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[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
MFS(R) BOND FUND
SEMIANNUAL REPORT o OCTOBER 31, 1999
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MUTUAL FUND GIFT KITS (see page 34)
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 10
Financial Statements ...................................................... 18
Notes to Financial Statements ............................................. 25
MFS' Year 2000 Readiness Disclosure ....................................... 33
Trustees and Officers ..................................................... 37
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT
AT MFS SINCE 1932, WHEN WE CREATED ONE OF THE FIRST
IN-HOUSE RESEARCH DEPARTMENTS IN THE MUTUAL FUND SM
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING MFS
ECONOMIC MODELS: IT'S GETTING TO KNOW EACH MAKES A DIFFERENCE
SECURITY AND EACH COMPANY PERSONALLY.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
The current investment and economic environment bears little resemblance to
last year's. One year ago, global economies were floundering, and the crisis
in Asia threatened an already weak U.S. economy. Corporate earnings were flat,
and economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low.
Many corporations are focused on improving their profitability, and investors
have been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999
will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis
has passed. In fact, Japan's economic woes seem to have reached bottom.
Although the process is in its infancy, some Japanese corporations not only
are talking about restructuring and cost cutting, they also are beginning to
take action, looking within to become more competitive and improve returns on
equity. While still lagging the United States, Europe is beginning
to restructure and consolidate. These signs of international growth have
contributed to concerns that the U.S. economy now may be too strong.
In June, and again in August, the Fed raised rates by one-quarter of a
percentage point to help ward off the specter of inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current
market many investors are taking on additional risk - whether through day
trading or investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago.
We believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top
25 stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total return performance, are still the most overvalued.
Such extreme overvaluation makes the stock market sensitive to interest-rate
news and any negative earnings surprises. The Year 2000 (Y2K) computer problem
is another factor causing investor concern. While we believe corporate America
is well prepared to address any Y2K situations that may arise at year-end, no
one can predict investor behavior. In our opinion, it is investor behavior
that has the greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is
through our continuing commitment to MFS Original Research(R) and our
fundamental investment tenet of long-term investing. Whether markets
are up or down, MFS analysts focus on analyzing industries and visiting
companies to determine the long-term winners and the prices that will make
them attractive opportunities. Because all companies will not benefit equally
from the improving international environment, bottom-up research remains
critical to identifying those that we believe are successfully restructuring,
consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at
attractive prices. For this reason, we are continuing to expand our domestic
and international capabilities to ensure that MFS has primary, in-house
research on companies worldwide. We believe that we have built the right
investment team, backed by MFS Original Research, to take advantage of those
opportunities for our shareholders.
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 15, 1999
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MANAGEMENT REVIEW AND OUTLOOK
[Photo of Geoffrey L. Kurinsky]
Geoffrey L. Kurinsky
For the six months ended October 31, 1999, Class A shares of the Fund provided
a total return of -2.48%, Class B shares -2.84%, Class C shares -2.84%, and
Class I shares -2.41%. These returns include the reinvestment of any
distributions but exclude the effects of any sales charges.
During the same period, the average corporate debt "BBB"-rated fund tracked by
Lipper Analytical Services, Inc., an independent firm that reports mutual fund
performance, returned -1.62%. The Fund's results also compare to a -0.55%
return for the Lehman Brothers Government/Corporate Bond Index (the Lehman
Index). The Lehman Index is an unmanaged, market-value-weighted index that
includes U.S. Treasury and government-agency securities (excluding mortgage-
backed securities) and investment-grade debt obligations of U.S. corporations.
Q. WHAT AFFECTED THE FUND'S PERFORMANCE DURING THE PAST SIX MONTHS?
A. Rising interest rates led to negative returns for all types of fixed-income
securities, and the Fund's performance has reflected that downturn. In
addition, a couple of our holdings were particularly hard hit. Given the
unfavorable interest-rate backdrop, the punishment for companies that
disappointed investors was particularly harsh. Historically, in periods when
the interest-rate backdrop was more favorable, value hunters generally
scooped up companies that disappointed. But for a variety of reasons,
including lack of liquidity caused by investor concerns over the Year 2000
computer problem, there were far fewer participants bidding for distressed
securities. For example, our position in the drugstore chain Rite Aid
suffered when the company encountered a host of problems, specifically,
difficulty in executing its expansion plans. Home-security business
Protection One Alarm Monitoring also suffered losses when it ran into
roadblocks in financing its growth. In addition, our small position in
high-yield bonds issued by retailer Jitney-Jungle lost a lot of ground on
news that it had filed for bankruptcy protection.
Q. WHICH CORPORATE BOND HOLDINGS PERFORMED WELL?
A. There were quite a few holdings that performed reasonably well. Our high-
yield holdings in Cable & Wireless performed quite well when its cable
assets were bought by NTL, a global communication services company. The bond
covenants required that much of its debt be redeemed at very favorable terms
for bondholders. In fact, most of the media and entertainment sector, which
is the Fund's largest industry concentration, continued to do well as the
sector's overall credit quality improved. Individual winners included Time
Warner, AT&T, and Seagram. A number of additional holdings performed well
when they crossed into investment-grade territory or were perceived to have
improving credit quality. Northeast Utilities, which was acquired by the
higher-rated Con Edison, was a good example of that trend. Another was
CalEnergy. Its perceived credit rating was boosted when famed investor
Warren Buffet's company, Berkshire Hathaway, took a stake in it. Niagara
Mohawk also moved into investment-grade territory and was consequently one
of our better performers.
Q. HAVE YOU MADE ANY CHANGES TO THE FUND'S ALLOCATIONS?
A. We felt that the investment-grade corporate market offered some very
attractive opportunities, so we increased our position to about 60% of net
assets. Year-end and year 2000 jitters translated into weak demand, heavy
supply, and cheap prices for many corporate bonds. We emphasized cyclical
companies that could benefit from a strong, albeit somewhat slower, economy.
In the paper sector, for example, we've established positions in Georgia
Pacific, which is a dominant force in many major paper categories. We've
also added to our holdings in auto and auto- related companies, increasing
our stake in Ford Motor Company, Lear Corporation, and Federal Mogul. We
also added American Airlines, among others, to our airline holdings. The
securities we bought, enhanced- equipment trust certificates, use planes as
collateral.
Q. WHAT'S BEHIND THE INCREASE IN THE NUMBER OF AGENCY SECURITIES IN THE FUND?
A. We believe agency securities are attractive because they became very cheap
due to a structural change in the government bond markets. The supply of
U.S. Treasuries is falling as the government curtails its borrowing needs in
light of a federal budget surplus. In contrast, various federal agencies
dramatically stepped up their issuance as a means of funding growth
initiatives. As that change transpired, the spread between agency and
Treasury securities became quite wide when viewed on a historical basis. We
believe that the spread between agencies and Treasuries will eventually
narrow, which would position agencies to outperform.
Q. WHY HAVE YOU POSITIONED THE FUND TO BE SOMEWHAT MORE SENSITIVE TO INTEREST
RATE CHANGES THAN ITS LIPPER PEER GROUP AVERAGE?
A. Our view is that the recent backup in interest rates is overdone. Given the
fact that inflation remains in check and the economy shows some signs of
slowing, we believe that rates may start to move back down. So we've
positioned the Fund to try to benefit from lower rates by making it slightly
more interest-rate sensitive, with a duration of 6.24 years versus a
duration of about six years for its Lipper corporate peer group average.
Q. WHAT'S YOUR OUTLOOK FOR THE FIXED-INCOME MARKETS?
A. In the past month or so, we've seen evidence that the economy is beginning
to slow from its earlier strong pace. Retail sales and housing starts have
shown some signs of weakness, and there aren't any signs that inflationary
pressures are building. While there are pockets across the United States
where wages have been rising, those wage pressures appear to have been
offset by productivity gains. Our view is that the market is just beginning
to recognize this slowing. If a further slowdown materialized and the market
recognized it, long-term bond yields could move lower. Even after some
slowing, we believe economic growth will remain reasonably strong at its
normal 2.5% to 3% rate. That's why we continue to believe that there's good
value in cyclical companies. We plan to maintain our exposure to corporate
bonds in general, and cyclical bonds in particular, unless the economy
weakens dramatically.
/s/ Geoffrey L. Kurinsky
Geoffrey L. Kurinsky
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on
the cover. The manager's views are subject to change at any time based on
market and other conditions, and no forecasts can be guaranteed.
It is not possible to invest directly in an index.
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PORTFOLIO MANAGER'S PROFILE
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GEOFFREY L. KURINSKY IS SENIOR VICE PRESIDENT AND A MEMBER OF THE
ADVISORY BOARD 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 THE BOND
SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. MR. KURINSKY IS
ALSO A PORTFOLIO MANAGER OF MFS(R) TOTAL RETURN FUND, MFS(R) TOTAL
RETURN SERIES (PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)), AND THE
TOTAL RETURN SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. HE
JOINED THE MFS FIXED INCOME DEPARTMENT IN 1987 AND WAS NAMED PORTFOLIO
MANAGER IN 1989, 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. DEGREE IN FINANCE FROM BOSTON UNIVERSITY.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other
MFS product is available from your financial consultant, 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: $1.2 BILLION NET ASSETS AS OF OCTOBER 31, 1999
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. (See Notes
to Performance Summary.)
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
CLASS A
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge -2.48% -0.08% +14.81% +43.96% +111.57%
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Average Annual Total Return
Excluding Sales Charge -2.48% -0.08% + 4.71% + 7.56% + 7.78%
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Average Annual Total Return
Including Sales Charge -7.12% -4.83% + 3.03% + 6.52% + 7.26%
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<CAPTION>
CLASS B
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge -2.84% -0.81% +12.36% +38.72% +102.08%
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Average Annual Total Return
Excluding Sales Charge -2.84% -0.81% + 3.96% + 6.76% + 7.29%
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Average Annual Total Return
Including Sales Charge -6.61% -4.53% + 3.09% + 6.45% + 7.29%
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<CAPTION>
CLASS C
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge -2.84% -0.88% +12.37% +38.90% +102.89%
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Average Annual Total Return
Excluding Sales Charge -2.84% -0.88% + 3.96% + 6.79% + 7.33%
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Average Annual Total Return
Including Sales Charge -3.78% -1.81% + 3.96% + 6.79% + 7.33%
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<CAPTION>
CLASS I
6 Months 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge -2.41% +0.16% +15.88% +45.30% +113.54%
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Average Annual Total Return
Excluding Sales Charge -2.41% +0.16% + 5.04% + 7.76% + 7.88%
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NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge. Class B Share Performance
Including Sales Charge takes into account the deduction of the applicable
contingent deferred sales charge (CDSC), which declines over six years from 4%
to 0%. Class C Share Performance Including Sales Charge takes into account the
deduction of the 1% CDSC applicable to Class C shares redeemed within 12
months. Class I shares have no sales charge and are only available to certain
institutional investors.
Class B, C, and I share performance include the performance of the Fund's
Class A shares for periods prior to their inception (blended performance).
Class B and C blended performance has been adjusted to take into account the
CDSC applicable to Class B and C shares rather than the initial sales charge
(load) applicable to Class A shares. Class I share blended performance has
been adjusted to account for the fact that Class I shares have no sales
charge. These blended performance figures have not been adjusted to take into
account differences in class-specific operating expenses. Because operating
expenses of Class B and C shares are higher than those of Class A, the blended
Class B and C share performance is higher than it would have been had Class B
and C shares been offered for the entire period. Conversely, because operating
expenses of Class I shares are lower than those of Class A, the blended Class
I share performance is lower than it would have been had Class I shares been
offered for the entire period.
All performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF OCTOBER 31, 1999
QUALITY RATING (U.S. PORTION ONLY)
Source: Standard & Poor's and Moody's
"BBB" 40.1%
Governments 20.0%
"A" 18.7%
"BB" 7.7%
"B" 6.6%
"AA" 3.7%
"AAA" 2.2%
"CCC" 0.6%
Not Rated 0.4%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (Unaudited) -- October 31, 1999
Bonds - 97.8%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
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<S> <C> <C>
U.S. Bonds - 66.1%
Aerospace - 0.2%
BE Aerospace, Inc., 8s, 2008 $ 3,085 $ 2,691,663
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Airlines - 3.7%
Airplane Pass-Through Trust, 10.875s, 2019+ $ 1,500 $ 1,338,105
American Airlines Pass-Through Trust, 7.024s, 2009 5,678 5,631,043
Atlas Air, Inc., 7.2s, 2019 4,176 3,752,721
Continental Airlines Pass-Through Trust, Inc., 6.648s, 2017 2,251 2,078,072
Continental Airlines Pass-Through Trust, Inc., 6.545s, 2019 7,697 7,015,387
Continental Airlines Pass-Through Trust, Inc., 7.256s, 2020 3,500 3,387,370
Continental Airlines, Inc., 9.5s, 2013 4,101 4,304,215
Continental Airlines, Inc., 10.22s, 2014 5,115 5,506,358
Jet Equipment Trust, 8.64s, 2012## 1,916 1,988,354
Jet Equipment Trust, 11.44s, 2014## 3,500 4,162,795
Jet Equipment Trust, 10.69s, 2015## 2,390 2,724,409
Northwest Airlines, Inc., 7.575s, 2019 3,582 3,487,328
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$ 45,376,157
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Apparel and Textiles - 0.4%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 3,465 $ 3,319,539
Jones Apparel Group, Inc., 6.25s, 2001 2,195 2,153,251
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$ 5,472,790
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Automotive - 2.4%
Federal Mogul Corp., 7.5s, 2004 $ 12,887 $ 12,238,139
Federal Mogul Corp., 7.375s, 2006## 4 3,682
Ford Motor Co., 7.45s, 2031 6,467 6,369,542
General Motors Corp., 9.4s, 2021 1,000 1,197,010
Lear Corp., 7.96s, 2005## 9,421 9,199,607
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$ 29,007,980
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Banks and Finance - 11.0%
Bank United, 8s, 2009 $ 9,282 $ 8,747,078
Bayerische Landesbank NY, 5.875s, 2008 4,865 4,475,703
Capital One Financial Corp., 7.25s, 2003 15,011 14,754,879
Colonial Capital II, 8.92s, 2027 2,140 1,975,111
First Empire Capital Trust I, 8.234s, 2027 3,165 3,041,723
Ford Motor Credit Co., 7.375s, 2009 24,195 24,390,012
Green Tree Financial Corp., 10.25s, 2002 4,447 4,625,947
GS Escrow Corp., 6.75s, 2001 9,465 9,220,566
GS Escrow Corp., 7.125s, 2005 13,250 12,151,840
Lehman Brothers, Inc., 7.5s, 2026 5,000 5,004,550
MBNA Corp., 6.875s, 2004 11,415 11,126,429
Natexis Ambs Co. LLC, 8.44s, 2049## 6,890 6,442,150
National Westminster Bank, 7.375s, 2009 7,090 7,041,646
Providian Capital I, 9.525s, 2027## 6,389 5,567,502
Providian National Bank, 6.7s, 2003 3,650 3,544,040
Providian National Bank, 6.65s, 2004 2,925 2,810,984
Riggs National Corp., 9.65s, 2009 4,528 4,751,910
United Companies Financial Corp., 7.7s, 2004** 1,300 390,000
Washington Mutual Capital I, 8.375s, 2027 3,000 2,847,540
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$ 132,909,610
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Building - 0.6%
Building Materials Corp., 8.625s, 2006 $ 1,000 $ 952,500
Building Materials Corp., 8s, 2008 4,135 3,752,512
Nortek, Inc., 9.25s, 2007 2,110 2,046,700
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$ 6,751,712
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Chemicals - 0.3%
Lyondell Chemical Co., 9.625s, 2007 $ 3,340 $ 3,348,350
Lyondell Chemical Co., 9.875s, 2007 402 400,995
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$ 3,749,345
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Computer Hardware - Systems - 0.4%
Anacomp, Inc., 10.875s, 2004 $ 4,650 $ 4,580,250
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Computer Software - Services - 1.1%
Unisys Corp., 12s, 2003 $ 6,222 $ 6,673,095
Unisys Corp., 11.75s, 2004 5,500 6,105,000
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$ 12,778,095
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Consumer Goods and Services - 1.4%
Kindercare Learning Centers, Inc., 9.5s, 2009 $ 3,825 $ 3,576,375
Nabisco Holdings, 7.75s, 2006## 6,321 5,945,975
Nabisco Holdings, 6.375s, 2035 2,270 2,140,428
Protection One Alarm Monitoring, Inc., 7.375s, 2005 4,725 2,598,750
Revlon Consumer Products Corp., 8.125s, 2006 3,900 3,042,000
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$ 17,303,528
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Corporate Asset Backed - 1.7%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 6,098 $ 6,034,162
BCF LLC, 7.75s, 2026## 1,517 834,222
Contimortgage Home Equity Loan Trust, 6.19s, 2014 9,750 9,555,000
Criimi Mae Commercial Mortgage Trust, 7s, 2011 2,700 2,271,375
Merrill Lynch Mortgage Investors, Inc., 8.373s, 2022+ 2,000 1,864,062
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$ 20,558,821
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Food and Beverage Products - 1.4%
Coca Cola Bottling Co., 6.375s, 2009 $ 8,346 $ 7,576,415
J Seagram & Sons, 7.5s, 2018 10,334 9,931,078
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$ 17,507,493
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Forest and Paper Products - 2.1%
Gaylord Container Corp., 9.75s, 2007 $ 5,000 $ 4,750,000
Georgia Pacific Corp., 9.95s, 2002 6,126 6,541,098
Georgia Pacific Corp., 9.875s, 2021 9,278 10,068,021
Riverwood International, 10.25s, 2006 2,000 2,010,000
U.S. Timberlands, 9.625s, 2007 2,000 1,820,000
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$ 25,189,119
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Insurance - 1.4%
Aflac, Inc., 6.5s, 2009 $ 10,000 $ 9,386,600
Atlantic Mutual Insurance Co., 8.15s, 2028## 4,864 3,760,213
Conseco, Inc., 6.4s, 2001 3,985 3,851,084
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$ 16,997,897
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Media/Entertainment - 4.3%
Chancellor Media Corp., 8.75s, 2007 $ 1,500 $ 1,485,000
Circus Circus Enterprises, Inc., 6.7s, 2096 3,000 2,793,030
Granite Broadcasting, 8.875s, 2008 4,000 3,850,000
Harrahs Operating, Inc., 7.5s, 2009 9,660 9,037,316
Hearst Argyle Television, Inc., 7.5s, 2027 8,923 8,181,053
News America Holdings, Inc., 10.125s, 2012 6,825 7,476,515
Outdoor Systems, Inc., 8.875s, 2007 1,500 1,522,500
Regal Cinemas, Inc., 9.5s, 2008 2,000 1,510,000
Time Warner Entertainment Co. LP, 8.375s, 2033 11,895 12,737,047
Time Warner, Inc., 10.15s, 2012 2,965 3,521,115
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$ 52,113,576
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Oil Services - 1.1%
McDermott, Inc., 9.375s, 2002 $ 10,778 $ 11,129,255
Ultramar Diamond Shamrock Corp., 7.2s, 2017 2,550 2,297,550
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$ 13,426,805
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Oils - 2.5%
Amerada Hess Corp., 7.875s, 2029 $ 16,504 $ 16,373,948
Lasmo USA, Inc., 7.125s, 2003 1,874 1,843,548
Occidental Petroleum, 6.75s, 2002 3,771 3,726,729
Occidental Petroleum, 6.5s, 2005 3,104 2,995,608
P&L Coal Holdings Corp., 9.625s, 2008 4,000 3,820,000
Seagull Energy Corp., 7.5s, 2027 1,800 1,494,000
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$ 30,253,833
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Railroads - 0.6%
Union Pacific Corp., 6.34s, 2003 $ 2,746 $ 2,668,810
Union Pacific Corp., 7.375s, 2009 4,733 4,664,135
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$ 7,332,945
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Retail - 2.8%
J. Crew Operating Corp., 10.375s, 2007 $ 4,310 $ 3,879,000
Jitney-Jungle Stores, 12s, 2006** 2,330 815,500
Kohls Corp., 7.25s, 2029## 7,657 7,155,850
Musicland Group, 9s, 2003 5,000 4,650,000
Pathmark Stores, Inc., 9.625s, 2003 2,075 2,064,625
Rite Aid Corp., 6s, 2003## 4,567 3,775,356
Rite Aid Corp., 7.125s, 2007 3,573 2,501,100
Saks, Inc., 7s, 2004 2,667 2,520,075
Saks, Inc., 7.25s, 2004 6,627 6,257,942
--------------
$ 33,619,448
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Steel - 0.2%
AK Steel Holdings Corp., 9.125s, 2006 $ 2,500 $ 2,475,000
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Supermarkets - 0.7%
Marsh Supermarkets, Inc., 8.875s, 2007 $ 1,410 $ 1,353,600
Safeway, Inc., 7.25s, 2004 7,156 7,097,321
--------------
$ 8,450,921
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Telecommunications - 9.6%
AT&T Corp., 6.5s, 2029 $ 7,390 $ 6,537,194
Bresnan Communications Group, 0s to 2004, 9.25s to 2009## 5,000 3,350,000
Cable & Wireless Communications, 6.75s, 2008 20,752 20,999,986
Cable & Wireless Optus Limited, 8.125s, 2009## 5,761 5,782,950
Century Communications Corp., 0s, 2008 5,000 2,137,500
Charter Communication Holdings LLC, 8.25s, 2007## 6,250 5,937,500
Comcast Corp., 9.125s, 2006 2,811 2,973,701
Cox Communications, Inc., 7.75s, 2006 8,080 8,230,046
Frontiervision Operating Partnership LP, 11s, 2006 2,110 2,220,775
Global Crossings Holdings Ltd., 9.625s, 2008 4,000 4,060,000
ITC Deltacom, Inc., 9.75s, 2008 5,000 5,000,000
Nextel International, Inc., 0s to 2003, 12.125s to 2008 2,000 1,015,000
NTL Communications Corp., 0s to 2003, 12.375s to 2008 5,000 3,350,000
Qwest Communications International, Inc., 7.5s, 2008 4,000 3,968,600
Sprint Capital Corp., 6.9s, 2019 12,279 11,449,062
Sprint Capital Corp., 6.875s, 2028 5,665 5,174,921
TCI Communications Financing III, 9.65s, 2027 8,590 9,655,847
Telecom De Puerto Rico, 6.65s, 2006## 2,794 2,659,190
U.S. West Communications, 7.2s, 2004## 4,239 4,271,640
WorldCom, Inc., 8.875s, 2006 7,920 8,337,859
--------------
$ 117,111,771
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 13.4%
AEP Generating, 9.82s, 2022 $ 7,799 $ 8,961,103
Beaver Valley Funding Corp. II, 9s, 2017 2,200 2,245,848
CalEnergy Co., Inc., 6.96s, 2003 1,306 1,292,770
CalEnergy Co., Inc., 7.23s, 2005 10 9,901
CalEnergy Co., Inc., 7.63s, 2007 4,503 4,519,796
CE Generation LLC, 7.416s, 2018## 16,469 15,501,446
Cleveland Electric Illuminating Co., 9s, 2023 7,252 7,710,834
CMS Energy Corp., 8.375s, 2003 4,720 4,554,800
Comed Financing II, 8.5s, 2027 2,500 2,496,650
Connecticut Light & Power Co., 7.875s, 2001 10,475 10,697,423
Connecticut Light & Power Co., 8.59s, 2003 4,000 4,078,160
Duke Capital Corp., 7.5s, 2009 6,781 6,751,164
Edison International, Inc., 6.875s, 2004 12,813 12,702,296
El Paso Electric Co., 8.9s, 2006 1,710 1,788,780
Entergy Mississippi, Inc., 6.2s, 2004 1,965 1,880,780
GGIB Funding Corp., 7.43s, 2011 3,417 3,295,396
Gulf States Utilities, 8.21s, 2002 10,575 10,846,354
Long Island Lighting Co., 8.2s, 2023 3,734 3,708,086
Midland Funding Corp. I, 10.33s, 2002 10,548 10,948,505
Niagara Mohawk Power Corp., 7.375s, 2003 9,436 9,453,742
Niagara Mohawk Power Corp., 0s to 2003, 8.5s to 2010 1,011 757,057
Niagara Mohawk Power Corp., 8.75s, 2022 825 844,066
Niagara Mohawk Power Corp., 8.5s, 2023 351 365,447
North Atlantic Energy, 9.05s, 2002 1,864 1,902,622
Northeast Utilities, 8.38s, 2005 3,699 3,662,946
Northeast Utilities, 8.58s, 2006 2,349 2,369,068
RGS Aegco Funding Corp., 9.81s, 2022 3,548 4,060,396
Salton Sea Funding Corp., 6.69s, 2000 575 576,635
Salton Sea Funding Corp., 7.37s, 2005 2,146 2,104,500
Salton Sea Funding Corp., 7.84s, 2010 3,925 3,826,169
Salton Sea Funding Corp., 8.3s, 2011 1,361 1,363,292
Seabrook Station - Unit 1, 7.83s, 2019 6,846 6,874,278
TXU Eastern Funding, 6.45s, 2005## 2,883 2,716,161
Waterford 3 Funding Corp., 8.09s, 2017 7,752 7,587,740
--------------
$ 162,454,211
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.8%
Northern Natural Gas, 7s, 2011## $ 14,124 $ 13,505,510
Southern Union Co., 8.25s, 2029 6,602 6,735,162
Tennessee Gas Pipeline Co., 7.625s, 2037 2,600 2,500,706
Texas Gas Transmission Corp., 7.25s, 2027 10,265 9,390,833
Williams Cos., Inc., 7.625s, 2019 1,450 1,410,299
--------------
$ 33,542,510
- --------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 801,655,480
- --------------------------------------------------------------------------------------------------------
Foreign Bonds - 11.8%
Argentina - 1.0%
Republic of Argentina, 0s, 2001 $ 13,947 $ 12,343,095
- --------------------------------------------------------------------------------------------------------
Canada - 1.1%
AT&T Canada, 7.65s, 2006 (Telecommunications)## $ 4,285 $ 4,316,280
Metronet Communications Corp., 0s to 2003, 9.95s to
2008 (Telecommunications) 5,520 4,295,002
Province of Quebec, 7.5s, 2029 5,000 5,024,000
--------------
$ 13,635,282
- --------------------------------------------------------------------------------------------------------
Chile - 0.7%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## $ 6,500 $ 6,367,270
Empresa Nacional de Electric, 7.325s, 2037
(Utilities - Electric) 2,365 2,113,293
--------------
$ 8,480,563
- --------------------------------------------------------------------------------------------------------
Finland - 0.6%
UPM-Kymmene Corp., 7.45s, 2027 (Forest and Paper Products)## $ 7,362 $ 6,830,832
- --------------------------------------------------------------------------------------------------------
Israel - 1.4%
Israel Electric Corp. Ltd., 8.25s, 2009 (Utilities
- Electric)## $ 16,527 $ 16,592,282
- --------------------------------------------------------------------------------------------------------
Luxembourg - 0.2%
Millicom Intl Cellular Corp., 0s to 2001, 13.5s to 2006
(Cellular Telephones) $ 4,000 $ 2,900,000
- --------------------------------------------------------------------------------------------------------
Mexico - 0.4%
Corporacion Andina de Fomento, 7.1s, 2003 (Banks
and Credit Cos.) $ 1,672 $ 1,638,226
United Mexican States, 10.375s, 2009 3,000 3,060,000
--------------
$ 4,698,226
- --------------------------------------------------------------------------------------------------------
Netherlands - 0.4%
Hermes Europe Railtel BV, 10.375s, 2009 (Telecommunications) $ 4,760 $ 4,474,400
- --------------------------------------------------------------------------------------------------------
Norway - 0.8%
Union Bank Norway, 7.35s, 2049 (Banks and Credit Cos.)## $ 10,000 $ 9,779,000
- --------------------------------------------------------------------------------------------------------
Panama - 0.2%
Republic of Panama, 4s, 2016 $ 2,678 $ 2,008,279
- --------------------------------------------------------------------------------------------------------
Philippines - 0.2%
Philippines Republic, 9.875s, 2019 $ 2,717 $ 2,628,697
- --------------------------------------------------------------------------------------------------------
Poland - 0.4%
Netia Holdings B V, 10.25s, 2007 (Consumer Goods and Services) $ 2,260 $ 1,921,000
Netia Holdings B V, 0s to 2001, 11.25s to 2007
(Consumer Goods and Services) 700 434,000
Telekomunikacja Polska S.A. Finance BV, 7.75s, 2008
(Utilities - Telephone)## 2,750 2,597,925
--------------
$ 4,952,925
- --------------------------------------------------------------------------------------------------------
South Korea - 0.9%
Export-Import Bank Korea, 7.1s, 2007 (Banks and
Credit Cos.) $ 11,151 $ 10,999,346
- --------------------------------------------------------------------------------------------------------
Sweden - 1.0%
AB Spintab, 6.8s, 2049 (Banks & Credit Cos.)## $ 12,536 $ 12,184,114
- --------------------------------------------------------------------------------------------------------
Thailand - 0.2%
Jasmine Submarine Telecom Ltd., 8.483s, 2011 (Industrial)## $ 2,292 $ 1,766,747
- --------------------------------------------------------------------------------------------------------
United Kingdom - 2.3%
Abbey National PLC, 6.7s, 2049 (Banks and Credit Cos.) $ 11,896 $ 10,795,144
British Sky Broadcasting Group, 6.875s, 2009
(Telecommunications) 6,435 5,726,828
British Sky Broadcasting Group, 8.2s, 2009
(Telecommunications)## 6,311 6,147,482
Colt Telecom Group PLC, 7.625s, 2008
(Telecommunications) DEM 3,400 1,797,760
Telewest PLC, 9.625s, 2006 (Media) 3,850 3,888,500
--------------
$ 28,355,714
- --------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 142,629,502
- --------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 5.2%
Federal Home Loan Pc, 9.5s, 2001 $ 1 $ 1,486
Federal Home Loan Pc, 5.7s, 2009 13,200 12,263,592
Federal Home Loan Pc, 6.5s, 2028 5,501 5,273,652
FNMA, 5.25s, 2009 10,042 9,036,193
FNMA, 6.625s, 2009 10,650 10,573,427
FNMA, 6.5s, 2028 22,202 21,272,382
FNMA, 8s, 2028 - 2029 4,400 4,482,945
- --------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 62,903,677
- --------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 14.7%
Government National Mortgage Association - 7.2%
GNMA, 8s, 2025 - 2026 $ 11,484 $ 11,680,372
GNMA, 6.5s, 2029 - 2029 3,715 3,550,347
GNMA, 7.5s, 2006 - 2028 TBA 55,560 55,705,355
GNMA, 7s, 2022 - 2028 TBA 17,021 16,696,864
--------------
$ 87,632,938
- --------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 7.5%
U.S. Treasury Bonds, 12.375s, 2004 $ 10,000 $ 12,425,000
U.S. Treasury Bonds, 8.5s, 2020 7,150 8,735,298
U.S. Treasury Bonds, 6.125s, 2027 - 2029 49,614 48,740,372
U.S. Treasury Bonds, 5.25s, 2028 - 2029*** 23,175 19,966,117
U.S. Treasury Notes, 7.875s, 2004 570 614,175
U.S. Treasury Notes, 6s, 2004 - 2009*** 771 771,750
--------------
$ 91,252,712
- --------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 178,885,650
- --------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,229,568,431) $1,186,074,309
- --------------------------------------------------------------------------------------------------------
Preferred Stock - 0.5%
- --------------------------------------------------------------------------------------------------------
SHARES
- --------------------------------------------------------------------------------------------------------
Media - 0.1%
Primedia, Inc., 8.625%* 13,250 $ 1,219,000
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.3%
NB Capital Corp., 8.35% 160,000 $ 3,740,000
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Tennessee Pipeline Co., 8.25% 30,000 $ 1,575,000
- --------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $6,811,750) $ 6,534,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,236,380,181) $1,192,608,309
Other Assets, Less Liabilities - 1.7% 20,594,361
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,213,202,670
- --------------------------------------------------------------------------------------------------------
* Non income producing security.
** Non income producing security-in default.
*** Securities held as futures collateral.
## 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 (Unaudited)
- --------------------------------------------------------------------------------
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,236,380,181) $1,192,608,309
Receivable for daily variation margin on open future
contracts 430,375
Receivable for Fund shares sold 2,402,534
Receivable for investments sold 43,829,642
Interest receivable 23,661,572
Other assets 30,388
--------------
Total assets $1,262,962,820
--------------
Liabilities:
Cash overdraft $ 833,969
Payable for Fund shares reacquired 4,407,428
Payable for investments purchased 44,007,999
Net payable for forward foreign currency exchange
contracts closed or subject to master netting
agreements 15,027
Payable to affiliates -
Management fee 38,684
Shareholder servicing agent fee 9,942
Distribution and service fee 52,146
Administrative fee 1,449
Accrued expenses and other liabilities 393,506
--------------
Total liabilities $ 49,760,150
--------------
Net assets $1,213,202,670
==============
Net assets consist of:
Paid-in capital $1,313,260,593
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (42,339,456)
Accumulated net realized loss on investments and
foreign currency transactions (60,124,725)
Accumulated undistributed net investment income 2,406,258
--------------
Total $1,213,202,670
==============
Shares of beneficial interest outstanding 98,513,582
==========
Class A shares:
Net asset value per share
(net assets of $811,226,773 / 65,803,123 shares of
beneficial interest outstanding) $12.33
======
Offering price per share (100 / 95.25 of net asset
value per share) $12.94
======
Class B shares:
Net asset value and offering price per share
(net assets of $302,283,628 / 24,595,979 shares of
beneficial interest outstanding) $12.29
======
Class C shares:
Net asset value and offering price per share
(net assets of $90,556,801 / 7,373,896 shares of
beneficial interest outstanding) $12.28
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $9,135,468 / 740,584 shares of
beneficial interest outstanding) $12.34
======
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 47,515,257
Dividends 286,009
------------
Total investment income $ 47,801,266
------------
Expenses -
Management fee $ 2,385,237
Trustees' compensation 37,320
Shareholder servicing agent fee 621,902
Distribution and service fee (Class A) 1,259,077
Distribution and service fee (Class B) 1,521,895
Distribution and service fee (Class C) 454,573
Administrative fee 90,375
Custodian fee 175,598
Postage 73,051
Printing 54,912
Auditing fees 20,295
Legal fees 3,837
Miscellaneous 389,201
------------
Total expenses $ 7,087,273
Fees paid indirectly (139,586)
------------
Net expenses $ 6,947,687
------------
Net investment income $ 40,853,579
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(34,333,215)
Written option transactions 191,520
Foreign currency transactions 892,742
Futures contracts (2,132,199)
------------
Net realized loss on investments and foreign
currency transactions $(35,381,152)
------------
Change in unrealized appreciation (depreciation) -
Investments $(39,961,542)
Written options (165,312)
Translation of assets and liabilities in foreign
currencies (469,155)
Futures contracts 1,941,640
------------
Net unrealized loss on investments and foreign
currency translation $(38,654,369)
------------
Net realized and unrealized loss on investments and
foreign currency $(74,035,521)
------------
Decrease in net assets from operations $(33,181,942)
============
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 40,853,579 $ 72,237,750
Net realized loss on investments and foreign currency
transactions (35,381,152) (23,260,488)
Net unrealized loss on investments and foreign currency
translation (38,654,369) (15,750,017)
-------------- --------------
Increase (decrease) in net assets from operations $ (33,181,942) $ 33,227,245
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (28,040,599) $ (52,172,585)
From net investment income (Class B) (9,129,994) (14,082,874)
From net investment income (Class C) (2,731,093) (3,813,225)
From net investment income (Class I) (318,408) (641,314)
From net realized gain on investments and foreign
currency transactions (Class A) -- (1,754,351)
From net realized gain on investments and foreign
currency transactions (Class B) -- (563,728)
From net realized gain on investments and foreign
currency transactions (Class C) -- (160,932)
From net realized gain on investments and foreign
currency transactions (Class I) -- (20,261)
In excess of net realized gain on investments and
foreign currency transactions (Class A) -- (831,643)
In excess of net realized gain on investments and
foreign currency transactions (Class B) -- (267,233)
In excess of net realized gain on investments and
foreign currency transactions (Class C) -- (76,289)
In excess of net realized gain on investments and
foreign currency transactions (Class I) -- (9,605)
-------------- --------------
Total distributions declared to shareholders $ (40,220,094) $ (74,394,040)
-------------- --------------
Net increase in net assets from Fund share transactions $ 23,264,839 $ 357,103,160
-------------- --------------
Total increase (decrease) in net assets $ (50,137,197) $ 315,936,365
Net assets:
At beginning of period 1,263,339,867 947,403,502
-------------- --------------
At end of period (including undistributed net
investment income of $2,406,258 and $1,772,773,
respectively) $1,213,202,670 $1,263,339,867
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED -------------------------------------------------------------------------
OCTOBER 31, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
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 $13.08 $13.57 $13.04 $12.85 $12.71 $12.75
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.43 $ 0.88 $ 0.89 $ 0.94 $ 0.95 $ 0.98
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.75) (0.46) 0.55 0.18 0.15 (0.05)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.32) $ 0.42 $ 1.44 $ 1.12 $ 1.10 $ 0.93
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.43) $(0.87) $(0.91) $(0.93) $(0.94) $(0.89)
From net realized gain on
investments and foreign
currency transactions -- (0.03) -- -- -- --
In excess of net investment
income+++ -- -- (0.00) -- -- --
In excess of net realized gain
on investments and foreign
currency transactions -- (0.01) -- -- -- --
From paid-in capital -- -- -- -- (0.02) (0.08)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.43) $(0.91) $(0.91) $(0.93) $(0.96) $(0.97)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.33 $13.08 $13.57 $13.04 $12.85 $12.71
====== ====== ====== ====== ====== ======
Total return(+) (2.48)%++ 3.22% 11.36% 8.99% 8.67% 7.78%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.92%+ 0.96% 0.98% 1.02% 1.00% 1.00%
Net investment income 6.81%+ 6.61% 6.61% 7.12% 7.10% 7.91%
Portfolio turnover 147% 343% 333% 446% 377% 306%
Net assets at end of period (000
Omitted) $811,227 $866,388 $708,021 $541,710 $514,892 $477,056
(S) The investment adviser and/or the distributor voluntarily waived a portion of their fees for certain of the periods
indicated. If these fees had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment income $ -- $ -- $ -- $ -- $ -- $ 0.97
Ratios (to average net assets):
Expenses## -- -- -- -- -- 1.10%
Net investment income -- -- -- -- -- 7.81%
+ 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.
(+) 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.
# Per share data are based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's ratios do not reflect expense reductions from certain expense
offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED -------------------------------------------------------------------------
OCTOBER 31, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
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 $13.04 $13.52 $12.99 $12.79 $12.69 $12.73
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.39 $ 0.78 $ 0.79 $ 0.83 $ 0.85 $ 0.88
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.76) (0.45) 0.54 0.19 0.13 (0.05)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.37) $ 0.33 $ 1.33 $ 1.02 $ 0.98 $ 0.83
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.38) $(0.77) $(0.80) $(0.82) $(0.85) $(0.80)
From net realized gain on
investments and foreign
currency transactions -- (0.03) -- -- -- --
In excess of net investment
income+++ -- -- (0.00) -- (0.01) --
In excess of net realized gain
on investments and foreign
currency transactions -- (0.01) -- -- -- --
From paid-in capital -- -- -- -- (0.02) (0.07)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.38) $(0.81) $(0.80) $(0.82) $(0.88) $(0.87)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.29 $13.04 $13.52 $12.99 $12.79 $12.69
====== ====== ====== ====== ====== ======
Total return (2.84)%++ 2.54% 10.52% 8.16% 7.90% 6.90%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.62%+ 1.66% 1.68% 1.76% 1.81% 1.84%
Net investment income 6.11%+ 5.92% 5.90% 6.39% 6.29% 7.17%
Portfolio turnover 147% 343% 333% 446% 377% 306%
Net assets at end of period (000
Omitted) $302,284 $299,523 $187,905 $123,000 $102,914 $75,451
+ Annualized.
++ Not annualized.
+++ 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 ratios do not reflect expense reductions from certain expense
offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED -------------------------------------------------------------------------
OCTOBER 31, 1999 1999 1998 1997 1996 1995
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
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 $13.03 $13.52 $12.98 $12.79 $12.68 $12.72
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.39 $ 0.78 $ 0.78 $ 0.83 $ 0.85 $ 0.88
Net realized and unrealized
gain (loss) on investments
and foreign currency (0.76) (0.46) 0.56 0.20 0.15 (0.05)
------ ------ ------ ------ ------ ------
Total from investment
operations $(0.37) $ 0.32 $ 1.34 $ 1.03 $ 1.00 $ 0.83
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.38) $(0.77) $(0.80) $(0.84) $(0.85) $(0.80)
From net realized gain on
investments and foreign
currency transactions -- (0.03) -- -- -- --
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) (0.07)
------ ------ ------ ------ ------ ------
Total distributions
declared to shareholders $(0.38) $(0.81) $(0.80) $(0.84) $(0.89) $(0.87)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.28 $13.03 $13.52 $12.98 $12.79 $12.68
====== ====== ====== ====== ====== ======
Total return (2.84)%++ 2.48% 10.54% 8.27% 7.90% 7.00%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.62%+ 1.66% 1.68% 1.74% 1.74% 1.75%
Net investment income 6.11%+ 5.92% 5.89% 6.44% 6.35% 7.17%
Portfolio turnover 147% 343% 333% 446% 377% 306%
Net assets at end of period (000
Omitted) $90,557 $88,173 $42,229 $20,003 $17,330 $8,171
+ Annualized.
++ Not annualized.
+++ 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 ratios do not reflect expense reductions from certain expense
offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------
OCTOBER 31, 1999 1999 1998 1997*
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
CLASS I
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $13.09 $13.58 $13.05 $13.15
------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.45 $ 0.92 $ 0.94 $ 0.31
Net realized and unrealized gain (loss) on
investments and foreign currency (0.75) (0.45) 0.55 (0.09)
------ ------ ------ ------
Total from investment operations $(0.30) $ 0.47 $ 1.49 $ 0.22
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.45) $(0.92) $(0.96) $(0.32)
From net realized gain on investments and foreign
currency transactions -- (0.03) -- --
In excess of net investment income+++ -- -- (0.00) --
In excess of net realized gain on investments and
foreign currency transactions -- (0.01) -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.45) $(0.96) $(0.96) $(0.32)
------ ------ ------ ------
Net asset value - end of period $12.34 $13.09 $13.58 $13.05
====== ====== ====== ======
Total return (2.41)%++ 3.56% 11.72% 1.70%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.62%+ 0.65% 0.68% 0.69%+
Net investment income 7.11%+ 6.90% 6.95% 7.19%+
Portfolio turnover 147% 343% 333% 446%
Net assets at end of period (000 Omitted) $9,135 $9,256 $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.
## For fiscal years ending after September 1, 1995, the Fund's ratios do not reflect expense reductions from certain
expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(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. The Fund
can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues and forward
contracts are valued on the basis of valuations furnished by dealers or by a
pricing service with consideration to factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data,
without exclusive reliance upon exchange or over-the-counter prices. Short-
term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Futures contracts and options 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 in good faith by 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 as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date. Some securities may be
purchased on a "when-issued" or "forward delivery" basis, which means that the
securities will be delivered to the Fund at a future date, usually beyond
customary settlement time.
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 made directly
to the security issuer, which are generally non-recurring, incurred to protect
or enhance the value of high-yield debt securities, are reported as additions
to the cost basis of the security. Costs that are incurred to negotiate the
terms or conditions of capital infusions or that are expected to result in a
plan of reorganization are reported as realized losses. Ongoing costs incurred
to protect or enhance an investment, or costs incurred to pursue other claims
or legal actions, are expensed.
Fees Paid Indirectly - The Fund's custody fee is 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. During the period, the Fund's custodian fees were reduced by
$139,586 under this arrangement.
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.
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 be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
At April 30, 1999, the Fund, for federal income tax purposes, had a capital
loss carryforward of $22,948,613 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on April 30, 2007.
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 daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at 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
$11,270 for the six months ended October 31, 1999.
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
$178,934 for the six months ended October 31, 1999, as its portion of the
sales charge on sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer (reduced to a
maximum of 0.15% per annum for the Fund shares sold prior to March 1, 1991)
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 will commence on such date as the Trustees of the Trust
may determine. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $167,376 for the six months ended October
31, 1999. Fees incurred under the distribution plan during the six months
ended October 31, 1999, 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 $26,811 and $23,001 for
Class B and Class C shares, respectively, for the six months ended October 31,
1999. Fees incurred under the distribution plan during the six months ended
October 31, 1999, were 1.00% of average daily net assets attributable to Class
B and Class C shares, respectively, on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended October
31, 1999, were $26,156, $355,527, and $28,993 for Class A, Class B, and Class
C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an annual rate of
0.10%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
- --------------------------------------------------------------------------------
U.S. government securities $803,752,368 $846,275,310
------------ ------------
Investments (non-U.S. government securities) $966,992,179 $936,016,401
------------ ------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $1,238,657,475
--------------
Gross unrealized depreciation $ (50,161,893)
Gross unrealized appreciation 4,112,727
--------------
Net unrealized depreciation $ (46,049,166)
==============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
SIX MONTHS ENDED OCTOBER 31, 1999 YEAR ENDED APRIL 30, 1999
--------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 16,212,212 $ 203,564,409 40,031,279 $ 531,351,372
Shares issued to shareholders in
reinvestment of distributions 1,775,947 22,265,336 3,078,680 40,904,085
Shares reacquired (18,419,239) (231,257,408) (29,066,686) (384,382,947)
----------- ------------- ----------- -------------
Net increase (decrease) (431,080) $ (5,427,663) 14,043,273 $ 187,872,510
=========== ============= =========== =============
<CAPTION>
Class B Shares
SIX MONTHS ENDED OCTOBER 31, 1999 YEAR ENDED APRIL 30, 1999
--------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,069,222 $ 63,557,972 15,199,199 $ 201,584,950
Shares issued to shareholders
in reinvestment of distributions 508,299 6,352,946 766,154 10,143,630
Shares reacquired (3,947,503) (49,342,134) (6,895,533) (91,242,870)
----------- ------------- ----------- -------------
Net increase 1,630,018 $ 20,568,784 9,069,820 $ 120,485,710
=========== ============= =========== =============
<CAPTION>
Class C Shares
SIX MONTHS ENDED OCTOBER 31, 1999 YEAR ENDED APRIL 30, 1999
--------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,952,099 $ 24,438,554 5,221,069 $ 69,212,937
Shares issued to shareholders
in reinvestment of distributions 127,487 1,591,869 173,891 2,299,453
Shares reacquired (1,470,920) (18,322,642) (1,753,984) (23,115,757)
----------- ------------- ----------- -------------
Net increase 608,666 $ 7,707,781 3,640,976 $ 48,396,633
=========== ============= =========== =============
<CAPTION>
Class I Shares
SIX MONTHS ENDED OCTOBER 31, 1999 YEAR ENDED APRIL 30, 1999
--------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 37,219 $ 465,161 24,684 $ 329,363
Shares issued to shareholders
in reinvestment of distributions 25,219 316,232 50,434 671,204
Shares reacquired (29,074) (365,456) (49,100) (652,260)
----------- ------------- ----------- -------------
Net increase 33,364 $ 415,937 26,018 $ 348,307
=========== ============= =========== =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in an $820 million unsecuredl
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, 1999, was $3,993. The Fund had no
borrowings during the period.
(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.
<TABLE>
<CAPTION>
Written Option Transactions
1999 CALLS 1999 PUTS
--------------------------------- ---------------------------------
PRINCIPAL AMOUNTS PRINCIPAL AMOUNTS
OF CONTRACTS OF CONTRACTS
(000 OMITTED) PREMIUMS (000 OMITTED) PREMIUMS
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF PERIOD -
Japanese Yen -- $ -- 6,552,000 $ 191,520
Options terminated in closing
transactions -
Options expired -- -- (6,552,000) (191,520)
--------- -------- ---------- ----------
OUTSTANDING, END OF PERIOD -- $ -- -- $ --
========= ======== ========= ==========
</TABLE>
Forward Foreign Exchange Contracts
At October 31, 1999, forward foreign currency sales under master netting
agreements amounted to a net payable of $15,027 with Merrill Lynch.
At October 31, 1999, 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 December 1999 766 Long $1,174,127
U.S. Treasury Bonds December 1999 1,150 Short 273,588
----------
$1,447,715
==========
At October 31, 1999, the Fund had sufficient cash and/or securities to cover
any margin requirements under these contracts.
(9) 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,
1999, the Fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.26% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The Fund
does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, in good faith by the Trustees.
<TABLE>
<CAPTION>
DATE OF SHARE/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage Investors, Inc.,
8.373s, 2022 6/22/1994 2,000,000 $1,386,250 $1,864,062
Airplane Pass-Through Trust,
10.875s, 2019 3/13/1996 1,500,000 1,500,000 1,338,105
----------
$3,202,167
==========
</TABLE>
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and
on behalf of the MFS funds, is committed to the effective
use of technology in managing our portfolio investments, [Graphic Omitted]
delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional
clients, and supporting the financial consultants who sell
our products.
MFS can now say that it is ready for the Year 2000. Our testing has demonstrated
that MFS' computer hardware and software will recognize "00" as the Year 2000
and will not confuse those digits with 1900. All of our critical business
applications and processes have been successfully tested, and we have adopted
companywide policies that will help us maintain our readiness through the
remainder of the year. Any new technology that is brought into the company
before the end of the year will be held to the same stringent standards as our
current technology. We have also developed a vendor readiness survey, contacted
over 700 of our vendors, and established an ongoing process to review responses,
as well as to review readiness statements of new vendors and products.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS fund shareholders, retirement plan participants, or
institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com, call our toll-free line, 1-800-637-4406, or
write to the MFS Year 2000 Program Management Office by e-mail at [email protected] or
by letter at 500 Boylston Street, Boston, MA 02116-3741.
<PAGE>
MFS(R) BOND FUND
<TABLE>
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management(R) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
J. Atwood Ives+ - Chairman and Chief Executive
Officer, Eastern Enterprises (diversified services CUSTODIAN
company) State Street Bank and Trust Company
Lawrence T. Perera+ - Partner, Hemenway & Barnes INVESTMENT INFORMATION
(attorneys) For information on MFS mutual funds, call your
financial consultant or, for an information kit,
William J. Poorvu+ - Adjunct Professor, Harvard call toll free: 1-800-637-2929 any business day
University Graduate School of Business from 9 a.m. to 5 p.m. Eastern time (or leave a
Administration message anytime).
Charles W. Schmidt+ - Private Investor INVESTOR SERVICE
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive Vice P.O. Box 2281
President, Director, and Secretary, MFS Investment Boston, MA 02107-9906
Management
For general information, call toll free:
Jeffrey L. Shames* - Chairman and Chief Executive 1-800-225-2606 any business day from
Officer, MFS Investment Management 8 a.m. to 8 p.m. Eastern time
Elaine R. Smith+ - Independent Consultant For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from
David B. Stone+ - Chairman, North American 9 a.m. to 5 p.m. Eastern time. (To use this
Management Corp. (investment advisers) service, your phone must be equipped with a
Telecommunications Device for the Deaf.)
INVESTMENT ADVISER
Massachusetts Financial Services Company For share prices, account balances, exchanges, or
500 Boylston Street MFS stock and bond market outlooks, call toll
Boston, MA 02116-3741 free: 1-800-MFS-TALK (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
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames*
PORTFOLIO MANAGER
Geoffrey L. Kurinsky*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
+ Independent Trustee
* MFS Investment Management
</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) 1999 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MFB-3 12/99 106M 11/211/311/811
