<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
[Graphic Omitted]
MFS(R) BOND FUND
SEMIANNUAL REPORT o OCTOBER 31, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 5
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 21
Notes to Financial Statements ............................................. 28
Trustees and Officers ..................................................... 37
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- makes us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years of managing mutual funds, we've developed a number of beliefs
about the best ways to invest over a variety of market conditions. First,
we believe in bottom-up research, which means we use a company-by-company,
one-security-at-a-time approach to building a portfolio. What we look for is
the truth about the fundamentals of a company's business -- things such as the
ability of management to execute its business plan, the ability of that plan to
be scaled up as the company grows, actual demand for the company's products and
services, cash flow, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with
the multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of
Original Research(SM) is doing our best to project a company's future earnings
and determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed-income investments have been
early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled
but that we believe still have the potential to be market leaders. For
example, a quarterly earnings shortfall of a few cents may cause the market to
temporarily lose confidence in a company. If we believe the business remains
fundamentally strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help
performance. In fixed-income investing this means, among other things, trying
to be better than our peers at avoiding bond issuers that may default. In
equity investing, avoiding mistakes means we strive to know a company and its
industry well enough to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as frontline workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flow, and
earnings
Our analysts and portfolio managers disseminate this information in the form
of daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without
barriers between equity and fixed-income, international and domestic, or value
and growth investment areas. We believe this allows each of our portfolio
managers -- and thus each of our investors -- to potentially benefit from any
relevant item of Original Research.
John Ballen, our President and Chief Investment Officer, has often said that
the thought he hopes managers will have when they read the daily notes is, "I
could never perform as well at any other investment company, because nowhere
else could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in its
January 10, 2000, issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people have tended to stick around -- the
average MFS tenure of our portfolio managers is
11 years, with over 16 years in the investment industry. Contributing to this
continuity is our policy that all equity portfolio managers are promoted from
within, after distinguishing themselves first as research analysts. And
because many of us who are now managing funds or managing the company itself
have been working together for well over a decade, we have a cohesiveness, a
shared philosophy of investing, and a unity of purpose that we believe bodes
well for the future of the company.
We also have scale. Our research analyst team is over 55 members strong and
growing. Each analyst is our in-house expert on a specific industry or group
of industries in a specific region of the globe. In pursuing their research,
our analysts and portfolio managers each year will visit more than 2,000
companies throughout the world, meet with representatives from more than 3,000
companies at one of our four worldwide offices, attend roughly 5,000 company
presentations sponsored by major Wall Street firms, and consult with over
1,000 analysts from hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on
a wide range of potential investments for all of our portfolios. In the end,
the goal of Original Research is to try to give our portfolio managers an
advantage over their peers -- to enable our managers to deliver competitive
performance by finding opportunities before they are generally recognized by
the market, and by avoiding mistakes whenever possible. Original Research
does, we believe, make a difference.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
November 16, 2000
A prospectus containing more complete information on any MFS product,
including charges and expenses, can be obtained from your investment
professional. Please read it carefully before you invest or send money.
Investments in mutual funds will fluctuate and may be worth more or less upon
redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
For the six months ended October 31, 2000, Class A shares of the fund provided
a total return of 4.10%, Class B shares 3.75%, Class C shares 3.75%, and Class
I shares 4.17%. These returns include the reinvestment of any distributions
but exclude the effects of any sales charges and compare to a 5.53% return
over the same period for the fund's benchmark, 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. During the same period, the average
corporate debt "BBB"-rated fund tracked by Lipper Inc., an independent firm
that reports mutual fund performance, returned 4.11%.
Q. WHAT FACTORS INFLUENCED THE FUND'S PERFORMANCE OVER THE SIX-MONTH PERIOD?
A. On a positive note, performance benefited from signs that the economy was
slowing and inflationary pressures remained in check. Bond yields generally
fell in response to this development, and most bond prices increased. The
notable exceptions were corporate bonds, which faced many challenges. A
slumping stock market and questions about future corporate profitability
weighed heavily on the minds of corporate bond investors already worried
about the increased rate of bond credit-rating downgrades and the
inflationary impact of higher oil prices. As a gauge of the increasingly
negative sentiment looming over corporate bonds, the yield spreads -- the
difference between the yields of corporate bonds and Treasury securities --
widened to their highest levels ever. Essentially, we believe investors
wanted significantly more yield from corporate bonds as a way of
compensating for their added credit risk.
Retail issuers and bonds with asbestos liabilities took the biggest hit, and
that negatively impacted our performance over the period. The proportion of
these "fallen angels" (former investment-grade bonds whose ratings fell
below "BBB") trading at "distressed" prices (yielding 10 percentage points
or more above Treasuries) reached its highest level in recent memory. As a
result of these conditions, there was a noticeable lack of interest from
"vulture" investors who have historically purchased the debt instruments of
companies that fell on hard times. We think these opportunistic investors --
many of which were high-yield mutual funds -- avoided these securities
either because of a lack of funds or evidence that the creditworthiness of
issuers was worsening.
Q. WHICH STRATEGIES WORKED OUT WELL FOR THE FUND?
A. Our decision to maintain large weightings relative to the Lehman Index in
utility and energy bonds helped performance. Energy holdings such as Philips
Petroleum and Apache Corp. benefited from higher oil and natural gas prices
and strong demand, as investors increasingly sought out sectors with a
reputation for being defensive in a slower economy. Utility holdings also
benefited from their reputation as a defensive sector. Cleveland Electric
was a utility that was bolstered by crossing over to investment-grade
status. In addition, our holdings in enhanced equipment trust certificates
issued by American and Continental Airlines performed well. These
investments are guaranteed by the airlines and are collateralized by their
airplane fleets.
Finally, our decision earlier this year to reduce telecommunications
holdings proved beneficial. The reduction stemmed from our concerns that the
supply of telecommunications bonds would expand dramatically as companies
tapped into the market to meet their funding needs. More important, however,
were our concerns about the industry's deteriorating fundamentals as
indicated at the time by equity valuations. In the late summer and early
fall, our decision was rewarded when telecommunications bonds came under
heavy selling pressure in response to fears that some companies would miss
their earnings targets and that others were having difficulty executing
their business plans.
Q. YOU SIGNIFICANTLY INCREASED THE ALLOCATION TO MORTGAGE SECURITIES BY THE
END OF THE PERIOD. WHAT PROMPTED THAT MOVE?
A. Because we believe there may be more difficult times ahead for the corporate
bond market, we wanted to increase our stake in bonds that don't carry
credit risk. So we purchased mortgage securities issued by the Federal
National Mortgage Association and the Government National Mortgage
Association that carried over 1.5% more yield than Treasury securities with
comparable maturities. (The principal value and interest on Treasury
securities are guaranteed by the U.S. government if held to maturity.) While
they don't have credit risk, mortgage securities do carry prepayment risk,
meaning they can be paid off before maturity if interest rates fall and the
rate of homeowners refinancing their mortgages or starting new ones
increases dramatically. Although we believe interest rates may fall somewhat
in the first half of 2001, we don't think they'll fall enough to prompt a
significant wave of refinancing activity.
Q. WHAT'S YOUR APPROACH TO THE U.S. TREASURY MARKET?
A. We've positioned the fund to potentially benefit from the dwindling supply
of long- and intermediate-maturity Treasury securities. The U.S. Treasury
recently announced that it expects to pay down $23 billion in marketable
debt during the fourth quarter of 2000, which is about $13 billion more than
it had projected at the end of July. Furthermore, it plans to buy back
approximately $9 billion more in debt during the first quarter of 2001. With
those additional buybacks, plus reduced and less frequent auctions of new
debt, we believe that intermediate- and long-term Treasury securities will
continue to benefit as they have since the buybacks started in early 2000.
Q. WHAT IS YOUR OUTLOOK?
A. The economy is showing tangible signs of slowing. For the third quarter of
2000, gross domestic product grew at 2.4% on an annual basis, compared to
nearly double that rate during the previous quarter. And there have been
other signs of economic weakness: employment growth has stalled, auto sales
have retracted, and home and consumer sales have retrenched a bit. Given
that backdrop, we believe that the Federal Reserve Board may move toward a
more neutral stance for the remainder of 2000 and eventually will lower
interest rates in the first or second quarter of 2001. If interest rates do
stabilize or decline, we believe the environment will be positive for bonds.
/s/ Geoffrey L. Kurinsky /s/ William J. Adams
Geoffrey L. Kurinsky William J. Adams
Portfolio Manager Associate Portfolio Manager
Note to Shareholders: William J. Adams joined the fund as Associate Portfolio
Manager in July 2000.
The opinions expressed in this report are those of the portfolio managers
and are current only through the end of the period of the report as stated on
the cover. The managers' 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.
<PAGE>
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PORTFOLIO MANAGERS' PROFILES
--------------------------------------------------------------------------------
GEOFFREY L. KURINSKY IS SENIOR VICE PRESIDENT OF MFS INVESTMENT
MANAGEMENT(R). HE MANAGES THE INVESTMENT-GRADE BOND PORTFOLIOS OF OUR
MUTUAL FUNDS AND VARIABLE ANNUITIES. GEOFF 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. HE IS A GRADUATE
OF THE UNIVERSITY OF MASSACHUSETTS AND EARNED AN M.B.A. DEGREE IN
FINANCE FROM BOSTON UNIVERSITY.
WILLIAM J. ADAMS, CFA, IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND AN ASSOCIATE PORTFOLIO MANAGER OF THE BOND PORTFOLIOS OF OUR MUTUAL
FUNDS AND ANNUITIES. BILL JOINED MFS IN 1997. HE WAS NAMED VICE
PRESIDENT IN 1999 AND ASSOCIATE PORTFOLIO MANAGER IN 2000. HE HAS AN
M.B.A. FROM INDIANA UNIVERSITY AND AN UNDERGRADUATE DEGREE FROM LASALLE
UNIVERSITY. HE IS A CHARTERED FINANCIAL ANALYST (CFA).
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A GLOBAL, ISSUER-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
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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 charges and expenses, for any MFS product
is available from your investment professional, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS AS HIGH A LEVEL OF CURRENT INCOME AS IS
BELIEVED TO BE CONSISTENT WITH PRUDENT
INVESTMENT RISK. AS A SECONDARY OBJECTIVE, THE
FUND STRIVES TO PROTECT SHAREHOLDERS' CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: MAY 8, 1974
CLASS INCEPTION: CLASS A MAY 8, 1974
CLASS B SEPTEMBER 7, 1993
CLASS C JANUARY 3, 1994
CLASS I JANUARY 2, 1997
SIZE: $1.1 BILLION NET ASSETS AS OF OCTOBER 31, 2000
--------------------------------------------------------------------------------
PERFORMANCE SUMMARY
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Investment results reflect the percentage change
in net asset value, including the reinvestment of dividends. (See Notes to
Performance Summary.)
<TABLE>
TOTAL RATES OF RETURN THROUGH OCTOBER 31, 2000
CLASS A
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return Excluding
Sales Charge +4.10% +5.14% + 9.18% +27.76% +112.56%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +5.14% + 2.97% + 5.02% + 7.83%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Including Sales Charge -- +0.14% + 1.31% + 4.00% + 7.31%
------------------------------------------------------------------------------------------------------------
CLASS B
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------
Cumulative Total Return Excluding
Sales Charge +3.75% +4.42% + 6.83% +23.23% +101.63%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +4.42% + 2.23% + 4.27% + 7.26%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Including Sales Charge -- +0.50% + 1.37% + 3.96% + 7.26%
------------------------------------------------------------------------------------------------------------
CLASS C
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------
Cumulative Total Return Excluding
Sales Charge +3.75% +4.42% + 6.87% +23.26% +102.44%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +4.42% + 2.24% + 4.27% + 7.31%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Including Sales Charge -- +3.44% + 2.24% + 4.27% + 7.31%
------------------------------------------------------------------------------------------------------------
CLASS I
<CAPTION>
6 Months 1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------
Cumulative Total Return Excluding
Sales Charge +4.17% +5.46% +10.14% +29.33% +115.19%
------------------------------------------------------------------------------------------------------------
Average Annual Total Return
Excluding Sales Charge -- +5.46% + 3.27% + 5.28% + 7.96%
------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 4.75% sales charge. Class B Share Performance Including
Sales Charge takes into account the deduction of the applicable contingent
deferred sales charge (CDSC), which declines over six years from 4% to 0%. Class
C Share Performance Including Sales Charge takes into account the deduction of
the 1% CDSC applicable to Class C shares redeemed within 12 months. Class I
shares have no sales charge and are only available to certain institutional
investors.
Class B, C, and I share performance includes 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
in effect during the periods shown; without these, the results would have been
less favorable. See the prospectus for details. All results are historical
and assume the reinvestment of capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF OCTOBER 31, 2000
QUALITY RATINGS
Source: Standard & Poor's and Moody's
"AAA" 3.9%
"AA" 3.3%
"A" 15.0%
"BBB" 31.8%
"BB" 10.8%
"B" 6.0%
"CCC" 0.4%
Not Rated 0.4%
Equity 0.1%
Other 0.7%
Governments 27.6%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS (Unaudited) -- October 31, 2000
Bonds - 97.3%
------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 54.7%
Airlines - 2.7%
Airplane Pass-Through Trust, 10.875s, 2019+ $ 1,482 $ 1,117,726
American Airlines Pass-Through Trust, 7.024s, 2009 5,678 5,530,542
Continental Airlines Pass-Through Trust, Inc.,
9.5s, 2013 3,894 4,030,373
Continental Airlines Pass-Through Trust, Inc.,
6.648s, 2017 1,220 1,125,450
Continental Airlines Pass-Through Trust, Inc.,
6.545s, 2019 7,484 6,831,551
Continental Airlines Pass-Through Trust, Inc.,
7.256s, 2020 3,340 3,222,221
Jet Equipment Trust, 8.64s, 2012## 1,855 1,893,089
Jet Equipment Trust, 11.44s, 2014## 3,500 3,921,925
Jet Equipment Trust, 10.69s, 2015## 2,390 2,583,781
--------------
$ 30,256,658
------------------------------------------------------------------------------------------------------
Automotive - 0.1%
General Motors Corp., 9.4s, 2021 $ 1,000 $ 1,142,850
------------------------------------------------------------------------------------------------------
Banks/Finance - 10.3%
AIG Sunamerica Global Financing II, 7.6s, 2005## $ 5,215 $ 5,373,067
Capital One Financial Corp., 7.25s, 2003 15,011 14,813,921
Citigroup, Inc., 7.25s, 2010 9,475 9,414,644
Colonial Capital II, 8.92s, 2027 2,140 1,795,980
FleetBoston Financial Corp., 7.25s, 2005 2,737 2,751,424
Ford Motor Credit Co., 7.875s, 2010 9,483 9,509,268
General Electric Capital Corp., 8.7s, 2007 1,244 1,351,958
General Motors Acceptance Corp., 7.5s, 2005 4,644 4,685,703
GS Escrow Corp., 6.75s, 2001 9,535 9,413,295
MBNA America Bank National Assoc., 6.875s, 2004 5,707 5,570,717
Morgan Stanley Dean Witter & Co., 8s, 2010 14,892 15,409,050
Natexis Ambs LLC, 8.44s, 2049## 3,159 3,018,314
Providian Capital I, 9.525s, 2027## 6,389 4,809,256
Qwest Capital Funding, Inc., 7.75s, 2006## 6,121 6,230,688
Riggs National Corp., 9.65s, 2009 4,528 4,403,480
Socgen Real Estate LLC, 7.64s, 2049## 10,868 10,162,884
Unicredito Italiano Capital Trust, 9.2s, 2049## 5,200 5,167,552
United Companies Financial Corp., 7.7s, 2004** 1,300 416,000
--------------
$ 114,297,201
------------------------------------------------------------------------------------------------------
Building - 0.3%
Building Materials Corp., 8.625s, 2006 $ 1,000 $ 320,000
Building Materials Corp., 8s, 2008 4,135 1,240,500
Nortek, Inc., 9.25s, 2007 2,110 1,877,900
--------------
$ 3,438,400
------------------------------------------------------------------------------------------------------
Chemicals - 0.2%
Lyondell Chemical Co., 9.625s, 2007 $ 1,590 $ 1,542,300
Lyondell Chemical Co., 9.875s, 2007 402 391,950
--------------
$ 1,934,250
------------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 0.7%
Anacomp, Inc., 10.875s, 2004 $ 4,650 674,250
Seagate Technology, Inc., 7.45s, 2037 6,525 6,723,164
--------------
$ 7,397,414
------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.9%
Hasbro, Inc., 7.95s, 2003 $ 5,356 $ 4,952,158
Kindercare Learning Centers, Inc., 9.5s, 2009 3,450 3,148,125
Nabisco Holdings, 6.375s, 2035 2,270 2,145,218
--------------
$ 10,245,501
------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 5.9%
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 $ 2,730 $ 2,702,770
BCF LLC, 7.75s, 2026## 1,485 860,111
Chase Commercial Mortgage Securities Corp., 6.6s, 2012 4,040 3,166,597
Commerce 2000, 7.9s, 2011## 3,190 3,191,994
Commercial Mortgage Asset Trust, 7.839s, 2020
(Interest only) 182,344 6,139,539
Contimortgage Home Equity Loan Trust, 6.19s, 2014 9,750 9,609,795
Criimi Mae Commercial Mortgage Trust, 7s, 2011 2,700 2,463,328
DLJ Commercial Mortgage Corp., 8.819s, 2003## 2,721 2,721,000
DLJ Commercial Mortgage Corp., 9.71s, 2003## 2,084 2,010,409
Ford Credit Auto Owner Trust, 7.5s, 2003## 1,890 1,890,591
GMAC Commercial Mortgage Security, Inc., 7.43s, 2004 5,880 5,721,056
Greenpoint Manufactured Housing, 7.6s, 2022 7,400 7,446,916
Merrill Lynch Mortgage Investors, Inc., 8.49s, 2022+ 2,000 1,906,562
Morgan Stanley Capital I, 6.86s, 2010 6,327 5,169,539
Morgan Stanley Capital I, 6.01s, 2030 4,641 4,494,939
Morgan Stanley Capital I, 7.771s, 2039 7,510 5,802,961
--------------
$ 65,298,107
------------------------------------------------------------------------------------------------------
Food and Beverage Products - 0.7%
Coca Cola Bottling Co., 6.375s, 2009 $ 8,346 $ 7,468,835
------------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.8%
Gaylord Container Corp., 9.75s, 2007 $ 5,000 $ 3,300,000
Georgia-Pacific Corp., 9.95s, 2002 8,738 9,016,393
Georgia-Pacific Corp., 9.875s, 2021 14,278 14,940,214
Georgia-Pacific Corp., 9.5s, 2022 250 253,062
Riverwood International Corp., 10.25s, 2006 2,000 1,955,000
U.S. Timberlands, 9.625s, 2007 2,000 1,795,000
--------------
$ 31,259,669
------------------------------------------------------------------------------------------------------
Insurance - 1.6%
Aflac, Inc., 6.5s, 2009 $ 10,000 $ 9,257,400
Atlantic Mutual Insurance Co., 8.15s, 2028## 4,864 3,648,341
The Mony Group, Inc., 8.35s, 2010 4,679 4,720,175
--------------
$ 17,625,916
------------------------------------------------------------------------------------------------------
Internet - 0.1%
PSINET, Inc., 11s, 2009 $ 2,340 $ 1,134,900
------------------------------------------------------------------------------------------------------
Media/Entertainment - 5.7%
Belo AH Corp., 7.75s, 2027 $ 2,259 $ 1,932,168
Chancellor Media Corp., 8.125s, 2007 11,925 12,014,437
Chancellor Media Corp., 8.75s, 2007 1,500 1,537,500
CSC Holdings, Inc., 7.25s, 2008 4,618 4,231,150
Frontiervision Operating Partnership LP, 11s, 2006 2,110 2,025,600
Granite Broadcasting Corp., 8.875s, 2008 4,000 2,760,000
Hearst Argyle Television, Inc., 7.5s, 2027 9,114 7,968,735
Liberty Media Group, 8.25s, 2030 4,129 3,723,726
MGM Mirage, Inc., 8.5s, 2010 4,997 4,943,482
News America Holdings, Inc., 6.625s, 2008 6,903 6,387,001
News America Holdings, Inc., 10.125s, 2012 740 794,923
Time Warner Entertainment Co., 8.375s, 2033 6,587 6,858,121
Time Warner, Inc., 10.15s, 2012 5,359 6,343,609
Time Warner, Inc., 6.875s, 2018 2,216 2,025,912
--------------
$ 63,546,364
------------------------------------------------------------------------------------------------------
Medical and Health Products - 0.5%
The Healthcare Co., 8.75s, 2010 $ 5,802 $ 5,874,525
------------------------------------------------------------------------------------------------------
Oil Services - 0.6%
Occidental Petroleum Corp., 6.75s, 2002 $ 3,771 $ 3,734,761
Ultramar Diamond Shamrock Corp., 7.2s, 2017 2,550 2,381,062
--------------
$ 6,115,823
------------------------------------------------------------------------------------------------------
Oils - 2.5%
Apache Corp., 7.95s, 2026 $ 9,480 $ 9,714,251
P&L Coal Holdings Corp., 9.625s, 2008 4,000 3,890,000
Phillips Petroleum Co., 8.75s, 2010 11,630 12,684,143
Pioneer Natural Resources Co., 9.625s, 2010 1,635 1,724,925
--------------
$ 28,013,319
------------------------------------------------------------------------------------------------------
Railroads - 0.7%
Union Pacific Corp., 6.34s, 2003 $ 2,746 $ 2,671,501
Union Pacific Corp., 6.39s, 2004 5,585 5,395,668
--------------
$ 8,067,169
------------------------------------------------------------------------------------------------------
Real Estate - 0.2%
EOP Operating Ltd., 8.1s, 2010 $ 1,693 $ 1,700,500
------------------------------------------------------------------------------------------------------
Retail - 0.8%
J.Crew Operating Corp., 10.375s, 2007 $ 4,310 $ 3,792,800
Jitney-Jungle Stores of America, Inc., 12s, 2006** 2,330 43,687
Musicland Group, Inc., 9s, 2003 5,000 4,637,500
--------------
$ 8,473,987
------------------------------------------------------------------------------------------------------
Steel - 0.1%
AK Steel Holdings Corp., 9.125s, 2006 $ 550 $ 541,750
------------------------------------------------------------------------------------------------------
Telecommunications - 4.5%
Century Communications Corp., 0s, 2008 $ 5,000 $ 1,900,000
GTE Corp., 9.1s, 2003 5,934 6,208,685
Nextel Communications, 9.375s, 2009 5,000 4,850,000
Nextel International, Inc. 0s to 2003, 12.125s to 2008 2,000 1,220,000
Nextlink Communications, Inc., 10.75s, 2009 5,000 4,400,000
NTL Communications Corp. 0s to 2003, 12.375s to 2008 5,000 2,800,000
Sprint Spectrum LP, 11s, 2006 2,515 2,708,202
TCI Communications Financing III, 9.65s, 2027 8,590 9,136,152
Telecom de Puerto Rico, 6.65s, 2006 2,794 2,656,373
Telecom de Puerto Rico, 6.8s, 2009 6,622 6,171,420
WorldCom, Inc., 8.875s, 2006 7,920 8,172,648
--------------
$ 50,223,480
------------------------------------------------------------------------------------------------------
Utilities - Electric - 11.4%
Beaver Valley Funding Corp. II, 9s, 2017 $ 9,399 $ 9,707,569
CalEnergy Co., Inc., 7.23s, 2005 10 9,904
Cleveland Electric Illuminating Co., 9s, 2023 8,184 8,408,242
CMS Energy Corp., 8.375s, 2003 4,720 4,562,895
Commonwealth Edison Co., 8.5s, 2022 1,047 1,055,481
Connecticut Light & Power Co., 7.875s, 2001 5,398 5,410,685
Connecticut Light & Power Co., 7.75s, 2002 550 554,208
Connecticut Light & Power Co., 8.59s, 2003 4,000 3,994,200
Connecticut Light & Power Co., 7.875s, 2024 4,233 4,248,704
Dominion Resources, Inc., 7.625s, 2005 3,422 3,455,946
Entergy Mississippi, Inc., 6.2s, 2004 1,307 1,239,493
GGIB Funding Corp., 7.43s, 2011 3,672 3,588,934
Gulf States Utilities Co., 8.21s, 2002 10,575 10,634,008
Gulf States Utilities Co., 8.25s, 2004 658 675,437
Midland Funding Corp., 10.33s, 2002 9,939 10,127,844
Niagara Mohawk Power Corp., 0s to 2003, 8.5s to 2010 22,395 18,139,502
Northeast Utilities, 8.58s, 2006 4,567 4,650,261
NRG Energy, Inc., 8.7s, 2005## 7,060 7,493,032
NRG Energy, Inc., 8.962s, 2016## 3,277 3,371,395
PNPP II Funding Corp., 9.12s, 2016 507 524,350
RGS Aegco Funding Corp., 9.81s, 2022 3,548 4,090,552
Salton Sea Funding Corp., 7.84s, 2010 3,925 3,822,243
Salton Sea Funding Corp., 8.3s, 2011 783 781,512
Toledo Edison Co., 7.875s, 2004 7,535 7,649,080
Utilicorp United, Inc., 7s, 2004 1,696 1,648,987
Waterford 3 Funding Corp., 8.09s, 2017 7,188 7,025,841
--------------
$ 126,870,305
------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.4%
Northern Natural Gas, 7s, 2011## $ 14,124 $ 13,548,306
Tennessee Gas Pipeline Co., 7.625s, 2037 2,600 2,473,432
--------------
$ 16,021,738
------------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 606,948,661
------------------------------------------------------------------------------------------------------
Foreign Bonds - 15.2%
Australia - 1.2%
Apache Finance Ltd., 7s, 2009 (Real Estate) $ 1,391 $ 1,346,878
Cable & Wireless Optus Ltd., 8.125s, 2009
(Telecommunications)## 4,630 4,806,033
Cable & Wireless Optus Ltd., 8s, 2010
(Telecommunications)## 6,510 6,722,551
--------------
$ 12,875,462
------------------------------------------------------------------------------------------------------
Bermuda - 0.6%
Global Crossing Holdings Ltd., 9.625s, 2008
(Telecommunications) $ 6,808 $ 6,501,640
------------------------------------------------------------------------------------------------------
Brazil - 0.6%
Banco Nacional de Desenvolvi, 12.554s, 2008
(Banks and Finance)+ $ 3,365 $ 3,121,037
Banco Nacional de Desenvolvi, 12.554s, 2008
(Banks and Finance)## 1,475 1,368,063
Federal Republic of Brazil, 8s, 2014 1,458 1,088,770
Federal Republic of Brazil, 6s, 2024 390 255,095
Federal Republic of Brazil, 7.625s, 2024 956 728,504
--------------
$ 6,561,469
------------------------------------------------------------------------------------------------------
Bulgaria - 0.3%
National Republic of Bulgaria, 7.75s, 2011 $ 1,566 $ 1,168,627
National Republic of Bulgaria, 7.75s, 2024 3,114 2,335,500
--------------
$ 3,504,127
------------------------------------------------------------------------------------------------------
Canada - 2.3%
Alberta Energy Ltd., 7.65s, 2010 (Utilities - Electric) $ 2,831 $ 2,857,696
Alberta Energy Ltd., 8.125s, 2030 (Utilities - Electric) 2,121 2,134,723
AT&T Canada, Inc., 12s, 2007 (Telecommunications) 2,401 2,681,725
AT&T Canada, Inc., 0s to 2003, 9.95s to 2008
(Telecommunications) 5,520 4,416,938
J Seagram & Sons, Inc., 7.5s, 2018 (Media/Entertainment) 9,298 9,971,547
J Seagram & Sons, Inc., 6.875s, 2023
(Media/Entertainment) 3,701 3,725,427
--------------
$ 25,788,056
------------------------------------------------------------------------------------------------------
Chile - 2.0%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)## $ 6,500 $ 6,454,760
Empresa Nacional de Electric, 7.75s, 2008
(Utilities - Electric) 9,386 8,764,450
Empresa Nacional de Electric, 8.5s, 2009
(Utilities - Electric) 4,690 4,574,954
Empresa Nacional de Electric, 7.325s, 2037
(Utilities - Electric) 2,365 2,135,217
--------------
$ 21,929,381
------------------------------------------------------------------------------------------------------
Finland - 0.3%
Kansallis-Osake, 10s, 2002 (Banks and Finance) $ 3,184 $ 3,306,074
------------------------------------------------------------------------------------------------------
Mexico - 0.7%
Nuevo Grupo Iusacell S.A., 14.25s, 2006 (Telecommunications) $ 787 $ 792,902
Pemex Finance Ltd., 9.125s, 2010 (Banks and Finance)## 2,182 2,122,497
Pemex Finance Ltd., 10.61s, 2017 (Banks and Finance) 3,500 3,926,335
United Mexican States, 11.375s, 2016 695 783,856
--------------
$ 7,625,590
------------------------------------------------------------------------------------------------------
Netherlands - 1.0%
Hermes Europe Railtel BV, 10.375s, 2009 (Telecommunications) $ 6,860 $ 3,087,000
Koninklijke KPN, 8s, 2010 (Telecommunications)## 1,056 1,032,314
Koninklijke KPN, 8.375s, 2030 (Telecommunications)## 1,378 1,339,306
Telefonica Europe BV, 7.35s, 2005 (Telecommunications) 6,209 6,216,637
--------------
$ 11,675,257
------------------------------------------------------------------------------------------------------
Norway - 0.9%
Union Bank of Norway, 7.35s, 2049 (Banks and Finance)## $ 10,000 $ 9,865,300
------------------------------------------------------------------------------------------------------
Panama - 0.4%
Republic of Panama, 4.5s, 2014 $ 364 $ 288,470
Republic of Panama, 10.75s, 2020 3,100 3,016,300
Republic of Panama, 8.875s, 2027 1,311 1,101,240
--------------
$ 4,406,010
------------------------------------------------------------------------------------------------------
Poland - 0.1%
Netia Holdings BV, 0s to 2001, 11.25s to 2007
(Consumer Goods and Services) $ 700 $ 448,000
Netia Holdings BV, 10.25s, 2007 (Consumer Goods
and Services) 1,425 1,068,750
--------------
$ 1,516,750
------------------------------------------------------------------------------------------------------
Qatar - 0.2%
State of Qatar, 9.75s, 2030## $ 2,329 $ 2,267,864
------------------------------------------------------------------------------------------------------
Russia - 0.2%
Russian Federation, 8.25s, 2010## $ 211 $ 135,868
Russian Federation, 2.5s, 2030## 6,211 2,313,486
--------------
$ 2,449,354
------------------------------------------------------------------------------------------------------
South Korea - 1.3%
Cho Hung Bank, 11.5s, 2010 (Banks and Finance)## $ 2,720 $ 2,601,000
Export-Import Bank Korea, 7.1s, 2007 (Banks and
Finance) 11,151 11,043,103
Hanvit Bank, 12.75s, 2010 (Banks and Finance)## 962 933,140
--------------
$ 14,577,243
------------------------------------------------------------------------------------------------------
Sweden - 1.1%
AB Spintab, 6.8s, 2049 (Banks and Finance)## $ 12,536 $ 12,280,617
------------------------------------------------------------------------------------------------------
United Kingdom - 2.0%
British Sky Broadcasting, 6.875s, 2009
(Telecommunications) $ 20,946 $ 17,868,823
Colt Telecom Group PLC, 7.625s, 2008
(Telecommunications) DEM 3,400 1,331,211
Telewest PLC, 9.625s, 2006 (Media/Entertainment) $ 3,850 3,195,500
--------------
$ 22,395,534
------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 169,525,728
------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 11.1%
Federal Home Loan Pc, 9.5s, 2001 $ 1 $ 250
Federal National Mortgage Association, 7s, 2015 - 2029 56,433 55,618,189
Federal National Mortgage Association, 7.5s, 2030 67,634 67,551,082
------------------------------------------------------------------------------------------------------
Total U.S. Federal Agencies $ 123,169,521
------------------------------------------------------------------------------------------------------
U.S. Government Guaranteed - 16.3%
Government National Mortgage Association - 4.2%
GNMA, 7s, 2028 $ 198 $ 195,234
GNMA, 7.5s, 2023 - 2028 20,900 20,985,860
GNMA, 8s, 2025 - 2029 24,871 25,269,567
--------------
$ 46,450,661
------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 12.1%
U.S. Treasury Bonds, 11.625s, 2004 $ 25,000 $ 30,039,000
U.S. Treasury Bonds, 6.125s, 2029 51,046 52,864,258
U.S. Treasury Bonds, 6.25s, 2030 21,601 23,005,065
U.S. Treasury Notes, 6.75s, 2005 157 162,765
U.S. Treasury Notes, 4.25s, 2010*** 2,007 2,067,553
U.S. Treasury Notes, 5.75s, 2010 26,241 26,216,334
--------------
$ 134,354,975
------------------------------------------------------------------------------------------------------
Total U.S. Government Guaranteed $ 180,805,636
------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,115,821,268) $1,080,449,546
------------------------------------------------------------------------------------------------------
Preferred Stock - 0.1%
------------------------------------------------------------------------------------------------------
SHARES
------------------------------------------------------------------------------------------------------
Primedia, Inc., 8.625% (Identified Cost $1,311,750) 13,250 $ 1,113,000
------------------------------------------------------------------------------------------------------
Call Options Purchased
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED)
------------------------------------------------------------------------------------------------------
Euro/January/0.98 (Premiums Paid, $1,800,000) $ 98,000 $ 11,172
------------------------------------------------------------------------------------------------------
Repurchase Agreement - 0.1%
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED)
------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 10/31/00, due 11/1/00, total
to be received $805,147 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account) at Cost $ 805 $ 805,000
------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,119,738,018) $1,082,378,718
------------------------------------------------------------------------------------------------------
Put Options Written
------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED) VALUE
------------------------------------------------------------------------------------------------------
Euro/January/1.03 (Premiums Received, $745,000) EUR (103,000) $ (515)
------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.5% 27,734,331
------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,110,112,534
------------------------------------------------------------------------------------------------------
** Non-income producing security.
*** 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 EUR = Euro
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
----------------------------------------------------------------------------------------------
OCTOBER 31, 2000
----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $1,119,738,018) $1,082,378,718
Cash 2,138,922
Net receivable for forward foreign currency exchange contracts closed or
subject to master netting agreements 46,653
Receivable for fund shares sold 2,708,320
Receivable for investments sold 80,811,490
Interest receivable 22,169,430
Other assets 23,119
--------------
Total assets $1,190,276,652
--------------
Liabilities:
Payable for fund shares reacquired 4,307,540
Payable for investments purchased 75,118,261
Payable for daily variation margin on open futures contracts 264,596
Written options outstanding, at value (premiums received, $745,000) 515
Payable to affiliates -
Management fee 25,495
Shareholder servicing agent fee 3,047
Distribution and service fee 15,991
Administrative fee 534
Accrued expenses and other liabilities 428,139
--------------
Total liabilities $ 80,164,118
--------------
Net assets $1,110,112,534
==============
Net assets consist of:
Paid-in capital $1,235,319,265
Unrealized depreciation on investments and translation
of assets and liabilities in foreign currencies (36,090,402)
Accumulated net realized loss on investments and
foreign currency transactions (91,805,619)
Accumulated undistributed net investment income 2,689,290
--------------
Total $1,110,112,534
==============
Shares of beneficial interest outstanding 92,109,174
==============
Class A shares:
Net asset value per share
(net assets of $736,367,044 / 61,029,357 shares of
beneficial interest outstanding) $12.07
======
Offering price per share (100 / 95.25 of net asset
value per share) $12.67
======
Class B shares:
Net asset value and offering price per share
(net assets of $283,146,076 / 23,544,681 shares of
beneficial interest outstanding) $12.03
======
Class C shares:
Net asset value and offering price per share
(net assets of $78,736,239 / 6,552,508 shares of
beneficial interest outstanding) $12.02
======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $11,863,175 / 982,628 shares of
beneficial interest outstanding) $12.07
======
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.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Operations (Unaudited)
--------------------------------------------------------------------------------------------
SIX MONTHS ENDED OCTOBER 31, 2000
--------------------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 44,986,136
Dividends 57,134
------------
Total investment income $ 45,043,270
------------
Expenses -
Management fee $ 2,205,732
Trustees' compensation 28,674
Shareholder servicing agent fee 560,461
Distribution and service fee (Class A) 1,126,999
Distribution and service fee (Class B) 1,410,236
Distribution and service fee (Class C) 391,523
Administrative fee 98,081
Custodian fee 167,838
Printing 54,150
Postage 46,476
Auditing fees 20,768
Legal fees 2,356
Miscellaneous 434,591
------------
Total expenses $ 6,547,885
Fees paid indirectly (97,766)
------------
Net expenses $ 6,450,119
------------
Net investment income $ 38,593,151
------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (9,127,900)
Written option transactions (1,440,000)
Futures contracts (69,116)
Foreign currency transactions 178,173
------------
Net realized loss on investments and foreign currency transactions $(10,458,843)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 15,288,136
Written options 34,485
Futures contracts (301,937)
Translation of assets and liabilities in foreign currencies (60,864)
------------
Net unrealized gain on investments and foreign currency translation $ 14,959,820
------------
Net realized and unrealized gain on investments and foreign
currency $ 4,500,977
------------
Increase in net assets from operations $ 43,094,128
============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 2000 APRIL 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 38,593,151 $ 80,518,772
Net realized loss on investments and foreign currency
transactions (10,458,843) (55,997,726)
Net unrealized gain (loss) on investments and foreign
currency translation 14,959,820 (47,365,135)
-------------- --------------
Increase (decrease) in net assets from operations $ 43,094,128 $ (22,844,089)
-------------- --------------
Distributions declared to shareholders -
From net investment income (Class A) $ (26,828,327) $ (55,462,421)
From net investment income (Class B) (9,115,575) (18,448,336)
From net investment income (Class C) (2,535,063) (5,453,077)
From net investment income (Class I) (343,863) (601,364)
-------------- --------------
Total distributions declared to shareholders $ (38,822,828) $ (79,965,198)
-------------- --------------
Net increase (decrease) in net assets from fund share transactions $ 4,316,818 $ (59,006,164)
-------------- --------------
Total increase (decrease) in net assets $ 8,588,118 $ (161,815,451)
Net assets:
At beginning of period 1,101,524,416 1,263,339,867
-------------- --------------
At end of period (including accumulated undistributed
net investment income of $2,689,290 and $2,918,967, respectively) $1,110,112,534 $1,101,524,416
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------------
OCTOBER 31, 2000 2000 1999 1998 1997 1996
(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 $12.02 $13.08 $13.57 $13.04 $12.85 $12.71
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.43 $ 0.87 $ 0.88 $ 0.89 $ 0.94 $ 0.95
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.05 (1.07) (0.46) 0.55 0.18 0.15
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.48 $(0.20) $ 0.42 $ 1.44 $ 1.12 $ 1.10
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.43) $(0.86) $(0.87) $(0.91) $(0.93) $(0.94)
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)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.43) $(0.86) $(0.91) $(0.91) $(0.93) $(0.96)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.07 $12.02 $13.08 $13.57 $13.04 $12.85
====== ====== ====== ====== ====== ======
Total return(+) 4.10%++ (1.51)% 3.22% 11.36% 8.99% 8.67%
Ratios (to average net assets)/
Supplemental data:
Expenses## 0.95%+ 0.92% 0.96% 0.98% 1.02% 1.00%
Net investment income 7.11%+ 6.97% 6.61% 6.61% 7.12% 7.10%
Portfolio turnover 150% 290% 343% 333% 446% 377%
Net assets at end of period (000 Omitted) $736,367 $738,936 $866,388 $708,021 $541,710 $514,892
+ 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------------
OCTOBER 31, 2000 2000 1999 1998 1997 1996
(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 $11.98 $13.04 $13.52 $12.99 $12.79 $12.69
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.39 $ 0.78 $ 0.78 $ 0.79 $ 0.83 $ 0.85
Net realized and unrealized gain
(loss) on investments and foreign currency 0.05 (1.07) (0.45) 0.54 0.19 0.13
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.44 $(0.29) $ 0.33 $ 1.33 $ 1.02 $ 0.98
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.39) $(0.77) $(0.77) $(0.80) $(0.82) $(0.85)
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)
------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.39) $(0.77) $(0.81) $(0.80) $(0.82) $(0.88)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.03 $11.98 $13.04 $13.52 $12.99 $12.79
====== ====== ====== ====== ====== ======
Total return 3.75%++ (2.21)% 2.54% 10.52% 8.16% 7.90%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.65%+ 1.62% 1.66% 1.68% 1.76% 1.81%
Net investment income 6.41%+ 6.27% 5.92% 5.90% 6.39% 6.29%
Portfolio turnover 150% 290% 343% 333% 446% 377%
Net assets at end of period (000 Omitted) $283,146 $278,030 $299,523 $187,905 $123,000 $102,914
+ 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------------
OCTOBER 31, 2000 2000 1999 1998 1997 1996
(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 $11.97 $13.03 $13.52 $12.98 $12.79 $12.68
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.39 $ 0.78 $ 0.78 $ 0.78 $ 0.83 $ 0.85
Net realized and unrealized gain (loss)
on investments and foreign currency 0.05 (1.07) (0.46) 0.56 0.20 0.15
------ ------ ------ ------ ------ ------
Total from investment operations $ 0.44 $(0.29) $ 0.32 $ 1.34 $ 1.03 $ 1.00
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.39) $(0.77) $(0.77) $(0.80) $(0.84) $(0.85)
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)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.39) $(0.77) $(0.81) $(0.80) $(0.84) $(0.89)
------ ------ ------ ------ ------ ------
Net asset value - end of period $12.02 $11.97 $13.03 $13.52 $12.98 $12.79
====== ====== ====== ====== ====== ======
Total return 3.75%++ (2.21)% 2.48% 10.54% 8.27% 7.90%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.65%+ 1.62% 1.66% 1.68% 1.74% 1.74%
Net investment income 6.41%+ 6.27% 5.92% 5.89% 6.44% 6.35%
Portfolio turnover 150% 290% 343% 333% 446% 377%
Net assets at end of period (000 Omitted) $78,736 $77,687 $88,173 $42,229 $20,003 $17,330
+ 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
SIX MONTHS ENDED ----------------------------------------------------
OCTOBER 31, 2000 2000 1999 1998 1997*
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------
CLASS I
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $12.03 $13.09 $13.58 $13.05 $13.15
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income $ 0.46 $ 0.91 $ 0.92 $ 0.94 $ 0.31
Net realized and unrealized gain (loss)
on investments and foreign currency 0.03 (1.08) (0.45) 0.55 (0.09)
------ ------ ------ ------ ------
Total from investment operations $ 0.49 $(0.17) $ 0.47 $ 1.49 $ 0.22
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.45) $(0.89) $(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) $(0.89) $(0.96) $(0.96) $(0.32)
------ ------ ------ ------ ------
Net asset value - end of period $12.07 $12.03 $13.09 $13.58 $13.05
====== ====== ====== ====== ======
Total return 4.17%++ (1.21)% 3.56% 11.72% 1.70%++
Ratios (to average net assets)/Supplemental data:
Expenses## 0.65%+ 0.62% 0.65% 0.68% 0.69%+
Net investment income 7.44%+ 7.26% 6.90% 6.95% 7.19%+
Portfolio turnover 150% 290% 343% 333% 446%
Net assets at end of period (000 Omitted) $11,863 $6,873 $9,256 $9,249 $9,593
* For the period from the inception of Class I shares, 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.
## 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. Equity securities listed on securities
exchanges or reported through the NASDAQ system are reported at market value
using last sale prices. Unlisted equity securities or listed equity securities
for which last sale prices are not available are reported at market value using
last quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. 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. Securities
for which there are no such quotations or valuations are valued in good faith,
at fair value, 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 option 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. The fund uses the effective
interest method for reporting interest income on payment-in-kind (PIK) bonds.
Some securities may be purchased on a "when-issued" or "forward delivery"
basis, which means that the securities will be delivered to the fund at a
future date, usually beyond customary settlement time.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
Fees Paid Indirectly - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the fund. This amount is shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
At April 30, 2000, the fund, for federal income tax purposes, had a capital
loss carryforward of $(54,141,199) 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, $(12,839,198) and April 30, 2008,
$(41,302,001).
Multiple Classes of Shares of Beneficial Interest - The fund offers multiple
classes of shares that differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on 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:
<TABLE>
<CAPTION>
BASED ON AVERAGE NET ASSETS BASED ON GROSS INCOME
------------------------------------------------- ---------------------------------------------
<S> <C> <C>
First $200 million 0.225% First $20 million 2.75%
In excess of $200 million 0.191% In excess of $20 million 2.34%
</TABLE>
The fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the fund, all of whom receive
remuneration for their services to the fund from MFS. Certain officers and
Trustees of the fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The fund has an unfunded
defined benefit plan for all of its independent Trustees. Included in
Trustees' compensation is a net periodic pension expense of $8,546 for the six
months ended October 31, 2000.
Administrator - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund incurs an administrative fee at
the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$75,666 for the six months ended October 31, 2000, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The fund's distribution plan provides that the fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer (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 fund may
determine. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $134,220 for the six months ended October
31, 2000. Fees incurred under the distribution plan during the six months
ended October 31, 2000, 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 $40,147 and $45,890 for
Class B and Class C shares, respectively, for the six months ended October 31,
2000. Fees incurred under the distribution plan during the six months ended
October 31, 2000, 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, 2000, were $25,590, $256,306, and $5,294 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:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $1,282,329,969 $1,184,028,409
-------------- --------------
Investments (non-U.S. government securities) $ 587,426,690 $ 670,433,420
-------------- --------------
</TABLE>
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:
<TABLE>
<S> <C>
Aggregate cost $1,122,766,517
--------------
Gross unrealized depreciation $ (51,701,297)
Gross unrealized appreciation 11,313,498
--------------
Net unrealized depreciation $ (40,387,799)
==============
</TABLE>
(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>
SIX MONTHS ENDED OCTOBER 31, 2000 YEAR ENDED APRIL 30, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 12,193,806 $ 146,279,257 27,601,486 $ 342,146,564
Shares issued to shareholders in
reinvestment of distributions 1,770,803 21,249,836 3,564,990 44,004,826
Shares reacquired (14,408,687) (173,052,275) (35,927,244) (444,307,562)
----------- ------------- ----------- -------------
Net decrease (444,078) $ (5,523,182) (4,760,768) $ (58,156,172)
=========== ============= =========== =============
<CAPTION>
Class B shares
SIX MONTHS ENDED OCTOBER 31, 2000 YEAR ENDED APRIL 30, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,782,040 $ 33,332,402 8,392,944 $ 103,939,608
Shares issued to shareholders in
reinvestment of distributions 536,279 6,418,152 1,052,675 12,949,701
Shares reacquired (2,977,640) (35,668,672) (9,207,578) (113,130,256)
----------- ------------- ----------- -------------
Net increase 340,679 $ 4,081,882 238,041 $ 3,759,053
=========== ============= =========== =============
Class C shares
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 2000 YEAR ENDED APRIL 30, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,327,371 $ 15,905,730 3,423,107 $ 42,297,657
Shares issued to shareholders in
reinvestment of distributions 121,101 1,448,254 259,041 3,185,142
Shares reacquired (1,384,539) (16,583,458) (3,958,803) (48,445,961)
----------- ------------- ----------- -------------
Net increase (decrease) 63,933 $ 770,526 (276,655) $ (2,963,162)
=========== ============= =========== =============
Class I shares
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 2000 YEAR ENDED APRIL 30, 2000
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 760,264 $ 9,226,574 323,783 $ 3,976,631
Shares issued to shareholders in
reinvestment of distributions 27,833 334,637 47,733 589,946
Shares reacquired (376,921) (4,573,619) (507,284) (6,212,460)
----------- ------------- ----------- -------------
Net increase (decrease) 411,176 $ 4,987,592 (135,768) $ (1,645,883)
=========== ============= =========== =============
</TABLE>
(6) Line of Credit
The fund and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the fund for the six
months ended October 31, 2000, was $4,463. 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.
Written Option Transactions
NUMBER OF
CONTRACTS PREMIUMS
----------------------------------------------------------------------------
Outstanding, beginning of period 1 $710,000
Options written 1 745,000
Options expired 1 (710,000)
--------
Outstanding, end of period 1 $745,000
========
At October 31, 2000, the fund had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
At October 31, 2000, forward foreign currency purchases and sales under master
netting agreements amounted to a net receivable of $46,653 with Deutsche Bank.
At October 31, 2000, 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 Notes December 2000 917 Long $488,844
U.S. Treasury Bonds December 2000 150 Long (10,139)
--------
$478,705
========
At October 31, 2000, the fund had sufficient cash and/or securities to cover
any margin requirements under these contracts.
(8) Restricted Securities
The fund may invest not more than 10% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At October 31,
2000, the fund owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 0.55% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The fund
does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, in good faith, at fair value, by
the Trustees.
<TABLE>
<CAPTION>
DATE OF SHARE/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Merrill Lynch Mortgage Investors, Inc.,
8.49s, 2022 6/22/1994 2,000,000 $1,386,250 $1,906,562
Airline Pass-Through Trust,
10.875s, 2019 3/13/1996 1,481,550 1,481,550 1,117,726
Banco Nacional De Desenvolvi
12.554s, 2008 4/26/2000 3,365,000 3,032,754 3,121,037
----------
$6,145,325
==========
</TABLE>
<PAGE>
<TABLE>
MFS(R) BOND FUND
<S> <C>
TRUSTEES ASSISTANT TREASURERS
J. Atwood Ives - Chairman and Chief Executive Mark E. Bradley*
Officer, Eastern Enterprises (diversified Robert R. Flaherty*
services company) Laura F. Healy*
Ellen Moynihan*
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) SECRETARY
Stephen E. Cavan*
William J. Poorvu - Adjunct Professor, Harvard
University Graduate School of Business ASSISTANT SECRETARY
Administration James R. Bordewick, Jr.*
Charles W. Schmidt - Private Investor CUSTODIAN
State Street Bank and Trust Company
Arnold D. Scott* - Senior Executive
Vice President, Director, and Secretary, INVESTOR INFORMATION
MFS Investment Management For information on MFS mutual funds, call your
investment professional or, for an information
Jeffrey L. Shames* - Chairman and Chief kit, call toll free: 1-800-637-2929 any
Executive Officer, MFS Investment Management business day from 9 a.m. to 5 p.m. Eastern time
(or leave a message anytime).
Elaine R. Smith - Independent Consultant
INVESTOR SERVICE
David B. Stone - Chairman, North American MFS Service Center, Inc.
Management Corp. (investment adviser) P.O. Box 2281
Boston, MA 02107-9906
INVESTMENT ADVISER
Massachusetts Financial Services Company For general information, call toll free:
500 Boylston Street 1-800-225-2606 any business day from
Boston, MA 02116-3741 8 a.m. to 8 p.m. Eastern time.
DISTRIBUTOR For service to speech- or hearing-impaired,
MFS Fund Distributors, Inc. call toll free: 1-800-637-6576 any business day
500 Boylston Street from 9 a.m. to 5 p.m. Eastern time. (To use
Boston, MA 02116-3741 this service, your phone must be equipped with
a Telecommunications Device for the Deaf.)
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames* For share prices, account balances, exchanges,
or stock and bond outlooks, call toll free:
PORTFOLIO MANAGER 1-800-MFS-TALK (1-800-637-8255) anytime from a
Geoffrey L. Kurinsky* touch-tone telephone.
ASSOCIATE PORTFOLIO MANAGER WORLD WIDE WEB
William J. Adams* www.mfs.com
TREASURER
James O. Yost*
+Independent Trustee
*MFS Investment Management
</TABLE>
<PAGE>
MFS(R) BOND FUND ------------
PRSRT STD
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)2000 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MFB-3 12/00 113M 11/211/311/811
