ 24,456,660
U.S. Treasury Bonds, 11.25s, 2015 28,250 44,087,515
U.S. Treasury Bonds, 12s, 2013 10,000 14,654,700
U.S. Treasury Bonds, 12.375s, 2004 30,000 40,035,900
U.S. Treasury Notes, 5.5s, 2008 3,426 3,379,955
U.S. Treasury Notes, 6.25s, 2002 4,000 4,085,000
U.S. Treasury Notes, 6.625s, 2002 3,210 3,315,320
U.S. Treasury Notes, 8.5s, 2000 30 31,458
------------
$134,046,508
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $232,432,006
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $919,127,464) $930,644,988
- --------------------------------------------------------------------------------------------------------
Convertible Bond - 0.1%
- --------------------------------------------------------------------------------------------------------
U.S. Bonds - 0.1%
Pollution Control - 0.1%
USA Waste Services, Inc., 7.125s, 2007
(Identified Cost, $996,690) $ 1,000 $ 1,030,800
- --------------------------------------------------------------------------------------------------------
Stocks - 0.1%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - 0.1%
Entertainment - 0.1%
Primedia Incorporated (Identified Cost, $1,311,750)## 13,250 $ 1,308,437
- --------------------------------------------------------------------------------------------------------
Preferred Stock - 1.1%
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - 1.1%
Printing and Publishing - 0.5%
NB Capital Corporation, 8.35s## 4,000 $ 4,276,000
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 0.4%
Long Island Lighting Co., 7.95s 150,000 $ 4,012,500
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
El Paso Tennessee Pipeline Co., 8.25s 30,000 $ 1,698,750
- --------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $9,164,500) $ 9,987,250
- --------------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.1%
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/98, due 5/01/98, total to be
received $808,124 (secured by various U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $ 808 $ 808,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $931,408,404) $943,779,475
Other Assets, Less Liabilities - 0.4% 3,624,027
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $947,403,502
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------
APRIL 30, 1998
- --------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $931,408,404) $ 943,779,475
Cash 13,116
Net receivable for forward foreign currency exchange
contracts to purchase 30,069
Receivable for Fund shares sold 5,914,614
Receivable for investments sold 33,955,777
Receivable for daily variation margin on open futures
contracts 440,029
Interest and dividends receivable 18,431,974
Other assets 23,703
--------------
Total assets $1,002,588,757
--------------
Liabilities:
Payable for Fund shares reacquired $ 1,562,703
Payable for investments purchased 53,018,600
Net payable for forward foreign currency exchange
contracts to sell 11,362
Net payable for forward currency exchange contracts
closed or subject to master netting agreements 22,972
Payable to affiliates -
Management fee 10,004
Shareholder servicing agent fee 2,889
Distribution and service fee 227,000
Administration Fee 385
Accrued expenses and other liabilities 329,340
--------------
Total liabilities $ 55,185,255
--------------
Net assets $ 947,403,502
==============
Net assets consist of:
Paid-in capital $ 932,905,451
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 12,064,930
Accumulated undistributed net realized gain on
investments and foreign currency transactions 2,499,272
Accumulated distributions in excess of net investment
income (66,151)
--------------
Total $ 947,403,502
==============
Shares of beneficial interest outstanding 69,892,527
==========
Class A shares:
Net asset value per share
(net assets of $708,021,161 / 52,190,930 shares of
beneficial interest outstanding) $13.57
======
Offering price per share (100 / 95.25 of net asset
value per share) $14.25
======
Class B shares:
Net asset value and offering price per share
(net assets of $187,904,912 / 13,896,141 shares of
beneficial interest outstanding) $13.52
======
Class C shares:
Net asset value and offering price per share
(net assets of $42,228,683 / 3,124,254 shares of
beneficial interest outstanding) $13.52
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $9,248,746 / 681,202 shares
of beneficial interest outstanding) $13.58
======
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
- --------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $60,780,924
Dividends 614,851
-----------
Total investment income $61,395,775
-----------
Expenses -
Management fee $ 3,126,075
Trustees' compensation 53,318
Shareholder servicing agent fee 1,001,277
Distribution and service fee (Class A) 1,854,727
Distribution and service fee (Class B) 1,518,350
Distribution and service fee (Class C) 276,511
Administration fee 114,043
Custodian fee 272,102
Postage 131,522
Printing 96,985
Auditing fees 77,824
Legal fees 7,258
Miscellaneous 642,353
-----------
Total expenses $ 9,172,345
Fees paid indirectly (99,433)
-----------
Net expenses $ 9,072,912
-----------
Net investment income $52,322,863
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $16,188,928
Written options transactions (3,707)
Foreign currency transactions 2,437,223
Futures contracts (922,044)
-----------
Net realized gain on investments and foreign currency
transactions $17,700,400
-----------
Change in unrealized appreciation (depreciation) -
Investments $13,617,054
Translation of assets and liabilities in foreign currencies (1,344,163)
Future contracts (301,877)
-----------
Net unrealized gain on investments and foreign currency
translation $11,971,014
-----------
Net realized and unrealized gain on investments and
foreign currency $29,671,414
-----------
Increase in net assets from operations $81,994,277
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
APRIL 30, 1998 APRIL 30, 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 52,322,863 $ 46,847,067
Net realized gain (loss) on investments and foreign
currency transactions 17,700,400 (1,867,678)
Net unrealized gain on invesments and foreign currency
translation 11,971,014 11,478,331
------------ ------------
Increase in net assets from operations $ 81,994,277 $ 56,457,720
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $(41,223,494) $(37,940,150)
From net investment income (Class B) (8,868,950) (7,378,321)
From net investment income (Class C) (1,588,648) (1,163,047)
From net investment income (Class I) (641,771) (232,891)
In excess of net investment income (Class A) (258,282) --
In excess of net investment income (Class B) (55,568) --
In excess of net investment income (Class C) (9,954) --
In excess of net investment income (Class I) (4,021) --
------------ ------------
Total distributions declared to shareholders $(52,650,688) $(46,714,409)
------------ ------------
Net increase in net assets from fund share transactions $223,753,431 $ 49,427,373
------------ ------------
Total increase in net assets $253,097,020 $ 59,170,684
Net assets:
At beginning of period 694,306,482 635,135,798
------------ ------------
At end of period (including accumulated distributions in
excess of net investment income of $66,151 and $549,861,
respectively) $947,403,502 $694,306,482
============ ============
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $13.04 $12.85 $12.71 $12.75 $14.39
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.89 $ 0.94 $ 0.95 $ 0.98 $ 1.02
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.55 0.18 0.15 (0.05) (0.63)
------ ------ ------ ------ ------
Total from investment operations $ 1.44 $ 1.12 $ 1.10 $ 0.93 $ 0.39
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.91) $(0.93) $(0.94) $(0.89) $(1.06)
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.80)
In excess of net investment income++ 0.00 -- -- -- (0.02)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.01)
From paid in capital -- -- (0.02) (0.08) (0.14)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.91) $(0.93) $(0.96) $(0.97) $(2.03)
------ ------ ------ ------ ------
Net asset value - end of period $13.57 $13.04 $12.85 $12.71 $12.75
====== ====== ====== ====== ======
Total return+ 11.36% 8.99% 8.67% 7.78% 2.12%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.98% 1.02% 1.00% 1.00% 0.96%
Net investment income 6.61% 7.12% 7.10% 7.91% 7.17%
Portfolio turnover 333% 446% 377% 306% 410%
Net assets at end of period (000 omitted) $708,021 $541,710 $514,892 $477,056 $459,311
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
+ 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.
++ For the year ended April 30, 1998, the per share distribution in excess of net investment income was less than $0.01.
(S) The investment adviser and/or the distributor voluntarily waived a portion of their management fee and/or distribution fee,
respectively, for certain of the periods indicated. If the fee had been incurred by the Fund, the net investment income per
share and the ratios would have been:
Net investment income $ -- $ -- $ -- $ 0.97 $ 1.01
Ratios (to average net assets)
Expenses## -- -- -- 1.10% 1.02%
Net investment income -- -- -- 7.81% 7.10%
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $13.70 $13.25 $12.69 $12.80 $13.20
------ ------ ------ ------ ------
Income from investment operations -
Net investment income $ 1.04 $ 1.13 $ 1.14 $ 1.20 $ 1.15
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.74 0.45 0.59 (0.14) (0.38)
------ ------ ------ ------ ------
Total from investment operations $ 1.78 $ 1.58 $ 1.73 $ 1.06 $ 0.77
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(1.04) $(1.13) $(1.17) $(1.17) $(1.17)
From net realized gain on investments and
foreign currency transactions (0.05) -- -- -- --
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.09) $(1.13) $(1.17) $(1.17) $(1.17)
------ ------ ------ ------ ------
Net asset value - end of period $14.39 $13.70 $13.25 $12.69 $12.80
====== ====== ====== ====== ======
Total return+ 13.42% 12.39% 13.65% 7.69% 5.49%
Ratios (to average net assets)/Supplemental data:
Expenses 0.88% 0.91% 0.79% 0.75% 0.83%
Net investment income 7.82% 8.39% 8.82% 9.10% 8.93%
Portfolio turnover 330% 243% 189% 186% 160%
Net assets at end of period (000 omitted) $490,417 $448,261 $315,722 $293,242 $299,485
+ 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>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1998 1997 1996 1995 1994***
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $12.99 $12.79 $12.69 $12.73 $14.99
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.79 $ 0.83 $ 0.85 $ 0.88 $ 0.56
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.54 0.19 0.13 (0.05) (1.30)
------ ------ ------ ------ ------
Total from investment operations $ 1.33 $ 1.02 $ 0.98 $ 0.83 $(0.74)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.80) $(0.82) $(0.85) $(0.80) $(0.59)
From net realized gain on investments and
foreign currency transactions -- -- -- -- (0.80)
In excess of net investment income++ 0.00 -- (0.01) -- (0.02)
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- -- (0.01)
From paid in capital -- -- (0.02) (0.07) (0.10)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.80) $(0.82) $(0.88) $(0.87) $(1.52)
------ ------ ------ ------ ------
Net asset value - end of period $13.52 $12.99 $12.79 $12.69 $12.73
====== ====== ====== ====== ======
Total return 10.52% 8.16% 7.90% 6.90% (5.42)%**
Ratios (to average net assets)/Supplemental data:
Expenses## 1.68% 1.76% 1.81% 1.84% 1.83%*
Net investment income 5.90% 6.39% 6.29% 7.17% 6.39%*
Portfolio turnover 333% 446% 377% 306% 410%
Net assets at end of period (000 omitted) $187,905 $123,000 $102,914 $75,451 $33,413
* Annualized.
** Not annualized.
*** For the period from the inception of Class B, September 7, 1993, through April 30, 1994.
++ For the year ended April 30, 1998, the per share distribution in excess of net income was less than $0.01.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995 the Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1998 1997 1996 1995 1994***
- -----------------------------------------------------------------------------------------------------------------------------
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $12.98 $12.79 $12.68 $12.72 $13.57
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.78 $ 0.83 $ 0.85 $ 0.88 $ 0.29
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.56 0.20 0.15 (0.05) (0.90)
------ ------ ------ ------ ------
Total from investment operations $ 1.34 $ 1.03 $ 1.00 $ 0.83 $(0.61)
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.80) $(0.84) $(0.85) $(0.80) $(0.22)
In excess of net investment income++ 0.00 -- (0.02) -- --
From paid in capital -- -- (0.02) (0.07) (0.02)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.80) $(0.84) $(0.89) $(0.87) $(0.24)
------ ------ ------ ------ ------
Net asset value - end of period $13.52 $12.98 $12.79 $12.68 $12.72
====== ====== ====== ====== ======
Total return 10.54% 8.27% 7.90% 7.00% 4.57%**
Ratios (to average net assets)/Supplemental data:
Expenses## 1.68% 1.74% 1.74% 1.75% 1.80%*
Net investment income 5.89% 6.44% 6.35% 7.17% 6.57%*
Portfolio turnover 333% 446% 377% 306% 410%
Net assets at end of period (000 omitted) $42,229 $20,003 $17,330 $8,171 $7,627
* Annualized.
** Not annualized.
*** For the period from the inception of Class C, January 3, 1994, through April 30, 1994.
++ For the year ended April 30, 1998, the per share distribution in excess of net investment income was less than $0.01.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995 the Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1998 1997***
- ------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $13.05 $13.15
------ ------
Income from investment operations# -
Net investment income $ 0.94 $ 0.31
Net realized and unrealized gain (loss) on investments and foreign
currency transactions 0.55 (0.09)
------ ------
Total from investment operations $ 1.49 $ 0.22
------ ------
Less distributions declared to shareholders -
From net investment income $(0.96) $(0.32)
In excess of net investment income++ 0.00 --
------ ------
Total distributions declared to shareholders $(0.96) $(0.32)
------ ------
Net asset value - end of period $13.58 $13.05
====== ======
Total return 11.72% 1.70%**
Ratios (to average net assets)/Supplemental data:
Expenses## 0.68% 0.69%*
Net investment income 6.95% 7.19%*
Portfolio turnover 333% 446%
Net assets at end of period (000 omitted) $9,249 $9,593
* Annualized.
** Not annualized.
*** For the period from the inception of Class I, January 2, 1997, through April 30, 1997.
++ For the year ended April 30, 1998, the per share distribution in excess of net investment
income was less than $0.01.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Bond Fund (the Fund) is a diversified series of MFS Series Trust IX (the
Trust). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with 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. 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. Short-term obligations, which mature in 60
days or less, are valued at amortized cost, which approximates market value.
Futures contracts, options, and options on futures contracts listed on
commodities exchanges are reported at market value using closing settlement
prices. Over-the-counter options on securities are valued by brokers.
Over-the-counter currency options are valued through the use of a pricing model
which takes into account foreign currency exchange spot and forward rates,
implied volatility, and short-term repurchase rates. 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. Securities for which there are no such
quotations or valuations are valued at fair value as determined in good faith by
or at the direction of the Trustees.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The Fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Fund to obtain those securities
in the event of a default under the repurchase agreement. The Fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the Fund under each such
repurchase agreement. The Fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
Foreign Currency Translation - 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.
Written Options - The Fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Fund realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
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. The Fund's investment in futures contracts is
designed to hedge against anticipated future changes in interest or exchange
rates or securities prices. Investments in interest rate futures for purposes
other than hedging may be made to modify the duration of the portfolio without
incurring the additional transaction costs involved in buying and selling the
underlying securities. Investments in currency futures for purposes other than
hedging may be made to change the Fund's relative position in one or more
currencies without buying and selling portfolio assets. Investments in equity
index contracts or contracts on related options for purposes other than hedging,
may be made when the Fund has cash on hand and wishes to participate in
anticipated market appreciation while the cash is being invested. Should
interest or exchange rates or securities prices move unexpectedly, the Fund may
not achieve the anticipated benefits of the futures contracts and may realize a
loss.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar. The Fund will enter into
forward contracts for hedging purposes only. 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. 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.
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 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. 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, 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 calculated as a percentage of
the Fund's month-end net assets. The 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 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 taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Fund files a tax return annually using tax accounting methods required under
provisions of the Code, which may differ from generally accepted accounting
principles, the basis on which these financial statements are prepared.
Accordingly, the amount of net investment income and net realized gain reported
on these financial statements may differ from that reported on the Fund's tax
return and, consequently, the character of distributions to shareholders
reported in the financial highlights may differ from that reported to
shareholders on Form 1099-DIV.
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 requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of 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. During
the year ended April 30, 1998, $811,535 was reclassified from accumulated net
realized gain on investments to accumulated distributions in excess of net
investment income due to differences between book and tax accounting for
mortgage-backed securities and currency transactions. This change had no effect
on the net assets or net asset value per share.
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 average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; 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 the following annual
rates:
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
- -------------------------------------- --------------------------------------
First $200 million 0.225% First $20 million 2.75%
In excess of $200 million 0.191% In excess of $20 million 2.34%
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 pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
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 and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $15,508 for the year ended
April 30, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$218,968 for the year ended April 30, 1998, 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 (reduced to a maximum of 0.15% per annum for shares sold prior to March 1,
1991) of the Fund's average daily net assets 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. The Fund is
currently paying distribution fees in the amount of 0.05%. Payment of the
remaining portion of the 0.10% per annum distribution fee will commence on such
date as Trustees of the Trust may determine. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $308,873 for
the year ended April 30, 1998. Fees incurred under the distribution plan during
the year ended April 30, 1998, were 0.30% 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 $33,528 and $18,313 for Class B and Class C shares, respectively,
for the year ended April 30, 1998. Fees incurred under the distribution plan
during the year ended April 30, 1998, were 1.00% of average daily net assets
attributable to both Class B and Class C shares on an annualized basis.
Certain Class A shares 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 year ended April 30, 1998,
were $36,715, $293,972, and $6,331 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 effective annual rate of
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(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 $1,587,674,710 $1,454,438,605
-------------- --------------
Investments (non-U.S. government
securities) $1,117,922,033 $1,023,142,107
-------------- --------------
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Fund, as computed on a federal income tax basis, are as follows:
Aggregate cost $932,575,352
------------
Gross unrealized appreciation $ 16,708,438
Gross unrealized depreciation (5,504,315)
------------
Net unrealized appreciation $ 11,204,123
============
(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 (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED APRIL 30, 1998 YEAR ENDED APRIL 30, 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 21,939,268 $ 295,718,288 19,892,064 $ 259,257,771
Shares issued to shareholders
in reinvestment of
distributions 2,218,719 29,751,932 2,100,680 27,188,616
Shares transferred to Class I -- -- (736,830) (9,689,294)
Shares reacquired (13,503,595) (181,837,839) (19,787,017) (257,602,400)
----------- ------------- ----------- -------------
Net increase 10,654,392 $ 143,632,381 1,468,897 $ 19,154,693
=========== ============= =========== =============
<CAPTION>
Class B Shares
YEAR ENDED APRIL 30, 1998 YEAR ENDED APRIL 30, 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,328,954 $ 125,486,349 7,303,701 $ 94,245,630
Shares issued to shareholders
in reinvestment of
distributions 427,362 5,717,255 346,001 4,490,950
Shares reacquired (5,328,287) (71,689,045) (6,225,167) (80,626,350)
----------- ------------- ----------- -------------
Net increase 4,428,029 $ 59,514,559 1,424,535 $ 18,110,230
=========== ============= =========== =============
<CAPTION>
Class C Shares
YEAR ENDED APRIL 30, 1998 YEAR ENDED APRIL 30, 1997
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,953,399 $ 26,310,775 783,293 $ 10,174,727
Shares issued to shareholders
in reinvestment of
distributions 68,136 912,424 49,134 633,359
Shares reacquired (438,903) (5,896,038) (645,483) (8,302,572)
----------- ------------- ----------- -------------
Net increase 1,582,632 $ 21,327,161 186,944 $ 2,505,514
=========== ============= =========== =============
<CAPTION>
Class I Shares
YEAR ENDED APRIL 30, 1998 YEAR ENDED APRIL 30, 1997*
------------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 48,181 $ 651,134 38,538 $ 501,079
Shares issued to shareholders
in reinvestment of
distributions 48,360 648,152 17,820 232,925
Shares transferred from Class A -- -- 736,830 9,689,294
Shares reacquired (150,414) (2,019,956) (58,113) (766,362)
----------- ------------- ----------- -------------
Net increase (decrease) (53,873) $ (720,670) 735,075 $ 9,656,936
=========== ============= =========== =============
*For the period from the inception of Class I, January 2, 1997, through April 30, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
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
year ended April 30, 1998, was $4,666.
(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 written options, forward foreign currency exchange
contracts, and futures 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.
Written Option Transactions
<TABLE>
<CAPTION>
1998 CALLS 1998 PUTS
------------------------------------- -------------------------------------
PRINCIPAL AMOUNTS PRINCIPAL AMOUNTS
OF CONTRACTS OF CONTRACTS
(000 OMITTED) PREMIUMS (000 OMITTED) PREMIUMS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD - -- $ -- -- $ --
Options written
Australian Dollars 1,555 6,560 -- --
Japanese Yen -- -- 279,000 16,135
Options terminated in closing transactions
Australian Dollars (1,555) (6,560) -- --
Japanese Yen -- -- (279,000) (16,135)
Options exercised -- -- -- --
Options expired -- -- -- --
------ -------- -------- --------
Outstanding, end of period -- $ -- -- $ --
====== ======== ======== ========
</TABLE>
At April 30, 1998, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
5/15/98 CAD 2,228,130 $ 1,552,704 $ 1,558,829 $ (6,125)
5/15/98 GBP 928,223 1,525,070 1,550,598 (25,528)
5/18/98 ESP 208,702,115 1,390,420 1,370,129 20,291
----------- ----------- --------
$ 4,468,194 $ 4,479,556 $(11,362)
=========== =========== ========
Purchases
5/15/98 CAD 2,228,130 $ 1,553,786 $ 1,558,829 $ 5,043
5/15/98 GBP 937,979 1,541,869 1,566,895 25,026
----------- ----------- --------
$ 3,095,655 $ 3,125,724 $ 30,069
=========== =========== ========
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $46,034 with Deutsche Bank, $123,493
with Bankers Trust, $14,352 with Swiss Bank Corporation International, and a net
receivable of $1,408 with First Boston and $159,499
with Merrill Lynch at April 30, 1998.
At April 30, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
- --------------------------------------------------------------------------------
U.S. Treasury Bonds June 1998 680 Long $(370,031)
U.S. Treasury Bonds June 1998 185 Long 68,154
---------
$(301,877)
=========
At April 30, 1998, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
(8) Restricted Securities
The Fund may invest not more than 10% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At April 30, 1998, the
Fund owned the following restricted securities (constituting 1.07% 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, are valued at fair
value as determined in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage Investors, Inc.,
8.16s, 2022 6/22/1994 2,000,000 $1,386,250 $ 1,909,063
Airplane Pass-Through Trust,
10.875s, 2019 3/13/96 1,500,000 1,500,000 1,689,870
United Airlines Pass-Through Trust,
7.27s, 2013 1/30/96 6,384,712 6,380,692 6,585,065
-----------
$10,183,998
-----------
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Series Trust IX and the Shareholders of MFS Bond
Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Bond Fund (a series of MFS Series Trust IX)
as of April 30, 1998, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended April 30, 1998
and 1997, and the financial highlights for each of the years in the ten-year
period ended April 30, 1998. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
April 30, 1998 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Bond Fund at
April 30, 1998, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 5, 1998
<PAGE>
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MFS(R) Bond Fund
<S> <C>
Trustees Custodian
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until 1991),
MFS Investment Management Auditors
Deloitte & Touche LLP
Peter G. Harwood - Private Investor
Investor Information
J. Atwood Ives - Chairman and Chief Executive For MFS stock and bond market outlooks,
Officer, Eastern Enterprises call toll free: 1-800-637-4458 anytime from
a touch-tone telephone.
Lawrence T. Perera - Partner, Hemenway
& Barnes For information on MFS mutual funds, call
your financial adviser or, for an information
William J. Poorvu - Adjunct Professor, kit, call toll free: 1-800-637-2929 any
Harvard University Graduate School of business day from 9 a.m. to 5 p.m. Eastern
Business Administration time (or leave a message anytime).
Charles W. Schmidt - Private Investor Investor Service
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive P.O. Box 2281
Vice President, Director, and Secretary, Boston, MA 02107-9906
MFS Investment Management
For general information, call toll free:
Jeffrey L. Shames* - Chairman, Chief 1-800-225-2606 any business day from
Executive Officer, and Director, 8 a.m. to 8 p.m. Eastern time.
MFS Investment Management
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To
David B. Stone - Chairman, North American use this service, your phone must be equipped
Management Corp. (investment advisers) with a Telecommunications Device for the
Deaf.)
Investment Adviser
Massachusetts Financial Services Company For share prices, account balances, and
500 Boylston Street exchanges, call toll free: 1-800-MFS-TALK
Boston, MA 02116-3741 (1-800-637-8255) anytime from a touch-tone
telephone.
Distributor
MFS Fund Distributors, Inc. World Wide Web
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
Portfolio Manager For the fourth year in a row,
Geoffrey L. Kurinsky* MFS earned a #1 ranking in the
[Dalbar Logo] DALBAR, Inc. Broker/Dealer
Treasurer Survey, Main Office Operations
W. Thomas London* Service Quality Category. The
firm achieved a 3.42 overall score on a scale of 1
Assistant Treasurers to 4 in the 1997 survey. A total of 111 firms
Mark E. Bradley* responded, offering input on the quality of service
Ellen Moynihan* they received from 29 mutual fund companies
James O. Yost* nationwide. The survey contained questions about
service quality in 11 categories, including
Secretary "knowledge of operations contact," "keeping you
Stephen E. Cavan* informed," and "ease of doing business" with the
firm.
Assistant Secretary
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
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<PAGE>
-----------------
MFS(R) Bond Fund Bulk Rate
U.S. Postage
Paid
[Logo] MFS
INVESTMENT MANAGEMENT -----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[DALBAR LOGO]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MFB-2 6/98 97M 11/211/311/811
