<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
MFS(R) LIMITED
MATURITY FUND
ANNUAL REPORT o APRIL 30, 2000
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 9
Portfolio of Investments .................................................. 13
Financial Statements ...................................................... 17
Notes to Financial Statements ............................................. 24
Independent Auditors' Report .............................................. 30
Trustees and Officers ..................................................... 33
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,
This spring, the U.S. stock market experienced record point drops and
volatility that have given many investors cause for concern. While the recent
market correction has rattled a lot of nerves, it's important to put the
current market environment in perspective. Throughout the history of the
market, investors have experienced numerous corrections (declines of more than
20%) and periods of extreme volatility. Of course, past performance is no
guarantee of future results; however, over the long term, stock and bond
investors have enjoyed returns that have solidly outpaced inflation.
From our perspective, as we look at the global investment climate at the
beginning of the new millennium, we see many reasons for optimism, as well as
the need to voice some words of caution. Our reasons for being optimistic
about both stock and bond markets include
o STRONG CORPORATE EARNINGS GROWTH: We believe that, over time, the most
important driver of stock prices is corporate earnings. Our research
indicates that the average earnings growth for U.S. companies could approach
15% in 2000, which would bode very well for U.S. equities. We are also
seeing encouraging signs that companies worldwide, and particularly in
Europe, are beginning to focus more on earnings and shareholder value --
that is, delivering stock price performance that will reward investors. As
we research companies around the globe, we are finding that specific areas
of opportunity include technology companies, especially those involved in
wireless telecommunications and in supplying infrastructure and services for
the Internet.
o LOW INFLATION WORLDWIDE: We believe accelerating inflation is one of the
chief factors that could end the current economic boom. While the U.S.
economy continues to grow rapidly, we have not experienced significant signs
of inflation. In our opinion, perhaps the major force keeping inflation at
bay is worldwide productivity increases, fueled by advancing technology. A
technological revolution based on computerization and the Internet appears
to be making it possible for companies to produce more products with fewer
employees, thereby enabling companies to increase earnings without raising
prices. A related factor keeping inflation down is the heightened
competition of an increasingly global marketplace, where, for example,
businesses are beginning to use computer networks and the Internet to shop
worldwide for the lowest prices from suppliers.
o STRONG GLOBAL ECONOMIES: Our outlook is that a majority of national
economies will continue to experience healthy growth with low inflation. In
late January, the current economic boom in the United States became the
longest in the nation's history. It appears to us that the U.S. Federal
Reserve Board's (the Fed's) program of gradual interest-rate increases will
eventually be successful in cooling the somewhat overheated U.S. economy
while prolonging the boom. In Europe, we see strong evidence that most
countries will continue on a moderate growth path with low inflation. A
major reason for this is that European companies have begun to adopt the
practices of downsizing, outsourcing, and consolidation that have helped
revitalize U.S. industry over the past decade. We are witnessing a similar
situation in Japan, as more firms merge, restructure, and invest in
technology. In the Pacific Rim, most economies have recovered from the
economic turmoil of late summer 1998 and are surging ahead. We believe
progress toward restructuring Asia's banking systems and other ailing
industries bodes well for stronger investor confidence in the region. While
business conditions have been less favorable in Latin America due to
relatively high inflation, increased exports and industrial production
suggest to us that the region's recession has ended.
Amid this positive global outlook, however, we believe investors should also
heed some cautionary notes:
o IT IS HIGHLY UNLIKELY THAT U.S. EQUITY MARKETS WILL CONTINUE TO PERFORM AT
THE PACE OF THE LAST SEVERAL YEARS. Although our outlook for U.S. markets
this year is quite positive, we believe it is unrealistic for investors to
expect stock market returns, as measured by the Standard & Poor's 500
Composite Index,(1) to routinely exceed 20%, as they did for each of the
past four years.
o HIGH VALUATIONS, ESPECIALLY OF TECHNOLOGY STOCKS, HAVE MADE U.S. MARKETS
INCREASINGLY VOLATILE. Investor excitement over the past year has pushed
many technology-related stocks to very high relative prices, as expressed by
their price/earnings (P/E) ratios. In general, we believe these higher
valuations are largely supported by the strong earnings growth mentioned
earlier. However, as we've recently experienced, this backdrop has led to a
highly volatile environment, where the market is swift to punish companies
whose earnings are less than expected and where fear can rapidly overcome
the desire to invest for long-term goals.
o RISING INTEREST RATES MAY DAMPEN MARKETS IN THE SHORT TERM, PARTICULARLY IN
THE UNITED STATES AND EUROPE. The Fed's current program of raising interest
rates could potentially cool both stock and bond markets, and the European
Central Bank has tended to follow the lead of the Fed in adjusting its own
interest rates. It is our expectation, however, that in the long term
interest rates will trend down again, perhaps by the end of this year. We
believe that could be favorable for both equity and fixed-income
investments.
On balance, it appears to us that the current global investment climate is
well matched to MFS' research-oriented style of investing. In the equity
markets, where we believe earnings growth is the most reliable indicator of
long-term performance, we feel our research team is second to none in
determining the real value of a company and its long-term earnings potential.
To do that, our portfolio managers and our worldwide team of research analysts
spend extensive time visiting with companies, talking to their customers, and
investigating their competition. In fixed-income investing, we believe the
quality of our research gives us an advantage by helping us determine which
types of securities can add the most value to a fund, and by helping us reduce
the credit risk which is the biggest danger to some higher-income bond funds.
In sum, MFS Original Research(R) is one of the most important factors in our
ongoing effort to deliver competitive performance to you, our investors.
We appreciate your confidence and welcome any questions or comments
you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
May 18, 2000
--------------
(1) The Standard & Poor's 500 Composite Index (the S&P 500) is a popular,
unmanaged index of common stock total return performance. It is not
possible to invest directly in an index.
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
[Photo of James J. Calmas]
James J. Calmas
For the 12 months ended April 30, 2000, Class A shares of the Fund provided a
total return of 2.71%, Class B shares 1.91%, Class C shares 1.99%, and Class I
shares 3.02%. These returns include the reinvestment of any distributions but
exclude the effects of any sales charges. During the same period, the average
short-term investment-grade debt fund tracked by Lipper Inc., an independent
firm that reports mutual fund performance, returned 2.93%. The Fund's results
also compare to a 3.56% return for the Fund's benchmark, the Lehman Brothers
One- to Three-Year Government/Corporate Bond Index (the Lehman Index), an
unmanaged index of coupon-bearing U.S. Treasury issues, debt of agencies of
the U.S. government, and corporate debt rated "Baa" or higher by Moody's
Investors Service, Inc.
Q. WHAT ACCOUNTED FOR THE FUND'S PERFORMANCE?
A. Rising interest rates and persistent inflation worries put pressure on
nearly all bonds, with the lone exception of long-term U.S. Treasury
securities. The Federal Reserve Board (the Fed) raised short-term interest
rates five times over the past year by a total of 125 basis points (1.25%).
Those rate hikes were designed to curb economic growth and stave off
inflationary pressures. As interest rates moved higher, bond yields rose and
bond prices fell (yields and prices move in opposite directions).
In contrast to most other types of bonds, long-term Treasury bonds rallied
during the past year as their supply diminished and demand grew. Swelling
federal budget surpluses prompted the U.S. Treasury to limit the size and
frequency of its auctions of new debt and to buy back nearly $30 billion of
Treasury bonds outstanding in the first four months of 2000. The anticipated
scarcity of long-term Treasury bonds caused them to rally even as short-term
interest rates kept climbing and most other fixed-income investments lost
ground.
The Fund's underweighting in Treasury securities versus the Lehman Index
caused the Fund to trail its benchmark over the past 12 months.
Q. HOW DID CORPORATE SECURITIES PERFORM AGAINST THAT BACKDROP?
A. In addition to rising interest rates, our research indicated a number of
"technical" challenges plagued corporate bonds. In the late summer of 1999,
a surge of new issuance came to market. Corporations who wanted to sidestep
any year 2000 (Y2K) related market problems accelerated issuance into the
third quarter of the year. Increased stock market volatility and the
inversion of the yield curve caused the difference in yield (the spread)
between Treasuries and corporate securities to widen substantially during
the year, pushing corporate bond prices lower. However, despite the recent
disappointing performance of corporate bonds, we maintained our holdings in
them. That's because we believe that strong economic conditions may help
corporate fundamentals. In our view, good news on the fundamental front
eventually will overwhelm the negative market backdrop stemming from reduced
Treasury supply.
Q. WHAT TYPES OF CORPORATE SECURITIES DID YOU EMPHASIZE?
A. We favored bonds issued by telecommunications and cable companies. We
believe the promise of the Internet, the explosion in demand for cellular
and data transmission, and the ongoing convergence of telecommunications and
cable companies have helped boost their prospects. Some of our largest
holdings in these areas included Sprint Spectrum, Comcast, Time Warner, Cox
Communications, and GTE.
Q. HOW DID ASSET-BACKED SECURITIES FARE?
A. Asset-backed securities held up much better than corporate bonds over the
past year. Asset-backed securities are credit card receivables, home equity
loans, and auto loans. About 28% of the portfolio's assets are invested in
these bonds. The reasons that we own them are the same factors that helped
their recent performance: their high "AAA"-rated quality and attractive
yields. In addition, personal income growth helped push delinquencies and
bankruptcies lower, and supply of asset-backed securities diminished in the
first quarter of 2000. We own bonds backed by American Express and Chase.
Q. WHAT IS THE ALLOCATION OF ASSETS TO DIFFERENT TYPES OF BONDS?
A. The breakdown is 42.6% to high-grade corporates, 28.3% to asset-backed
securities, 9.3% to Yankees ("AAA"-rated dollar-denominated bonds issued in
the United States by foreign governments and corporations), 9.1% to
mortgage-backed securities, 3.7% to emerging markets, 3.1% in U.S.
Treasuries, 2.2% in government agency securities, and 1.7% to cash. In
addition, we also are holding some floating-rate securities, which are notes
whose interest rates are tied to a money market index. We believe the reason
is that if interest rates continue to rise, these short-term issues may help
provide some additional return.
Q. HOW DID YOU MANAGE THE FUND'S INTEREST-RATE SENSITIVITY?
A. Throughout much of the period, we kept the Fund's duration, which is an
indicator of interest-rate sensitivity, in line with the Lehman Index. We
take a neutral positioning when we don't have a strong conviction about the
direction of interest rates.
Q. YOU UPGRADED THE PORTFOLIO'S CREDIT QUALITY DURING THE PERIOD. WHY?
A. While we don't foresee major credit-related problems for most of the
corporate bond market, we do believe that there will be a gradual rise in
default rates over the next year or so. That's why we have increased the
Fund's stake in bonds in the upper range of the credit spectrum, those rated
"A" to "AAA." That said, occasionally we have found attractively priced
opportunities among lower-rated investment-grade bonds ("BBB" rated) that
carried enough yield, in our view, to compensate for their added credit
risk.
Q. WHAT'S YOUR OUTLOOK?
A. With the U.S. economy posting continued strong economic growth and many
other areas of the world enjoying an economic rebound, we believe that the
Fed will continue to raise interest rates as it battles potential
inflationary pressures. The positive effects of a reduced Treasury supply
already appear to be priced into Treasuries. Given that assumption, we
believe that corporate, asset-backed, and mortgage-backed securities will
begin to close the yield gap with Treasuries and outpace them in the
process. (Principal value and interest on Treasury securities are guaranteed
by the U.S. government if held to maturity.) Furthermore, we feel their
yield advantage over Treasuries may help cushion corporate and asset-backed
securities against rising rates. Even if rates remain stable, we feel the
higher yields offered by corporate and asset-backed securities may help them
outperform Treasuries.
/s/ James J. Calmas
James J. Calmas
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
--------------------------------------------------------------------------------
JAMES J. CALMAS IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R) AND
PORTFOLIO MANAGER OF MFS(R) LIMITED MATURITY FUND AND MFS(R) LIMITED
MATURITY SERIES (PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)).
MR. CALMAS JOINED MFS IN 1988 AND WAS NAMED ASSISTANT VICE PRESIDENT IN
1991, VICE PRESIDENT IN 1993, AND PORTFOLIO MANAGER IN 1998. HE IS A
GRADUATE OF DARTMOUTH COLLEGE AND HOLDS AN M.B.A. DEGREE FROM THE AMOS
TUCK SCHOOL OF BUSINESS ADMINISTRATION OF DARTMOUTH COLLEGE.
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, 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 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. THE
FUND ALSO SEEKS TO PROTECT SHAREHOLDERS' CAPITAL.
COMMENCEMENT OF
INVESTMENT OPERATIONS: FEBRUARY 26, 1992
CLASS INCEPTION: CLASS A FEBRUARY 26, 1992
CLASS B SEPTEMBER 7, 1993
CLASS C JULY 1, 1994
CLASS I JANUARY 2, 1997
SIZE: $184.5 MILLION NET ASSETS AS OF APRIL 30, 2000
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.) It is not possible to
invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment operations,
February 26, 1992, through April 30, 2000. Index information is from March 1,
1992.)
MFS Limited Lehman Brothers
Maturity Fund 1-3 Year Government/
-- Class A Corporate Bond Index
---------------------------------------------------
2/92 $ 9,750 $10,000
4/94 10,908 11,106
4/96 12,440 12,564
4/98 13,952 14,293
4/00 14,941 15,696
<PAGE>
<TABLE>
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH APRIL 30, 2000
<CAPTION>
CLASS A
1 Year 3 Years 5 Years Life*
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +2.71% +13.48% +29.11% +53.24%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +2.71% + 4.31% + 5.24% + 5.36%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +0.14% + 3.43% + 4.71% + 5.03%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS B
1 Year 3 Years 5 Years Life*
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +1.91% +10.72% +23.82% +44.93%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +1.91% + 3.45% + 4.37% + 4.65%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge -1.96% + 2.56% + 4.05% + 4.65%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS C
1 Year 3 Years 5 Years Life*
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +1.99% +10.49% +23.59% +45.74%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +1.99% + 3.38% + 4.33% + 4.72%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +1.02% + 3.38% + 4.33% + 4.72%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS I
1 Year 3 Years 5 Years Life*
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return Excluding Sales Charge +3.02% +13.86% +29.60% +53.82%
-------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +3.02% + 4.42% + 5.32% + 5.41%
-------------------------------------------------------------------------------------------------------------
<CAPTION>
COMPARATIVE INDICES(+)
1 Year 3 Years 5 Years Life*
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average short-term investment-grade debt fund+ +2.93% + 4.92% + 5.46% + 5.34%
-------------------------------------------------------------------------------------------------------------
Lehman Brothers One- to Three-Year
Government/Corporate Bond Index# +3.56% + 5.57% + 5.97% + 5.68%
-------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, February 26, 1992, through April
30, 2000. Index information is from March 1, 1992.
(+) Average annual rates of return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Class A Share Performance Including Sales Charge takes into account the
deduction of the maximum 2.50% sales charge. Class B Share Performance
Including Sales Charge takes into account the deduction of the applicable
contingent deferred sales charge (CDSC), which declines over six years from 4%
to 0%. Class C Share Performance Including Sales Charge takes into account the
deduction of the 1% CDSC applicable to Class C shares redeemed within 12
months. Class I shares have no sales charge and are only available to certain
institutional investors.
Class B, C, and I share performance include the performance of the Fund's
Class A shares for periods prior to their inception (blended performance).
Class B and C blended performance has been adjusted to take into account the
CDSC applicable to Class B and C shares rather than the initial sales charge
(load) applicable to Class A shares. Class I share blended performance has
been adjusted to account for the fact that Class I shares have no sales
charge. These blended performance figures have not been adjusted to take into
account differences in class-specific operating expenses. Because operating
expenses of Class B and C shares are higher than those of Class A, the blended
Class B and C share performance is higher than it would have been had Class B
and C shares been offered for the entire period. Conversely, because operating
expenses of Class I shares are lower than those of Class A, the blended Class
I share performance is lower than it would have been had Class I shares been
offered for the entire period.
All performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
PORTFOLIO CONCENTRATION AS OF APRIL 30, 2000
Source: Standard & Poor's and Moody's
AAA 30.9%
BBB 24.9%
A 21.1%
Governments 15.2%
AA 6.1%
Other 1.8%
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- April 30, 2000
<CAPTION>
Bonds - 96.7%
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PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Bonds - 83.4%
Aerospace - 0.8%
Raytheon Co., 5.7s, 2003 $ 1,653 $ 1,527,669
--------------------------------------------------------------------------------------------------------
Apparel and Textiles - 1.0%
Hilfiger (Tommy) USA, Inc., 6.5s, 2003 $ 2,283 $ 1,813,661
--------------------------------------------------------------------------------------------------------
Automotive - 4.1%
DaimlerChrysler NA Holding Corp., 6.63s, 2001 $ 2,653 $ 2,628,354
Ford Capital BV, 9.875s, 2002 1,800 1,870,686
Ford Motor Credit Co., 6.541s, 2002 3,000 3,009,840
------------
$ 7,508,880
--------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.4%
Fleet Boston Corp., 9.9s, 2001 $ 2,017 $ 2,073,799
Great Western Financial Corp., 6.375s, 2000 2,366 2,363,681
GS Escrow Corp., 6.75s, 2001 1,903 1,836,631
Wells Fargo Co., 7.2s, 2003 1,822 1,805,802
------------
$ 8,079,913
--------------------------------------------------------------------------------------------------------
Conglomerates - 1.8%
Eaton Corp., 6.95s, 2004 $ 1,299 $ 1,269,188
General Electric Capital Corp., 6.52s, 2002 2,127 2,089,614
------------
$ 3,358,802
--------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.5%
Hasbro, Inc., 7.95s, 2003 $ 884 $ 879,686
--------------------------------------------------------------------------------------------------------
Corporate Asset Backed - 25.3%
Aames Mortgage Trust, 6.75s, 2021 $ 969 $ 967,256
American Express Credit Account Trust, 5.6s, 2006 1,000 939,060
Americredit Automobile Receivable Trust, 5.78s, 2003 2,050 2,012,844
Amresco Residential Securities Mortgage Loan, 5.94s, 2015 3,805 3,740,791
Banamex Credit Card Merchant Voucher, 6.25s, 2003# 5,952 5,801,872
BankBoston Home Equity Loan Trust, 5.89s, 2013 1,894 1,854,640
BKB Commercial Mortgage Trust, 6.375s, 2001 22 21,548
Chase Credit Card Master Trust, 6.39s, 2004 2,815 2,819,391
Commerce 2000, 7.41s, 2002# 960 951,648
Commonwealth Edison Transition Funding Trust, 5.29s, 2003 1,894 1,860,893
DLJ Mortgage Acceptance Corp., 8.1s, 2004 968 981,655
First Chicago Master Trust II, 6.41s, 2003 2,975 2,980,563
Fleet Credit Card Master Trust II, 6.35s, 2007 2,505 2,510,461
Ford Credit Auto Owner Trust, 5.31s, 2001 202 201,907
Ford Credit Auto Owner Trust, 6.2s, 2002 2,192 2,183,369
Ford Credit Auto Owner Trust, 7.5s, 2003# 750 731,484
GE Capital Mortgage Services, Inc., 6.035s, 2020 2,035 1,961,867
Green Tree Financial Corp., 6.04s, 2029 1,591 1,588,493
Green Tree Financial Corp., 6.39s, 2029 629 628,345
GS Mortgage Securities Corp. II, 6.06s, 2030 554 524,804
MBNA Master Credit Card Trust II, 5.25s, 2006 2,374 2,224,865
Merrill Lynch Mortgage Investors, Inc., 5.65s, 2030 1,742 1,625,593
Morgan Stanley Capital I, 6.01s, 2030 1,215 1,142,887
Partners First Credit Card Master Trust, 6.23s, 2004 3,400 3,398,406
Pemex Finance Ltd., 5.72s, 2003 947 906,368
Providian Home Equity Loan Trust, 6.435s, 2025 719 719,097
SLM Student Loan Trust, 6.514s, 2009 1,470 1,450,214
------------
$ 46,730,321
--------------------------------------------------------------------------------------------------------
Entertainment - 2.7%
Seagram (Joseph E) & Sons, Inc., 5.79s, 2001 $ 2,627 $ 2,579,399
Time Warner Pass-Through Asset Trust, 6.1s, 2001# 2,413 2,352,675
------------
$ 4,932,074
--------------------------------------------------------------------------------------------------------
Financial Institutions - 6.0%
Countrywide Home Loan, Inc., 6.85s, 2004 $ 2,506 $ 2,395,836
Lehman Brothers Holdings, Inc., 6.25s, 2003 3,484 3,336,871
Merrill Lynch & Co., 6.06s, 2001 2,520 2,473,808
Morgan Stanley Dean Witter, 7.125s, 2003 2,955 2,922,525
------------
$ 11,129,040
--------------------------------------------------------------------------------------------------------
Food and Beverage Products - 2.6%
Coca-Cola Bottling Co., 8.56s, 2002 $ 2,521 $ 2,561,336
Whitman Corp., 6s, 2004 2,385 2,238,966
------------
$ 4,800,302
--------------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.6%
Georgia-Pacific Corp., 9.95s, 2002 $ 1,150 $ 1,196,057
--------------------------------------------------------------------------------------------------------
Insurance - 0.6%
AIG Sunamerica, 7.4s, 2003# $ 1,122 $ 1,122,000
--------------------------------------------------------------------------------------------------------
Railroads - 1.1%
Union Pacific Corp., 5.78s, 2001 $ 103 $ 99,933
Union Pacific Corp., 6.34s, 2003 2,100 1,989,456
------------
$ 2,089,389
--------------------------------------------------------------------------------------------------------
Supermarkets - 1.3%
Safeway, Inc., 5.875s, 2001 $ 2,430 $ 2,365,192
--------------------------------------------------------------------------------------------------------
Telecommunications and Cable - 7.1%
Comcast Corp., 9.125s, 2006 $ 2,666 $ 2,761,310
Cox Communications, Inc., 7s, 2001 2,025 2,008,719
GTE Corp., 9.1s, 2003 1,965 2,036,840
Sprint Corp., 9.5s, 2003 881 918,346
Sprint Spectrum LP, 11s, 2006 2,642 2,844,324
Telecomunicaiones De Puerto Rico, 6.15s, 2002 2,598 2,493,794
------------
$ 13,063,333
--------------------------------------------------------------------------------------------------------
U.S. Federal Agencies - 11.9%
Federal Home Loan Bank, 6.75s, 2002 $ 2,000 $ 1,989,734
Federal Home Loan Mortgage Corp., 5.5s, 2002 2,000 1,940,320
Federal Home Loan Mortgage Corp., 5.83s, 2013 1,308 1,292,641
Federal National Mortgage Assn., 6.75s, 2003 2,068 2,030,073
Federal National Mortgage Assn., 6s, 2014 5,544 5,191,810
Federal National Mortgage Assn., 7s, 2015 5,049 4,933,559
Government National Mortgage Assn., 7.5s, 2007 - 2011 4,276 4,276,573
Government National Mortgage Assn., 12.5s, 2011 232 261,971
------------
$ 21,916,681
--------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 3.0%
U.S. Treasury Notes, 5s, 2001 $ 900 $ 889,308
U.S. Treasury Notes, 5.375s, 2001 165 163,608
U.S. Treasury Notes, 6.25s, 2001 765 760,096
U.S. Treasury Notes, 6.5s, 2001 900 898,029
U.S. Treasury Notes, 5.875s, 2004 3,002 2,922,717
------------
$ 5,633,758
--------------------------------------------------------------------------------------------------------
Utilities - Electric - 6.5%
California Infrastructure, 6.17s, 2003 $ 2,855 $ 2,844,294
Connecticut Light & Power Co., 7.875s, 2001 772 770,896
Edison Mission Energy Funding Corp., 6.77s, 2003# 1,614 1,575,126
Gulf States Utilities Co., 8.21s, 2002 1,528 1,540,530
Midamerican Funding LLC, 5.85s, 2001 3,039 2,999,277
Narragansett Electric Co., 7.83s, 2002 500 503,695
National Rural Utilities, 7.375s, 2003 1,388 1,384,308
Salton Sea Funding Corp., 6.69s, 2000 205 204,675
Salton Sea Funding Corp., 7.02s, 2000 86 85,714
------------
$ 11,908,515
--------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.1%
CMS Panhandle Holding Co., 6.125s, 2004 $ 1,820 $ 1,699,334
Columbia Gas Systems, Inc., 6.39s, 2000 2,127 2,110,112
------------
$ 3,809,446
--------------------------------------------------------------------------------------------------------
Total U.S. Bonds $153,864,719
--------------------------------------------------------------------------------------------------------
Foreign Bonds - 13.3%
Argentina - 1.5%
Republic of Argentina, 0s, 2001 $ 3,043 $ 2,799,560
--------------------------------------------------------------------------------------------------------
Australia - 1.2%
Medallion Trust, 6.509s, 2031 (Corporate Asset Back) $ 1,000 $ 999,492
Westpac Banking, 9.125s, 2001 (Banks and Credit Cos.) 1,175 1,196,197
------------
$ 2,195,689
--------------------------------------------------------------------------------------------------------
Canada - 2.3%
AT&T Canada, Inc., 12s, 2007 (Telecommunications) $ 1,684 $ 1,892,395
Province of Quebec, 8.8s, 2003 2,246 2,325,643
------------
$ 4,218,038
--------------------------------------------------------------------------------------------------------
Chile - 1.2%
Empresa Electric Guacolda S.A., 7.6s, 2001
(Utilities - Electric)# $ 1,520 $ 1,481,970
Enersis S.A., 6.6s, 2026 (Utilites - Electric) 799 758,219
------------
$ 2,240,189
--------------------------------------------------------------------------------------------------------
China - 0.4%
Hero Asian BVI Co. Ltd., 9.11s, 2001 (Utilities)# $ 792 $ 771,402
--------------------------------------------------------------------------------------------------------
Germany - 2.5%
KFW International Finance, Inc., 9.4s, 2004
(Financial Institutions) $ 1,068 $ 1,147,481
Landesbank Baden Wurttemberg, 7.875s, 2004 (Banks and
Credit Cos.) 3,445 3,468,684
------------
$ 4,616,165
--------------------------------------------------------------------------------------------------------
Norway - 1.8%
Union Bank of Norway, 7.35s, 2049 (Banks and Credit Cos.)# $ 3,339 $ 3,212,686
--------------------------------------------------------------------------------------------------------
South Korea - 0.5%
Export-Import Bank Korea, 7.1s, 2007 (Banks and Credit Cos.) $ 900 $ 887,759
--------------------------------------------------------------------------------------------------------
Spain - 1.1%
Kingdom of Spain, 9.125s, 2000 $ 2,000 $ 2,011,440
--------------------------------------------------------------------------------------------------------
Sweden - 0.8%
AB Spintab, 6.8s, 2049 (Banks and Credit Cos.)# $ 1,620 $ 1,550,926
--------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 24,503,854
--------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $183,140,508) $178,368,573
--------------------------------------------------------------------------------------------------------
Repurchase Agreement - 1.6%
--------------------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/28/00, due 5/1/00, total to be
received $2,930,399 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at cost $ 2,929 $ 2,929,000
--------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $186,069,508) $181,297,573
Other Assets, Less Liabilities - 1.7% 3,178,648
--------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $184,476,221
--------------------------------------------------------------------------------------------------------
# SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
------------------------------------------------------------------------------
APRIL 30, 2000
------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $186,069,508) $181,297,573
Cash 8,449
Receivable for Fund shares sold 815,581
Receivable for investments sold 3,088,849
Interest receivable 2,404,174
Other assets 2,283
------------
Total assets $187,616,909
------------
Liabilities:
Distributions payable $ 223,143
Payable for investments purchased 1,797,220
Payable for Fund shares reacquired 974,749
Payable to affiliates -
Management fee 6,095
Shareholder servicing agent fee 1,524
Distribution and service fee 12,661
Administrative fee 267
Accrued expenses and other liabilities 125,029
------------
Total liabilities $ 3,140,688
------------
Net assets $184,476,221
============
Net assets consist of:
Paid-in capital $202,415,531
Unrealized depreciation on investments (4,771,935)
Accumulated net realized loss on investments (13,046,145)
Accumulated distributions in excess of net investment
income (121,230)
------------
Total $184,476,221
============
Shares of beneficial interest outstanding 27,706,464
==========
Class A shares:
Net asset value per share
(net assets of $115,752,398 / 17,368,454 shares of
beneficial interest outstanding) $6.66
=====
Offering price per share (100 / 97.5 of net asset value
per share) $6.83
=====
Class B shares:
Net asset value and offering price per share
(net assets of $45,214,228 / 6,808,003 shares of
beneficial interest outstanding) $6.64
=====
Class C shares:
Net asset value and offering price per share
(net assets of $22,825,223 / 3,427,054 shares of
beneficial interest outstanding) $6.66
=====
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets of $684,372 / 102,953 shares of beneficial
interest outstanding) $6.65
=====
On sales of $50,000 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, 2000
------------------------------------------------------------------------------
Net investment income:
Interest income $13,492,236
-----------
Expenses -
Management fee $ 804,887
Trustees' compensation 21,998
Shareholder servicing agent fee 201,222
Distribution and service fee (Class A) 187,214
Distribution and service fee (Class B) 480,156
Distribution and service fee (Class C) 237,937
Administrative fee 26,361
Custodian fee 95,868
Printing 48,302
Postage 24,590
Auditing fees 33,986
Legal fees 2,535
Miscellaneous 170,016
-----------
Total expenses $ 2,335,072
Fees paid indirectly (22,869)
-----------
Net expenses $ 2,312,203
-----------
Net investment income $11,180,033
-----------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(3,069,917)
Futures contracts (41,723)
-----------
Net realized loss on investments $(3,111,640)
-----------
Change in unrealized depreciation on investments $(3,195,332)
-----------
Net realized and unrealized loss on investments $(6,306,972)
-----------
Increase in net assets from operations $ 4,873,061
===========
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
--------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 11,180,033 $ 10,889,038
Net realized loss on investments (3,111,640) (2,645,933)
Net unrealized loss on investments (3,195,332) (1,382,793)
------------ ------------
Increase in net assets from operations $ 4,873,061 $ 6,860,312
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (7,150,744) $ (6,851,802)
From net investment income (Class B) (2,548,364) (2,396,262)
From net investment income (Class C) (1,166,057) (1,138,922)
From net investment income (Class I) (80,787) (109,991)
------------ ------------
Total distributions declared to shareholders $(10,945,952) $(10,496,977)
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions $(22,106,338) $ 60,124,700
------------ ------------
Total increase (decrease) in net assets $(28,179,229) $ 56,488,035
Net assets:
At beginning of period 212,655,450 156,167,415
------------ ------------
At end of period (including accumulated distributions in
excess of net investment income of $121,230 and
$331,659, respectively) $184,476,221 $212,655,450
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 6.87 $ 6.99 $ 7.04 $ 7.12 $ 7.10
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.40 $ 0.43 $ 0.48 $ 0.47 $ 0.48
Net realized and unrealized gain (loss) on
investments (0.22) (0.14) (0.07) (0.06) 0.03
------ ------ ------ ------ ------
Total from investment operations $ 0.18 $ 0.29 $ 0.41 $ 0.41 $ 0.51
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.39) $(0.41) $(0.46) $(0.47) $(0.48)
In excess of net investment income -- -- -- (0.02) (0.01)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.39) $(0.41) $(0.46) $(0.49) $(0.49)
------ ------ ------ ------ ------
Net asset value - end of period $ 6.66 $ 6.87 $ 6.99 $ 7.04 $ 7.12
====== ====== ====== ====== ======
Total return(+) 2.71% 4.26% 5.97% 5.83% 7.50%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.86% 0.84% 0.89% 0.94% 0.95%
Net investment income 5.87% 6.14% 6.70% 6.57% 6.73%
Portfolio turnover 74% 278% 288% 489% 385%
Net assets at end of period (000 omitted) $115,752 $134,086 $95,342 $91,887 $98,582
(S) Subject to reimbursement by the Fund, the investment adviser agreed under a temporary expense reimbursement agreement to
pay all of the Fund's operating expenses exclusive of management and distribution and service fees. In consideration, the
Fund pays a fee not greater than 0.40% of average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income -- -- $ 0.48 $ 0.47 $ 0.48
Ratios (to average net assets):
Expenses## -- -- 0.87% 0.89% 0.91%
Net investment income -- -- 6.72% 6.62% 6.77%
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) 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.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 6.85 $ 6.97 $ 7.03 $ 7.11 $ 7.10
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.34 $ 0.38 $ 0.41 $ 0.41 $ 0.42
Net realized and unrealized gain (loss) on
investments (0.21) (0.14) (0.07) (0.05) 0.03
------ ------ ------ ------ ------
Total from investment operations $ 0.13 $ 0.24 $ 0.34 $ 0.36 $ 0.45
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.34) $(0.36) $(0.40) $(0.42) $(0.42)
In excess of net investment income -- -- -- (0.02) (0.02)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.34) $(0.36) $(0.40) $(0.44) $(0.44)
------ ------ ------ ------ ------
Net asset value - end of period $ 6.64 $ 6.85 $ 6.97 $ 7.03 $ 7.11
====== ====== ====== ====== ======
Total return 1.91% 3.48% 4.98% 4.99% 6.52%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.65% 1.61% 1.70% 1.78% 1.75%
Net investment income 5.09% 5.33% 5.80% 5.75% 5.90%
Portfolio turnover 74% 278% 288% 489% 385%
Net assets at end of period (000 omitted) $45,214 $52,883 $39,229 $34,875 $26,464
(S) Subject to reimbursement by the Fund, the investment adviser agreed under a temporary expense reimbursement agreement to
pay all of the Fund's operating expenses exclusive of management and distribution and service fees. In consideration, the
Fund pays a fee not greater than 0.40% of average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income -- -- $ 0.41 $ 0.41 $ 0.42
Ratios (to average net assets):
Expenses## -- -- 1.68% 1.77% 1.77%
Net investment income -- -- 5.82% 5.76% 5.88%
# 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>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------
CLASS C
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 6.86 $ 6.99 $ 7.05 $ 7.13 $ 7.11
------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.34 $ 0.36 $ 0.41 $ 0.41 $ 0.41
Net realized and unrealized gain (loss) on
investments (0.21) (0.14) (0.07) (0.06) 0.04
------ ------ ------ ------ ------
Total from investment operations $ 0.13 $ 0.22 $ 0.34 $ 0.35 $ 0.45
------ ------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.33) $(0.35) $(0.40) $(0.41) $(0.41)
In excess of net investment income -- -- -- (0.02) (0.02)
------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.33) $(0.35) $(0.40) $(0.43) $(0.43)
------ ------ ------ ------ ------
Net asset value - end of period $ 6.66 $ 6.86 $ 6.99 $ 7.05 $ 7.13
====== ====== ====== ====== ======
Total return 1.99% 3.23% 4.94% 5.08% 6.44%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.71% 1.69% 1.74% 1.80% 1.80%
Net investment income 5.03% 5.19% 5.76% 5.80% 5.76%
Portfolio turnover 74% 278% 288% 489% 385%
Net assets at end of period (000 omitted) $22,825 $24,228 $20,131 $18,862 $13,842
(S) Subject to reimbursement by the Fund, the investment adviser agreed under a temporary expense reimbursement agreement to
pay all of the Fund's operating expenses exclusive of management and distribution and service fees. In consideration, the
Fund pays a fee not greater than 0.40% of average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income -- -- $ 0.41 $ 0.41 $ 0.41
Ratios (to average net assets):
Expenses## -- -- 1.72% 1.81% 1.75%
Net investment income -- -- 5.78% 5.80% 5.81%
# 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>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
------------------------------------------- PERIOD ENDED
2000 1999 1998 APRIL 30, 1997*
----------------------------------------------------------------------------------------------------------------------------
CLASS I
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 6.85 $ 6.98 $ 7.04 $ 7.08
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.42 $ 0.43 $ 0.48 $ 0.15
Net realized and unrealized loss on investments (0.22) (0.14) (0.07) (0.03)
------ ------ ------ ------
Total from investment operations $ 0.20 $ 0.29 $ 0.41 $ 0.12
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.40) $(0.42) $(0.47) $(0.15)
In excess of net investment income -- -- -- (0.01)
------ ------ ------ ------
Total distributions declared to shareholders $(0.40) $(0.42) $(0.47) $(0.16)
------ ------ ------ ------
Net asset value - end of period $ 6.65 $ 6.85 $ 6.98 $ 7.04
====== ====== ====== ======
Total return 3.02% 4.28% 5.98% 1.72%++
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.71% 0.69% 0.74% 1.17%+
Net investment income 6.00% 6.21% 6.75% 8.68%+
Portfolio turnover 74% 278% 288% 489%
Net assets at end of period (000 omitted) $684 $1,459 $1,466 $1,925
(S) Subject to reimbursement by the Fund, the investment adviser agreed under a temporary expense reimbursement agreement to
pay all of the Fund's operating expenses exclusive of management and distribution and service fees. In consideration, the
Fund pays a fee not greater than 0.40% of average daily net assets. To the extent actual expenses were over/under this
limitation, the net investment income per share and the ratios would have been:
Net investment income -- -- $ 0.49 $ 0.15
Ratios (to average net assets):
Expenses## -- -- 0.72% 1.17%+
Net investment income -- -- 6.77% 8.68%+
* For the period from the inception of Class I, January 2, 1997, through April 30, 1997.
+ Annualized.
++ Not annualized.
# 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
(1) Business and Organization
MFS Limited Maturity 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.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues, 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 listed on commodities exchanges are reported at
market value using closing settlement prices. 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.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities 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
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. Should interest rates or securities prices move
unexpectedly, the Fund may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
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. Interest payments received in additional
securities are recorded on the ex-interest date in an amount equal to the
value of the security on such date.
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 requires that only distributions in excess of tax basis earnings and
profits be reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
During the year ended April 30, 2000, $23,652 was reclassified from
accumulated distributions in excess of net investment income to accumulated
net realized loss on investments due to differences between book and tax
accounting for mortgage-backed securities. This change had no effect on the
net assets or net asset value per share.
At April 30, 2000, the Fund, for federal income tax purposes, had a capital
loss carryforward of $11,613,985 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, 2003, ($3,619,464), April 30, 2005, ($1,432,459),
April 30, 2006, ($549,779), April 30, 2007, ($2,183,364), and April 30, 2008,
($3,828,919).
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 the value
of settled shares outstanding 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 MFS to
provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at an
annual rate of 0.40% of the Fund's average daily net assets.
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 $7,975 for the
year ended April, 30, 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
$50,413 for the year ended April 30, 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 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. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $15,525
for the year ended April 30, 2000. Fees incurred under the distribution plan
during the year ended April 30, 2000, were 0.15% of average daily net assets
attributable to Class A shares on an annualized basis. Payment of the
remaining 0.10% per annum Class A service fee and of the 0.10% per annum Class
A distribution fee will be implemented on such dates as the Trustees of the
Trust may determine.
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 $2,083 and $48 for
Class B and Class C shares, respectively, for the year ended April 30, 2000.
Fees incurred under the distribution plan during the year ended April 30,
2000, were 0.94% and 1.00% of average daily net assets attributable to Class B
and Class C shares, respectively, on an annualized basis. Except in the case
of the 0.25% per annum Class B service fee paid upon the sale of Class B
shares in the first year, the Class B service fee is 0.15% per annum and may
increase to a maximum of 0.25% per annum on such date as the Trustees of the
Trust may determine.
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,
2000, were $24,028, $191,397, and $16,256 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 short-term obligations, were
as follows:
PURCHASES SALES
-------------------------------------------------------------------------------
U.S. government securities $ 37,843,554 $ 41,452,978
------------ ------------
Investments (non-U.S. government securities) $101,641,930 $114,664,213
------------ ------------
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 $186,076,265
------------
Gross unrealized depreciation $ (4,828,322)
Gross unrealized appreciation 49,630
------------
Net unrealized depreciation $ (4,778,692)
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED APRIL 30, 2000 YEAR ENDED APRIL 30, 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 22,797,169 $ 154,386,404 89,884,749 $ 625,609,406
Shares issued to shareholders
in reinvestment of
distributions 1,055,732 7,110,448 718,455 4,986,426
Shares reacquired (26,002,105) (176,062,772) (84,729,931) (589,753,636)
----------- ------------- ----------- -------------
Net increase (decrease) (2,149,204) $ (14,565,920) 5,873,273 $ 40,842,196
=========== ============= =========== =============
<CAPTION>
Class B Shares
YEAR ENDED APRIL 30, 2000 YEAR ENDED APRIL 30, 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,403,639 $ 29,668,417 7,595,456 $ 52,632,457
Shares issued to shareholders
in reinvestment of
distributions 271,278 1,823,269 247,817 1,712,458
Shares reacquired (5,592,317) (37,604,735) (5,746,325) (39,697,324)
----------- ------------- ----------- -------------
Net increase (decrease) (917,400) $ (6,113,049) 2,096,948 $ 14,647,591
=========== ============= =========== =============
<CAPTION>
Class C Shares
YEAR ENDED APRIL 30, 2000 YEAR ENDED APRIL 30, 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 3,062,035 $ 20,658,157 3,684,433 $ 25,649,796
Shares issued to shareholders
in reinvestment of
distributions 106,089 714,980 109,967 762,710
Shares reacquired (3,270,557) (22,068,080) (3,144,596) (21,810,087)
----------- ------------- ----------- -------------
Net increase (decrease) (102,433) $ (694,943) 649,804 $ 4,602,419
=========== ============= =========== =============
<CAPTION>
Class I Shares
YEAR ENDED APRIL 30, 2000 YEAR ENDED APRIL 30, 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 141,817 $ 952,660 153,379 $ 1,065,556
Shares issued to shareholders
in reinvestment of
distributions 11,967 80,608 15,876 109,990
Shares reacquired (263,697) (1,765,694) (166,408) (1,143,052)
----------- ------------- ----------- -------------
Net increase (decrease) (109,913) $ (732,426) 2,847 $ 32,494
=========== ============= =========== =============
</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 year ended April 30,
2000, was $1,299. The Fund had no significant 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. These financial instruments include
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.
At April 30, 2000, there were no open futures contracts.
(8) Acquisition
At the close of business on May 22, 2000, the Fund will acquire all of the
assets and liabilities of the MFS Intermediate Income Fund. The acquisition
will be accomplished by a tax free exchange of shares of the Fund for shares
of the Intermediate Income Fund's net assets on that date, which were combined
with those of the Fund.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Trustees of MFS Series Trust IX and Shareholders of the
MFS Limited Maturity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Limited Maturity Fund (one of
the series constituting MFS Series Trust IX), as of April 30, 2000, the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended
and the financial highlights for each of the years ended in the five-year
period ended April 30, 2000. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements 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, 2000 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 present fairly, in all material
respects, the financial position of MFS Limited Maturity at April 30, 2000,
the results of its operations, the changes in its net assets, and its
financial highlights for the respective stated periods in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
June 7, 2000
<PAGE>
--------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
--------------------------------------------------------------------------------
IN JANUARY 2001, SHAREHOLDERS WILL BE MAILED A FORM 1099-DIV REPORTING
THE FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR
YEAR 2000.
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
MFS(R) LIMITED MATURITY FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives+ - Chairman and Chief Executive Stephen E. Cavan*
Officer, Eastern Enterprises (diversified services
company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Lawrence T. Perera+ - Partner, Hemenway
& Barnes (attorneys) CUSTODIAN
State Street Bank and Trust Company
William J. Poorvu+ - Adjunct Professor, Harvard
University Graduate School of Business AUDITORS
Administration Deloitte & Touche LLP
Charles W. Schmidt+ - Private Investor INVESTOR INFORMATION
For information on MFS mutual funds, call your
Arnold D. Scott* - Senior Executive investment professional or, for an information
Vice President, Director, and Secretary, kit, call toll free: 1-800-637-2929 any business
MFS Investment Management day from 9 a.m. to 5 p.m. Eastern time (or leave a
message anytime).
Jeffrey L. Shames* - Chairman and Chief
Executive Officer, MFS Investment Management INVESTOR SERVICE
MFS Service Center, Inc.
Elaine R. Smith+ - Independent Consultant P.O. Box 2281
Boston, MA 02107-9906
David B. Stone+ - Chairman, North American
Management Corp. (investment adviser) For general information, call toll free:
1-800-225-2606 any business day from
INVESTMENT ADVISER 8 a.m. to 8 p.m. Eastern time.
Massachusetts Financial Services Company
500 Boylston Street For service to speech- or hearing-impaired, call
Boston, MA 02116-3741 toll free: 1-800-637-6576 any business day from 9
a.m. to 5 p.m. Eastern time. (To use this service,
DISTRIBUTOR your phone must be equipped with a
MFS Fund Distributors, Inc. Telecommunications Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, exchanges, or
stock and bond outlooks, call toll free:
CHAIRMAN AND PRESIDENT 1-800-MFS-TALK (1-800-637-8255) anytime from a
Jeffrey L. Shames* touch-tone telephone.
PORTFOLIO MANAGER WORLD WIDE WEB
James J. Calmas* www.mfs.com
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
+ Independent Trustee
* MFS Investment Management
</TABLE>
<PAGE>
MFS(R) LIMITED MATURITY FUND ------------
BULK RATE
U.S. POSTAGE
PAID
[Logo] M F S(R) MFS
INVESTMENT MANAGEMENT ------------
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
MLM-2 06/00 20M 36/236/336/836
