<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R) BOND FUND
SEMIANNUAL REPORT o OCTOBER 31, 1998
DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 36)
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 19
Notes to Financial Statements ............................................. 26
Independent Auditors' Report .............................................. 34
Trustees and Officers ..................................................... 37
MFS CELEBRATES ITS DIAMOND ANNIVERSARY!
MARCH 21, 1999, MARKS THE 75TH ANNIVERSARY OF MFS' INVENTION OF
THE MUTUAL FUND. THE MUTUAL FUND INDUSTRY HAS BROUGHT THE POWER
OF INVESTING TO EVERY AMERICAN, OFFERING THEM THE OPPORTUNITY FOR
COLLEGE DEGREES, HOME OWNERSHIP, AND COMFORTABLE RETIREMENT.
IMAGINE TODAY'S WORLD WITHOUT MUTUAL
FUNDS. WE COULDN'T. AND WHILE THE MFS 75 YEARS
YEARS AHEAD WILL BRING A NUMBER OF [graphic omitted]
CHALLENGES, OUR 75 YEARS OF EXPERIENCE EXPERIENCE THE FUTURE(SM)
WILL HELP GUIDE A NEW GENERATION OF
INVESTORS INTO THE FUTURE.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- ------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual
fund -- our Massachusetts Investors Trust (MIT) -- was introduced to the
public on March 21, 1924. Since then, MFS Investment Management(R), the
company that grew out of that original fund, has helped guide shareholders
through many economic and investment cycles, primarily by focusing on the
long-term opportunities created by an expanding global economy. As of October
31, 1998, MFS manages nearly $87 billion, and the firm's 2,000 people serve
3.8 million investors and their financial advisers worldwide. Meanwhile, MIT's
assets have grown to over $10 billion, and 56 mutual funds are offered in the
MFS Family of Funds(R).
One of the elements to the success of MIT did not exist before our founders
invented it in 1924. That is liquidity. This innovation means that if you want
to sell your investment in any MFS mutual fund, you have the security of
knowing that you may do so immediately and the money may be exchanged into
another MFS fund or that you may add other MFS funds to your portfolio as your
investment needs change. If you need your money for other purposes, it can
quickly be wired or mailed to you. This daily redemption feature, through
which new shares were created when people invested in MIT and were redeemed
when people sold, brought another important change to the industry. Now, the
price of a mutual fund's shares wasn't determined by supply and demand, but by
the value of the securities owned by each portfolio.
Another factor in our growth was the development of one of the industry's
first in-house research departments in 1932. Unlike many other companies that
rely on Wall Street research reports, which can be used by many investors at
the same time, MIT's managers built its long-term track record by visiting
companies, talking to managers and competitors, and "kicking the tires" so
they could judge the quality and potential of each company's products and
services for themselves. Today, MFS has more than 100 full-time portfolio
managers, stock analysts, and credit analysts who track the equity and bond
markets. That number includes nearly 40 equity analysts who specialize in
industries such as aviation, media, technology, automobiles, and utilities.
While MIT was the first mutual fund, it was not our only invention. We also
established the nation's first global bond fund, first high-yield municipal
bond fund, and first high-yield municipal closed-end bond fund.
We are proud of the record of MIT and of the funds in the MFS Family of Funds,
but we are also proud of our long-standing relationship with financial
advisers. Not only do we believe investors can benefit from the advice of
these experts but, as was shown during the market volatility of 1998, people
who work with financial advisers are less likely to abandon their carefully
designed, long-term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. Today, the MFS Service Center handles millions of
transactions and phone calls every year. Supporting the work of financial
advisers, promptly sending out statements and confirmations, and answering
hundreds of investors' questions every day are crucial elements in maintaining
long-term relationships with our fund shareholders. That link to our
investors has also been enhanced by our site on the World Wide Web:
WWW.MFS.COM. Since 1996, this site has given investors and the general public
access to up-to-date information about MFS products and services, as well as
market outlooks and retirement information. The site has rapidly become one of
our primary vehicles for communicating with our investors and educating the
public about mutual funds in general and MFS in particular.
If there is a common thread running through these milestones, it is our
always-increasing commitment to providing you with the best possible
investment management and shareholder service, just as we have done for the
past 75 years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your
investment needs in the next century. We appreciate your confidence and
welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
November 16, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Geoffrey L. Kurinsky]
Geoffrey L. Kurinsky
For the six months ended October 31, 1998, Class A shares of the Fund provided
a total return of 0.74%, Class B shares 0.44%, Class C shares 0.45%, and Class
I shares 0.91%. These returns include the reinvestment of distributions but
exclude the effects of any sales charges and compare to a 6.40% 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. It is not possible to invest directly in
an index.
Q. COULD YOU TALK ABOUT SOME OF THE THINGS THAT HAVE AFFECTED PERFORMANCE
OVER THE PAST FEW MONTHS?
A. The Fund hasn't performed as well as it might have because we had an
overweighting in the investment-grade corporate market as well as a pretty
significant high-yield exposure. Yield spreads to comparable-maturity U.S.
Treasuries widened significantly in these markets. (Principal value and
interest on Treasury securities are guaranteed by the U.S. government if
held to maturity.) We did, however, take some steps to protect the
portfolio from this trend. For example, we raised our Treasury and mortgage
allocations from about 20% to about 40% during the June-to-September
period. Now we are at the point where we are selectively redeploying funds
back into the high-grade corporate and high-yield markets because we think
it's a good opportunity to add exposure to companies that have strong
credit fundamentals.
Q. WHAT'S YOUR VIEW OF THE FIXED-INCOME MARKETS IN GENERAL?
A. I think the market has been beaten up to the point where some good values
have been created. Yield spreads in the high-yield and high-grade markets
are as high as they've been since the last recession, in 1990-91. And we
don't see a recession-type scenario taking place, so in terms of their
fundamental valuations, the markets have become much more attractive.
Q. WHAT ABOUT OVERSEAS MARKETS?
A. We still have no exposure to nondollar bonds. Our view is that the United
States, with yields higher than most of Europe, is still the most
attractive place to be.
Q. WHAT KIND OF INDUSTRIES ARE YOU CONCENTRATING ON NOW?
A. We continue to focus on the media and entertainment sector, which has been
benefiting from consolidations in the past few years. Companies are using
increased revenue streams to retire the debt they took on during the asset-
accumulation phase. As a result, their credit quality continues to improve.
Credits that have risen from the top of the below-investment-grade range to
the lowest rung of investment-grade status should continue their ascent.
Big names in the portfolio include Telecommunications, Inc., Time Warner,
News America Holdings, Continental Cablevision, and Qwest Communications, a
recent addition.
Q. ANY OTHER INDUSTRIES WORTH MENTIONING?
A. We continue to have about 15% of assets in the utility sector, to which
we've added Calenergy. The company recently acquired MidAmerica Energy
Holdings, and we think the combined entity has an investment-grade profile.
This puts it into the category of crossover bonds that don't have
investment-grade ratings yet but that we expect to be upgraded in the next
12 to 18 months. Buying crossover bonds is a core strategy of the Fund. In
this area, we've also added significant positions in Owens Illinois and
Federal Mogul to holdover crossovers Tenant Healthcare and Columbia
Healthcare. Columbia is still involved in litigation with the federal
government based on a host of issues. It's an investment-grade credit, but
because of this litigation it's priced at high-yield levels, and we think
that, on a risk-return basis, it makes a lot of sense. As Columbia settles
its litigation in the next two to three years, we believe the market will
re-evaluate it as being truly investment grade.
Q. WHAT ABOUT INDUSTRIES YOU MIGHT BE AVOIDING?
A. We continue to stay away from bank and finance companies, given our view
that it's too early to tell how the economic slowdown will affect these
issuers' credit quality.
Q. WHAT IS THE FUND'S DURATION, THAT IS, ITS SENSITIVITY TO CHANGES IN
INTEREST RATES?
A. The duration of the portfolio continues to be longer than its normal 5.8 to
5.9 years. The Fund is about 10% longer than that, at 6.6 years. This
reflects our general view that further Federal Reserve Board easing of
monetary policy should cause long-term rates to move a little lower.
Q. SINCE INFLATION IS AN IMPORTANT ELEMENT IN THE BOND MARKET ENVIRONMENT,
WHAT'S YOUR VIEW THERE?
A. We really don't see any inflation pressures anywhere. We're continuing to
find manufacturing overcapacity globally and retailers have little pricing
power. Producer prices, that is, prices for goods at the early stages of
production such as crude and intermediate goods, are still declining. The
only place we've seen any pressure is in the employment cost index, which
suggests that wages are growing at 3 1/2% to 4%. But other forces, such as
lower commodity prices and companies' cost cutting have been able to
squeeze out most of that inflationary pressure. Also, with the Asian
situation starting to improve, we're seeing Asian countries actually export
goods to the United States, and with the devaluation of their currencies
we're seeing import-price deflation from these countries. For example,
South Korean car companies haven't been able to sell cars in South Korea or
Japan. This has put pressure on prices of lower-priced cars in the U.S.
market because lower prices for imports require U.S. manufacturers to keep
their prices low to stay competitive.
Q. WHAT KIND OF ENVIRONMENT DO YOU SEE GOING FORWARD?
A. It looks like the fixed-income markets are going to continue to be volatile
for a few months. The corporate market is going to have tremendous supply.
With interest rates as low as they have been since the 1960s, companies can
issue bonds at 6%, which they have not been able to do for a long time.
Also, the markets are trying to figure out whether the economy is going to
weaken and, if it does, how bad it will be. We don't know the answer yet
because the effects of the Asian slowdown haven't worked their way through
the whole economy. In the first quarter of next year we'll know more, but
as long as people are comfortable with the idea that we're not going into a
recession and that any slowdown is not as bad as they feared, then the
spread markets (that is, the markets with higher yield spreads over
Treasuries) will start to improve. So we think it's a time to be very
selective and to focus on sectors. If the economy does slow down, cyclical
industries such as paper, chemicals, and oils are going to be hurt. The
Fund is actually somewhat more defensively positioned now, with our media
and entertainment and utility holdings, which aren't overly affected by
economic cycles, dominating our sector holdings.
Q. FINALLY, AS YOU KNOW, 1999 MARKS THE 75th ANNIVERSARY OF MASSACHUSETTS
INVESTORS TRUST (MIT), THE FIRST MFS FUND AND, IN FACT, THE NATION'S FIRST
MUTUAL FUND. HOW DO YOU SEE THIS FUND FITTING INTO THE MIT/MFS TRADITION?
A. I think the thing to remember is that a whole lot of companies are offering
bond funds, but not a lot of them have been through many economic cycles.
This Fund goes back to 1974 and, since then, we've been though a lot of up
and down cycles, seeing the same types of things our equity funds have on
the stock side. That is, we've seen difficult markets before, and we
believe we have a good record of managing through them over the long term.
/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.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
GEOFFREY L. KURINSKY IS A SENIOR VICE PRESIDENT AND A MEMBER OF THE
FIXED INCOME MANAGEMENT GROUP OF MFS INVESTMENT MANAGEMENT(R). HE IS
PORTFOLIO MANAGER OF MFS(R) BOND FUND, MFS(R) INSTITUTIONAL CORE FIXED
INCOME FUND, MFS(R) BOND SERIES, PART OF MFS(R) VARIABLE INSURANCE TRUST
(SM), AND ALSO MANAGES THE U.S. HIGH-GRADE FIXED-INCOME PORTIONS OF
MFS(R) TOTAL RETURN FUND AND MFS(R) GLOBAL ASSET ALLOCATION FUND.
HE JOINED THE MFS FIXED INCOME DEPARTMENT IN 1987 AND WAS NAMED VICE
PRESIDENT IN 1989 AND SENIOR VICE PRESIDENT IN 1993.
MR. KURINSKY IS A GRADUATE OF THE UNIVERSITY OF MASSACHUSETTS AND EARNED
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>
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FUND FACTS
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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: $1.1 BILLION NET ASSETS AS OF OCTOBER 31, 1998
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including reinvestment of dividends.
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH OCTOBER 31, 1998
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +0.74% +3.93% +21.61% +35.85% +136.74%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +3.93% + 6.74% + 6.32% + 9.00%
- -------------------------------------------------------------------------------------------------------
SEC Results -- -1.01% + 5.02% + 5.29% + 8.47%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +0.44% +3.15% +18.97% +30.88% +127.77%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +3.15% + 5.96% + 5.53% + 8.58%
- -------------------------------------------------------------------------------------------------------
SEC Results -- -0.75% + 5.08% + 5.24% + 8.58%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +0.45% +3.25% +19.10% +31.38% +128.82%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +3.25% + 6.00% + 5.61% + 8.63%
- -------------------------------------------------------------------------------------------------------
SEC Results -- +2.28% + 6.00% + 5.61% + 8.63%
- -------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years/Life
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return +0.91% +4.28% +22.44% +36.82% +138.26%
- -------------------------------------------------------------------------------------------------------
Average Annual Total Return -- +4.28% + 6.98% + 6.47% + 9.07%
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PERFORMANCE SUMMARY
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.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
<PAGE>
PORTFOLIO CONCENTRATION AS OF OCTOBER 31, 1998
PORTFOLIO STRUCTURE
High-Grade Corporates 47.6%
U.S. Treasuries 21.6%
Mortgage Backed 13.3%
High-Yield Corporates 12.6%
Yankee 1.8%
Emerging Markets 1.3%
Asset Backed 1.2%
Other 0.6%
Portfolio information is as of October 31, 1998. The portfolio is actively
managed, and current holdings may be different.
<PAGE>
PORTFOLIO OF INVESTMENTS - October 31, 1998
<TABLE>
<CAPTION>
Bonds -- 97.3%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 58.6%
Aerospace - 0.5%
B E Aerospace, Inc., 8s, 2008 $ 3,085 $ 2,884,475
Northrup Grumman Corp., 9.375s, 2024 2,200 2,538,624
--------------
$ 5,423,099
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Airlines - 4.1%
Airplane Pass-Through Trust, 10.875s, 2019+ $ 1,500 $ 1,594,485
Continental Airlines Pass-Through Trust, 6.41s, 2007 1,000 959,630
Continental Airlines Pass-Through Trust, 6.648s, 2017 2,300 2,219,086
Continental Airlines Pass-Through Trust, 7.461s, 2015 987 1,014,804
Continental Airlines, Inc., 9.5s, 2001- 2013 10,374 11,456,917
Continental Airlines, Inc., 10.22s, 2014 5,219 6,087,187
Jet Equipment Trust, 8.64s, 2012## 1,970 2,211,059
Jet Equipment Trust, 10.69s, 2015## 2,390 3,003,155
Jet Equipment Trust, 11.44s, 2014## 3,500 4,666,865
Northwest Airlines, Inc., 7.625s, 2005 4,300 4,061,049
Northwest Airlines, Inc., 8.7s, 2007 2,370 2,417,234
United Airlines Pass-Through Trust, 7.27s, 2013+ 6,385 6,368,112
--------------
$ 46,059,583
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Apparel and Textiles - 0.5%
Jones Apparel Group, Inc., 6.25s, 2001## $ 5,490 $ 5,541,332
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Automotive - 0.4%
Federal Mogul Corp., 7.5s, 2004 $ 3,345 $ 3,367,144
Federal Mogul Corp., 7.75s, 2006 1,155 1,110,047
--------------
$ 4,477,191
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Banks and Credit Companies - 3.8%
ADVANTA Corp., 6.9s, 1999 $ 9,475 $ 9,378,639
ADVANTA Corp., 6.925s, 2002 2,475 2,248,216
BCI US Funding Trust 1, 8.01s, 2049## 4,800 4,054,080
Capital One Financial Corp., 7.25s, 2003 2,675 2,808,991
Colonial Capital II, 8.92s, 2027 2,140 2,443,966
First Chicago NBD Institutional Capital, 7.95s, 2026## 1,300 1,373,853
MBNA Capital, 8.278s, 2026 6,450 6,638,340
Providian National Bank, 6.7s, 2003 3,650 3,659,526
Riggs Capital II, 8.875s, 2027 2,655 2,766,457
Riggs National Corp., 8.5s, 2006 1,250 1,304,325
State Street Bank & Trust I, 7.94s, 2026## 2,450 2,774,943
Washington Mutual Capital I, 8.375s, 2027 3,000 3,171,720
--------------
$ 42,623,056
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Building - 0.4%
Building Materials Corp., 8.625s, 2006 $ 1,000 $ 995,000
Nortek, Inc., 9.25s, 2007 2,110 2,099,450
Owens Corning Fiberglass Corp., 9.9s, 2015## 1,397 1,446,113
--------------
$ 4,540,563
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Chemicals - 0.9%
Solutia, Inc., 7.375s, 2027 $11,150 $ 10,525,489
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Consumer Goods and Services - 2.2%
Fingerhut Cos., Inc., 7.375s, 1999 $ 1,600 $ 1,625,152
Hilfiger (Tommy) USA Inc., 6.5s, 2003 3,465 3,450,101
Hilfiger (Tommy) USA Inc., 6.85s, 2008 2,565 2,520,523
Kindercare Learning Centers, Inc., 9.5s, 2009 3,825 3,652,875
Nabisco, Inc., 6.375s, 2035 2,270 2,292,972
Protection One Alarm Monit Inc., 7.375s, 2005## 6,485 6,478,839
Revlon Consumer Products Corp., 8.625s, 2008## 5,000 4,500,000
--------------
$ 24,520,462
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Corporate Asset Backed - 0.7%
BCF LLC, 7.75s, 2026## $ 2,415 $ 2,276,539
Criimi Mae Commercial Mortgage Trust, 7s, 2011## 2,700 2,565,844
Merrill Lynch Mortgage Investors, Inc., 8.16s, 2022+ 2,000 1,992,500
Merrill Lynch Mortgage Investors, Inc., 8.3s, 2011 114 113,900
Merrill Lynch Mortgage Investors, Inc., 9s, 2011 122 122,246
Merrill Lynch Mortgage Investors, Inc., 10s, 2011 342 341,433
--------------
$ 7,412,462
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Financial Institutions - 4.2%
Capital One Bank, 6.7s, 2008 $ 5,975 $ 5,731,877
Contifinancial Corp., 7.5s, 2002 1,320 843,612
Donaldson Lufkin & Jenrette, 6.5s, 2008 2,450 2,416,068
First Empire Capital Trust I, 8.234s, 2027 5,675 6,258,049
First Merchants Acceptance Corp., 9.5s, 2006** 1,200 480,000
GS Escrow Corp., 6.75s, 2001## 14,770 14,447,571
GS Escrow Corp., 7.125s, 2005## 7,945 7,533,846
Lehman Brothers, Inc., 7.5s, 2026 5,000 5,066,500
Leucadia Capital Trust, 8.65s, 2027 2,000 2,188,920
Natexis Ambs Co. LLC, 8.44s, 2049## 2,260 1,983,150
United Companies Financial Corp., 7.7s, 2004 1,300 912,522
--------------
$ 47,862,115
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Forest and Paper Products - 1.8%
Boise Cascade Co., 7.43s, 2005 $ 5,000 $ 4,905,100
Georgia Pacific Corp., 7.25s, 2028 5,030 4,845,047
Georgia Pacific Corp., 9.875s, 2021 7,850 8,942,641
U.S. Timberlands, 9.625s, 2007 2,000 1,877,500
--------------
$ 20,570,288
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Healthcare/Hospitals - 1.1%
Columbia/HCA Healthcare Corp., 6.5s, 1999 $ 1,650 $ 1,643,862
Columbia/HCA Healthcare Corp., 6.875s, 2001 1,200 1,172,304
Columbia/HCA Healthcare Corp., 7.69s, 2025 8,230 7,024,799
Tenet Healthcare Corp., 8.625s, 2003-2007 2,125 2,219,687
--------------
$ 12,060,652
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Industrial - 2.7%
Burlington Industries, Inc. New, 7.25s, 2027 $ 1,500 $ 1,511,205
Frontiervision Operating Partnership LP, 11s, 2006 2,110 2,331,550
Hasbro Inc., 5.6s, 2005 1,333 1,331,014
Lowes Cos., Inc., 6.875s, 2028 1,120 1,128,445
Owens Illinois, Inc., 7.35s, 2008 6,000 5,954,940
Owens Illinois, Inc., 7.5s, 2010 5,000 5,251,550
Owens Illinois, Inc., 7.8s, 2018 7,000 7,056,490
Tyco International Group SA, 6.125s, 2008## 5,335 5,284,691
--------------
$ 29,849,885
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Insurance - 2.9%
Atlantic Mutual Insurance Company, 8.15s, 2028## $ 7,280 $ 7,385,706
Conseco, Inc., 6.4s, 2001 3,985 4,018,155
Fairfax Financial Holdings Limited, 7.375s, 2018 3,100 2,952,874
Providian Capital I, 9.525s, 2027## 5,750 6,168,658
Safeco Capital Trust I, 8.072s, 2037 12,525 12,601,653
--------------
$ 33,127,046
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Media/Entertainment - 7.3%
Circus Circus Enterprises, Inc., 6.45s, 2006 $ 3,750 $ 3,321,863
Circus Circus Enterprises, Inc., 6.7s, 2096 3,000 2,769,180
Circus Circus Enterprises, Inc., 7s, 2036 4,774 4,268,051
Hearst Argyle Television, Inc., 7s, 2018 1,550 1,501,671
Hearst Argyle Television, Inc., 7.5s, 2027 13,908 13,806,332
News America Holdings, Inc., 8s, 2016 9,355 9,613,853
News America Holdings, Inc., 9.5s, 2024 2,520 2,972,063
News America Holdings, Inc., 10.125s, 2012 6,825 7,945,392
Outdoor Systems, Inc., 8.875s, 2007 1,500 1,537,500
Paramount Communications, Inc., 5.875s, 2000 3,690 3,736,125
Time Warner Entertainment Company LP, 8.375s, 2033 4,620 5,401,658
Time Warner Pass-Through Asset Trust, 6.1s, 2001## 1,200 1,221,216
Time Warner, Inc., 0s, to 2016, 8.3's, to 2036 7,891 2,534,826
Time Warner, Inc., 9.15s, 2023 4,340 5,438,193
Viacom, Inc., 6.75s, 2003 15,845 16,336,037
--------------
$ 82,403,960
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.4%
Bausch & Lomb, Inc., 6.5s, 2005 $ 2,505 $ 2,534,008
Bausch & Lomb, Inc., 7.125s, 2028 2,505 2,189,119
--------------
$ 4,723,127
- --------------------------------------------------------------------------------------------------------
Oil Services - 0.6%
KCS Energy, 8.875s, 2008 $ 1,125 $ 810,000
Mcdermott, Inc., 9.375s, 2002 2,670 2,878,207
Ultramar Diamond Shamrock Corp., 7.2s, 2017 2,550 2,480,436
--------------
$ 6,168,643
- --------------------------------------------------------------------------------------------------------
Oils - 2.2%
Husky Oil Ltd., 8.9s, 2028## $ 6,420 $ 6,323,700
Lasmo USA, Inc., 6.75s, 2007 3,580 3,426,132
Lasmo USA, Inc., 7.125s, 2003 1,874 1,934,905
Lasmo USA, Inc., 8.375s, 2023 1,000 1,011,480
Petroleum Geo Services ASA, 7.125s, 2028 5,875 5,314,584
Seagull Energy Corp., 7.5s, 2027 2,686 2,305,098
Sun Co., Inc., 9s, 2024 1,950 2,192,346
Transocean Offshore, Inc., 8s, 2027 1,985 2,036,709
Wiser Oil Company Delaware, 9.5s, 2007 1,125 793,125
--------------
$ 25,338,079
- --------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.3%
JDN Reality Corp., 6.95s, 2007 $ 3,300 $ 3,113,088
- --------------------------------------------------------------------------------------------------------
Retail - 0.2%
Dillards, Inc., 7.13s, 2018 $ 2,520 $ 2,484,468
- --------------------------------------------------------------------------------------------------------
Steel - 0.2%
Alaska Steel Holdings Corp., 9.125s, 2006 $ 2,500 $ 2,575,000
- --------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
Marsh Supermarkets, Inc., 8.875s, 2007 $ 1,410 $ 1,395,900
- --------------------------------------------------------------------------------------------------------
Telecommunications - 8.1%
Century Communications Corp., 0s, 2008 $ 5,000 $ 2,337,500
Chancellor Media Corp., 8.75s, 2007 1,500 1,485,000
Continental Cablevision, Inc., 11s, 2007 17,554 19,002,732
Global Crossing Holdings Ltd., 9.625s, 2008## 4,000 3,900,000
Granite Broadcasting Corp., 8.875s, 2008 4,000 3,440,000
MCI Worldcom, Inc., 7.55s, 2004 1,285 1,393,274
Nextel International Inc., 0s, to 2003, 12.125's, to 2008 2,000 740,000
Pagemart Wireless, Inc., 0s, to 2003, 11.25's, to 2008 1,000 515,000
Qwest Communications International, Inc., 7.5s, 2008## 4,000 4,050,000
TCI Communications Financing III, 9.65s, 2027 7,285 8,684,376
TCI Communications Inc., 7.125s, 2028 2,825 2,970,318
TCI Communications Inc., 8s, 2005 1,910 2,140,651
Tele Communications, Inc., 7.375s, 2000 10,335 10,589,964
Tele Communications, Inc., 7.875s, 2013 3,035 3,393,525
TKR Cable, Inc., 10.5s, 2007 10,000 10,984,800
Turner Broadcasting Systems, Inc., 8.375s, 2013 405 446,784
United International Holdings, Inc., 0s, to 2003, 10.75's, to 2008## 4,000 1,800,000
WorldCom, Inc., 8.875s, 2006 12,000 13,150,560
--------------
$ 91,024,484
- --------------------------------------------------------------------------------------------------------
Transportation - 0.3%
Federal Express Corp., 7.65s, 2014 $ 2,956 $ 3,078,112
- --------------------------------------------------------------------------------------------------------
Utilities -- Electric - 11.1%
AEP Generating, 9.82s, 2022 $ 348 $ 453,431
BVPS II Funding Corp., 8.89s, 2017 10,569 12,275,154
CalEnergy Co., Inc., 7.23s, 2005 2,635 2,663,511
CalEnergy Co., Inc., 7.52s, 2008 3,950 3,986,972
CalEnergy Co., Inc., 7.63s, 2007 4,150 4,238,727
CalEnergy Co., Inc., 9.875s, 2003 3,000 3,304,110
Cleveland Electric Illuminating Co., 9s, 2023 5,448 5,959,567
Comed Financing II, 8.5s, 2027## 2,500 2,633,700
Commonwealth Edison Co., 6.95s, 2018 4,075 4,080,094
Commonwealth Edison Co., 7.625s, 2007 1,805 1,956,367
Connecticut Light & Power Co., 6.125s, 2004 7,250 7,155,460
Connecticut Light & Power Co., 8.59s, 2003 4,000 4,162,000
Edison Mission Energy, 7.33s, 2008## 725 776,076
El Paso Electric Co., 8.9s, 2006 1,710 1,907,488
GGIB Funding Corp., 7.43s, 2011 12,173 12,835,392
Montana Power Co., 7.875s, 2026 1,000 1,159,730
Niagara Mohawk Power Corp., 7.625s, 2005 2,000 2,052,660
Niagara Mohawk Power Corp., 7.75s, 2006 5,285 5,686,026
Niagara Mohawk Power Corp., 8.5s, 2023 5,601 6,113,379
Niagara Mohawk Power Corp., 8.75s, 2022 5,800 6,057,578
North Atlantic Energy, 9.05s, 2002 2,500 2,602,475
Northeast Utilities, 8.58s, 2006 2,537 2,749,952
Salton Sea Funding Corp., 6.69s, 2000 1,253 1,266,979
Salton Sea Funding Corp., 7.37s, 2005 2,467 2,628,585
Salton Sea Funding Corp., 7.84s, 2010 3,925 4,554,962
Salton Sea Funding Corp., 8.3s, 2011 1,500 1,680,540
Seabrook Station -- Unit 1, 7.83s, 2019 7,272 8,236,744
Texas Utilities Co., 6.375s, 2008 4,890 4,856,455
Waterford 3 Funding Corp., 8.09s, 2017 6,280 6,870,069
--------------
$ 124,904,183
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.6%
Coastal Corp., 7.42s, 2037 $ 1,680 $ 1,669,584
Coastal Corp., 7.75s, 2035 1,000 1,044,270
Louis Dreyfus Natural Gas Corp., 6.875s, 2007 2,950 2,720,018
NGC Corp. Capital Trust I, 8.316s, 2027 2,660 2,679,471
Tennessee Gas Pipeline Co., 7s, 2028 1,635 1,573,687
Tennessee Gas Pipeline Co., 7.625s, 2037 4,000 4,103,440
Texas Gas Transmission Corp., 7.25s, 2027 4,645 4,775,571
--------------
$ 18,566,042
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 660,368,308
- --------------------------------------------------------------------------------------------------------
Foreign Bonds - 4.4%
Argentina - 0.4%
Hidroelectrica Alicura, 8.375s, 1999 (Utilities - Electric)## $ 4,325 $ 4,173,625
- --------------------------------------------------------------------------------------------------------
Bulgaria - 0.4%
National Republic of Bulgaria, 6.688s, 2024 $ 5,940 $ 4,158,000
- --------------------------------------------------------------------------------------------------------
Canada - 0.4%
British Columbia Province Canada, 5.375s, 2008 $ 5,000 $ 4,966,300
- --------------------------------------------------------------------------------------------------------
Chile - 0.8%
Empresa Nacional de Electric, 7.325s, 2037 (Utilities - Electric) $ 2,367 $ 2,076,498
Empresa Electric Guacolda S.A., 7.6s, 2001 (Utilities - Electric)## 6,500 6,568,835
--------------
$ 8,645,333
- --------------------------------------------------------------------------------------------------------
Colombia - 0.3%
Republic of Colombia, 8.75s, 1999 $ 110 $ 109,037
Republic of Columbia, 8.82s, 2005 4,200 3,570,000
--------------
$ 3,679,037
- --------------------------------------------------------------------------------------------------------
Finland - 0.3%
Upm Kymmene Corp. 7.45s, 2027 (Forest and Paper Products)## $ 3,300 $ 3,606,669
- --------------------------------------------------------------------------------------------------------
Mexico - 0.1%
Corporacion Andina de Fomento 7.1s, 2003 (Banks and Credit Cos.) $ 1,672 $ 1,603,950
- --------------------------------------------------------------------------------------------------------
Norway - 0.9%
Union Bank Norway, 7.35s, 2049 (Banks and Credit Cos.)## $10,000 $ 9,851,600
- --------------------------------------------------------------------------------------------------------
Thailand - 0.2%
Jasmine Submarine Telecom Ltd., 8.483s, 2011 (Industrial)## $ 3,359 $ 2,468,269
- --------------------------------------------------------------------------------------------------------
United Kingdom - 0.6%
Colt Telecom Group, 7.625s, 2008 (Telecommunications) DEM 3,400 $ 1,806,218
Telewest PLC, 9.625s, 2006 (Telecommunications) $ 5,000 4,862,500
--------------
$ 6,668,718
- --------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 49,821,501
- --------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 1.4%
Federal Home Loan Pc, 9.5s, 2001 $ 4 $ 3,655
Federal National Mortgage Association, 6.5s, 2013 15,529 15,756,968
--------------
$ 15,760,623
- --------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 15,760,623
- --------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 32.9%
Government National Mortgage Association - 11.8%
GNMA, 7s, 2022 - 2028 TBA $ 8,903 $ 9,114,792
GNMA, 7.5s, 2006 - 2028 TBA 76,075 78,332,582
GNMA, 8s, 2024 - 2027 TBA 33,868 35,117,151
GNMA, 7.5s, 2023 - 2024 2,228 2,294,749
GNMA, 8s, 2025 8,037 8,302,872
--------------
$ 133,162,146
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 21.1%
U.S. Treasury Bonds, 6.125s, 2027 $30,208 $ 33,993,365
U.S. Treasury Bonds, 6.375s, 2027 37,410 43,109,039
U.S. Treasury Bonds, 8.5s, 2020 19,650 27,298,173
U.S. Treasury Bonds, 11.25s, 2015 3,000 5,005,770
U.S. Treasury Bonds, 12s, 2013 10,000 15,439,100
U.S. Treasury Bonds, 12.375s, 2004 30,000 41,414,100
U.S. Treasury Notes, 5.625s, 2008 970 1,045,631
U.S. Treasury Notes, 6.5s, 2005 - 2006 15,000 16,816,740
U.S. Treasury Notes, 8.75s, 2000 50,500 54,295,580
--------------
$ 238,417,498
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 371,579,644
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,101,218,791) $1,097,530,076
- --------------------------------------------------------------------------------------------------------
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 $ 1,041,330
- --------------------------------------------------------------------------------------------------------
Preferred Stock - 0.6%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Media - 0.1%
Primedia Incorporated, 8.625s 13,250 $ 1,192,500
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.4%
NB Capital Corporation, 8.35s## 4,000 $ 4,220,000
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Tennessee Pipeline Co., 8.25s 30,000 $ 1,635,000
- --------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $6,811,750) $ 7,047,500
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,109,027,231) $1,105,618,906
Other Assets, Less Liabilities - 2.0% 22,093,229
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,127,712,135
- --------------------------------------------------------------------------------------------------------
** Non-income producing security-in default.
## SEC Rule 144A restriction.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in currencies other than
the U.S. dollar. A list of abbreviations is shown below:
DEM=Deutsche Marks
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
OCTOBER 31, 1998
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,109,027,231) $1,105,618,906
Cash 145,870
Receivable for Fund shares sold 5,391,309
Receivable for investments sold 11,290,575
Interest and dividends receivable 20,880,065
Other assets 23,119
--------------
Total assets $1,143,349,844
--------------
Liabilities:
Payable for Fund shares reacquired $ 1,328,440
Payable for investments purchased 13,007,027
Net payable for forward currency exchange contracts
closed or subject to master netting agreements 47,665
Payable for daily variation margin on open futures
contracts 624,375
Payable to affiliates -
Management fee 23,719
Shareholder servicing agent fee 6,985
Distribution and service fee 300,669
Administrative fee 913
Accrued expenses and other liabilities 297,916
--------------
Total liabilities $ 15,637,709
--------------
Net assets $1,127,712,135
==============
Net assets consist of:
Paid-in capital $1,140,438,924
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (3,767,772)
Accumulated net realized loss on investments and
foreign currency transactions (9,729,719)
Accumulated undistributed net investment income 770,702
--------------
Total $1,127,712,135
==============
Shares of beneficial interest outstanding 85,285,572
==========
Class A shares:
Net asset value per share
(net assets of $800,701,904 / 60,499,095 shares of
beneficial interest outstanding) $13.23
======
Offering price per share (100 / 95.25 of net asset
value per share) $13.89
======
Class B shares:
Net asset value and offering price per share
(net assets of $248,653,685 / 18,847,027 shares of
beneficial interest outstanding) $13.19
======
Class C shares:
Net asset value and offering price per share
(net assets of $68,969,868 / 5,230,695 shares of
beneficial interest outstanding) $13.19
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $9,386,678 / 708,755 shares of
beneficial interest outstanding) $13.24
======
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
- -------------------------------------------------------------------------------
SIX MONTHS ENDED OCTOBER 31, 1998
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 39,332,954
Dividends 373,870
--------------
Total investment income $ 39,706,824
--------------
Expenses -
Management fee $ 2,018,242
Trustees' compensation 29,505
Shareholder servicing agent fee 594,789
Distribution and service fee (Class A) 1,173,034
Distribution and service fee (Class B) 1,087,652
Distribution and service fee (Class C) 275,350
Administrative fee 78,695
Custodian fee 161,607
Printing 67,895
Postage 63,894
Auditing fees 33,330
Legal fees 2,881
Miscellaneous 433,857
--------------
Total expenses $ 6,020,731
Fees paid indirectly (134,535)
--------------
Net expenses $ 5,886,196
--------------
Net investment income $ 33,820,628
--------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $ (10,181,323)
Foreign currency transactions (98,973)
Futures contracts (1,948,695)
--------------
Net realized loss on investments and foreign currency
transactions $ (12,228,991)
--------------
Change in unrealized depreciation -
Investments $ (15,779,396)
Translation of assets and liabilities in foreign currencies (42,139)
Futures contracts (11,167)
--------------
Net unrealized loss on investments and foreign currency
transactions $ (15,832,702)
--------------
Net realized and unrealized loss on investments and
foreign currency $ (28,061,693)
--------------
Increase in net assets from operations $ 5,758,935
==============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30, 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 33,820,628 $ 52,322,863
Net realized gain (loss) on investments and foreign
currency transactions (12,228,991) 17,700,400
Net unrealized gain (loss) on investments and foreign
currency translation (15,832,702) 11,971,014
-------------- ------------
Increase in net assets from operations $ 5,758,935 $ 81,994,277
-------------- ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (24,971,841) $(41,223,494)
From net investment income (Class B) (6,146,257) (8,868,950)
From net investment income (Class C) (1,544,066) (1,588,648)
From net investment income (Class I) (321,611) (641,771)
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 $ (32,983,775) $(52,650,688)
-------------- ------------
Net increase in net assets from Fund share transactions $ 207,533,473 $223,753,431
-------------- ------------
Total increase in net assets $ 180,308,633 $253,097,020
Net assets:
At beginning of period 947,403,502 694,306,482
-------------- ------------
At end of period (including accumulated undistributed
net investment income (accumulated distributions in
excess of net investment income) of $770,702 and
($66,151), respectively) $1,127,712,135 $947,403,502
============== ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------------------------
OCTOBER 31, 1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $13.57 $13.04 $12.85 $12.71 $12.75 $14.39
------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income(S) $ 0.45 $ 0.89 $ 0.94 $ 0.95 $ 0.98 $ 1.02
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.35) 0.55 0.18 0.15 (0.05) (0.63)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.10 $ 1.44 $ 1.12 $ 1.10 $ 0.93 $ 0.39
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.44) $(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 $(0.44) $(0.91) $(0.93) $(0.96) $(0.97) $(2.03)
------ ------ ------ ------ ------ ------
Net asset value - end of period $13.23 $13.57 $13.04 $12.85 $12.71 $12.75
====== ====== ====== ====== ====== ======
Total return(+) 0.74%++ 11.36% 8.99% 8.67% 7.78% 2.12%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.96%+ 0.98% 1.02% 1.00% 1.00% 0.96%
Net investment income 6.58%+ 6.61% 7.12% 7.10% 7.91% 7.17%
Portfolio turnover 142% 333% 446% 377% 306% 410%
Net assets at end of period (000
omitted) $800,702 $708,021 $541,710 $514,892 $477,056 $459,311
+ Annualized.
++ Not annualized.
+++ 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.
(+) 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.
(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%
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------------------------
OCTOBER 31, 1998 1998 1997 1996 1995 1994*
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $13.52 $12.99 $12.79 $12.69 $12.73 $14.99
------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income $ 0.40 $ 0.79 $ 0.83 $ 0.85 $ 0.88 $ 0.56
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.34) 0.54 0.19 0.13 (0.05) (1.30)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.06 $ 1.33 $ 1.02 $ 0.98 $ 0.83 $(0.74)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.39) $(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 $(0.39) $(0.80) $(0.82) $(0.88) $(0.87) $(1.52)
------ ------ ------ ------ ------ ------
Net asset value - end of period $13.19 $13.52 $12.99 $12.79 $12.69 $12.73
====== ====== ====== ====== ====== ======
Total return 0.44%++ 10.52% 8.16% 7.90% 6.90% (5.42)%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.67%+ 1.68% 1.76% 1.81% 1.84% 1.83%+
Net investment income 5.89%+ 5.90% 6.39% 6.29% 7.17% 6.39%+
Portfolio turnover 142% 333% 446% 377% 306% 410%
Net assets at end of period (000
omitted) $248,654 $187,905 $123,000 $102,914 $75,451 $33,413
* For the period from the inception of Class B, September 7, 1993, through April 30, 1994.
+ Annualized.
++ Not annualized.
+++ 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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------------------------
OCTOBER 31, 1998 1998 1997 1996 1995 1994**
- ------------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of
period $13.52 $12.98 $12.79 $12.68 $12.72 $13.57
------ ------ ------ ------ ------ ------
Income from investment
operations# -
Net investment income $ 0.39 $ 0.78 $ 0.83 $ 0.85 $ 0.88 $ 0.29
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.33) 0.56 0.20 0.15 (0.05) (0.90)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 0.06 $ 1.34 $ 1.03 $ 1.00 $ 0.83 $(0.61)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.39) $(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 $(0.39) $(0.80) $(0.84) $(0.89) $(0.87) $(0.24)
------ ------ ------ ------ ------ ------
Net asset value - end of period $13.19 $13.52 $12.98 $12.79 $12.68 $12.72
====== ====== ====== ====== ====== ======
Total return 0.45%++ 10.54% 8.27% 7.90% 7.00% 4.57%++
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.67%+ 1.68% 1.74% 1.74% 1.75% 1.80%+
Net investment income 5.90%+ 5.89% 6.44% 6.35% 7.17% 6.57%+
Portfolio turnover 142% 333% 446% 377% 306% 410%
Net assets at end of period (000
omitted) $68,970 $42,229 $20,003 $17,330 $8,171 $7,627
** For the period from the inception of Class C, January 3, 1994, through April 30, 1994.
+ Annualized.
++ Not annualized.
+++ 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.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED -----------------------------
OCTOBER 31, 1998 1998 1997***
- ----------------------------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $13.58 $13.05 $13.15
------ ------ ------
Income from investment operations# -
Net investment income $ 0.47 $ 0.94 $ 0.31
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.34) 0.55 (0.09)
------ ------ ------
Total from investment operations $ 0.13 $ 1.49 $ 0.22
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.47) $(0.96) $(0.32)
------ ------ ------
In excess of net investment income+++ -- (0.00) --
------ ------ ------
Total distributions declared to shareholders $(0.47) $(0.96) $(0.32)
------ ------ ------
Net asset value - end of period $13.24 $13.58 $13.05
====== ====== ======
Total return 0.91%++ 11.72% 1.70%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.66%+ 0.68% 0.69%+
Net investment income 6.86%+ 6.95% 7.19%+
Portfolio turnover 142% 333% 446%
Net assets at end of period (000 omitted) $9,387 $9,249 $9,593
*** For the period from the inception of Class I, January 2, 1997, through April 30, 1997.
+ Annualized.
++ Not annualized.
+++ 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.
See notes to financial statements
</TABLE>
<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 may 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.
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%
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 $8,705
for the six months ended October 31, 1998.
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%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$249,571 for the six months ended October 31, 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 attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.10% per annum of the Fund's average daily
net assets attributable to Class A shares. 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 $205,822 for the six
months ended October 31, 1998. Fees incurred under the distribution plan
during the six months ended October 31, 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 $18,023 and $13,128 for
Class B and Class C shares, respectively, for the six months ended October 31,
1998. Fees incurred under the distribution plan during the six months ended
October 31, 1998, were 1.00% of average daily net assets attributable to 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 six months
ended October 31, 1998, were $8,639, $197,119, and $12,238 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%.
(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 $1,036,245,899 $ 902,619,268
-------------- --------------
Investments (non-U.S. government
securities) $ 621,699,983 $ 567,452,836
-------------- --------------
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 $1,109,027,231
--------------
Gross unrealized appreciation $ 17,500,559
Gross unrealized depreciation (20,908,884)
--------------
Net unrealized depreciation $ (3,408,325)
==============
(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>
Class A Shares
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 1998 YEAR ENDED APRIL 30, 1998
----------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,281,731 $219,373,856 21,939,268 $ 295,718,288
Shares issued to shareholders
in reinvestment of
distributions 1,337,640 18,047,146 2,218,719 29,751,932
Shares reacquired (9,311,206) (125,001,832) (13,503,595) (181,837,839)
---------- ------------ ----------- -------------
Net increase 8,308,165 $112,419,170 10,654,392 $ 143,632,381
========== ============ =========== =============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 1998 YEAR ENDED APRIL 30, 1998
----------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 7,374,870 $ 99,027,766 9,328,954 $ 125,486,349
Shares issued to shareholders
in reinvestment of
distributions 305,207 4,106,291 427,362 5,717,255
Shares reacquired (2,729,191) (36,687,519) (5,328,287) (71,689,045)
---------- ------------ ----------- -------------
Net increase 4,950,886 $ 66,446,538 4,428,029 $ 59,514,559
========== ============ =========== =============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 1998 YEAR ENDED APRIL 30, 1998
----------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,490,591 $ 33,445,224 1,953,399 $ 26,310,775
Shares issued to shareholders
in reinvestment of
distributions 65,775 884,475 68,136 912,424
Shares reacquired (449,925) (6,034,019) (438,903) (5,896,038)
---------- ------------ ----------- -------------
Net increase 2,106,441 $ 28,295,680 1,582,632 $ 21,327,161
========== ============ =========== =============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 1998 YEAR ENDED APRIL 30, 1998
----------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 12,345 $ 166,822 48,181 $ 651,134
Shares issued to shareholders
in reinvestment of
distributions 23,819 321,637 48,360 648,152
Shares reacquired (8,611) (116,374) (150,414) (2,019,956)
---------- ------------ ----------- -------------
Net increase (decrease) 27,553 $ 372,085 (53,873) $ (720,670)
========== ============ =========== =============
</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 six months ended October 31, 1998, was $5,044.
(7) Financial Instruments
The Fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include, forward foreign currency exchange contracts 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.
Forward Foreign Currency Exchange Contracts
Forward foreign currency purchases and sales under master netting agreements
amounted to a net payable of $47,665 with Merrill Lynch at October 31, 1998.
At October 31, 1998, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
<TABLE>
Futures Contracts
<CAPTION>
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds Dec 1998 140 Long $ (31,034)
U.S. Treasury Bonds Dec 1998 200 Long (44,335)
U.S. Treasury Bonds Dec 1998 500 Long (237,675)
----------
$(313,044)
=========
</TABLE>
At October 31, 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 October 31,
1998, the Fund owned the following restricted securities (constituting .88% 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 6/22/94 $2,000,000 $1,386,250 $1,992,500
Airplane Pass-Through Trust,
10.875s, 2019 3/13/96 1,500,000 1,500,000 1,594,485
United Airlines Pass-Through Trust,
7.27s, 2013 1/30/96 6,384,712 6,380,692 6,368,112
----------
$9,955,097
==========
</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 October 31, 1998, the related statement of operations for the six months
then ended, the statement of changes in net assets for the six-month period
ended October 31, 1998, and the year ended April 30, 1998, and the financial
highlights for the six-month period ended October 31, 1998 and each of the years
in the five-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
October 31, 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
October 31, 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
December 11, 1998
<PAGE>
<TABLE>
MFS(R) BOND FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified
services company) AUDITORS
Deloitte & Touche LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) INVESTOR INFORMATION
For MFS stock and bond market outlooks, call
William J. Poorvu - Adjunct Professor, Harvard toll free: 1-800-637-4458 anytime from a
University Graduate School of Business touch-tone telephone.
Administration
For information on MFS mutual funds, call your
Charles W. Schmidt - Private Investor financial adviser or, for an information kit,
call toll free: 1-800-637-2929 any business day
Arnold D. Scott* - Senior Executive from 9 a.m. to 5 p.m. Eastern time (or leave a
Vice President, Director, and Secretary, message anytime).
MFS Investment Management
Investor Service
Jeffrey L. Shames* - Chairman, Chief MFS Service Center, Inc.
Executive Officer, and Director, P.O. Box 2281
MFS Investment Management Boston, MA 02107-9906
Elaine R. Smith - Independent Consultant For general information, call toll free:
1-800-225-2606 any business day from
David B. Stone - Chairman and Director, 8 a.m. to 8 p.m. Eastern time.
North American Management Corp.
(investment advisers) For service to speech- or hearing-impaired,
call toll free: 1-800-637-6576 any business day
INVESTMENT ADVISER from 9 a.m. to 5 p.m. Eastern time. (To use
Massachusetts Financial Services Company this service, your phone must be equipped with
500 Boylston Street a Telecommunications Device for the Deaf.)
Boston, MA 02116-3741
For share prices, account balances, and
DISTRIBUTOR exchanges, call toll free: 1-800-MFS-TALK
MFS Fund Distributors, Inc. (1-800-637-8255) anytime from a touch-tone
500 Boylston Street telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
PORTFOLIO MANAGER www.mfs.com
Geoffrey L. Kurinsky*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) BOND FUND Bulk Rate
U.S. Postage
[Logo] M F S(R) Paid
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ----------------
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MFB-2 12/98 96M 11/211/311/811
