<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) BOND FUND
ANNUAL REPORT o APRIL 30, 1999
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 39)
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<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 20
Notes to Financial Statements ............................................. 27
Independent Auditors' Report .............................................. 36
MFS' Year 2000 Readiness Disclosure ....................................... 38
Trustees and Officers ..................................................... 41
MFS(R) ORIGINAL RESEARCH(SM)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Over 75 years ago, MFS invented the mutual fund, giving Americans greater
access to the investment markets. Since then, we have been guided by a number
of fundamental principles, including diversification and professional
management backed by MFS(R) Original Research(SM), a process by which we seek
long-term investment opportunities.
We have found that these principles have matched those of our shareholders. In a
recent survey for MFS by Roper Starch Worldwide, Inc., a major consumer research
firm, over 60% of mutual fund shareholders said they are investing for long-term
goals such as retirement. The survey also showed that investors realize that the
extraordinary stock market gains of the past few years cannot be sustained.
These views certainly seem to have guided investors during last year's market
correction. Beginning with the collapse of Asian markets at the end of 1997 and
continuing with the volatility in U.S. markets through October of 1998, only 7%
of mutual fund investors took money out of the stock market.
We are even more pleased that MFS investors reacted calmly to last year's
market turmoil, indicating their commitment to diversification. As a result,
throughout the late summer and fall of 1998, daily purchases of MFS stock and
bond funds were well ahead of redemptions.
Over the past year or so, however, diversified investment programs have not
financially rewarded investors. A very narrow band of about 25 stocks
representing the largest U.S. growth companies has, until recently, vastly
outperformed the rest of the market. In 1998, for example, the return on the
Standard & Poor's 500 Composite Index (a popular, unmanaged index of common
stock total return performance) increased 28.58%. However, over half of the
stocks in the index returned less than 10%, including 198 stocks that posted
negative returns.
While 1997 and 1998 were good years for large-company growth stocks, 1996 was
dominated by the mid-sized value category. Prices of value stocks do not fully
reflect the companies' underlying values or future prospects. In 1995, the
best-performing sector was small-company growth stocks. We believe this change
of market leadership shows that while diversification may not provide the best
performance in the short run, it should benefit investors over the long term. In
fact, as 1999 progresses, we are seeing signs of renewed strength from a broader
group of industries, including electric utilities and paper products and
chemical companies. We believe our diversified MFS Family of Funds(R), supported
by Original Research, is well positioned to benefit from a broader market.
Most mutual fund investors refrain from trying to predict short-term trends.
Despite the large stock market gains of the past several years, the Roper
Starch survey shows that people do not see performance as the only
reason to invest. These investors also cite a desire to put investment
decisions in the hands of experts, a belief that mutual funds can be less
risky than other investments, and an appreciation of the convenience of mutual
fund investing.
We appreciate the fact that our fund shareholders and their advisers share our
belief that mutual fund investing is not a way to speculate in the markets but
is a way to use the investment markets to help them work toward their long-term
goals. Our goal at MFS is to offer professionally managed investment products
with the potential to sustain returns over a variety of market cycles.
We thank you for 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)
May 17, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Geoffrey L. Kurinsky]
Geoffrey L. Kurinsky
For the 12 months ended April 30, 1999, Class A shares of the Fund provided a
total return of 3.22%, Class B shares 2.54%, Class C shares 2.48%, and Class I
shares 3.56%. These returns include the reinvestment of distributions but
exclude the effects of any sales charges.
During the same period, the average corporate debt fund tracked by Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance, returned 4.25%. The Fund's results also compare to a 6.28% 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 FACTORS HURT THE FUND'S PERFORMANCE OVER THE PAST 12 MONTHS?
A. Most of the negative impact on the Fund took place in 1998 when the Russian
government defaulted on its debt. Like many other people, we were surprised
by the Russian default. The general feeling among investors was that the
International Monetary Fund would help Russia avoid default. When that
didn't happen, a chain reaction was set off. Investors moved money into
what they saw as the safest securities -- U.S. Treasuries. As a result of
the higher demand, interest rates on Treasuries fell while rates on
everything else, including emerging market and corporate debt, increased.
This sequence of events hurt the Fund because we had a small position in
emerging market bonds and a significant exposure to corporate bonds.
Corporate bonds typically make up around two-thirds of the portfolio. As
interest rates on these bonds increased, their prices fell, resulting in
lower returns for the Fund.
Q. WHAT ARE YOU DOING TO IMPROVE PERFORMANCE?
A. We're sticking with our current strategy and keeping our core positions in
fixed-income securities of U.S. corporations with strong and improving
credit profiles. The U.S. economy is strong, and inflation is low. We
believe these conditions should help the high-grade and high-yield bonds in
the Fund to continue to improve following the turmoil of 1998. We have
begun to re-enter emerging markets, but we are investing selectively in
countries that we think have made more progress toward economic reform.
Q. HAVE YOU MADE ANY CHANGES TO THE FUND'S ALLOCATIONS?
A. Our corporate weighting has increased over the past year, another result of
our favorable economic outlook. About 55% of the Fund is in investment-
grade corporate bonds, and 20% is in high-yield corporates. We also have
10% in mortgage-backed securities and 15% in U.S. government-agency
securities.
Q. WHAT INDUSTRIES ARE YOU EMPHASIZING?
A. We are adding to our positions in cyclical industries that we think can
benefit from the strong economy. In transportation, for example, we've
established a position in Union Pacific Railroad. Not only is the company
increasing shipments because of general economic growth, it is also a
turnaround story. When Union Pacific acquired Southern Pacific a few years
ago, it had a lot of logistical problems integrating the two railroad
systems. But the company seems to have fixed most of the operational
problems and has regained business it lost to truckers and other railroads.
The airline business also is cyclical, and we bought securities of a few
major companies, including Continental. The securities we are buying are
called enhanced-equipment trust certificates. They can be especially
secure; not only have the companies stood behind their bonds, but also
investors have the additional protection of having the planes as
collateral.
We have added some paper and packaging companies as well. Packaging
businesses typically do well when the economy is strong because companies
need more boxes to ship the products people buy. A new holding is Smurfit
Capital in Ireland, one of the world's leading producers of container board.
We also bought UPM- Kymmene, a Finnish paper company, and Gaylord Container,
a U.S. company that makes boxes and other packaging. Cyclicals currently make
up about 12% of the portfolio, the largest cyclical weighting we have had in
quite a while.
Q. HOW ARE THE HIGH-YIELD BONDS PERFORMING?
A. After declining along with other fixed-income markets last summer, our
high-yield securities have performed well. Many of those issuers, such as
Gaylord Container, AK Steel, and Regal Cinemas, have benefited from the
strong U.S. economy.
Q. YOU HAVE LARGE POSITIONS IN MEDIA AND TELECOMMUNICATIONS. WHY DO YOU LIKE
THESE COMPANIES?
A. This is another sector with several companies moving up from the high-yield
to the investment-grade category. These companies took on a lot of debt to
build their networks or to make some very big acquisitions in the early- and
mid-1990s. Now, they are reaping the benefits of those acquisitions and are
able to cut costs, generate more cash flow, and pay off debt. Examples
include Time Warner, which bought Turner Broadcasting; Telecommunications,
Inc., which was bought by AT&T; MCI WorldCom, the result of the takeover of
MCI by WorldCom; and Qwest Communications.
Q. HOW DOES THE FUND REFLECT YOUR VIEWS ON INTEREST RATES?
A. Given recent signs of continued economic strength, the Fund's interest-rate
sensitivity is neutral to the Lehman Index. If we see signs of a potential
economic slowdown, we will increase the interest-rate sensitivity of the
portfolio by buying longer-maturity securities.
Q. WHAT'S YOUR OUTLOOK FOR THE FIXED-INCOME MARKETS?
A. We think the environment will get a lot trickier toward the summer and fall
months. Corporate bonds have a seasonal aspect because investors buy more in
the first two quarters and less toward the end of the year. We also have some
uncertainty about the potential effects of the Year 2000 computer issue in
the second half of 1999. Also, the economy grew very strongly in the fourth
quarter of 1998 and the first quarter of 1999, and it will be hard to sustain
such a rapid rate of growth. If there is an economic slowdown, some companies
could have trouble making their debt payments. Therefore, if we see any signs
that the economy is starting to slow, we will reduce our exposure to
corporates and cyclicals and go back to more traditional holdings such as
utilities.
/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.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
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. HE IS ALSO A
PORTFOLIO MANAGER OF MFS(R) TOTAL RETURN FUND, THE TOTAL RETURN SERIES
OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS, AND MFS(R) TOTAL
RETURN SERIES (PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)).
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(R) ORIGINAL
RESEARCH(SM), 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 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: $1.3 BILLION NET ASSETS AS OF APRIL 30, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
reflect the percentage change in net asset value, including reinvestment of
dividends. Benchmark comparisons are unmanaged and do not reflect any fees or
expenses. The performance of other share classes will be greater than or less
than the line shown. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the 10-year period ended April 30, 1999)
Lehman Brothers
MFS Bond Fund Government/Corporate
-- Class A Bond Index
- ------------------------------------------------
5/89 $ 9,525 $10,000
4/91 11,796 12,204
4/93 15,055 15,400
4/95 16,572 17,362
4/97 19,627 19,503
4/99 22,562 23,425
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS THROUGH APRIL 30, 1999
<TABLE>
CLASS A
<CAPTION>
1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.22% +25.27% +46.73% +136.95%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return +3.22% + 7.80% + 7.97% + 9.01%
- ------------------------------------------------------------------------------------------------------------
SEC Results -1.68% + 6.07% + 6.93% + 8.48%
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</TABLE>
<TABLE>
CLASS B
<CAPTION>
1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +2.54% +22.57% +41.37% +127.14%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return +2.54% + 7.02% + 7.17% + 8.55%
- ------------------------------------------------------------------------------------------------------------
SEC Results -1.32% + 6.14% + 6.87% + 8.55%
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</TABLE>
<TABLE>
CLASS C
<CAPTION>
1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +2.48% +22.64% +41.57% +127.98%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return +2.48% + 7.04% + 7.20% + 8.59%
- ------------------------------------------------------------------------------------------------------------
SEC Results +1.51% + 7.04% + 7.20% + 8.59%
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</TABLE>
<TABLE>
CLASS I
<CAPTION>
1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return +3.56% +26.36% +48.02% +138.92%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return +3.56% + 8.11% + 8.16% + 9.10%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
COMPARATIVE INDICES
<CAPTION>
1 Year 3 Years 5 Years 10 Years/Life
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average corporate debt "BBB"-rated fund* +4.25% + 7.90% + 8.05% + 8.92%
- ------------------------------------------------------------------------------------------------------------
Lehman Brothers Government/Corporate Bond Index+ +6.28% + 8.09% + 7.97% + 8.88%
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* Source: Lipper Analytical Services, Inc.
+ Source: Standard & Poor's Micropal, Inc.
</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.
PORTFOLIO CONCENTRATION AS OF APRIL 30, 1999
PORTFOLIO STRUCTURE
High-Grade Corporates 49.4%
High-Yield Corporates 16.0%
U.S. Treasuries 10.7%
Mortgage Backed 10.6%
Emerging Markets 5.4%
Yankee 4.3%
Asset Backed 2.2%
International 0.8%
Equities 0.6%
The portfolio is actively managed, and holdings are subject to change.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- April 30, 1999
<CAPTION>
Bonds - 100.3%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 60.7%
Aerospace - 0.2%
BE Aerospace, Inc., 8s, 2008 $ 3,085 $ 3,061,863
- ------------------------------------------------------------------------------------------------------
Airlines - 3.7%
Airplane Pass-Through Trust, 10.875s, 2019+ $ 1,500 $ 1,519,830
Atlas Air, Inc., 7.2s, 2019 4,176 4,210,327
Continental Airlines Pass-Through Trust, 6.545s, 2019 7,700 7,556,857
Continental Airlines Pass-Through Trust, 6.648s, 2017 2,276 2,249,418
Continental Airlines, Inc., 9.5s, 2013 4,187 4,559,718
Continental Airlines, Inc., 10.22s, 2014 5,115 5,682,663
Jet Equipment Trust, 8.64s, 2012## 1,940 2,118,875
Jet Equipment Trust, 10.69s, 2015## 2,390 2,882,531
Jet Equipment Trust, 11.44s, 2014## 3,500 4,366,880
Northwest Airlines, Inc., 7.625s, 2005 4,300 4,020,414
Northwest Airlines, Inc., 8.52s, 2004 4,823 4,794,062
Northwest Airlines, Inc., 8.7s, 2007 2,370 2,298,379
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$ 46,259,954
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Apparel and Textiles - 0.3%
Jones Apparel Group, Inc., 6.25s, 2001 $ 4,390 $ 4,329,637
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Automotive - 1.1%
Federal Mogul Corp., 7.5s, 2004 $ 3,345 $ 3,347,877
Federal Mogul Corp., 7.5s, 2009## 9,685 9,437,161
Federal Mogul Corp., 7.75s, 2006 1,155 1,157,217
--------------
$ 13,942,255
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Banks and Credit Companies - 4.4%
Bank United, 8s, 2009 $ 9,282 $ 9,275,688
Bayerische Landesbank NY, 5.875s, 2008 4,865 4,694,920
Capital One Financial Corp., 7.25s, 2003 15,011 15,216,350
Colonial Bank, 8s, 2009 9,305 9,086,426
Colonial Capital II, 8.92s, 2027 2,140 2,089,068
Providian National Bank, 6.65s, 2004 2,925 2,929,768
Providian National Bank, 6.7s, 2003 3,650 3,661,132
Riggs National Corp., 8.5s, 2006 1,250 1,301,325
Riggs National Corp., 9.65s, 2009 4,528 4,943,580
Washington Mutual Capital I, 8.375s, 2027 3,000 3,132,060
--------------
$ 56,330,317
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Building - 0.6%
Building Materials Corp., 8s, 2008## $ 4,135 $ 4,083,312
Building Materials Corp., 8.625s, 2006 1,000 1,025,000
Nortek, Inc., 9.25s, 2007 2,110 2,210,225
--------------
$ 7,318,537
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Computer Hardware - Systems - 0.4%
Anacomp, Inc., 10.875s, 2004 $ 4,650 $ 4,859,250
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Consumer Goods and Services - 2.8%
Ahold Finance USA, Inc., 6.25s, 2009 $ 2,332 $ 2,294,105
Fingerhut Cos., Inc., 7.375s, 1999 1,600 1,608,384
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 3,465 3,433,642
Hilfiger (Tommy) USA, Inc., 6.85s, 2008 2,565 2,474,173
Imperial Tobacco O/S BV, 7.125s, 2009 8,332 8,269,260
Kindercare Learning Centers, Inc., 9.5s, 2009 3,825 4,054,500
Nabisco, Inc., 6.375s, 2035 2,270 2,229,390
Protection One Alarm Monitoring, Inc., 7.375s, 2005 6,485 6,434,741
Revlon Consumer Products Corp., 8.125s, 2006 4,900 4,851,000
--------------
$ 35,649,195
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Corporate Asset Backed - 1.8%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 6,098 $ 6,097,047
BCF LLC, 7.75s, 2026## 2,393 2,132,878
Contimortgage Home Equity Loan Trust, 6.19s, 2014 9,750 9,698,130
Criimi Mae Commercial Mortgage Trust, 7s, 2011 2,700 2,443,922
Merrill Lynch Mortgage Investors, Inc., 8.373s, 2022+ 2,000 1,883,438
--------------
$ 22,255,415
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Financial Institutions - 4.6%
Contifinancial Corp., 7.5s, 2002 $ 1,320 $ 999,900
Donaldson Lufkin & Jenrette, 6.15s, 2004 4,810 4,785,950
First Empire Capital Trust I, 8.234s, 2027 3,165 3,251,468
Goldman Sachs Group LP, 6.625s, 2004## 5,850 5,934,767
GS Escrow Corp., 6.75s, 2001 14,770 14,784,283
GS Escrow Corp., 7.125s, 2005 7,945 7,935,553
Lehman Brothers, Inc., 6.625s, 2004 9,890 9,917,197
Lehman Brothers, Inc., 7.5s, 2026 5,000 5,192,450
Leucadia Capital Trust, 8.65s, 2027 2,000 1,992,400
Natexis Ambs Co. LLC, 8.44s, 2049## 3,128 3,143,640
United Companies Financial Corp., 7.7s, 2004** 1,300 260,000
--------------
$ 58,197,608
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Food and Beverage Products - 2.6%
Coca-Cola Bottling Co., 6.375s, 2009 $ 8,346 $ 8,267,714
J Seagram & Sons, 7.5s, 2018 14,635 14,918,773
J Seagram & Sons, 9s, 2021 1,950 2,268,396
Pepsi Bottling Holdings, Inc., 5.625s, 2009## 3,224 3,074,697
Whitman Corp., 6.375s, 2009 3,996 3,950,845
--------------
$ 32,480,425
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Forest and Paper Products - 1.8%
Gaylord Container Corp., 9.75s, 2007 $ 5,000 $ 4,812,500
Georgia Pacific Corp., 9.875s, 2021 7,850 8,686,339
Georgia Pacific Corp., 9.95s, 2002 6,126 6,757,284
U.S. Timberlands, 9.625s, 2007 2,000 2,040,000
--------------
$ 22,296,123
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Healthcare/Hospitals - 0.1%
Columbia/HCA Healthcare Corp., 6.875s, 2001 $ 1,200 $ 1,170,636
- ------------------------------------------------------------------------------------------------------
Insurance - 1.2%
Atlantic Mutual Insurance Co., 8.15s, 2028## $ 4,864 $ 4,351,529
Conseco, Inc., 6.4s, 2001 3,985 3,939,372
Providian Capital I, 9.525s, 2027## 7,202 6,893,538
--------------
$ 15,184,439
- ------------------------------------------------------------------------------------------------------
Media/Entertainment - 7.3%
Chancellor Media Corp., 8.75s, 2007 $ 1,500 $ 1,541,250
Circus Circus Enterprises, Inc., 6.7s, 2096 3,000 2,858,040
Circus Circus Enterprises, Inc., 7s, 2036 12,224 11,227,133
Harrahs Operating, Inc., 7.5s, 2009 9,660 9,698,640
Hearst Argyle Television, Inc., 7s, 2018 6,550 6,386,250
Hearst Argyle Television, Inc., 7.5s, 2027 13,908 14,023,993
News America Holdings, Inc., 10.125s, 2012 6,825 7,831,619
Outdoor Systems, Inc., 8.875s, 2007 1,500 1,597,500
Regal Cinemas, Inc., 9.5s, 2008 4,500 4,477,500
Telemundo Holdings, Inc., 0s to 2003, 11.5s to 2008 2,750 1,567,500
Time Warner Entertainment Co. LP, 8.375s, 2033 18,674 21,900,307
Time Warner, Inc., 9.15s, 2023 4,340 5,357,470
Time Warner, Inc., 10.15s, 2012 2,965 3,829,831
--------------
$ 92,297,033
- ------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.2%
Bausch & Lomb, Inc., 6.5s, 2005 $ 2,505 $ 2,430,151
- ------------------------------------------------------------------------------------------------------
Oil Services - 0.4%
Mcdermott, Inc., 9.375s, 2002 $ 2,670 $ 2,818,078
Ultramar Diamond Shamrock Corp., 7.2s, 2017 2,550 2,491,733
--------------
$ 5,309,811
- ------------------------------------------------------------------------------------------------------
Oils - 2.6%
Anadarko Petroleum Corp., 7.2s, 2029 $ 5,377 $ 5,365,010
Conoco, Inc., 6.95s, 2029 6,735 6,583,193
Husky Oil Ltd., 8.9s, 2028 6,420 6,225,859
Lasmo USA, Inc., 7.125s, 2003 1,874 1,891,569
Occidental Petroleum, 6.5s, 2005 3,104 3,034,688
Occidental Petroleum, 6.75s, 2002 3,771 3,783,029
P&L Coal Holdings Corp., 9.625s, 2008 4,000 4,160,000
Seagull Energy Corp., 7.5s, 2027 1,800 1,359,972
--------------
$ 32,403,320
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.1%
TV Guide, Inc., 8.125s, 2009## $ 1,500 $ 1,533,750
- ------------------------------------------------------------------------------------------------------
Railroads - 0.3%
Union Pacific Corp., 6.34s, 2003 $ 3,445 $ 3,453,819
- ------------------------------------------------------------------------------------------------------
Retail - 4.4%
Dillards, Inc., 7.13s, 2018 $ 2,520 $ 2,391,808
Jitney-Jungle Stores, 12s, 2006 3,500 3,893,750
Lowes Co., Inc., 6.875s, 2028 1,120 1,105,317
Musicland Group, 9s, 2003 5,000 5,031,250
Pathmark Stores, 9.625s, 2003 5,000 5,137,500
Rite Aid Corp., 7.125s, 2007 9,640 9,753,848
Saks, Inc., 7.25s, 2004 9,500 9,713,750
Saks, Inc., 7.5s, 2010 14,095 14,418,198
Saks, Inc., 8.25s, 2008 3,785 4,103,394
--------------
$ 55,548,815
- ------------------------------------------------------------------------------------------------------
Steel - 0.2%
AK Steel Holdings Corp., 9.125s, 2006 $ 2,500 $ 2,650,000
- ------------------------------------------------------------------------------------------------------
Supermarkets - 0.1%
Marsh Supermarkets, Inc., 8.875s, 2007 $ 1,410 $ 1,484,025
- ------------------------------------------------------------------------------------------------------
Telecommunications - 9.2%
Bresnan Communications, 0s to 2004, 9.25s to 2009## $ 5,000 $ 3,425,000
Cable & Wireless Communications, 6.75s, 2008 7,695 7,684,458
Century Communications Corp., 0s, 2008 5,000 2,375,000
Charter Communications Holdings LLC, 8.25s, 2007## 6,250 6,390,625
Continental Cablevision, Inc., 11s, 2007 18,079 19,137,525
Echostar DBS Corp., 9.375s, 2009## 5,000 5,187,500
Frontiervision Operating Partnership LP, 11s, 2006 2,110 2,368,475
Global Crossings Holdings Ltd., 9.625s, 2008 4,000 4,450,000
Granite Broadcasting Corp., 8.875s, 2008 4,000 3,990,000
ITC Deltacom, Inc., 9.75s, 2008 5,000 5,325,000
MCI WorldCom, Inc., 6.95s, 2028 2,345 2,327,577
MCI WorldCom, Inc., 8.875s, 2006 12,000 12,890,880
Nextel Communications, Inc., 0s to 2003, 9.95s to 2008 10,000 7,500,000
Nextel International, Inc., 0s to 2003, 12.125s to 2008 2,000 1,060,000
NTL, Inc., 0s to 2003, 12.375s to 2008## 5,000 3,525,000
Pagemart Wireless, Inc., 0s to 2003, 11.25s to 2008 1,000 370,000
Qwest Communications International, Inc., 7.5s, 2008## 4,000 4,195,880
Sprint Capital Corp., 6.375s, 2009 1,920 1,908,710
TCI Communications Financing III, 9.65s, 2027 8,590 10,564,927
TKR Cable, Inc., 10.5s, 2007 4,750 5,105,205
United International Holdings, Inc., 0s to 2003,
10.75s to 2008 9,000 6,165,000
--------------
$ 115,946,762
- ------------------------------------------------------------------------------------------------------
Utilities - Electric - 9.5%
AEP Generating, 9.81s, 2022 $ 3,548 $ 4,463,520
AEP Generating, 9.82s, 2022 7,800 9,661,950
Beaver Valley Funding Corp., 9s, 2017 2,200 2,502,610
CalEnergy Co., Inc., 7.23s, 2005 10 10,326
CalEnergy Co., Inc., 8.48s, 2028 9,318 10,646,560
CE Generation LLC, 7.416s, 2018## 16,469 16,592,517
Cleveland Electric Illuminating Co., 9s, 2023 5,448 5,969,047
CMS Energy Corp., 7.5s, 2009 7,780 7,818,900
Comed Financing II, 8.5s, 2027 2,500 2,583,025
Connecticut Light & Power Co., 8.59s, 2003 4,000 4,111,040
Edison Mission Energy, 7.33s, 2008## 725 741,537
El Paso Electric Co., 8.9s, 2006 1,710 1,907,129
Entergy Mississippi, Inc., 6.2s, 2004 1,965 1,963,271
GGIB Funding Corp., 7.43s, 2011 6,751 6,822,647
Gulf States Utilities, 8.21s, 2002 3,843 3,944,225
Midland Funding Corp. I, 10.33s, 2002 376 398,061
Niagara Mohawk Power Corp., 8.5s, 2023 5,601 6,128,894
Niagara Mohawk Power Corp., 8.75s, 2022 5,800 6,309,994
North Atlantic Energy, 9.05s, 2002 2,500 2,571,975
Northeast Utilities, 8.58s, 2006 2,349 2,376,396
Salton Sea Funding Corp., 6.69s, 2000 832 838,630
Salton Sea Funding Corp., 7.37s, 2005 2,200 2,235,544
Salton Sea Funding Corp., 7.84s, 2010 3,925 4,269,733
Salton Sea Funding Corp., 8.3s, 2011 1,500 1,582,650
Seabrook Station - Unit 1, 7.83s, 2019 6,846 7,242,845
Waterford 3 Funding Corp., 8.09s, 2017 5,765 6,055,320
--------------
$ 119,748,346
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.8%
Tennessee Gas Pipeline Co., 7s, 2028 $ 1,635 $ 1,599,063
Tennessee Gas Pipeline Co., 7.625s, 2037 4,000 4,195,320
Texas Gas Transmission Corp., 7.25s, 2027 4,645 4,571,748
--------------
$ 10,366,131
- ------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 766,507,617
- ------------------------------------------------------------------------------------------------------
Foreign Bonds - 16.0%
Argentina - 0.1%
Republic of Argentina, 11s, 2005 $ 1,120 $ 1,111,600
- ------------------------------------------------------------------------------------------------------
Brazil - 0.6%
Republic of Brazil, 5s, 2014 $ 3,652 $ 2,519,590
Republic of Brazil, 11.625s, 2004 5,190 4,962,970
--------------
$ 7,482,560
- ------------------------------------------------------------------------------------------------------
Canada - 2.1%
Newcourt Credit Group, Inc., 6.875s, 2005 (Finance)## $ 7,270 $ 7,443,099
Newcourt Credit Group, Inc., 7.125s, 2003 (Finance)## 14,630 15,161,069
Metronet Communications Corp., 0s to 2003, 9.95s to
2008 (Telecommunications) 5,520 4,278,000
--------------
$ 26,882,168
- ------------------------------------------------------------------------------------------------------
Chile - 1.2%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## $ 6,500 $ 6,192,940
Empresa Nacional de Electric, 7.325s, 2037
(Utilities - Electric) 2,365 2,313,680
Empresa Nacional de Electric, 8.5s, 2009
(Utilities - Electric)## 6,710 7,036,374
--------------
$ 15,542,994
- ------------------------------------------------------------------------------------------------------
Colombia - 0.2%
Republic of Colombia, 8.75s, 1999 $ 110 $ 110,000
Republic of Colombia, 9.75s, 2009 2,600 2,528,760
--------------
$ 2,638,760
- ------------------------------------------------------------------------------------------------------
Costa Rica - 0.4%
Republic of Costa Rica, 9.335s, 2009## $ 4,393 $ 4,360,052
- ------------------------------------------------------------------------------------------------------
Finland - 1.0%
UPM-Kymmene Corp., 7.45s, 2027 (Forest and
Paper Products)## $ 13,030 $ 12,715,195
- ------------------------------------------------------------------------------------------------------
Greece - 0.8%
Hellenic Republic, 7.74s, 2008 GRD 2,791,000 $ 10,672,937
- ------------------------------------------------------------------------------------------------------
Ireland - 1.1%
Smurfit Capital, 7.5s, 2025 (Containers) $ 14,470 $ 14,246,873
- ------------------------------------------------------------------------------------------------------
Israel - 1.2%
Israel Electric Corp Ltd., 7.75s, 2009 (Utilities -
Electric)## $ 14,340 $ 14,690,756
- ------------------------------------------------------------------------------------------------------
Luxembourg - 0.2%
Millicom Intl Cellular Corp., 0s to 2001, 13.5s to
2006 (Cellular Telephones) $ 4,000 $ 3,080,000
- ------------------------------------------------------------------------------------------------------
Mexico - 0.7%
Corporacion Andina de Fomento, 7.1s, 2003 (Banks
and Credit Cos.) $ 1,672 $ 1,655,614
United Mexican States, 9.75s, 2005 1,620 1,680,750
United Mexican States, 10.375s, 2009 3,000 3,210,000
United Mexican States, 11.5s, 2026 1,365 1,620,938
--------------
$ 8,167,302
- -------------------------------------------------------------------------------------------------------
Netherlands - 0.6%
Dow Capital BV, 9s, 2010 (Chemicals) $ 6,345 $ 7,581,006
- ------------------------------------------------------------------------------------------------------
Norway - 1.9%
Petroleum Geo-Services, 6.25s, 2003 (Oils) $ 14,615 $ 14,354,999
Union Bank Norway, 7.35s, 2049 (Banks and
Credit Cos.)## 10,000 10,130,500
--------------
$ 24,485,499
- ------------------------------------------------------------------------------------------------------
Panama - 0.2%
Republic of Panama, 5.938s, 2016 $ 2,652 $ 2,071,901
- ------------------------------------------------------------------------------------------------------
Philippines - 0.3%
Philippines Republic, 9.875s, 2019 $ 3,717 $ 3,828,510
- ------------------------------------------------------------------------------------------------------
Poland - 0.6%
Government of Poland, 3s, 2024 $ 4,000 $ 2,570,000
Telekomunikacja Polska S.A. Finance BV, 7.75s, 2008
(Utilities - Telephone)## 5,500 5,566,000
--------------
$ 8,136,000
- ------------------------------------------------------------------------------------------------------
South Korea - 1.0%
Export Import Bank Korea, 7.1s, 2007 (Banks and
Credit Cos.) $ 5,392 $ 5,391,299
Republic of Korea, 8.875s, 2008 7,043 7,599,186
--------------
$ 12,990,485
- ------------------------------------------------------------------------------------------------------
Sweden - 0.8%
Svenska Handelsbanken, 7.125s, 2049 (Banks and
Credit Companies)## $ 9,750 $ 9,776,042
- ------------------------------------------------------------------------------------------------------
Thailand - 0.2%
Jasmine Submarine Telecom Ltd., 8.483s, 2011
(Industrial)## $ 2,345 $ 1,901,060
- ------------------------------------------------------------------------------------------------------
United Kingdom - 0.6%
Colt Telecom Group, 7.625s, 2008
(Telecommunications) DEM 3,400 $ 1,888,378
Telewest PLC, 9.625s, 2006 (Media) $ 5,000 5,362,500
--------------
$ 7,250,878
- ------------------------------------------------------------------------------------------------------
Uruguay - 0.2%
Republica Orient Uruguay, 7.25s, 2009 $ 2,984 $ 2,966,872
- ------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 202,579,450
- ------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 2.9%
Federal Home Loan Mortgage Corp. Gold, 6.5s, 2099 $ 22,200 $ 22,075,014
Federal Home Loan Pc, 9.5s, 2001 2 2,407
Federal National Mortgage Association, 6s, 2013 14,604 14,467,502
- ------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 36,544,923
- ------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 20.7%
Government National Mortgage Association - 7.6%
GNMA, 7s, 2022 - 2028 TBA $ 17,959 $ 18,222,316
GNMA, 7.5s, 2006 - 2028 TBA 60,198 62,040,766
GNMA, 8s, 2026 - 2026 TBA 7,703 8,025,119
GNMA, 7.5s, 2023 - 2024 1,832 1,891,563
GNMA, 8s, 2025 6,006 6,182,132
--------------
$ 96,361,896
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 13.1%
U.S. Treasury Bonds, 5.25s, 2028 - 2029 $ 26,278 $ 24,525,215
U.S. Treasury Bonds, 5.5s, 2028 608 579,406
U.S. Treasury Bonds, 8.5s, 2020 7,150 9,330,750
U.S. Treasury Bonds, 12.375s, 2004 30,000 39,173,400
U.S. Treasury Notes, 4.75s, 2008 23,726 22,661,889
U.S. Treasury Notes, 7.25s, 2004 5,765 6,260,444
U.S. Treasury Notes, 7.875s, 2001 4,000 4,233,760
U.S. Treasury Notes, 8s, 2001 55,000 58,025,000
--------------
$ 164,789,864
- ------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 261,151,760
- ------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,270,725,610) $1,266,783,750
- ------------------------------------------------------------------------------------------------------
Preferred Stock - 0.6%
- ------------------------------------------------------------------------------------------------------
SHARES
- ------------------------------------------------------------------------------------------------------
Media - 0.1%
Primedia, Inc., 8.625s* 13,250 $ 1,272,000
- ------------------------------------------------------------------------------------------------------
Printing and Publishing - 0.3%
NB Capital Corp., 8.35% 160,000 $ 4,160,000
- ------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
El Paso Tennessee Pipeline Co., 8.25s 30,000 $ 1,665,000
- ------------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $6,811,750) $ 7,097,000
- ------------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.2%
- ------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/99, due 5/3/99, total to
be received $3,301,345 (secured by various U.S.
Treasury obligations in a jointly traded
account), at Cost $ 3,300 $ 3,300,000
- ------------------------------------------------------------------------------------------------------
Call Options Purchased
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
DESCRIPTION/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
- ------------------------------------------------------------------------------------------------------
Japanese Yen/June/120
(Premiums Paid, $788,760) JPY 6,048,000 $ 635,040
- ------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,281,626,120) $1,277,815,790
- ------------------------------------------------------------------------------------------------------
Put Options Written
- ------------------------------------------------------------------------------------------------------
Japanese Yen/June/130.00
(Premiums Received, $191,520) JPY 6,552,000 $ (26,208)
- ------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (1.1)% (14,449,715)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,263,339,867
- ------------------------------------------------------------------------------------------------------
** Non income producing security-in default.
* Non-income producing security.
## 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
GRD = Greek Drachma
JPY = Japanese Yen
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
APRIL 30, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $1,281,626,120) $1,277,815,790
Cash 161,033
Net receivable for forward foreign currency exchange
contracts closed or subject to master netting agreements 455,955
Receivable for Fund shares sold 5,280,608
Receivable for investments sold 27,773,162
Interest receivable 25,359,208
Other assets 30,388
--------------
Total assets $1,336,876,144
--------------
Liabilities:
Payable for Fund shares reacquired $ 3,615,719
Payable for investments purchased 68,052,690
Written options outstanding, at value (premiums
received, $191,520) 26,208
Payable for daily variation margin on open future
contracts 1,015,625
Payable to affiliates -
Management fee 13,265
Shareholder servicing agent fee 3,498
Distribution and service fee 339,685
Administrative fee 506
Accrued expenses and other liabilities 469,081
--------------
Total liabilities $ 73,536,277
--------------
Net assets $1,263,339,867
==============
Net assets consist of:
Paid-in capital $1,289,995,754
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (3,685,087)
Accumulated net realized loss on investments and
foreign currency transactions (24,743,573)
Accumulated undistributed net investment income 1,772,773
==============
Total $1,263,339,867
==============
Shares of beneficial interest outstanding 96,672,614
==============
Class A shares:
Net asset value per share
(net assets of $866,387,727 / 66,234,203 shares of
beneficial interest outstanding) $13.08
======
Offering price per share (100 / 95.25 of net asset
value per share) $13.73
======
Class B shares:
Net asset value and offering price per share
(net assets of $299,522,947 / 22,965,961 shares of
beneficial interest outstanding) $13.04
======
Class C shares:
Net asset value and offering price per share
(net assets of $88,173,133 / 6,765,230 shares of
beneficial interest outstanding) $13.03
======
Class I shares:
Net asset value, offering price, and redemption price
per share (net assets of $9,256,060 / 707,220 shares
of beneficial interest outstanding) $13.09
======
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares. See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1999
- -------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 84,242,992
Dividends 659,878
------------
Total investment income $ 84,902,870
------------
Expenses -
Management fee $ 4,287,243
Trustees' compensation 60,053
Shareholder servicing agent fee 1,253,050
Distribution and service fee (Class A) 2,425,515
Distribution and service fee (Class B) 2,469,899
Distribution and service fee (Class C) 670,705
Administrative fee 137,774
Custodian fee 347,084
Postage 156,162
Printing 136,812
Auditing fees 67,898
Legal fees 7,301
Miscellaneous 934,634
------------
Total expenses $ 12,954,130
Fees paid indirectly (289,010)
------------
Net expenses $ 12,665,120
------------
Net investment income $ 72,237,750
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(19,048,052)
Foreign currency transactions 316,148
Futures contracts (4,528,584)
------------
Net realized loss on investments and foreign currency
transactions $(23,260,488)
------------
Change in unrealized appreciation (depreciation) -
Investments $(16,181,401)
Written options 165,312
Translation of assets and liabilities in foreign currencies 458,120
Future contracts (192,048)
------------
Net unrealized loss on investments and foreign currency
translation $(15,750,017)
------------
Net realized and unrealized loss on investments and
foreign currency $(39,010,505)
------------
Increase in net assets from operations $ 33,227,245
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 72,237,750 $ 52,322,863
Net realized gain (loss) on investments and foreign
currency transactions (23,260,488) 17,700,400
Net unrealized gain (loss) on investments and foreign
currency translation (15,750,017) 11,971,014
-------------- ------------
Increase in net assets from operations $ 33,227,245 $ 81,994,277
-------------- ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (52,172,585) $(41,223,494)
From net investment income (Class B) (14,082,874) (8,868,950)
From net investment income (Class C) (3,813,225) (1,588,648)
From net investment income (Class I) (641,314) (641,771)
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 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)
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 $ (74,394,040) $(52,650,688)
-------------- ------------
Net increase in net assets from Fund share transactions $ 357,103,160 $223,753,431
-------------- ------------
Total increase in net assets $ 315,936,365 $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 (distributions in excess of net
investment income) of $1,772,773 and $(66,151),
respectively) $1,263,339,867 $947,403,502
============== ============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $13.57 $13.04 $12.85 $12.71 $12.75
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.88 $ 0.89 $ 0.94 $ 0.95 $ 0.98
Net realized and unrealized gain (loss) on
investments and foreign currency (0.46) 0.55 0.18 0.15 (0.05)
------ ------ ------ ------ ------
Total from investment operations $ 0.42 $ 1.44 $ 1.12 $ 1.10 $ 0.93
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(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 (0.01) -- -- -- --
From paid in capital -- -- -- (0.02) (0.08)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.91) $(0.91) $(0.93) $(0.96) $(0.97)
------ ------ ------ ------ ------
Net asset value - end of period $13.08 $13.57 $13.04 $12.85 $12.71
====== ====== ====== ====== ======
Total return(+) 3.22% 11.36% 8.99% 8.67% 7.78%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.96% 0.98% 1.02% 1.00% 1.00%
Net investment income 6.61% 6.61% 7.12% 7.10% 7.91%
Portfolio turnover 343% 333% 446% 377% 306%
Net assets at end of period (000 omitted) $866,388 $708,021 $541,710 $514,892 $477,056
+++ 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 had an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
(+) 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 fees 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
Ratios (to average net assets)
Expenses## -- -- -- -- 1.10%
Net investment income -- -- -- -- 7.81%
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.78 $ 0.79 $ 0.83 $ 0.85 $ 0.88
Net realized and unrealized gain (loss) on
investments and foreign currency (0.45) 0.54 0.19 0.13 (0.05)
------ ------ ------ ------ ------
Total from investment operations $ 0.33 $ 1.33 $ 1.02 $ 0.98 $ 0.83
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(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 (0.01) -- -- -- --
From paid in capital -- -- -- (0.02) (0.07)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.81) $(0.80) $(0.82) $(0.88) $(0.87)
------ ------ ------ ------ ------
Net asset value - end of period $13.04 $13.52 $12.99 $12.79 $12.69
====== ====== ====== ====== ======
Total return 2.54% 10.52% 8.16% 7.90% 6.90%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.66% 1.68% 1.76% 1.81% 1.84%
Net investment income 5.92% 5.90% 6.39% 6.29% 7.17%
Portfolio turnover 343% 333% 446% 377% 306%
Net assets at end of period (000 omitted) $299,523 $187,905 $123,000 $102,914 $75,451
+++ 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.
## The Fund had an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.78 $ 0.78 $ 0.83 $ 0.85 $ 0.88
Net realized and unrealized gain (loss) on
investments and foreign currency (0.46) 0.56 0.20 0.15 (0.05)
------ ------ ------ ------ ------
Total from investment operations $ 0.32 $ 1.34 $ 1.03 $ 1.00 $ 0.83
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(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 (0.01) -- -- -- --
From paid in capital -- -- -- (0.02) (0.07)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.81) $(0.80) $(0.84) $(0.89) $(0.87)
------ ------ ------ ------ ------
Net asset value - end of period $13.03 $13.52 $12.98 $12.79 $12.68
====== ====== ====== ====== ======
Total return 2.48% 10.54% 8.27% 7.90% 7.00%
Ratios (to average net assets)/Supplemental data:
Expenses## 1.66% 1.68% 1.74% 1.74% 1.75%
Net investment income 5.92% 5.89% 6.44% 6.35% 7.17%
Portfolio turnover 343% 333% 446% 377% 306%
Net assets at end of period (000 omitted) $88,173 $42,229 $20,003 $17,330 $8,171
+++ 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 had an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash maintained
by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without reduction for this
expense offset arrangement.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
<CAPTION>
Financial Highlights - continued
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 1999 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 $ 0.92 $ 0.94 $ 0.31
Net realized and unrealized gain (loss) on investments and
foreign currency (0.45) 0.55 (0.09)
------ ------ ------
Total from investment operations $ 0.47 $ 1.49 $ 0.22
------ ------ ------
Less distributions declared to shareholders -
From net investment income $(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 (0.01) -- --
------ ------ ------
Total distributions declared to shareholders $(0.96) $(0.96) $(0.32)
------ ------ ------
Net asset value - end of period $13.09 $13.58 $13.05
====== ====== ======
Total return 3.56% 11.72% 1.70%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.65% 0.68% 0.69%+
Net investment income 6.90% 6.95% 7.19%+
Portfolio turnover 343% 333% 446%
Net assets at end of period (000 omitted) $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 is based on average shares outstanding.
## The Fund had an expense offset arrangement which reduces the Fund's custodian fee based upon the cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated
without reduction for this expense offset arrangement.
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 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 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 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, 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 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.
During the year ended April 30, 1999, $298,315 from accumulated net realized
loss on investments and foreign currency transactions and $12,857 from paid in
capital were reclassified to accumulated undistributed net investment income
due to differences between book and tax accounting for mortgage-backed
securities and currency transactions. This change had no effect on the net
assets or net asset value per share. At April 30, 1999, accumulated
undistributed net investment income and accumulated net realized loss on
investments and foreign currency transactions under book accounting were
different from tax accounting due to temporary differences in the accounting
for capital losses and currency transactions.
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 it's 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 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 $19,234 for the year ended
April 30, 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
$532,733 for the year ended April 30, 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 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 Trustees of the Trust may determine. MFD retains the service fee
for accounts not attributable to a securities dealer, which amounted to $395,639
for the year ended April 30, 1999. Fees incurred under the distribution plan
during the year ended April 30, 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 $40,603 and $31,952 for Class B and Class C shares, respectively,
for the year ended April 30, 1999. Fees incurred under the distribution plan
during the year ended April 30, 1999, were 1.00% of each class' average daily
net assets attributable to Class B and Class C shares on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended April 30,
1999, were $16,106, $471,836, and $40,323 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 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of the average Fund's 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 $2,409,931,412 $2,358,061,595
-------------- --------------
Investments (non-U.S. government securities) $1,743,325,165 $1,430,935,676
-------------- --------------
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 $1,283,903,414
--------------
Gross unrealized depreciation $ (16,100,028)
Gross unrealized appreciation 10,012,404
--------------
Net unrealized depreciation $ (6,087,624)
==============
(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>
Class A Shares
<CAPTION>
YEAR ENDED APRIL 30, 1999 YEAR ENDED APRIL 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 40,031,279 $ 531,351,372 21,939,268 $ 295,718,288
Shares issued to shareholders
in reinvestment of
distributions 3,078,680 40,904,085 2,218,719 29,751,932
Shares reacquired (29,066,686) (384,382,947) (13,503,595) (181,837,839)
----------- ------------- ----------- -------------
Net increase 14,043,273 $ 187,872,510 10,654,392 $ 143,632,381
=========== ============= =========== =============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED APRIL 30, 1999 YEAR ENDED APRIL 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 15,199,199 $ 201,584,950 9,328,954 $ 125,486,349
Shares issued to shareholders
in reinvestment of
distributions 766,154 10,143,630 427,362 5,717,255
Shares reacquired (6,895,533) (91,242,870) (5,328,287) (71,689,045)
----------- ------------- ----------- -------------
Net increase 9,069,820 $ 120,485,710 4,428,029 $ 59,514,559
=========== ============= =========== =============
</TABLE>
<TABLE>
Class C Shares
<CAPTION>
YEAR ENDED APRIL 30, 1999 YEAR ENDED APRIL 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 5,221,069 $ 69,212,937 1,953,399 $ 26,310,775
Shares issued to shareholders
in reinvestment of
distributions 173,891 2,299,453 68,136 912,424
Shares reacquired (1,753,984) (23,115,757) (438,903) (5,896,038)
----------- ------------- ----------- -------------
Net increase 3,640,976 $ 48,396,633 1,582,632 $ 21,327,161
=========== ============= =========== =============
</TABLE>
<TABLE>
Class I Shares
<CAPTION>
YEAR ENDED APRIL 30, 1999 YEAR ENDED APRIL 30, 1998
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 24,684 $ 329,363 48,181 $ 651,134
Shares issued to shareholders
in reinvestment of
distributions 50,434 671,204 48,360 648,152
Shares reacquired (49,100) (652,260) (150,414) (2,019,956)
----------- ------------- ----------- -------------
Net increase (decrease) 26,018 $ 348,307 (53,873) $ (720,670)
=========== ============= =========== =============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $720 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended April 30, 1999, was $9,399. The Fund had no borrowings during the
year.
(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>
Written Option Transactions
<CAPTION>
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 - -- $ -- -- $ --
Options written
Japanese Yen -- -- 6,552,000 191,520
Options terminated in closing transactions
Options exercised -- -- -- --
Options expired -- -- -- --
-------- -------- -------- --------
Outstanding, end of period -- $ -- -- $191,520
======== ======== ======== ========
OPTIONS OUTSTANDING AT END OF PERIOD
CONSIST OF:
Japanese Yen -- $ -- 6,552,000 $191,520
-------- -------- -------- --------
OUTSTANDING, END OF PERIOD $ -- $191,520
======== ========
</TABLE>
At April 30, 1999, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
Forward foreign currency sales under master netting agreements amounted to a
net receivable of $455,955 with Merrill Lynch at April 30, 1999.
At April 30, 1999, 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 June 1999 500 Long $(493,925)
---------
</TABLE>
At April 30, 1999, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
(8) Restricted Securities
The Fund may invest not more than 10% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 1999,
the Fund owned the following restricted securities (constituting 0.27% 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.,
8.373s, 2022 6/22/1994 $2,000,000 $ 1,386,250 $1,883,438
Airplane Pass-Through Trust,
10.875s, 2019 3/13/1996 1,500,000 1,500,000 1,519,830
----------
$3,403,268
==========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees of the MFS Series Trust IX and the Shareholders of MFS Bond
Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Bond Fund (a series of MFS
Series Trust IX) as of April 30, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the years
ended April 30, 1999 and 1998, and the financial highlights for each of the
years in the five-year period ended April 30, 1999. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the
securities owned at April 30, 1999 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Bond Fund at
April 30, 1999, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 4, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1999.
THE FUND HAS DESIGNATED $2,242,095 AS A CAPITAL GAIN DIVIDEND.
FOR THE YEAR ENDED APRIL 30, 1999, THE AMOUNT OF DISTRIBUTIONS FROM
INCOME ELIGIBLE FOR THE 70% DIVIDENDS RECEIVED DEDUCTION FOR
CORPORATIONS CAME TO 0.91%.
- --------------------------------------------------------------------------------
<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 toll
William J. Poorvu - Adjunct Professor, Harvard free: 1-800-637-4458 anytime from a touch-tone
University Graduate School of Business 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
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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 Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MFB-2 6/99 100M 11/211/311/811
