UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-03090
MFS SERIES TRUST VII
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: July 31
Date of reporting period: January 31, 2013
| ITEM 1. | REPORTS TO STOCKHOLDERS. |
SEMIANNUAL REPORT
January 31, 2013
MFS® ASIA PACIFIC EX-JAPAN FUND
AJX-SEM
MFS® ASIA PACIFIC EX-JAPAN FUND
CONTENTS
The 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.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE
LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholders:
Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic
slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.
Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central
Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.
As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.
We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
March 18, 2013
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | | 4.6% | |
| Sands China Ltd. | | | 4.1% | |
| Westpac Banking Corp. | | | 4.0% | |
| China Unicom (Hong Kong) Ltd. | | | 3.4% | |
| Rio Tinto PLC | | | 3.2% | |
| National Australia Bank Ltd. | | | 2.8% | |
| AIA Group Ltd. | | | 2.5% | |
| Samsung Electronics Co. Ltd. | | | 2.2% | |
| Reliance Industries Ltd. | | | 2.1% | |
| China Construction Bank | | | 2.1% | |
| |
| Equity sectors (a) | | | | |
| Financial Services | | | 35.6% | |
| Basic Materials | | | 12.5% | |
| Technology | | | 10.1% | |
| Utilities & Communications | | | 8.4% | |
| Energy | | | 6.4% | |
| Leisure | | | 4.9% | |
| Retailing | | | 4.3% | |
| Autos & Housing | | | 3.8% | |
| Special Products & Services | | | 3.7% | |
| Consumer Staples | | | 2.4% | |
| Industrial Goods & Services | | | 1.7% | |
| Health Care | | | 1.1% | |
| | | | |
| Issuer country weightings (x) | | | | |
| China | | | 18.8% | |
| Australia | | | 18.4% | |
| Hong Kong | | | 17.9% | |
| India | | | 8.1% | |
| Taiwan | | | 7.9% | |
| United States | | | 6.9% | |
| South Korea | | | 6.7% | |
| United Kingdom | | | 4.0% | |
| Thailand | | | 3.8% | |
| Other Countries | | | 7.5% | |
|
| Currency exposure weightings (y) | |
| Hong Kong Dollar | | | 36.9% | |
| Australian Dollar | | | 18.4% | |
| United States Dollar | | | 11.5% | |
| Taiwan Dollar | | | 7.9% | |
| South Korean Won | | | 6.7% | |
| Indian Rupee | | | 4.1% | |
| Thailand Baht | | | 3.8% | |
| Indonesian Rupiah | | | 3.6% | |
| British Pound Sterling | | | 3.2% | |
| Other Currencies | | | 3.9% | |
2
Portfolio Composition – continued
| (a) | The sectors depicted are economic aggregates made up of several underlying industry categories. The fund may invest between 25% and 35% of its total assets in any industry that represents 20% or more of the Asia Pacific market excluding Japan as a whole, as measured by an index determined by the adviser to be an appropriate measure of the Asia Pacific market excluding Japan. As of January 31, 2013, the fund did not have more than 25% of its total assets invested in any one industry. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 1/31/13.
The portfolio is actively managed and current holdings may be different.
3
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
August 1, 2012 through January 31, 2013
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on certain purchase or redemption payments, and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period August 1, 2012 through January 31, 2013.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Expense Table – continued
| | | | | | | | | | | | | | | | | | |
Share Class | | | | Annualized Expense Ratio | | | Beginning Account Value 8/01/12 | | | Ending Account Value
1/31/13 | | | Expenses Paid During
Period (p) 8/01/12-1/31/13 | |
| A | | Actual | | | 1.70% | | | | $1,000.00 | | | | $1,150.31 | | | | $9.21 | |
| | Hypothetical (h) | | | 1.70% | | | | $1,000.00 | | | | $1,016.64 | | | | $8.64 | |
| B | | Actual | | | 2.45% | | | | $1,000.00 | | | | $1,145.88 | | | | $13.25 | |
| | Hypothetical (h) | | | 2.45% | | | | $1,000.00 | | | | $1,012.85 | | | | $12.43 | |
| C | | Actual | | | 2.45% | | | | $1,000.00 | | | | $1,146.14 | | | | $13.25 | |
| | Hypothetical (h) | | | 2.45% | | | | $1,000.00 | | | | $1,012.85 | | | | $12.43 | |
| I | | Actual | | | 1.45% | | | | $1,000.00 | | | | $1,151.62 | | | | $7.86 | |
| | Hypothetical (h) | | | 1.45% | | | | $1,000.00 | | | | $1,017.90 | | | | $7.38 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
5
PORTFOLIO OF INVESTMENTS
1/31/13 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Common Stocks - 90.9% | | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Apparel Manufacturers - 2.6% | | | | | | | | |
| Li & Fung Ltd. | | | 44,000 | | | $ | 61,839 | |
| Samsonite International S.A. | | | 6,900 | | | | 15,036 | |
| Stella International Holdings Ltd. | | | 4,500 | | | | 12,939 | |
| | | | | | | | |
| | | | | | | $ | 89,814 | |
| Automotive - 3.8% | | | | | | | | |
| Exide Industries Ltd. | | | 6,315 | | | $ | 14,579 | |
| Guangzhou Automobile Group Co. Ltd., “H” | | | 58,000 | | | | 48,537 | |
| Kia Motors Corp. | | | 920 | | | | 43,680 | |
| Mando Corp. | | | 215 | | | | 23,891 | |
| | | | | | | | |
| | | | | | | $ | 130,687 | |
| Brokerage & Asset Managers - 1.5% | | | | | | | | |
| Computershare Ltd. | | | 4,680 | | | $ | 51,097 | |
| | |
| Business Services - 1.8% | | | | | | | | |
| Cognizant Technology Solutions Corp., “A” (a) | | | 802 | | | $ | 62,700 | |
| | |
| Cable TV - 0.8% | | | | | | | | |
| Astro Malaysia Holdings Bhd. | | | 15,800 | | | $ | 14,188 | |
| Dish TV India Ltd. (a) | | | 10,715 | | | | 14,494 | |
| | | | | | | | |
| | | | | | | $ | 28,682 | |
| Chemicals - 0.5% | | | | | | | | |
| Nufarm Ltd. | | | 3,134 | | | $ | 18,171 | |
| | |
| Computer Software - Systems - 3.3% | | | | | | | | |
| Asustek Computer, Inc. | | | 4,660 | | | $ | 53,345 | |
| Hon Hai Precision Industry Co. Ltd. | | | 21,680 | | | | 61,971 | |
| | | | | | | | |
| | | | | | | $ | 115,316 | |
| Conglomerates - 1.9% | | | | | | | | |
| Hutchison Whampoa Ltd. | | | 6,000 | | | $ | 67,076 | |
| | |
| Containers - 1.3% | | | | | | | | |
| Brambles Ltd. | | | 5,242 | | | $ | 44,332 | |
6
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Electronics - 6.8% | | | | | | | | |
| Samsung Electronics Co. Ltd. | | | 57 | | | $ | 75,796 | |
| Taiwan Semiconductor Manufacturing Co. Ltd. | | | 46,000 | | | | 158,129 | |
| | | | | | | | |
| | | | | | | $ | 233,925 | |
| Energy - Independent - 5.2% | | | | | | | | |
| CNOOC Ltd. | | | 23,000 | | | $ | 47,510 | |
| Oil Search Ltd. | | | 7,917 | | | | 60,268 | |
| Reliance Industries Ltd. | | | 4,309 | | | | 71,829 | |
| | | | | | | | |
| | | | | | | $ | 179,607 | |
| Energy - Integrated - 1.2% | | | | | | | | |
| PetroChina Co. Ltd., “H” | | | 28,000 | | | $ | 39,931 | |
| | |
| Engineering - Construction - 0.4% | | | | | | | | |
| Keppel Corp. Ltd. | | | 1,300 | | | $ | 12,079 | |
| | |
| Food & Beverages - 1.7% | | | | | | | | |
| Tingyi (Cayman Islands) Holdings Corp. | | | 8,000 | | | $ | 22,488 | |
| Want Want China Holdings Ltd. | | | 26,000 | | | | 34,531 | |
| | | | | | | | |
| | | | | | | $ | 57,019 | |
| Food & Drug Stores - 1.7% | | | | | | | | |
| CP All PLC | | | 12,800 | | | $ | 20,067 | |
| Dairy Farm International Holdings Ltd. | | | 1,800 | | | | 21,960 | |
| Wumart Stores, Inc. | | | 9,000 | | | | 17,918 | |
| | | | | | | | |
| | | | | | | $ | 59,945 | |
| Gaming & Lodging - 4.1% | | | | | | | | |
| Sands China Ltd. | | | 28,000 | | | $ | 141,166 | |
| | |
| Insurance - 5.7% | | | | | | | | |
| AIA Group Ltd. | | | 21,600 | | | $ | 85,922 | |
| Austbrokers Holdings Ltd. | | | 3,817 | | | | 33,435 | |
| China Pacific Insurance (Group) Co. Ltd. | | | 9,200 | | | | 35,944 | |
| QBE Insurance Group Ltd. | | | 3,450 | | | | 42,884 | |
| | | | | | | | |
| | | | | | | $ | 198,185 | |
| Machinery & Tools - 1.3% | | | | | | | | |
| Sinotruk (Hong Kong) Ltd. | | | 29,000 | | | $ | 19,407 | |
| T.K. Corp. (a) | | | 1,201 | | | | 23,989 | |
| | | | | | | | |
| | | | | | | $ | 43,396 | |
| Major Banks - 10.3% | | | | | | | | |
| BOC Hong Kong Holdings Ltd. | | | 9,500 | | | $ | 32,767 | |
| Industrial & Commercial Bank Of China Ltd. | | | 80,000 | | | | 60,242 | |
7
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Major Banks - continued | | | | | | | | |
| National Australia Bank Ltd. | | | 3,421 | | | $ | 97,605 | |
| Standard Chartered PLC | | | 1,050 | | | | 27,674 | |
| Westpac Banking Corp. | | | 4,690 | | | | 137,136 | |
| | | | | | | | |
| | | | | | | $ | 355,424 | |
| Medical Equipment - 1.1% | | | | | | | | |
| Fisher & Paykel Healthcare Corp. Ltd. | | | 19,177 | | | $ | 38,302 | |
| | |
| Metals & Mining - 5.8% | | | | | | | | |
| Iluka Resources Ltd. | | | 5,997 | | | $ | 60,786 | |
| Maanshan Iron & Steel Co. Ltd. (a) | | | 84,000 | | | | 26,103 | |
| Rio Tinto PLC | | | 1,978 | | | | 111,681 | |
| | | | | | | | |
| | | | | | | $ | 198,570 | |
| Natural Gas - Distribution - 1.2% | | | | | | | | |
| China Resources Gas Group Ltd. | | | 12,000 | | | $ | 26,614 | |
| Hong Kong & China Gas Co. Ltd. | | | 5,500 | | | | 15,602 | |
| | | | | | | | |
| | | | | | | $ | 42,216 | |
| Other Banks & Diversified Financials - 10.2% | | | | | | | | |
| China Construction Bank | | | 82,500 | | | $ | 71,167 | |
| DBS Group Holdings Ltd. | | | 4,000 | | | | 48,350 | |
| Federal Bank Ltd. | | | 1,025 | | | | 9,742 | |
| Hana Financial Group, Inc. | | | 590 | | | | 21,131 | |
| ICICI Bank Ltd., ADR | | | 709 | | | | 32,472 | |
| Kasikornbank PLC | | | 3,600 | | | | 24,145 | |
| PT Bank Negara Indonesia Tbk | | | 81,697 | | | | 32,922 | |
| PT Bank Rakyat Indonesia (Persero) Tbk | | | 48,000 | | | | 39,179 | |
| Siam Commercial Bank Public Co. Ltd. | | | 8,500 | | | | 51,023 | |
| Wing Hang Bank | | | 2,000 | | | | 20,966 | |
| | | | | | | | |
| | | | | | | $ | 351,097 | |
| Precious Metals & Minerals - 1.3% | | | | | | | | |
| Newcrest Mining Ltd. | | | 1,838 | | | $ | 44,850 | |
| | |
| Real Estate - 6.3% | | | | | | | | |
| Asian Property Development Public Co. Ltd. | | | 39,200 | | | $ | 12,423 | |
| BWP Trust, REIT | | | 17,696 | | | | 43,181 | |
| China Overseas Land & Investment Ltd. | | | 12,000 | | | | 37,213 | |
| Hang Lung Properties Ltd. | | | 15,000 | | | | 56,573 | |
| IGB Trust, REIT (a) | | | 42,500 | | | | 18,603 | |
| Sun Hung Kai Properties Ltd. | | | 3,000 | | | | 49,243 | |
| | | | | | | | |
| | | | | | | $ | 217,236 | |
8
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Specialty Chemicals - 1.9% | | | | | | | | |
| LG Chem Ltd. | | | 150 | | | $ | 41,945 | |
| PTT Global Chemical PLC | | | 8,538 | | | | 22,905 | |
| | | | | | | | |
| | | | | | | $ | 64,850 | |
| Telecommunications - Wireless - 0.7% | | | | | | | | |
| PT Indosat Tbk | | | 37,000 | | | $ | 25,832 | |
| | |
| Telephone Services - 4.2% | | | | | | | | |
| China Unicom (Hong Kong) Ltd. | | | 74,000 | | | $ | 118,890 | |
| PT XL Axiata Tbk | | | 52,500 | | | | 26,951 | |
| | | | | | | | |
| | | | | | | $ | 145,841 | |
| Utilities - Electric Power - 2.3% | | | | | | | | |
| Cheung Kong Infrastructure Holdings Ltd. | | | 6,000 | | | $ | 38,064 | |
| China Longyuan Electric Power Group Corp. | | | 51,000 | | | | 42,744 | |
| | | | | | | | |
| | | | | | | $ | 80,808 | |
| Total Common Stocks (Identified Cost, $2,697,537) | | | | | | $ | 3,138,154 | |
| | | | | | | | | | | | | | |
| | | | |
| | | | | First Exercise | | | | | | | |
| Warrants - 4.0% | | | | | | | | | | | | |
| Metals & Mining - 1.7% | | | | | | | | | | | | |
| Deutsche Bank (MOIL Limited - Zero Strike Warrant (1 share for 1 warrant)) (a)(n) | | | 7/05/11 | | | | 5,750 | | | $ | 27,267 | |
| Deutsche Bank (Steel Authority of India - Zero Strike Warrant (1 share for 1 warrant)) (a)(z) | | | 7/25/11 | | | | 19,375 | | | | 31,525 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | $ | 58,792 | |
| Other Banks & Diversified Financials - 1.6% | | | | | | | | | | | | |
| Deutsche Bank (Federal Bank LTD - Zero Strike Warrant (1 share for 1 warrant)) (a)(n) | | | 7/22/11 | | | | 1,680 | | | $ | 15,957 | |
| Deutsche Bank (Housing Development Finance Authority - Zero Strike Warrant (1 share for 1 warrant)) (a)(n) | | | 9/15//10 | | | | 3,163 | | | | 38,214 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | $ | 54,171 | |
| Tobacco - 0.7% | | | | | | | | | | | | |
| Deutsche Bank (ITC Limited - Zero Strike Warrant (1share for 1 warrant)) (a)(n) | | | 7/11/11 | | | | 4,234 | | | $ | 24,473 | |
| Total Warrants (Identified Cost, $135,858) | | | | | | | | | | $ | 137,436 | |
9
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Money Market Funds - 3.8% | | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
MFS Institutional Money Market Portfolio, 0.14%,
at Cost and Net Asset Value (v) | | | 130,983 | | | $ | 130,983 | |
| Total Investments (Identified Cost, $2,964,378) | | | | | | $ | 3,406,573 | |
| | |
| Other Assets, Less Liabilities - 1.3% | | | | | | | 44,945 | |
| Net Assets - 100.0% | | | | | | $ | 3,451,518 | |
| (a) | Non-income producing security. |
| (n) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $105,911 representing 3.1% of net assets. |
| (v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
| | | | | | | | | | |
| Restricted Securities | | Acquisition
Date | | Cost | | | Value | |
| Deutsche Bank (Steel Authority of India - Zero Strike Warrant) | | 7/25/11-1/30/13 | | | $41,100 | | | | $31,525 | |
| % of Net assets | | | | 0.9% | |
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
10
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 1/31/13 (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
| Assets | | | | |
Investments- | | | | |
Non-affiliated issuers, at value (identified cost, $2,833,395) | | | $3,275,590 | |
Underlying affiliated funds, at cost and value | | | 130,983 | |
Total investments, at value (identified cost, $2,964,378) | | | $3,406,573 | |
Cash | | | 1,297 | |
Foreign currency, at value (identified cost, $3,417) | | | 3,417 | |
Receivables for | | | | |
Fund shares sold | | | 128,938 | |
Dividends | | | 2,376 | |
Receivable from investment adviser | | | 21,181 | |
Other assets | | | 126 | |
Total assets | | | $3,563,908 | |
| Liabilities | | | | |
Payables for | | | | |
Investments purchased | | | $30,421 | |
Fund shares reacquired | | | 1,019 | |
Payable to affiliates | | | | |
Shareholder servicing costs | | | 2,833 | |
Distribution and service fees | | | 65 | |
Payable for independent Trustees’ compensation | | | 168 | |
Deferred country tax expense payable | | | 7,688 | |
Accrued expenses and other liabilities | | | 70,196 | |
Total liabilities | | | $112,390 | |
Net assets | | | $3,451,518 | |
| Net assets consist of | | | | |
Paid-in capital | | | $3,204,766 | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $1,689 deferred country tax) | | | 440,496 | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (194,479 | ) |
Undistributed net investment income | | | 735 | |
Net assets | | | $3,451,518 | |
Shares of beneficial interest outstanding | | | 307,125 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share (a) | |
Class A | | | $1,893,105 | | | | 168,406 | | | | $11.24 | |
Class B | | | 344,431 | | | | 30,790 | | | | 11.19 | |
Class C | | | 393,214 | | | | 35,199 | | | | 11.17 | |
Class I | | | 820,768 | | | | 72,730 | | | | 11.29 | |
| (a) | Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $11.93 [100 / 94.25 x $11.24]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Class I. |
See Notes to Financial Statements
11
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 1/31/13 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
| Net investment income | | | | |
Income | | | | |
Dividends | | | $29,984 | |
Interest | | | 187 | |
Dividends from underlying affiliated funds | | | 70 | |
Foreign taxes withheld | | | (1,324 | ) |
Total investment income | | | $28,917 | |
Expenses | | | | |
Management fee | | | $15,841 | |
Distribution and service fees | | | 5,087 | |
Shareholder servicing costs | | | 4,576 | |
Administrative services fee | | | 8,823 | |
Independent Trustees’ compensation | | | 641 | |
Custodian fee | | | 35,486 | |
Shareholder communications | | | 5,756 | |
Audit and tax fees | | | 25,608 | |
Legal fees | | | 422 | |
Registration fees | | | 29,474 | |
Miscellaneous | | | 5,608 | |
Total expenses | | | $137,322 | |
Fees paid indirectly | | | (1 | ) |
Reduction of expenses by investment adviser | | | (110,348 | ) |
Net expenses | | | $26,973 | |
Net investment income | | | $1,944 | |
| Realized and unrealized gain (loss) on investments and foreign currency | | | | |
Realized gain (loss) (identified cost basis) | | | | |
Investments (net of $1,571 country tax) | | | $9,218 | |
Foreign currency | | | (426 | ) |
Net realized gain (loss) on investments and foreign currency | | | $8,792 | |
Change in unrealized appreciation (depreciation) | | | | |
Investments (net of $1,013 decrease in deferred country tax) | | | $398,956 | |
Translation of assets and liabilities in foreign currencies | | | (68 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | $398,888 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | $407,680 | |
Change in net assets from operations | | | $409,624 | |
See Notes to Financial Statements
12
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| Change in net assets | | Six months ended
1/31/13
(unaudited) | | | Year ended
7/31/12 | |
| From operations | | | | | | | | |
Net investment income | | | $1,944 | | | | $30,063 | |
Net realized gain (loss) on investments and foreign currency | | | 8,792 | | | | (195,365 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 398,888 | | | | (98,648 | ) |
Change in net assets from operations | | | $409,624 | | | | $(263,950 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $(32,000 | ) | | | $(13,001 | ) |
From net realized gain on investments | | | — | | | | (33,000 | ) |
Total distributions declared to shareholders | | | $(32,000 | ) | | | $(46,001 | ) |
Change in net assets from fund share transactions | | | $313,345 | | | | $1,019,059 | |
Total change in net assets | | | $690,969 | | | | $709,108 | |
| Net assets | | | | | | | | |
At beginning of period | | | 2,760,549 | | | | 2,051,441 | |
At end of period (including undistributed net investment income of $735 and $30,791, respectively) | | | $3,451,518 | | | | $2,760,549 | |
See Notes to Financial Statements
13
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | |
| | | Six months
ended
1/31/13 | | | Years ended 7/31 | |
| Class A | | | 2012 | | | 2011 (c) | |
| | | (unaudited) | | | | | | | |
Net asset value, beginning of period | | | $9.88 | | | | $11.47 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d)(l) | | | $0.01 | | | | $0.13 | | | | $0.10 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | | 1.47 | | | | (1.52 | ) | | | 1.40 | |
Total from investment operations | | | $1.48 | | | | $(1.39 | ) | | | $1.50 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | | $(0.12 | ) | | | $(0.06 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.14 | ) | | | (0.03 | ) |
Total distributions declared to shareholders | | | $(0.12 | ) | | | $(0.20 | ) | | | $(0.03 | ) |
Net asset value, end of period (x) | | | $11.24 | | | | $9.88 | | | | $11.47 | |
Total return (%) (r)(s)(t)(x) | | | 15.03 | (n) | | | (11.97 | ) | | | 15.02 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 9.01 | (a) | | | 10.84 | | | | 13.12 | (a) |
Expenses after expense reductions (f) | | | 1.70 | (a) | | | 1.70 | | | | 1.70 | (a) |
Net investment income (l) | | | 0.21 | (a) | | | 1.27 | | | | 0.99 | (a) |
Portfolio turnover | | | 16 | (n) | | | 86 | | | | 76 | (n) |
Net assets at end of period (000 omitted) | | | $1,893 | | | | $1,461 | | | | $787 | |
See Notes to Financial Statements
14
Financial Highlights – continued
| | | | | | | | | | | | |
| | | Six months
ended
1/31/13 | | | Years ended 7/31 | |
| Class B | | | 2012 | | | 2011 (c) | |
| | | (unaudited) | | | | | | | |
Net asset value, beginning of period | | | $9.80 | | | | $11.40 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (loss) (d)(l) | | | $(0.03 | ) | | | $0.06 | | | | $0.02 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | | 1.46 | | | | (1.51 | ) | | | 1.41 | |
Total from investment operations | | | $1.43 | | | | $(1.45 | ) | | | $1.43 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | | $(0.04 | ) | | | $(0.01 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.14 | ) | | | (0.03 | ) |
Total distributions declared to shareholders | | | $(0.04 | ) | | | $(0.15 | ) | | | $(0.03 | ) |
Net asset value, end of period (x) | | | $11.19 | | | | $9.80 | | | | $11.40 | |
Total return (%) (r)(s)(t)(x) | | | 14.59 | (n) | | | (12.61 | ) | | | 14.32 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 9.76 | (a) | | | 11.64 | | | | 14.27 | (a) |
Expenses after expense reductions (f) | | | 2.45 | (a) | | | 2.45 | | | | 2.45 | (a) |
Net investment income (loss) (l) | | | (0.48 | )(a) | | | 0.61 | | | | 0.18 | (a) |
Portfolio turnover | | | 16 | (n) | | | 86 | | | | 76 | (n) |
Net assets at end of period (000 omitted) | | | $344 | | | | $294 | | | | $258 | |
See Notes to Financial Statements
15
Financial Highlights – continued
| | | | | | | | | | | | |
| | | Six months
ended
1/31/13 | | | Years ended 7/31 | |
| Class C | | | 2012 | | | 2011 (c) | |
| | | (unaudited) | | | | | | | |
Net asset value, beginning of period | | | $9.81 | | | | $11.40 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (loss) (d)(l) | | | $(0.03 | ) | | | $0.08 | | | | $0.01 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | | 1.46 | | | | (1.53 | ) | | | 1.42 | |
Total from investment operations | | | $1.43 | | | | $(1.45 | ) | | | $1.43 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | | $(0.07 | ) | | | $— | | | | $— | |
From net realized gain on investments | | | — | | | | (0.14 | ) | | | (0.03 | ) |
Net asset value, end of period (x) | | | $11.17 | | | | $9.81 | | | | $11.40 | |
Total return (%) (r)(s)(t)(x) | | | 14.61 | (n) | | | (12.63 | ) | | | 14.32 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 9.76 | (a) | | | 11.69 | | | | 14.87 | (a) |
Expenses after expense reductions (f) | | | 2.45 | (a) | | | 2.45 | | | | 2.45 | (a) |
Net investment income (loss) (l) | | | (0.54 | )(a) | | | 0.76 | | | | 0.05 | (a) |
Portfolio turnover | | | 16 | (n) | | | 86 | | | | 76 | (n) |
Net assets at end of period (000 omitted) | | | $393 | | | | $292 | | | | $197 | |
See Notes to Financial Statements
16
Financial Highlights – continued
| | | | | | | | | | | | |
| | | Six months
ended
1/31/13 | | | Years ended 7/31 | |
| Class I | | | 2012 | | | 2011 (c) | |
| | | (unaudited) | | | | | | | |
Net asset value, beginning of period | | | $9.93 | | | | $11.50 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d)(l) | | | $0.02 | | | | $0.16 | | | | $0.08 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | | 1.48 | | | | (1.52 | ) | | | 1.45 | |
Total from investment operations | | | $1.50 | | | | $(1.36 | ) | | | $1.53 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | | $(0.14 | ) | | | $(0.07 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.14 | ) | | | (0.03 | ) |
Total distributions declared to shareholders | | | $(0.14 | ) | | | $(0.21 | ) | | | $(0.03 | ) |
Net asset value, end of period (x) | | | $11.29 | | | | $9.93 | | | | $11.50 | |
Total return (%) (r)(s)(x) | | | 15.16 | (n) | | | (11.67 | ) | | | 15.32 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 8.77 | (a) | | | 10.75 | | | | 15.22 | (a) |
Expenses after expense reductions (f) | | | 1.45 | (a) | | | 1.45 | | | | 1.45 | (a) |
Net investment income (l) | | | 0.46 | (a) | | | 1.55 | | | | 0.83 | (a) |
Portfolio turnover | | | 16 | (n) | | | 86 | | | | 76 | (n) |
Net assets at end of period (000 omitted) | | | $821 | | | | $713 | | | | $810 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 15, 2010, through the stated period end. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (l) | Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fun invests and the actual annual net investment income ratio may differ. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (t) | Total returns do not include any applicable sales charges. |
| (x) | The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
17
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Business and Organization
MFS Asia Pacific ex-Japan Fund (the fund) is a series of MFS Series Trust VII (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 U.S. 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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. 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. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries. The fund’s performance could be closely tied to the market, currency, economic, political, regulatory, geopolitical, or other conditions in the countries or regions in which the fund invests and could be more volatile than the performance of more geographically-diversified funds.
The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the Asia Pacific market excluding Japan as a whole, as measured by an index determined by MFS to be an appropriate measure of the Asia Pacific market excluding Japan. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the
18
Notes to Financial Statements (unaudited) – continued
last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
19
Notes to Financial Statements (unaudited) – continued
an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities: | | | | | | | | | | | | | | | | |
China | | | $649,237 | | | | $— | | | | $— | | | | $649,237 | |
Australia | | | 633,744 | | | | — | | | | — | | | | 633,744 | |
Hong Kong | | | 619,156 | | | | — | | | | — | | | | 619,156 | |
India | | | 143,117 | | | | 137,437 | | | | — | | | | 280,554 | |
Taiwan | | | 273,445 | | | | — | | | | — | | | | 273,445 | |
South Korea | | | 230,431 | | | | — | | | | — | | | | 230,431 | |
United Kingdom | | | 139,355 | | | | — | | | | — | | | | 139,355 | |
Thailand | | | 24,145 | | | | 106,418 | | | | — | | | | 130,563 | |
Indonesia | | | 124,883 | | | | — | | | | — | | | | 124,883 | |
Other Countries | | | 194,222 | | | | — | | | | — | | | | 194,222 | |
| Mutual Funds | | | 130,983 | | | | — | | | | — | | | | 130,983 | |
| Total Investments | | | $3,162,718 | | | | $243,855 | | | | $— | | | | $3,406,573 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 2 investments presented above, equity investments amounting to $51,023 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $2,519,624 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. Other reasons for changes in classifications between levels 1 and 2 relate to referencing trading activity outside of a primary exchange in assessing valuation in current or prior periods. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, income and expenses
20
Notes to Financial Statements (unaudited) – continued
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.
Zero Strike Warrants – The fund invested in low exercise price call warrants (zero strike warrants). Zero strike warrants are issued by banks or broker-dealers and allow the fund to gain exposure to common stocks in markets that place restrictions on investments by foreign investors and may or may not be traded on an exchange. Income received from zero strike warrants is recorded as dividend income in the Statement of Operations. To the extent the fund invests in zero strike warrants whose returns correspond to the performance of a foreign stock, investing in zero strike warrants will involve risks similar to the risks of investing in foreign securities. Additional risks associated with zero strike warrants include the potential inability of the counterparty to fulfill their obligations under the warrant, inability to transfer or liquidate the warrants and potential delays or an inability to redeem before expiration under certain market conditions.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to 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 may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended January 31, 2013, is shown as a reduction of total expenses in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when
21
Notes to Financial Statements (unaudited) – continued
filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 7/31/12 | |
| Ordinary income (including any short-term capital gains) | | | $46,001 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 1/31/13 | | | |
| Cost of investments | | | $3,089,144 | |
| Gross appreciation | | | 403,736 | |
| Gross depreciation | | | (86,307 | ) |
| Net unrealized appreciation (depreciation) | | | $317,429 | |
| |
| As of 7/31/12 | | | |
| Undistributed ordinary income | | | $31,129 | |
| Capital loss carryforwards | | | (75,805 | ) |
| Other temporary differences | | | (2,982 | ) |
| Net unrealized appreciation (depreciation) | | | (83,214 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of July 31, 2012, the fund had capital loss carryforwards available to offset future realized gains.
| | | | |
Such losses are characterized as follows: | |
| Short-term losses | | | $(71,472 | ) |
| Long-term losses | | | (4,333 | ) |
| Total | | | $(75,805 | ) |
22
Notes to Financial Statements (unaudited) – continued
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months
ended
1/31/13 | | | Year
ended
7/31/12 | | | Six months
ended
1/31/13 | | | Year
ended
7/31/12 | |
| Class A | | | $18,636 | | | | $7,697 | | | | $— | | | | $17,342 | |
| Class B | | | 1,013 | | | | 274 | | | | — | | | | 3,397 | |
| Class C | | | 2,147 | | | | — | | | | — | | | | 2,400 | |
| Class I | | | 10,204 | | | | 5,030 | | | | — | | | | 9,861 | |
| Total | | | $32,000 | | | | $13,001 | | | | $— | | | | $33,000 | |
(3) Transactions with Affiliates
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 1.05 | % |
| Next $1.5 billion of average daily net assets | | | 0.95 | % |
| Average daily net assets in excess of $2.5 billion | | | 0.90 | % |
The management fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 1.05% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total fund operating expenses do not exceed the following rates annually of each class’ average daily net assets:
| | | | | | | | | | | | | | |
| Class A | | | Class B | | | Class C | | | Class I | |
| | 1.70% | | | | 2.45 | % | | | 2.45 | % | | | 1.45 | % |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the six months ended January 31, 2013, this reduction amounted to $110,345 and is reflected as a reduction of total expenses in the Statement of Operations.
23
Notes to Financial Statements (unaudited) – continued
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $1,008 for the six months ended January 31, 2013, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | | | | | | | | | | | |
| | | Distribution
Fee Rate (d) | | | Service
Fee Rate (d) | | | Total
Distribution
Plan (d) | | | Annual
Effective
Rate (e) | | | Distribution
and Service
Fee | |
| Class A | | | — | | | | 0.25% | | | | 0.25% | | | | 0.25% | | | | $2,027 | |
| Class B | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 1,455 | |
| Class C | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 1,605 | |
| Total Distribution and Service Fees | | | | | | | | | | | | $5,087 | |
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’s average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period. |
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the six months ended January 31, 2013 based on each class’s average daily net assets. |
Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase for shares purchased on or after August 1, 2012, and within 24 months of purchase for shares purchased prior to August 1, 2012. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD and during the six months ended January 31, 2013, were as follows:
| | | | |
| | | Amount | |
| Class A | | | $315 | |
| Class B | | | — | |
| Class C | | | 19 | |
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent calculated as a percentage of the average daily net assets of the fund as determined periodically under the supervision of the fund’s Board of Trustees. For the six months ended January 31, 2013, the fee was $891, which equated to 0.0591% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the six months ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $3,685.
24
Notes to Financial Statements (unaudited) – continued
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.5848% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, 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, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $9 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $3, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.
At January 31, 2013, MFS held 100% of the outstanding shares of Class I.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, aggregated $595,375 and $461,325, respectively.
25
Notes to Financial Statements (unaudited) – continued
(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:
| | | | | | | | | | | | | | | | |
| | | Six months ended
1/31/13 | | | Year ended
7/31/12 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Class A | | | 32,253 | | | | $353,136 | | | | 99,156 | | | | $980,575 | |
Class B | | | 6,352 | | | | 70,681 | | | | 12,542 | | | | 130,415 | |
Class C | | | 6,943 | | | | 76,949 | | | | 17,582 | | | | 181,749 | |
Class I | | | — | | | | — | | | | 63,528 | | | | 662,350 | |
| | | 45,548 | | | | $500,766 | | | | 192,808 | | | | $1,955,089 | |
| | | | |
Shares issued to shareholders in
reinvestment of distributions | | | | | | | | | | | | | | | | |
Class A | | | 1,695 | | | | $18,608 | | | | 2,697 | | | | $24,838 | |
Class B | | | 91 | | | | 993 | | | | 400 | | | | 3,671 | |
Class C | | | 197 | | | | 2,147 | | | | 261 | | | | 2,400 | |
Class I | | | 926 | | | | 10,204 | | | | 1,612 | | | | 14,891 | |
| | | 2,909 | | | | $31,952 | | | | 4,970 | | | | $45,800 | |
| | | | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Class A | | | (13,419 | ) | | | $(143,308 | ) | | | (22,552 | ) | | | $(230,855 | ) |
Class B | | | (5,672 | ) | | | (58,020 | ) | | | (5,567 | ) | | | (53,246 | ) |
Class C | | | (1,724 | ) | | | (18,045 | ) | | | (5,314 | ) | | | (53,468 | ) |
Class I | | | — | | | | — | | | | (63,757 | ) | | | (644,261 | ) |
| | | (20,815 | ) | | | $(219,373 | ) | | | (97,190 | ) | | | $(981,830 | ) |
| | | | |
| Net change | | | | | | | | | | | | | | | | |
Class A | | | 20,529 | | | | $228,436 | | | | 79,301 | | | | $774,558 | |
Class B | | | 771 | | | | 13,654 | | | | 7,375 | | | | 80,840 | |
Class C | | | 5,416 | | | | 61,051 | | | | 12,529 | | | | 130,681 | |
Class I | | | 926 | | | | 10,204 | | | | 1,383 | | | | 32,980 | |
| | | 27,642 | | | | $313,345 | | | | 100,588 | | | | $1,019,059 | |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund,
26
Notes to Financial Statements (unaudited) – continued
based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended January 31, 2013, the fund’s commitment fee and interest expense were $9 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
MFS Institutional Money
Market Portfolio | | | 64,084 | | | | 632,379 | | | | (565,480 | ) | | | 130,983 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
MFS Institutional Money
Market Portfolio | | | $— | | | | $— | | | | $70 | | | | $130,983 | |
27
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.
PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES
The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.
28
Save paper with eDelivery.
| MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
CONTACT
WEB SITE
mfs.com
MFS TALK
1-800-637-8255
24 hours a day
ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
Financial advisors
1-800-343-2829
Retirement plan services
1-800-637-1255
MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
OVERNIGHT MAIL
MFS Service Center, Inc.
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
SEMIANNUAL REPORT
January 31, 2013
MFS® EUROPEAN EQUITY FUND
EEQ-SEM
MFS® EUROPEAN EQUITY FUND
CONTENTS
The 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.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE
LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholders:
Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic
slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.
Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central
Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.
As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.
We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
March 18, 2013
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Nestle S.A. | | | 3.1% | |
| Royal Dutch Shell PLC, “A” | | | 2.6% | |
| Groupe Danone | | | 2.2% | |
| Novartis AG | | | 2.2% | |
| Roche Holding AG | | | 2.2% | |
| Linde AG | | | 2.1% | |
| Akzo Nobel N.V. | | | 2.0% | |
| HSBC Holdings PLC | | | 1.9% | |
| Vodafone Group PLC | | | 1.7% | |
| BP PLC | | | 1.6% | |
| |
| Equity sectors (a) | | | | |
| Financial Services | | | 12.9% | |
| Consumer Staples | | | 9.1% | |
| Basic Materials | | | 7.5% | |
| Health Care | | | 7.3% | |
| Industrial Goods & Services | | | 5.4% | |
| Utilities & Communications | | | 5.4% | |
| Energy | | | 5.4% | |
| Retailing | | | 4.0% | |
| Leisure | | | 3.8% | |
| Special Products & Services | | | 3.6% | |
| Technology | | | 3.5% | |
| Autos & Housing | | | 2.0% | |
| Transportation | | | 0.5% | |
| | | | |
| Issuer country weightings (x) | |
| United States | | | 30.0% | |
| United Kingdom | | | 22.4% | |
| Switzerland | | | 13.5% | |
| France | | | 9.8% | |
| Germany | | | 8.4% | |
| Netherlands | | | 5.6% | |
| Sweden | | | 2.4% | |
| Denmark | | | 1.5% | |
| Spain | | | 1.5% | |
| Other Countries | | | 4.9% | |
|
| Currency exposure weightings (y) | |
| United States Dollar | | | 30.0% | |
| Euro | | | 29.4% | |
| British Pound Sterling | | | 22.4% | |
| Swiss Franc | | | 13.5% | |
| Swedish Krona | | | 2.4% | |
| Danish Krone | | | 1.5% | |
| Turkish Lira | | | 0.3% | |
| Hong Kong Dollar | | | 0.3% | |
| Canadian Dollar | | | 0.1% | |
| Other Currencies | | | 0.1% | |
2
Portfolio Composition – continued
| (a) | The sectors depicted are economic aggregates made up of several underlying industry categories. The fund may invest between 25% and 35% of its total assets in any industry that represents 20% or more of the European market as a whole, as measured by an index determined by the adviser to be an appropriate measure of the European market. As of January 31, 2013, the fund did not have more than 25% of its total assets invested in any one industry. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 1/31/13.
The portfolio is actively managed and current holdings may be different.
3
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
August 1, 2012 through January 31, 2013
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on certain purchase or redemption payments, and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period August 1, 2012 through January 31, 2013.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Expense Table – continued
| | | | | | | | | | | | | | | | | | |
Share Class | | | | Annualized Expense Ratio | | | Beginning Account Value 8/01/12 | | | Ending Account Value
1/31/13 | | | Expenses Paid During
Period (p) 8/01/12-1/31/13 | |
| A | | Actual | | | 1.55% | | | | $1,000.00 | | | | $1,225.75 | | | | $8.70 | |
| | Hypothetical (h) | | | 1.55% | | | | $1,000.00 | | | | $1,017.39 | | | | $7.88 | |
| B | | Actual | | | 2.30% | | | | $1,000.00 | | | | $1,220.17 | | | | $12.87 | |
| | Hypothetical (h) | | | 2.30% | | | | $1,000.00 | | | | $1,013.61 | | | | $11.67 | |
| C | | Actual | | | 2.30% | | | | $1,000.00 | | | | $1,220.77 | | | | $12.87 | |
| | Hypothetical (h) | | | 2.30% | | | | $1,000.00 | | | | $1,013.61 | | | | $11.67 | |
| I | | Actual | | | 1.30% | | | | $1,000.00 | | | | $1,226.42 | | | | $7.30 | |
| | Hypothetical (h) | | | 1.30% | | | | $1,000.00 | | | | $1,018.65 | | | | $6.61 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
5
PORTFOLIO OF INVESTMENTS
1/31/13 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Common Stocks - 70.4% | | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Alcoholic Beverages - 2.2% | | | | | | | | |
| Heineken N.V. | | | 654 | | | $ | 45,988 | |
| Pernod Ricard S.A. | | | 219 | | | | 27,416 | |
| | | | | | | | |
| | | | | | | $ | 73,404 | |
| Apparel Manufacturers - 2.0% | | | | | | | | |
| Compagnie Financiere Richemont S.A. | | | 265 | | | $ | 21,796 | |
| LVMH Moet Hennessy Louis Vuitton S.A. | | | 238 | | | | 44,870 | |
| | | | | | | | |
| | | | | | | $ | 66,666 | |
| Automotive - 0.9% | | | | | | | | |
| D’Ieteren S.A. | | | 470 | | | $ | 20,798 | |
| GKN PLC | | | 2,867 | | | | 10,949 | |
| | | | | | | | |
| | | | | | | $ | 31,747 | |
| Broadcasting - 1.1% | | | | | | | | |
| Publicis Groupe | | | 552 | | | $ | 36,167 | |
| | |
| Brokerage & Asset Managers - 0.5% | | | | | | | | |
| IG Group Holdings PLC | | | 2,409 | | | $ | 17,040 | |
| | |
| Business Services - 3.6% | | | | | | | | |
| Adecco S.A. | | | 254 | | | $ | 14,597 | |
| Amadeus Holdings AG | | | 1,149 | | | | 28,823 | |
| Brenntag AG | | | 140 | | | | 19,950 | |
| Compass Group PLC | | | 2,469 | | | | 29,917 | |
| Experian Group Ltd. | | | 797 | | | | 13,664 | |
| MITIE Group PLC | | | 3,377 | | | | 15,098 | |
| | | | | | | | |
| | | | | | | $ | 122,049 | |
| Cable TV - 0.7% | | | | | | | | |
| Virgin Media, Inc. | | | 344 | | | $ | 13,550 | |
| Ziggo N.V. | | | 360 | | | | 11,485 | |
| | | | | | | | |
| | | | | | | $ | 25,035 | |
| Computer Software - 0.8% | | | | | | | | |
| Dassault Systemes S.A. | | | 132 | | | $ | 14,675 | |
| Fidessa Group PLC | | | 500 | | | | 12,204 | |
| | | | | | | | |
| | | | | | | $ | 26,879 | |
6
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Construction - 1.1% | | | | | | | | |
| Bellway PLC | | | 1,142 | | | $ | 20,104 | |
| BUZZI UNICEM S.p.A | | | 1,064 | | | | 15,487 | |
| | | | | | | | |
| | | | | | | $ | 35,591 | |
| Consumer Products - 1.2% | | | | | | | | |
| Reckitt Benckiser Group PLC | | | 630 | | | $ | 41,986 | |
| | |
| Electrical Equipment - 4.0% | | | | | | | | |
| IMI PLC | | | 910 | | | $ | 16,886 | |
| Legrand S.A. | | | 701 | | | | 31,815 | |
| Pfeiffer Vacuum Technology AG | | | 150 | | | | 18,703 | |
| Schneider Electric S.A. | | | 322 | | | | 24,528 | |
| Siemens AG | | | 400 | | | | 43,906 | |
| | | | | | | | |
| | | | | | | $ | 135,838 | |
| Electronics - 1.2% | | | | | | | | |
| ASM International N.V. | | | 331 | | | $ | 13,195 | |
| Infineon Technologies AG | | | 3,080 | | | | 27,790 | |
| | | | | | | | |
| | | | | | | $ | 40,985 | |
| Energy - Independent - 0.4% | | | | | | | | |
| Bankers Petroleum Ltd. (a) | | | 1,405 | | | $ | 4,325 | |
| Cairn Energy PLC | | | 1,894 | | | | 8,621 | |
| | | | | | | | |
| | | | | | | $ | 12,946 | |
| Energy - Integrated - 5.0% | | | | | | | | |
| BG Group PLC | | | 1,422 | | | $ | 25,259 | |
| BP PLC | | | 7,204 | | | | 53,329 | |
| Royal Dutch Shell PLC, “A” | | | 2,514 | | | | 89,353 | |
| | | | | | | | |
| | | | | | | $ | 167,941 | |
| Food & Beverages - 5.7% | | | | | | | | |
| Groupe Danone | | | 1,062 | | | $ | 73,599 | |
| Nestle S.A. | | | 1,483 | | | | 104,130 | |
| Tate & Lyle PLC | | | 1,050 | | | | 13,531 | |
| | | | | | | | |
| | | | | | | $ | 191,260 | |
| Food & Drug Stores - 0.8% | | | | | | | | |
| Jeronimo Martins SGPS S.A. | | | 1,210 | | | $ | 25,720 | |
| | |
| Gaming & Lodging - 0.6% | | | | | | | | |
| Betfair Group PLC | | | 840 | | | $ | 8,866 | |
| Paddy Power PLC | | | 148 | | | | 12,168 | |
| | | | | | | | |
| | | | | | | $ | 21,034 | |
7
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| General Merchandise - 0.3% | | | | | | | | |
| BIM Birlesik Magazalar A.S. | | | 240 | | | $ | 11,633 | |
| | |
| Insurance - 4.4% | | | | | | | | |
| Delta Lloyd N.V. | | | 1,410 | | | $ | 27,741 | |
| Hiscox Ltd. | | | 3,241 | | | | 24,365 | |
| ING Groep N.V. (a) | | | 2,311 | | | | 23,374 | |
| Swiss Re Ltd. | | | 402 | | | | 29,927 | |
| Zurich Insurance Group AG | | | 144 | | | | 41,425 | |
| | | | | | | | |
| | | | | | | $ | 146,832 | |
| Machinery & Tools - 1.4% | | | | | | �� | | |
| Atlas Copco AB, “A” | | | 1,083 | | | $ | 30,883 | |
| Schindler Holding AG | | | 114 | | | | 16,911 | |
| | | | | | | | |
| | | | | | | $ | 47,794 | |
| Major Banks - 4.4% | | | | | | | | |
| Barclays PLC | | | 10,095 | | | $ | 48,192 | |
| BNP Paribas | | | 590 | | | | 37,019 | |
| HSBC Holdings PLC | | | 5,503 | | | | 62,552 | |
| | | | | | | | |
| | | | | | | $ | 147,763 | |
| Medical Equipment - 0.4% | | | | | | | | |
| Sonova Holding AG | | | 118 | | | $ | 13,654 | |
| | |
| Metals & Mining - 1.3% | | | | | | | | |
| Rio Tinto PLC | | | 797 | | | $ | 45,000 | |
| | |
| Natural Gas - Distribution - 0.8% | | | | | | | | |
| GDF SUEZ | | | 1,374 | | | $ | 28,189 | |
| | |
| Network & Telecom - 1.5% | | | | | | | | |
| Ericsson, Inc., “B” | | | 4,351 | | | $ | 50,642 | |
| | |
| Other Banks & Diversified Financials - 3.2% | | | | | | | | |
| Erste Group Bank AG (a) | | | 543 | | | $ | 18,274 | |
| Julius Baer Group Ltd. | | | 310 | | | | 12,689 | |
| Jyske Bank (a) | | | 599 | | | | 19,514 | |
| KBC Group N.V. | | | 517 | | | | 20,382 | |
| Sydbank A/S (a) | | | 319 | | | | 6,293 | |
| UBS AG | | | 1,788 | | | | 31,003 | |
| | | | | | | | |
| | | | | | | $ | 108,155 | |
8
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Pharmaceuticals - 6.9% | | | | | | | | |
| Bayer AG | | | 440 | | | $ | 43,421 | |
| GlaxoSmithKline PLC | | | 1,942 | | | | 44,522 | |
| Novartis AG | | | 1,069 | | | | 72,829 | |
| Roche Holding AG | | | 329 | | | | 72,810 | |
| | | | | | | | |
| | | | | | | $ | 233,582 | |
| Railroad & Shipping - 0.5% | | | | | | | | |
| Kuehne & Nagel International AG | | | 140 | | | $ | 16,445 | |
| | |
| Real Estate - 0.4% | | | | | | | | |
| GSW Immobilien AG | | | 348 | | | $ | 14,851 | |
| | |
| Restaurants - 1.4% | | | | | | | | |
| Domino’s Pizza UK & IRL PLC | | | 2,867 | | | $ | 23,395 | |
| Whitbread PLC | | | 600 | | | | 24,456 | |
| | | | | | | | |
| | | | | | | $ | 47,851 | |
| Specialty Chemicals - 6.2% | | | | | | | | |
| Akzo Nobel N.V. | | | 967 | | | $ | 66,162 | |
| Croda International PLC | | | 567 | | | | 21,798 | |
| Fuchs Petrolub AG, IPS | | | 145 | | | | 11,104 | |
| Linde AG | | | 393 | | | | 71,718 | |
| Sika AG | | | 3 | | | | 7,569 | |
| Symrise AG | | | 868 | | | | 30,708 | |
| | | | | | | | |
| | | | | | | $ | 209,059 | |
| Specialty Stores - 0.9% | | | | | | | | |
| Esprit Holdings Ltd. | | | 6,748 | | | $ | 9,380 | |
| Industria de Diseno Textil S.A. | | | 151 | | | | 21,159 | |
| | | | | | | | |
| | | | | | | $ | 30,539 | |
| Telecommunications - Wireless - 1.7% | | | | | | | | |
| Vodafone Group PLC | | | 20,977 | | | $ | 57,257 | |
| | |
| Telephone Services - 2.1% | | | | | | | | |
| British Telecom Group, PLC | | | 7,010 | | | $ | 27,639 | |
| TDC A.S. | | | 3,233 | | | | 24,742 | |
| Telecom Italia S.p.A. | | | 21,835 | | | | 18,678 | |
| | | | | | | | |
| | | | | | | $ | 71,059 | |
| | |
| Utilities - Electric Power - 0.4% | | | | | | | | |
| CEZ A.S. | | | 87 | | | $ | 2,818 | |
| Fortum Oyj | | | 481 | | | | 9,019 | |
| | | | | | | | |
| | | | | | | $ | 11,837 | |
9
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Utilities - Water - 0.4% | | | | | | | | |
| Suez Environnement | | | 1,042 | | | $ | 13,796 | |
| Total Common Stocks (Identified Cost, $1,950,627) | | | | | | $ | 2,378,226 | |
| | |
| Money Market Funds - 4.4% | | | | | | | | |
MFS Institutional Money Market Portfolio, 0.14%,
at Cost and Net Asset Value (v) | | | 146,877 | | | $ | 146,877 | |
| Total Investments (Identified Cost, $2,097,504) | | | | | | $ | 2,525,103 | |
| | |
| Other Assets, Less Liabilities - 25.2% | | | | | | | 852,942 | |
| Net Assets - 100.0% | | | | | | $ | 3,378,045 | |
| (a) | Non-income producing security. |
| (v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
| IPS | | International Preference Stock |
| PLC | | Public Limited Company |
See Notes to Financial Statements
10
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 1/31/13 (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
| Assets | | | | |
Investments- | | | | |
Non-affiliated issuers, at value (identified cost, $1,950,627) | | | $2,378,226 | |
Underlying affiliated funds, at cost and value | | | 146,877 | |
Total investments, at value (identified cost, $2,097,504) | | | $2,525,103 | |
Receivables for | | | | |
Investments sold | | | 42,556 | |
Fund shares sold | | | 962,917 | |
Interest and dividends | | | 6,637 | |
Receivable from investment adviser | | | 17,836 | |
Other assets | | | 96 | |
Total assets | | | $3,555,145 | |
| Liabilities | | | | |
Payables for | | | | |
Investments purchased | | | $93,381 | |
Fund shares reacquired | | | 10,471 | |
Payable to affiliates | | | | |
Shareholder servicing costs | | | 318 | |
Distribution and service fees | | | 50 | |
Payable for independent Trustees’ compensation | | | 170 | |
Accrued expenses and other liabilities | | | 72,710 | |
Total liabilities | | | $177,100 | |
Net assets | | | $3,378,045 | |
| Net assets consist of | | | | |
Paid-in capital | | | $3,127,065 | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 427,700 | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (175,401 | ) |
Accumulated distributions in excess of net investment income | | | (1,319 | ) |
Net assets | | | $3,378,045 | |
Shares of beneficial interest outstanding | | | 278,273 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share (a) | |
Class A | | | $1,604,258 | | | | 132,088 | | | | $12.15 | |
Class B | | | 206,064 | | | | 17,027 | | | | 12.10 | |
Class C | | | 451,450 | | | | 37,443 | | | | 12.06 | |
Class I | | | 1,116,273 | | | | 91,715 | | | | 12.17 | |
| (a) | Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $12.89 [100 / 94.25 x $12.15]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Class I. |
See Notes to Financial Statements
11
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 1/31/13 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
| Net investment loss | | | | |
Income | | | | |
Dividends | | | $15,896 | |
Dividends from underlying affiliated funds | | | 53 | |
Foreign taxes withheld | | | (302 | ) |
Total investment income | | | $15,647 | |
Expenses | | | | |
Management fee | | | $9,541 | |
Distribution and service fees | | | 2,937 | |
Shareholder servicing costs | | | 1,369 | |
Administrative services fee | | | 8,823 | |
Independent Trustees’ compensation | | | 638 | |
Custodian fee | | | 30,511 | |
Shareholder communications | | | 4,810 | |
Audit and tax fees | | | 25,999 | |
Legal fees | | | 255 | |
Registration fees | | | 28,475 | |
Miscellaneous | | | 5,615 | |
Total expenses | | | $118,973 | |
Reduction of expenses by investment adviser | | | (102,228 | ) |
Net expenses | | | $16,745 | |
Net investment loss | | | $(1,098 | ) |
| Realized and unrealized gain (loss) on investments and foreign currency | | | | |
Realized gain (loss) (identified cost basis) | | | | |
Investments | | | $(36,995 | ) |
Foreign currency | | | (69 | ) |
Net realized gain (loss) on investments and foreign currency | | | $(37,064 | ) |
Change in unrealized appreciation (depreciation) | | | | |
Investments | | | $439,998 | |
Translation of assets and liabilities in foreign currencies | | | 334 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | $440,332 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | $403,268 | |
Change in net assets from operations | | | $402,170 | |
See Notes to Financial Statements
12
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| | | Six months ended
1/31/13 | | | Year ended
7/31/12 | |
| Change in net assets | | (unaudited) | | | | |
| From operations | | | | | | | | |
Net investment income (loss) | | | $(1,098 | ) | | | $27,079 | |
Net realized gain (loss) on investments and foreign currency | | | (37,064 | ) | | | (132,758 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 440,332 | | | | (115,771 | ) |
Change in net assets from operations | | | $402,170 | | | | $(221,450 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $(26,201 | ) | | | $(22,701 | ) |
From net realized gain on investments | | | — | | | | (20,351 | ) |
Total distributions declared to shareholders | | | $(26,201 | ) | | | $(43,052 | ) |
Change in net assets from fund share transactions | | | $1,285,843 | | | | $3,064 | |
Total change in net assets | | | $1,661,812 | | | | $(261,438 | ) |
| Net assets | | | | | | | | |
At beginning of period | | | 1,716,233 | | | | 1,977,671 | |
At end of period (including accumulated distributions in excess of net investment income of $1,319 and undistributed net investment income of $25,980, respectively) | | | $3,378,045 | | | | $1,716,233 | |
See Notes to Financial Statements
13
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | |
| Class A | | Six months
ended
1/31/13
(unaudited) | | | Year ended
7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $10.03 | | | | $11.48 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (d) | | | $(0.00 | )(w) | | | $0.16 | | | | $0.25 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 2.26 | | | | (1.35 | ) | | | 1.23 | |
Total from investment operations | | | $2.26 | | | | $(1.19 | ) | | | $1.48 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.14 | ) | | | $(0.14 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.14 | ) | | | $(0.26 | ) | | | $— | |
Net asset value, end of period (x) | | | $12.15 | | | | $10.03 | | | | $11.48 | |
Total return (%) (r)(s)(t)(x) | | | 22.58 | (n) | | | (10.18 | ) | | | 14.80 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
Expenses before expense reductions (f) | | | 11.14 | (a) | | | 13.52 | | | | 13.74 | (a) |
Expenses after expense reductions (f) | | | 1.55 | (a) | | | 1.55 | | | | 1.55 | (a) |
Net investment income (loss) | | | (0.08 | )(a) | | | 1.57 | | | | 2.50 | (a) |
Portfolio turnover | | | 45 | (n) | | | 56 | | | | 26 | (n) |
Net assets at end of period (000 omitted) | | | $1,604 | | | | $596 | | | | $790 | |
See Notes to Financial Statements
14
Financial Highlights – continued
| | | | | | | | | | | | |
| Class B | | Six months
ended
1/31/13 (unaudited) | | | Year ended
7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $9.98 | | | | $11.40 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (loss) (d) | | | $(0.05 | ) | | | $0.08 | | | | $0.15 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 2.24 | | | | (1.33 | ) | | | 1.25 | |
Total from investment operations | | | $2.19 | | | | $(1.25 | ) | | | $1.40 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.07 | ) | | | $(0.05 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.07 | ) | | | $(0.17 | ) | | | $— | |
Net asset value, end of period (x) | | | $12.10 | | | | $9.98 | | | | $11.40 | |
Total return (%) (r)(s)(t)(x) | | | 22.02 | (n) | | | (10.84 | ) | | | 14.00 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
Expenses before expense reductions (f) | | | 12.00 | (a) | | | 14.36 | | | | 14.34 | (a) |
Expenses after expense reductions (f) | | | 2.30 | (a) | | | 2.30 | | | | 2.30 | (a) |
Net investment income (loss) | | | (0.83 | )(a) | | | 0.81 | | | | 1.54 | (a) |
Portfolio turnover | | | 45 | (n) | | | 56 | | | | 26 | (n) |
Net assets at end of period (000 omitted) | | | $206 | | | | $148 | | | | $166 | |
See Notes to Financial Statements
15
Financial Highlights – continued
| | | | | | | | | | | | |
| Class C | | Six months
ended
1/31/13 (unaudited) | | | Year ended
7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $9.96 | | | | $11.40 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (loss) (d) | | | $(0.05 | ) | | | $0.08 | | | | $0.11 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 2.24 | | | | (1.33 | ) | | | 1.29 | |
Total from investment operations | | | $2.19 | | | | $(1.25 | ) | | | $1.40 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.09 | ) | | | $(0.07 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.09 | ) | | | $(0.19 | ) | | | $— | |
Net asset value, end of period (x) | | | $12.06 | | | | $9.96 | | | | $11.40 | |
Total return (%) (r)(s)(t)(x) | | | 22.08 | (n) | | | (10.84 | ) | | | 14.00 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
Expenses before expense reductions (f) | | | 11.82 | (a) | | | 14.31 | | | | 14.71 | (a) |
Expenses after expense reductions (f) | | | 2.30 | (a) | | | 2.30 | | | | 2.30 | (a) |
Net investment income (loss) | | | (0.89 | )(a) | | | 0.83 | | | | 1.08 | (a) |
Portfolio turnover | | | 45 | (n) | | | 56 | | | | 26 | (n) |
Net assets at end of period (000 omitted) | | | $451 | | | | $141 | | | | $180 | |
See Notes to Financial Statements
16
Financial Highlights – continued
| | | | | | | | | | | | |
| Class I | | Six months
ended
1/31/13 (unaudited) | | | Year ended
7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $10.06 | | | | $11.50 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (d) | | | $0.01 | | | | $0.19 | | | | $0.18 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 2.26 | | | | (1.36 | ) | | | 1.32 | |
Total from investment operations | | | $2.27 | | | | $(1.17 | ) | | | $1.50 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.16 | ) | | | $(0.15 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.16 | ) | | | $(0.27 | ) | | | $— | |
Net asset value, end of period (x) | | | $12.17 | | | | $10.06 | | | | $11.50 | |
Total return (%) (r)(s)(x) | | | 22.64 | (n) | | | (9.96 | ) | | | 15.00 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | |
Expenses before expense reductions (f) | | | 11.01 | (a) | | | 13.29 | | | | 13.90 | (a) |
Expenses after expense reductions (f) | | | 1.30 | (a) | | | 1.30 | | | | 1.30 | (a) |
Net investment income | | | 0.19 | (a) | | | 1.88 | | | | 1.83 | (a) |
Portfolio turnover | | | 45 | (n) | | | 56 | | | | 26 | (n) |
Net assets at end of period (000 omitted) | | | $1,116 | | | | $832 | | | | $842 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 15, 2010, through the stated period end. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (t) | Total returns do not include any applicable sales charges. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values per share and total returns have been calculated on net asset values which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
17
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Business and Organization
MFS European Equity Fund (the fund) is a series of MFS Series Trust VII (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 U.S. 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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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. The fund’s performance could be closely tied to the market, currency, economic, political, regulatory, geopolitical, or other conditions in the countries or regions in which the fund invests and could be more volatile than the performance of more geographically-diversified funds.
The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the European market as a whole, as measured by an index determined by MFS to be an appropriate measure of the European market. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally
18
Notes to Financial Statements (unaudited) – continued
valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other
19
Notes to Financial Statements (unaudited) – continued
significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $2,378,226 | | | | $— | | | | $— | | | | $2,378,226 | |
| Mutual Funds | | | 146,877 | | | | — | | | | — | | | | 146,877 | |
| Total Investments | | | $2,525,103 | | | | $— | | | | $— | | | | $2,525,103 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Of the level 1 investments presented above, equity investments amounting to $1,857,886 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. Other reasons for changes in classifications between levels 1 and 2 relate to referencing trading activity outside of a primary exchange in assessing valuation in current or prior periods. The fund’s policy is to recognize transfers between the levels as of the end of the period.
Foreign Currency Translation – 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to 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.
20
Notes to Financial Statements (unaudited) – continued
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended January 31, 2013, custody fees were not reduced.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 7/31/12 | |
Ordinary income (including any
short-term capital gains) | | | $43,052 | |
21
Notes to Financial Statements (unaudited) – continued
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 1/31/13 | | | |
| Cost of investments | | | $2,172,462 | |
| Gross appreciation | | | 439,878 | |
| Gross depreciation | | | (87,237 | ) |
| Net unrealized appreciation (depreciation) | | | $352,641 | |
| |
| As of 7/31/12 | | | |
| Undistributed ordinary income | | | 26,105 | |
| Capital loss carryforwards | | | (7,662 | ) |
| Post-October capital loss deferral | | | (55,716 | ) |
| Other temporary differences | | | (358 | ) |
| Net unrealized appreciation (depreciation) | | | (87,358 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
As of July 31, 2012, the fund had capital loss carryforwards available to offset future realized gains.
| | | | |
| Such losses are characterized as follows: | |
| Short-Term Losses | | | $(6,512 | ) |
| Long-Term Losses | | | (1,150 | ) |
| Total | | | $(7,662 | ) |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months
ended
1/31/13 | | | Year
ended
7/31/12 | | | Six months
ended
1/31/13 | | | Year
ended
7/31/12 | |
| Class A | | | $9,546 | | | | $8,861 | | | | $— | | | | $7,557 | |
| Class B | | | 1,170 | | | | 657 | | | | — | | | | 1,519 | |
| Class C | | | 2,024 | | | | 1,000 | | | | — | | | | 1,713 | |
| Class I | | | 13,461 | | | | 12,183 | | | | — | | | | 9,562 | |
| Total | | | $26,201 | | | | $22,701 | | | | $— | | | | $20,351 | |
22
Notes to Financial Statements (unaudited) – continued
(3) Transactions with Affiliates
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.90% | |
| Next $1.5 billion of average daily net assets | | | 0.80% | |
| Average daily net assets in excess of $2.5 million | | | 0.75% | |
The management fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total fund operating expenses do not exceed the following rates annually of each class’ average daily net assets.
| | | | | | | | | | | | | | |
| Class A | | | Class B | | | Class C | | | Class I | |
| | 1.55% | | | | 2.30 | % | | | 2.30 | % | | | 1.30 | % |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the six months ended January 31, 2013, this reduction amounted to $102,226 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $989 for the six months ended January 31, 2013, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | | | | | | | | | | | |
| | | Distribution Fee Rate (d) | | | Service Fee Rate (d) | | | Total Distribution Plan (d) | | | Annual Effective Rate (e) | | | Distribution and Service
Fee | |
| Class A | | | — | | | | 0.25% | | | | 0.25% | | | | 0.25% | | | | $980 | |
| Class B | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 873 | |
| Class C | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 1,084 | |
| Total Distribution and Service Fees | | | | | | | | | | | | $2,937 | |
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’ average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period. |
23
Notes to Financial Statements (unaudited) – continued
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the six months ended January 31, 2013 based on each class’s average daily net assets. |
Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase for shares purchased on or after August 1, 2012, and within 24 months of purchase for shares purchased prior to August 1, 2012. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. There were no contingent deferred sales charges imposed during the six months ended January 31, 2013.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent calculated as a percentage of the average daily net assets of the fund as determined periodically under the supervision of the fund’s Board of Trustees. For the six months ended January 31, 2013, the fee was $508, which equated to 0.0479% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the six months ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $861.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.8323% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, 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, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $6 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in
24
Notes to Financial Statements (unaudited) – continued
the amount of $2, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.
At January 31, 2013, MFS held 58% and 76% of Class B and Class I, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, aggregated $1,200,684 and $907,676, respectively.
(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:
| | | | | | | | | | | | | | | | |
| | | Six months ended
1/31/13 | | | Year ended
7/31/12 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Class A | | | 130,649 | | | | $1,517,652 | | | | 49,537 | | | | $505,615 | |
Class B | | | 2,179 | | | | 24,842 | | | | 8,601 | | | | 82,822 | |
Class C | | | 24,019 | | | | 280,320 | | | | 2,424 | | | | 24,924 | |
Class I | | | 11,454 | | | | 133,842 | | | | 15,832 | | | | 163,329 | |
| | | 168,301 | | | | $1,956,656 | | | | 76,394 | | | | $776,690 | |
| | | | |
Shares issued to shareholders in
reinvestment of distributions | | | | | | | | | | | | | | | | |
Class A | | | 826 | | | | $9,546 | | | | 1,771 | | | | $16,149 | |
Class B | | | 101 | | | | 1,170 | | | | 238 | | | | 2,176 | |
Class C | | | 176 | | | | 2,024 | | | | 298 | | | | 2,713 | |
Class I | | | 1,163 | | | | 13,461 | | | | 2,343 | | | | 21,406 | |
| | | 2,266 | | | | $26,201 | | | | 4,650 | | | | $42,444 | |
| | | | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Class A | | | (58,827 | ) | | | $(645,479 | ) | | | (60,692 | ) | | | $(606,310 | ) |
Class B | | | (64 | ) | | | (732 | ) | | | (8,594 | ) | | | (78,641 | ) |
Class C | | | (870 | ) | | | (9,944 | ) | | | (4,414 | ) | | | (43,372 | ) |
Class I | | | (3,617 | ) | | | (40,859 | ) | | | (8,651 | ) | | | (87,747 | ) |
| | | (63,378 | ) | | | $(697,014 | ) | | | (82,351 | ) | | | $(816,070 | ) |
25
Notes to Financial Statements (unaudited) – continued
| | | | | | | | | | | | | | | | |
| | | Six months ended
1/31/13 | | | Year ended
7/31/12 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Net change | | | | | | | | | | | | | | | | |
Class A | | | 72,648 | | | | $881,719 | | | | (9,384 | ) | | | $(84,546 | ) |
Class B | | | 2,216 | | | | 25,280 | | | | 245 | | | | 6,357 | |
Class C | | | 23,325 | | | | 272,400 | | | | (1,692 | ) | | | (15,735 | ) |
Class I | | | 9,000 | | | | 106,444 | | | | 9,524 | | | | 96,988 | |
| | | 107,189 | | | | $1,285,843 | | | | (1,307 | ) | | | $3,064 | |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended January 31, 2013, the fund’s commitment fee and interest expense were $4 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
MFS Institutional Money
Market Portfolio | | | 88,648 | | | | 757,837 | | | | (699,608 | ) | | | 146,877 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
MFS Institutional Money
Market Portfolio | | | $— | | | | $— | | | | $53 | | | | $146,877 | |
26
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.
PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES
The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.
27
Save paper with eDelivery.
| MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
CONTACT
WEB SITE
mfs.com
MFS TALK
1-800-637-8255
24 hours a day
ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
Financial advisors
1-800-343-2829
Retirement plan services
1-800-637-1255
MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
OVERNIGHT MAIL
MFS Service Center, Inc.
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
SEMIANNUAL REPORT
January 31, 2013
MFS® LATIN AMERICAN EQUITY FUND
LEQ-SEM
MFS® LATIN AMERICAN EQUITY FUND
CONTENTS
The 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.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE
LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholders:
Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic
slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.
Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central
Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.
As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.
We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
March 18, 2013
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | |
| Vale S.A., ADR | | | 6.8% | |
| America Movil S.A.B. de C.V., “L”, ADR | | | 4.1% | |
| Credicorp Ltd. | | | 4.0% | |
| BM&F Bovespa S.A. | | | 3.8% | |
| Itau Unibanco Holding S.A., ADR | | | 3.4% | |
| Companhia de Bebidas das Americas, ADR | | | 3.2% | |
| M. Dias Branco S.A. Industria e Comercio de Alimentos | | | 3.1% | |
| Gerdau S.A., ADR | | | 3.0% | |
| Anhanguera Educacional Participacoes S.A. | | | 2.9% | |
| Petroleo Brasileiro S.A., ADR | | | 2.7% | |
| | | | |
| Equity sectors (a) | |
| Financial Services | | | 26.2% | |
| Basic Materials | | | 14.4% | |
| Utilities & Communications | | | 12.6% | |
| Special Products & Services | | | 10.2% | |
| Consumer Staples | | | 10.1% | |
| Energy | | | 6.6% | |
| Health Care | | | 4.7% | |
| Retailing | | | 3.3% | |
| Transportation | | | 2.5% | |
| Industrial Goods & Services | | | 1.9% | |
| Autos & Housing | | | 1.7% | |
| Leisure | | | 1.7% | |
| Technology | | | 0.9% | |
| |
| Issuer country weightings (x) | | | | |
| Brazil | | | 60.5% | |
| Mexico | | | 20.9% | |
| Peru | | | 3.9% | |
| Chile | | | 3.9% | |
| United States | | | 3.3% | |
| Argentina | | | 2.7% | |
| Luxembourg | | | 1.7% | |
| Panama | | | 1.6% | |
| British Virgin Islands | | | 0.9% | |
| Colombia | | | 0.6% | |
|
| Currency exposure weightings (y) | |
| Brazilian Real | | | 60.5% | |
| Mexican Peso | | | 20.9% | |
| United States Dollar | | | 9.7% | |
| Euro | | | 4.4% | |
| Chilean Peso | | | 3.9% | |
| Colombian Peso | | | 0.6% | |
2
Portfolio Composition – continued
| (a) | The sectors depicted are economic aggregates made up of several underlying industry categories. The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the Latin American market as a whole, as measured by an index determined by MFS to be an appropriate measure of the Latin American market. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry. |
| (x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. |
| (y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. |
Percentages are based on net assets as of 1/31/13.
The portfolio is actively managed and current holdings may be different.
3
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
August 1, 2012 through January 31, 2013
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on certain purchase or redemption payments, and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period August 1, 2012 through January 31, 2013.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Expense Table – continued
| | | | | | | | | | | | | | | | | | |
Share Class | | | | Annualized Expense Ratio | | | Beginning Account Value 8/01/12 | | | Ending Account Value 1/31/13 | | | Expenses
Paid During
Period (p)
8/01/12-1/31/13 | |
| A | | Actual | | | 1.65% | | | | $1,000.00 | | | | $1,159.54 | | | | $8.98 | |
| | Hypothetical (h) | | | 1.65% | | | | $1,000.00 | | | | $1,016.89 | | | | $8.39 | |
| B | | Actual | | | 2.40% | | | | $1,000.00 | | | | $1,155.15 | | | | $13.04 | |
| | Hypothetical (h) | | | 2.40% | | | | $1,000.00 | | | | $1,013.11 | | | | $12.18 | |
| C | | Actual | | | 2.40% | | | | $1,000.00 | | | | $1,155.42 | | | | $13.04 | |
| | Hypothetical (h) | | | 2.40% | | | | $1,000.00 | | | | $1,013.11 | | | | $12.18 | |
| I | | Actual | | | 1.40% | | | | $1,000.00 | | | | $1,160.00 | | | | $7.62 | |
| | Hypothetical (h) | | | 1.40% | | | | $1,000.00 | | | | $1,018.15 | | | | $7.12 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
5
PORTFOLIO OF INVESTMENTS
1/31/13 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Common Stocks - 96.8% | | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Aerospace - 1.3% | | | | | | | | |
| Embraer S.A., ADR | | | 2,006 | | | $ | 66,133 | |
| | |
| Airlines - 2.5% | | | | | | | | |
| Copa Holdings S.A., “A” | | | 712 | | | $ | 78,035 | |
| Grupo Aeroportuario del Sureste S.A. de C.V., ADR | | | 399 | | | | 47,645 | |
| | | | | | | | |
| | | | | | | $ | 125,680 | |
| Alcoholic Beverages - 4.3% | | | | | | | | |
| Companhia de Bebidas das Americas, ADR | | | 3,349 | | | $ | 157,604 | |
| Compania Cervecerias Unidas S.A., ADR | | | 1,645 | | | | 52,558 | |
| | | | | | | | |
| | | | | | | $ | 210,162 | |
| Apparel Manufacturers - 1.8% | | | | | | | | |
| Arezzo Industria e Comercio S.A. | | | 2,328 | | | $ | 43,840 | |
| Cia.Hering S.A. | | | 2,300 | | | | 43,751 | |
| | | | | | | | |
| | | | | | | $ | 87,591 | |
| Broadcasting - 0.8% | | | | | | | | |
| Grupo Televisa S.A., ADR | | | 1,453 | | | $ | 40,699 | |
| | |
| Brokerage & Asset Managers - 7.1% | | | | | | | | |
| BM&F Bovespa S.A. | | | 26,700 | | | $ | 186,907 | |
| Bolsa Mexicana de Valores S.A. de C.V. | | | 38,500 | | | | 97,775 | |
| CETIP S.A. - Balcao Organizado de Ativos e Derivativos | | | 5,202 | | | | 65,438 | |
| | | | | | | | |
| | | | | | | $ | 350,120 | |
| Business Services - 1.2% | | | | | | | | |
| LPS Brasil - Consultoria de Imoveis S.A. | | | 3,300 | | | $ | 58,664 | |
| | |
| Computer Software - 0.9% | | | | | | | | |
| Totvs S.A. | | | 2,100 | | | $ | 45,736 | |
| | |
| Conglomerates - 0.7% | | | | | | | | |
| Alfa S.A de C.V., “A” | | | 14,870 | | | $ | 35,706 | |
| | |
| Construction - 1.7% | | | | | | | | |
| Corporacion GEO S.A.B. de C.V., “B” (a) | | | 15,510 | | | $ | 18,127 | |
| PDG Realty S.A. | | | 18,000 | | | | 28,564 | |
| Urbi Desarrollos Urbanos S.A. de C.V. (a) | | | 68,230 | | | | 39,603 | |
| | | | | | | | |
| | | | | | | $ | 86,294 | |
6
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Consumer Products - 1.2% | | | | | | | | |
| Kimberly-Clark de Mexico S.A. de C.V., “A” | | | 20,950 | | | $ | 58,642 | |
| | |
| Consumer Services - 8.3% | | | | | | | | |
| Abril Educacao S.A., IEU | | | 2,840 | | | $ | 62,480 | |
| Anhanguera Educacional Participacoes S.A. | | | 7,300 | | | | 142,052 | |
| Estacio Participacoes S.A. | | | 4,250 | | | | 94,120 | |
| Kroton Educacional S.A. (a) | | | 4,517 | | | | 110,920 | |
| | | | | | | | |
| | | | | | | $ | 409,572 | |
| Containers - 0.7% | | | | | | | | |
| Industria Klabin de Papel e Celulose, IPS | | | 5,300 | | | $ | 36,330 | |
| | |
| Energy - Independent - 1.2% | | | | | | | | |
| Ultrapar Participacoes S.A. | | | 2,400 | | | $ | 57,935 | |
| | |
| Energy - Integrated - 2.7% | | | | | | | | |
| Petroleo Brasileiro S.A., ADR | | | 7,334 | | | $ | 134,066 | |
| | |
| Engineering - Construction - 0.6% | | | | | | | | |
| Promotora y Operadora de Infraestructura S.A.B. de C.V. (a) | | | 3,800 | | | $ | 27,194 | |
| | |
| Food & Beverages - 4.6% | | | | | | | | |
| Arca Continental S.A.B de C.V. | | | 10,095 | | | $ | 76,983 | |
| M. Dias Branco S.A. Industria e Comercio de Alimentos | | | 3,800 | | | | 150,771 | |
| | | | | | | | |
| | | | | | | $ | 227,754 | |
| Food & Drug Stores - 0.9% | | | | | | | | |
| Brazil Pharma S.A. | | | 3,000 | | | $ | 22,146 | |
| Raia Drogasil S.A. | | | 2,000 | | | | 22,347 | |
| | | | | | | | |
| | | | | | | $ | 44,493 | |
| General Merchandise - 0.6% | | | | | | | | |
| Lojas Renner S.A. | | | 800 | | | $ | 32,023 | |
| | |
| Health Maintenance Organizations - 0.5% | | | | | | | | |
| OdontoPrev S.A. | | | 5,100 | | | $ | 25,995 | |
| | |
| Insurance - 2.6% | | | | | | | | |
| Brasil Insurance Participacoes e Administracao S.A. | | | 11,700 | | | $ | 126,321 | |
| | |
| Medical & Health Technology & Services - 1.8% | | | | | | | | |
| Diagnosticos da America S.A. | | | 6,800 | | | $ | 48,319 | |
| Fleury S.A. | | | 3,600 | | | | 40,224 | |
| | | | | | | | |
| | | | | | | $ | 88,543 | |
7
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Metals & Mining - 13.0% | | | | | | | | |
| Gerdau S.A., ADR | | | 16,991 | | | $ | 150,031 | |
| Grupo Mexico S.A.B. de C.V., “B” | | | 19,837 | | | | 73,921 | |
| Ternium S.A., ADR | | | 3,488 | | | | 82,421 | |
| Vale S.A., ADR | | | 16,626 | | | | 335,346 | |
| | | | | | | | |
| | | | | | | $ | 641,719 | |
| Oil Services - 2.7% | | | | | | | | |
| Tenaris S.A., ADR | | | 3,179 | | | $ | 133,741 | |
| | |
| Other Banks & Diversified Financials - 12.6% | | | | | | | | |
| Banco Santander Chile, ADR | | | 689 | | | $ | 20,808 | |
| Banco Santander S.A., IEU | | | 14,600 | | | | 107,410 | |
| Bancolombia S.A., ADR | | | 425 | | | | 29,542 | |
| Credicorp Ltd. | | | 1,246 | | | | 195,286 | |
| Grupo Financiero Banorte S.A. de C.V. | | | 8,700 | | | | 59,988 | |
| Grupo Financiero Santander Mexico S.A.B. de C.V., ADR (a) | | | 2,440 | | | | 37,942 | |
| Itau Unibanco Holding S.A., ADR | | | 9,752 | | | | 168,027 | |
| | | | | | | | |
| | | | | | | $ | 619,003 | |
| Pharmaceuticals - 2.4% | | | | | | | | |
| Genomma Lab Internacional S.A., “B” (a) | | | 52,400 | | | $ | 119,640 | |
| | |
| Real Estate - 3.9% | | | | | | | | |
| Brasil Brokers Participacoes | | | 31,400 | | | $ | 99,655 | |
| Macquarie Mexico Real Estate S.A. de C.V., REIT (a) | | | 27,200 | | | | 63,665 | |
| Multiplan Empreendimentos Imobiliarios S.A. | | | 1,000 | | | | 28,900 | |
| | | | | | | | |
| | | | | | | $ | 192,220 | |
| Restaurants - 0.9% | | | | | | | | |
| Arcos Dorados Holdings, Inc. | | | 3,260 | | | $ | 44,792 | |
| | |
| Specialty Chemicals - 0.7% | | | | | | | | |
| Mexichem S.A.B de C.V. | | | 5,800 | | | $ | 32,808 | |
| | |
| Telecommunications - Wireless - 6.0% | | | | | | | | |
| America Movil S.A.B. de C.V., “L”, ADR | | | 7,992 | | | $ | 201,079 | |
| TIM Participacoes S.A., ADR | | | 4,314 | | | | 94,908 | |
| | | | | | | | |
| | | | | | | $ | 295,987 | |
| Telephone Services - 0.5% | | | | | | | | |
| Empresa Nacional de Telecomunicaciones S.A. | | | 1,035 | | | $ | 22,510 | |
8
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Utilities - Electric Power - 4.1% | | | | | | | | |
| Energias do Brasil S.A. | | | 16,000 | | | $ | 97,944 | |
| Terna Participacoes S.A., IEU | | | 2,940 | | | | 34,695 | |
| Tractebel Energia S.A. | | | 3,830 | | | | 68,066 | |
| | | | | | | | |
| | | | | | | $ | 200,705 | |
| Utilities - Water - 2.0% | | | | | | | | |
| Aguas Andinas S.A. | | | 130,175 | | | $ | 96,392 | |
| Total Common Stocks (Identified Cost, $4,201,337) | | | | | | $ | 4,775,170 | |
| | |
| Money Market Funds - 1.3% | | | | | | | | |
MFS Institutional Money Market Portfolio, 0.14%,
at Cost and Net Asset Value (v) | | | 62,683 | | | $ | 62,683 | |
| Total Investments (Identified Cost, $4,264,020) | | | | | | $ | 4,837,853 | |
| | |
| Other Assets, Less Liabilities - 1.9% | | | | | | | 93,893 | |
| Net Assets - 100.0% | | | | | | $ | 4,931,746 | |
| (a) | Non-income producing security. |
| (v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| IEU | | International Equity Unit |
| IPS | | International Preference Stock |
See Notes to Financial Statements
9
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 1/31/13 (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
| Assets | | | | |
Investments- | | | | |
Non-affiliated issuers, at value (identified cost, $4,201,337) | | | $4,775,170 | |
Underlying affiliated funds, at cost and value | | | 62,683 | |
Total investments, at value (identified cost, $4,264,020) | | | $4,837,853 | |
Foreign currency, at value (identified cost, $243) | | | 243 | |
Receivables for | | | | |
Fund shares sold | | | 151,649 | |
Interest and dividends | | | 7,841 | |
Receivable from investment adviser | | | 13,769 | |
Other assets | | | 132 | |
Total assets | | | $5,011,487 | |
| Liabilities | | | | |
Payable to custodian | | | $9 | |
Payable to affiliates | | | | |
Shareholder servicing costs | | | 1,227 | |
Distribution and service fees | | | 96 | |
Payable for independent Trustees’ compensation | | | 166 | |
Deferred country tax expense payable | | | 7,073 | |
Accrued expenses and other liabilities | | | 71,170 | |
Total liabilities | | | $79,741 | |
Net assets | | | $4,931,746 | |
| Net assets consist of | | | | |
Paid-in capital | | | $4,828,853 | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $4,885 deferred country tax) | | | 569,141 | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (462,013 | ) |
Accumulated distributions in excess of net investment income | | | (4,235 | ) |
Net assets | | | $4,931,746 | |
Shares of beneficial interest outstanding | | | 467,059 | |
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share (a) | |
Class A | | | $2,829,659 | | | | 267,485 | | | | $10.58 | |
Class B | | | 615,345 | | | | 58,777 | | | | 10.47 | |
Class C | | | 453,630 | | | | 43,397 | | | | 10.45 | |
Class I | | | 1,033,112 | | | | 97,400 | | | | 10.61 | |
| (a) | Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $11.23 [100 / 94.25 x $10.58]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Class I. |
See Notes to Financial Statements
10
Financial Statements
STATEMENT OF OPERATIONS
Six months ended 1/31/13 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
| Net investment loss | | | | |
Income | | | | |
Dividends | | | $37,336 | |
Dividends from underlying affiliated funds | | | 52 | |
Foreign taxes withheld | | | (1,948 | ) |
Total investment income | | | $35,440 | |
Expenses | | | | |
Management fee | | | $22,308 | |
Distribution and service fees | | | 7,988 | |
Shareholder servicing costs | | | 3,966 | |
Administrative services fee | | | 8,823 | |
Independent Trustees’ compensation | | | 643 | |
Custodian fee | | | 32,919 | |
Shareholder communications | | | 5,255 | |
Audit and tax fees | | | 25,999 | |
Legal fees | | | 557 | |
Registration fees | | | 30,425 | |
Miscellaneous | | | 5,592 | |
Total expenses | | | $144,475 | |
Fees paid indirectly | | | (1 | ) |
Reduction of expenses by investment adviser | | | (106,724 | ) |
Net expenses | | | $37,750 | |
Net investment loss | | | $(2,310 | ) |
| Realized and unrealized gain (loss) on investments and foreign currency | | | | |
Realized gain (loss) (identified cost basis) | | | | |
Investments (net of $2,188 country tax) | | | $(79,117 | ) |
Foreign currency | | | (1,317 | ) |
Net realized gain (loss) on investments and foreign currency | | | $(80,434 | ) |
Change in unrealized appreciation (depreciation) | | | | |
Investments (net of $4,885 increase in deferred country tax) | | | $704,195 | |
Translation of assets and liabilities in foreign currencies | | | 687 | |
Net unrealized gain (loss) on investments and foreign currency translation | | | $704,882 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | $624,448 | |
Change in net assets from operations | | | $622,138 | |
See Notes to Financial Statements
11
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | | | | | |
| | | Six months ended
1/31/13 | | | Year ended
7/31/12 | |
| Change in net assets | | (unaudited) | | | | |
| From operations | | | | | | | | |
Net investment income (loss) | | | $(2,310 | ) | | | $51,949 | |
Net realized gain (loss) on investments and foreign currency | | | (80,434 | ) | | | (360,874 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 704,882 | | | | (200,292 | ) |
Change in net assets from operations | | | $622,138 | | | | $(509,217 | ) |
| Distributions declared to shareholders | | | | | | | | |
From net investment income | | | $(41,001 | ) | | | $(2,610 | ) |
From net realized gain on investments | | | — | | | | (39,702 | ) |
Total distributions declared to shareholders | | | $(41,001 | ) | | | $(42,312 | ) |
Change in net assets from fund share transactions | | | $419,120 | | | | $1,381,090 | |
Total change in net assets | | | $1,000,257 | | | | $829,561 | |
| Net assets | | | | | | | | |
At beginning of period | | | 3,931,489 | | | | 3,101,928 | |
At end of period (including accumulated distributions in excess of net investment income of $4,235 and undistributed net investment income of $39,076, respectively) | | | $4,931,746 | | | | $3,931,489 | |
See Notes to Financial Statements
12
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | |
| Class A | | Six months
ended
1/31/13
(unaudited) | | | Year ended 7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $9.23 | | | | $10.77 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (d) | | | $0.00 | (w) | | | $0.15 | | | | $0.18 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 1.46 | | | | (1.56 | ) | | | 0.59 | (g) |
Total from investment operations | | | $1.46 | | | | $(1.41 | ) | | | $0.77 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.11 | ) | | | $(0.01 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.11 | ) | | | $(0.13 | ) | | | $— | |
Net asset value, end of period (x) | | | $10.58 | | | | $9.23 | | | | $10.77 | |
Total return (%) (r)(s)(t)(x) | | | 15.84 | (n) | | | (13.02 | ) | | | 7.70 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 6.66 | (a) | | | 8.56 | | | | 9.38 | (a) |
Expenses after expense reductions (f) | | | 1.65 | (a) | | | 1.65 | | | | 1.65 | (a) |
Net investment income | | | 0.01 | (a)(l) | | | 1.55 | | | | 1.83 | (a) |
Portfolio turnover | | | 20 | (n) | | | 56 | | | | 30 | (n) |
Net assets at end of period (000 omitted) | | | $2,830 | | | | $2,132 | | | | $1,490 | |
See Notes to Financial Statements
13
Financial Highlights – continued
| | | | | | | | | | | | |
| Class B | | Six months
ended
1/31/13
(unaudited) | | | Year ended 7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $9.11 | | | | $10.71 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (loss) (d) | | | $(0.04 | ) | | | $0.07 | | | | $0.12 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 1.43 | | | | (1.55 | ) | | | 0.59 | (g) |
Total from investment operations | | | $1.39 | | | | $(1.48 | ) | | | $0.71 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.03 | ) | | | $— | | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.03 | ) | | | $(0.12 | ) | | | $— | |
Net asset value, end of period (x) | | | $10.47 | | | | $9.11 | | | | $10.71 | |
Total return (%) (r)(s)(t)(x) | | | 15.30 | (n) | | | (13.72 | ) | | | 7.10 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 7.44 | (a) | | | 9.37 | | | | 9.76 | (a) |
Expenses after expense reductions (f) | | | 2.40 | (a) | | | 2.40 | | | | 2.40 | (a) |
Net investment income (loss) | | | (0.72 | )(a)(l) | | | 0.80 | | | | 1.26 | (a) |
Portfolio turnover | | | 20 | (n) | | | 56 | | | | 30 | (n) |
Net assets at end of period (000 omitted) | | | $615 | | | | $562 | | | | $542 | |
| | | |
| Class C | | Six months
ended
1/31/13
(unaudited) | | | Year ended 7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $9.12 | | | | $10.71 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (loss) (d) | | | $(0.04 | ) | | | $0.08 | | | | $0.12 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 1.43 | | | | (1.55 | ) | | | 0.59 | (g) |
Total from investment operations | | | $1.39 | | | | $(1.47 | ) | | | $0.71 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.06 | ) | | | $— | | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.06 | ) | | | $(0.12 | ) | | | $— | |
Net asset value, end of period (x) | | | $10.45 | | | | $9.12 | | | | $10.71 | |
Total return (%) (r)(s)(t)(x) | | | 15.32 | (n) | | | (13.63 | ) | | | 7.10 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 7.41 | (a) | | | 9.33 | | | | 10.51 | (a) |
Expenses after expense reductions (f) | | | 2.40 | (a) | | | 2.40 | | | | 2.40 | (a) |
Net investment income (loss) | | | (0.73 | )(a)(l) | | | 0.82 | | | | 1.25 | (a) |
Portfolio turnover | | | 20 | (n) | | | 56 | | | | 30 | (n) |
Net assets at end of period (000 omitted) | | | $454 | | | | $355 | | | | $263 | |
See Notes to Financial Statements
14
Financial Highlights – continued
| | | | | | | | | | | | |
| Class I | | Six months
ended
1/31/13
(unaudited) | | | Year ended 7/31/12 | | | Period ended
7/31/11 (c) | |
| | | | | | | | |
Net asset value, beginning of period | | | $9.27 | | | | $10.80 | | | | $10.00 | |
| Income (loss) from investment operations | | | | | |
Net investment income (d) | | | $0.01 | | | | $0.19 | | | | $0.18 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | | 1.46 | | | | (1.58 | ) | | | 0.62 | (g) |
Total from investment operations | | | $1.47 | | | | $(1.39 | ) | | | $0.80 | |
| Less distributions declared to shareholders | | | | | |
From net investment income | | | $(0.13 | ) | | | $(0.02 | ) | | | $— | |
From net realized gain on investments | | | — | | | | (0.12 | ) | | | — | |
Total distributions declared to shareholders | | | $(0.13 | ) | | | $(0.14 | ) | | | $— | |
Net asset value, end of period (x) | | | $10.61 | | | | $9.27 | | | | $10.80 | |
Total return (%) (r)(s)(x) | | | 15.89 | (n) | | | (12.74 | ) | | | 8.00 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | | 6.46 | (a) | | | 8.31 | | | | 10.71 | (a) |
Expenses after expense reductions (f) | | | 1.40 | (a) | | | 1.40 | | | | 1.40 | (a) |
Net investment income | | | 0.27 | (a)(l) | | | 1.98 | | | | 1.93 | (a) |
Portfolio turnover | | | 20 | (n) | | | 56 | | | | 30 | (n) |
Net assets at end of period (000 omitted) | | | $1,033 | | | | $883 | | | | $807 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 15, 2010, through the stated period end. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (l) | Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (t) | Total returns do not include any applicable sales charges. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
15
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Business and Organization
MFS Latin American Equity Fund (the fund) is a series of MFS Series Trust VII (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 U.S. 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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities, including securities of emerging market issuers. 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. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries. The fund’s performance could be closely tied to the market, currency, economic, political, regulatory, geopolitical, or other conditions in the countries or regions in which the fund invests and could be more volatile than the performance of more geographically-diversified funds.
The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the Latin American market as a whole, as measured by an index determined by MFS to be an appropriate measure of the Latin American market. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the
16
Notes to Financial Statements (unaudited) – continued
market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of
17
Notes to Financial Statements (unaudited) – continued
input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $4,775,170 | | | | $— | | | | $— | | | | $4,775,170 | |
| Mutual Funds | | | 62,683 | | | | — | | | | — | | | | 62,683 | |
| Total Investments | | | $4,837,853 | | | | $— | | | | $— | | | | $4,837,853 | |
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
18
Notes to Financial Statements (unaudited) – continued
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended January 31, 2013, is shown as a reduction of total expenses in the Statement of Operations.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:
| | | | |
| | | 7/31/12 | |
Ordinary income (including any
short-term capital gains) | | | $42,312 | |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | | |
| As of 1/31/13 | | | |
| Cost of investments | | | $4,491,847 | |
| Gross appreciation | | | 844,775 | |
| Gross depreciation | | | (498,769 | ) |
| Net unrealized appreciation (depreciation) | | | $346,006 | |
| |
| As of 7/31/12 | | | |
| Undistributed ordinary income | | | 39,317 | |
| Capital loss carryforwards | | | (153,752 | ) |
| Other temporary differences | | | (735 | ) |
| Net unrealized appreciation (depreciation) | | | (363,074 | ) |
The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.
19
Notes to Financial Statements (unaudited) – continued
As of July 31, 2012, the fund had capital loss carryforwards available to offset future realized gains.
| | | | |
| Such losses are characterized as follows: | |
| Short-term losses | | | $(60,637 | ) |
| Long-term losses | | | (93,115 | ) |
| Total | | | $(153,752 | ) |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
| | | | | | | | | | | | | | | | |
| | | From net investment
income | | | From net realized gain on
investments | |
| | | Six months
ended
1/31/13 | | | Year
ended
7/31/12 | | | Six months
ended
1/31/13 | | | Year
ended
7/31/12 | |
| Class A | | | $25,388 | | | | $1,064 | | | | $— | | | | $20,008 | |
| Class B | | | 1,943 | | | | — | | | | — | | | | 7,490 | |
| Class C | | | 2,981 | | | | — | | | | — | | | | 3,161 | |
| Class I | | | 10,689 | | | | 1,546 | | | | — | | | | 9,043 | |
| Total | | | $41,001 | | | | $2,610 | | | | $— | | | | $39,702 | |
(3) Transactions with Affiliates
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 1.05% | |
| Next $1.5 billion of average daily net assets | | | 0.95% | |
| Average daily net assets in excess of $2.5 billion | | | 0.90% | |
The management fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 1.05% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual fund
20
Notes to Financial Statements (unaudited) – continued
operating expenses do not exceed the following rates annually of each class’s average daily net assets.
| | | | | | | | | | | | | | |
| Class A | | | Class B | | | Class C | | | Class I | |
| | 1.65% | | | | 2.40 | % | | | 2.40 | % | | | 1.40 | % |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the six months ended January 31, 2013, this reduction amounted to $106,720 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $1,376 for the six months ended January 31, 2013, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | | | | | | | | | | | |
| | | Distribution
Fee Rate (d) | | | Service
Fee Rate (d) | | | Total
Distribution
Plan (d) | | | Annual
Effective
Rate (e) | | | Distribution
and Service
Fee | |
| Class A | | | — | | | | 0.25% | | | | 0.25% | | | | 0.25% | | | | $2,940 | |
| Class B | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 2,984 | |
| Class C | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 2,064 | |
| Total Distribution and Service Fees | | | | | | | | | | | | $7,988 | |
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’s average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period. |
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended January 31, 2013 based on each class’s average daily net assets. |
Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase for shares purchased on or after August 1, 2012, and within 24 months of purchase for shares purchased prior to August 1, 2012. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD. There were no contingent deferred sales charges imposed during the six months ended January 31, 2013.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent calculated as a percentage of the average daily net assets of the fund as
21
Notes to Financial Statements (unaudited) – continued
determined periodically under the supervision of the fund’s Board of Trustees. For the six months ended January 31, 2013, the fee was $1,150, which equated to 0.0541% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the six months ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $2,816.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.4152% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, 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, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $13 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $4, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.
At January 31, 2013, MFS held 64% of the outstanding shares of Class I.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, aggregated $1,051,521 and $815,357, respectively.
22
Notes to Financial Statements (unaudited) – continued
(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:
| | | | | | | | | | | | | | | | |
| | | Six months ended
1/31/13 | | | Year ended
7/31/12 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares sold | | | | | | | | | | | | | | | | |
Class A | | | 76,055 | | | | $764,276 | | | | 198,453 | | | | $1,933,009 | |
Class B | | | 7,623 | | | | 76,923 | | | | 38,932 | | | | 372,147 | |
Class C | | | 11,367 | | | | 110,128 | | | | 21,053 | | | | 205,609 | |
Class I | | | 14,846 | | | | 154,374 | | | | 58,806 | | | | 576,584 | |
| | | 109,891 | | | | $1,105,701 | | | | 317,244 | | | | $3,087,349 | |
| | | | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | | | | | |
Class A | | | 2,500 | | | | $25,124 | | | | 2,380 | | | | $20,350 | |
Class B | | | 195 | | | | 1,943 | | | | 786 | | | | 6,657 | |
Class C | | | 300 | | | | 2,981 | | | | 373 | | | | 3,161 | |
Class I | | | 1,061 | | | | 10,689 | | | | 1,237 | | | | 10,589 | |
| | | 4,056 | | | | $40,737 | | | | 4,776 | | | | $40,757 | |
| | | | |
| Shares reacquired | | | | | | | | | | | | | | | | |
Class A | | | (41,919 | ) | | | $(413,654 | ) | | | (108,321 | ) | | | $(1,045,400 | ) |
Class B | | | (10,729 | ) | | | (108,960 | ) | | | (28,648 | ) | | | (274,061 | ) |
Class C | | | (7,181 | ) | | | (70,568 | ) | | | (7,086 | ) | | | (65,790 | ) |
Class I | | | (13,772 | ) | | | (134,136 | ) | | | (39,456 | ) | | | (361,765 | ) |
| | | (73,601 | ) | | | $(727,318 | ) | | | (183,511 | ) | | | $(1,747,016 | ) |
| | | | |
| Net change | | | | | | | | | | | | | | | | |
Class A | | | 36,636 | | | | $375,746 | | | | 92,512 | | | | $907,959 | |
Class B | | | (2,911 | ) | | | (30,094 | ) | | | 11,070 | | | | 104,743 | |
Class C | | | 4,486 | | | | 42,541 | | | | 14,340 | | | | 142,980 | |
Class I | | | 2,135 | | | | 30,927 | | | | 20,587 | | | | 225,408 | |
| | | 40,346 | | | | $419,120 | | | | 138,509 | | | | $1,381,090 | |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund,
23
Notes to Financial Statements (unaudited) – continued
based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended January 31, 2013, the fund’s commitment fee and interest expense were $13 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning
Shares/Par
Amount | | | Acquisitions
Shares/Par
Amount | | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount | |
| MFS Institutional Money Market Portfolio | | | 20,087 | | | | 1,125,273 | | | | (1,082,677 | ) | | | 62,683 | |
| | | | |
| Underlying Affiliated Fund | | Realized
Gain (Loss) | | | Capital Gain
Distributions | | | Dividend
Income | | | Ending
Value | |
| MFS Institutional Money Market Portfolio | | | $— | | | | $— | | | | $52 | | | | $62,683 | |
24
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.
PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES
The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.
25
Save paper with eDelivery.
| MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
CONTACT
WEB SITE
mfs.com
MFS TALK
1-800-637-8255
24 hours a day
ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
Financial advisors
1-800-343-2829
Retirement plan services
1-800-637-1255
MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
OVERNIGHT MAIL
MFS Service Center, Inc.
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
SEMIANNUAL REPORT
January 31, 2013
MFS® EQUITY INCOME FUND
EQI-SEM
MFS® EQUITY INCOME FUND
CONTENTS
The 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.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE
LETTER FROM THE CHAIRMAN AND CEO
Dear Shareholders:
Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic
slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.
Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central
Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.
As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.
We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.
Respectfully,
Robert J. Manning
Chairman and Chief Executive Officer
MFS Investment Management®
March 18, 2013
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure
| | | | |
| Top ten holdings | | | | |
| Exxon Mobil Corp. | | | 4.3% | |
| Apple, Inc. | | | 3.4% | |
| Chevron Corp. | | | 3.1% | |
| Pfizer, Inc. | | | 3.1% | |
| JPMorgan Chase & Co. | | | 3.0% | |
| Johnson & Johnson | | | 3.0% | |
| Philip Morris International, Inc. | | | 2.5% | |
| Microsoft Corp. | | | 2.4% | |
| Merck & Co., Inc. | | | 2.3% | |
| Eli Lilly & Co. | | | 1.8% | |
| | | | |
| Equity sectors | | | | |
| Financial Services | | | 18.2% | |
| Technology | | | 12.3% | |
| Health Care | | | 12.3% | |
| Utilities & Communications | | | 11.4% | |
| Energy | | | 11.0% | |
| Consumer Staples | | | 8.5% | |
| Leisure | | | 7.2% | |
| Retailing | | | 6.5% | |
| Autos & Housing | | | 3.4% | |
| Basic Materials | | | 3.3% | |
| Industrial Goods & Services | | | 2.9% | |
| Transportation | | | 0.9% | |
Percentages are based on net assets as of 1/31/13.
The portfolio is actively managed and current holdings may be different.
2
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
September 27, 2012 through January 31, 2013
As a shareholder of the fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on certain purchase or redemption payments, and (2) ongoing costs, including management fees; distribution and service (12b-1) fees; and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period September 27, 2012 through January 31, 2013.
Actual Expenses
The first line for each share class in the following table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each share class in the following table provides information about hypothetical account values and hypothetical expenses based on the fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads). Therefore, the second line for each share class in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
3
Expense Table – continued
| | | | | | | | | | | | | | | | | | |
Share
Class | | | | Annualized Expense Ratio | | | Beginning Account Value 9/27/12 | | | Ending Account Value 1/31/13 | | | Expenses Paid During Period (p) 9/27/12-1/31/13 | |
| A | | Actual | | | 1.25% | | | | $1,000.00 | | | | $1,036.34 | | | | $4.43 | |
| | Hypothetical (h) | | | 1.25% | | | | $1,000.00 | | | | $1,018.90 | | | | $6.36 | |
| B | | Actual | | | 2.00% | | | | $1,000.00 | | | | $1,034.44 | | | | $7.08 | |
| | Hypothetical (h) | | | 2.00% | | | | $1,000.00 | | | | $1,015.12 | | | | $10.16 | |
| C | | Actual | | | 2.00% | | | | $1,000.00 | | | | $1,034.69 | | | | $7.08 | |
| | Hypothetical (h) | | | 2.00% | | | | $1,000.00 | | | | $1,015.12 | | | | $10.16 | |
| I | | Actual | | | 1.00% | | | | $1,000.00 | | | | $1,037.81 | | | | $3.55 | |
| | Hypothetical (h) | | | 1.00% | | | | $1,000.00 | | | | $1,020.16 | | | | $5.09 | |
| R1 | | Actual | | | 2.00% | | | | $1,000.00 | | | | $1,034.10 | | | | $7.08 | |
| | Hypothetical (h) | | | 2.00% | | | | $1,000.00 | | | | $1,015.12 | | | | $10.16 | |
| R2 | | Actual | | | 1.50% | | | | $1,000.00 | | | | $1,036.45 | | | | $5.31 | |
| | Hypothetical (h) | | | 1.50% | | | | $1,000.00 | | | | $1,017.64 | | | | $7.63 | |
| R3 | | Actual | | | 1.25% | | | | $1,000.00 | | | | $1,037.13 | | | | $4.43 | |
| | Hypothetical (h) | | | 1.25% | | | | $1,000.00 | | | | $1,018.90 | | | | $6.36 | |
| R4 | | Actual | | | 1.00% | | | | $1,000.00 | | | | $1,037.81 | | | | $3.55 | |
| | Hypothetical (h) | | | 1.00% | | | | $1,000.00 | | | | $1,020.16 | | | | $5.09 | |
| R5 | | Actual | | | 0.97% | | | | $1,000.00 | | | | $1,037.81 | | | | $3.44 | |
| | Hypothetical (h) | | | 0.97% | | | | $1,000.00 | | | | $1,020.32 | | | | $4.94 | |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. For hypothetical expenses paid, it is assumed that the fund was in existence for the entire six month period ended January 31, 2013. For actual expenses paid, the calculation is based on the period from the commencement of the fund’s investment operations, September 27, 2012, through January 31, 2013. |
4
PORTFOLIO OF INVESTMENTS
1/31/13 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | | | | |
| Common Stocks - 97.5% | | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Aerospace - 1.6% | | | | | | | | |
| Lockheed Martin Corp. | | | 990 | | | $ | 86,001 | |
| | |
| Airlines - 0.9% | | | | | | | | |
| Copa Holdings S.A., “A” | | | 460 | | | $ | 50,416 | |
| | |
| Automotive - 3.4% | | | | | | | | |
| Delphi Automotive PLC (a) | | | 2,200 | | | $ | 85,052 | |
| General Motors Co. (a) | | | 1,300 | | | | 36,517 | |
| Magna International, Inc. | | | 1,170 | | | | 61,151 | |
| | | | | | | | |
| | | | | | | $ | 182,720 | |
| Brokerage & Asset Managers - 0.2% | | | | | | | | |
| Prospect Capital Corp. | | | 900 | | | $ | 10,152 | |
| | |
| Cable TV - 3.7% | | | | | | | | |
| Comcast Corp., “Special A” | | | 2,230 | | | $ | 81,908 | |
| Time Warner Cable, Inc. | | | 970 | | | | 86,660 | |
| Virgin Media, Inc. | | | 770 | | | | 30,330 | |
| | | | | | | | |
| | | | | | | $ | 198,898 | |
| Computer Software - 3.8% | | | | | | | | |
| CA, Inc. | | | 740 | | | $ | 18,367 | |
| Microsoft Corp. | | | 4,800 | | | | 131,856 | |
| SolarWinds, Inc. (a) | | | 1,050 | | | | 57,141 | |
| | | | | | | | |
| | | | | | | $ | 207,364 | |
| Computer Software - Systems - 6.0% | | | | | | | | |
| Apple, Inc. | | | 400 | | | $ | 182,124 | |
| Canon, Inc. | | | 1,400 | | | | 51,517 | |
| Hewlett-Packard Co. | | | 3,790 | | | | 62,573 | |
| Western Digital Corp. | | | 640 | | | | 30,080 | |
| | | | | | | | |
| | | | | | | $ | 326,294 | |
| Consumer Products - 2.3% | | | | | | | | |
| Nu Skin Enterprises, Inc., “A” | | | 1,450 | | | $ | 61,422 | |
| Procter & Gamble Co. | | | 830 | | | | 62,383 | |
| | | | | | | | |
| | | | | | | $ | 123,805 | |
| Containers - 0.3% | | | | | | | | |
| Packaging Corp. of America | | | 450 | | | $ | 17,294 | |
5
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Electronics - 2.2% | | | | | | | | |
| Hoya Corp. | | | 1,200 | | | $ | 23,161 | |
| Microchip Technology, Inc. | | | 2,290 | | | | 76,601 | |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | | 1,170 | | | | 20,756 | |
| | | | | | | | |
| | | | | | | $ | 120,518 | |
| Energy - Independent - 2.7% | | | | | | | | |
| HollyFrontier Corp. | | | 850 | | | $ | 44,387 | |
| Marathon Petroleum Corp. | | | 630 | | | | 46,752 | |
| Valero Energy Corp. | | | 1,240 | | | | 54,225 | |
| | | | | | | | |
| | | | | | | $ | 145,364 | |
| Energy - Integrated - 8.3% | | | | | | | | |
| Chevron Corp. | | | 1,450 | | | $ | 166,968 | |
| Exxon Mobil Corp. | | | 2,580 | | | | 232,123 | |
| Royal Dutch Shell PLC, “A” | | | 1,502 | | | | 53,384 | |
| | | | | | | | |
| | | | | | | $ | 452,475 | |
| Food & Beverages - 2.2% | | | | | | | | |
| General Mills, Inc. | | | 550 | | | $ | 23,067 | |
| Ingredion, Inc. | | | 550 | | | | 36,339 | |
| Tyson Foods, Inc., “A” | | | 2,630 | | | | 58,176 | |
| | | | | | | | |
| | | | | | | $ | 117,582 | |
| Food & Drug Stores - 3.2% | | | | | | | | |
| CVS Caremark Corp. | | | 800 | | | $ | 40,960 | |
| Kroger Co. | | | 2,290 | | | | 63,433 | |
| Walgreen Co. | | | 1,740 | | | | 69,530 | |
| | | | | | | | |
| | | | | | | $ | 173,923 | |
| Gaming & Lodging - 0.5% | | | | | | | | |
| Wynn Resorts Ltd. | | | 230 | | | $ | 28,801 | |
| | |
| General Merchandise - 2.4% | | | | | | | | |
| Macy’s, Inc. | | | 1,960 | | | $ | 77,440 | |
| Target Corp. | | | 870 | | | | 52,557 | |
| | | | | | | | |
| | | | | | | $ | 129,997 | |
| Health Maintenance Organizations - 0.2% | | | | | | | | |
| Aetna, Inc. | | | 210 | | | $ | 10,128 | |
| | |
| Insurance - 8.0% | | | | | | | | |
| Aflac, Inc. | | | 360 | | | $ | 19,102 | |
| American International Group, Inc. (a) | | | 2,370 | | | | 89,657 | |
| Delta Lloyd N.V. | | | 3,110 | | | | 61,188 | |
6
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Insurance - continued | | | | | | | | |
| MetLife, Inc. | | | 2,610 | | | $ | 97,457 | |
| Prudential Financial, Inc. | | | 1,090 | | | | 63,089 | |
| Validus Holdings Ltd. | | | 2,280 | | | | 83,015 | |
| Zurich Insurance Group AG | | | 72 | | | | 20,713 | |
| | | | | | | | |
| | | | | | | $ | 434,221 | |
| Internet - 0.3% | | | | | | | | |
| Google, Inc., “A” (a) | | | 20 | | | $ | 15,114 | |
| | |
| Leisure & Toys - 3.0% | | | | | | | | |
| Activision Blizzard, Inc. | | | 5,420 | | | $ | 61,734 | |
| Mattel, Inc. | | | 2,290 | | | | 86,173 | |
| Polaris Industries, Inc. | | | 200 | | | | 17,418 | |
| | | | | | | | |
| | | | | | | $ | 165,325 | |
| Machinery & Tools - 1.3% | | | | | | | | |
| Cummins, Inc. | | | 630 | | | $ | 72,343 | |
| | |
| Major Banks - 7.8% | | | | | | | | |
| Banco Santander S.A. | | | 4,112 | | | $ | 34,499 | |
| BOC Hong Kong Holdings Ltd. | | | 7,000 | | | | 24,144 | |
| JPMorgan Chase & Co. | | | 3,460 | | | | 162,793 | |
| Mizuho Financial Group, Inc. | | | 27,700 | | | | 55,433 | |
| Sumitomo Mitsui Financial Group, Inc. | | | 600 | | | | 24,080 | |
| Wells Fargo & Co. | | | 2,020 | | | | 70,357 | |
| Westpac Banking Corp. | | | 1,800 | | | | 52,632 | |
| | | | | | | | |
| | | | | | | $ | 423,938 | |
| Medical Equipment - 0.7% | | | | | | | | |
| Abbott Laboratories | | | 1,040 | | | $ | 35,235 | |
| | |
| Metals & Mining - 3.0% | | | | | | | | |
| Iluka Resources Ltd. | | | 5,217 | | | $ | 52,880 | |
| Rio Tinto Ltd. | | | 910 | | | | 51,380 | |
| Vale S.A., ADR | | | 2,820 | | | | 56,879 | |
| | | | | | | | |
| | | | | | | $ | 161,139 | |
| Natural Gas - Distribution - 0.9% | | | | | | | | |
| GDF SUEZ | | | 2,501 | | | $ | 51,311 | |
| | |
| Other Banks & Diversified Financials - 0.3% | | | | | | | | |
| Fifth Third Bancorp | | | 1,040 | | | $ | 16,942 | |
7
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Common Stocks - continued | | | | | | | | |
| Pharmaceuticals - 11.4% | | | | | | | | |
| AbbVie, Inc. | | | 1,040 | | | $ | 38,158 | |
| Eli Lilly & Co. | | | 1,830 | | | | 98,253 | |
| Johnson & Johnson | | | 2,180 | | | | 161,146 | |
| Merck & Co., Inc. | | | 2,910 | | | | 125,858 | |
| Pfizer, Inc. | | | 6,100 | | | | 166,408 | |
| Teva Pharmaceutical Industries Ltd., ADR | | | 740 | | | | 28,113 | |
| | | | | | | | |
| | | | | | | $ | 617,936 | |
| Real Estate - 1.9% | | | | | | | | |
| Annaly Mortgage Management, Inc., REIT | | | 2,910 | | | $ | 43,272 | |
| Corio N.V., REIT | | | 466 | | | | 22,630 | |
| EPR Properties, REIT | | | 830 | | | | 38,894 | |
| | | | | | | | |
| | | | | | | $ | 104,796 | |
| Specialty Stores - 0.9% | | | | | | | | |
| Gap, Inc. | | | 1,460 | | | $ | 47,713 | |
| | |
| Telephone Services - 5.9% | | | | | | | | |
| Bezeq - The Israel Telecommunication Corp. Ltd. | | | 8,530 | | | $ | 10,011 | |
| CenturyLink, Inc. | | | 2,230 | | | | 90,204 | |
| Frontier Communications Corp. | | | 13,270 | | | | 60,644 | |
| TDC A.S. | | | 5,922 | | | | 45,320 | |
| Telecom Italia S.p.A. | | | 11,441 | | | | 9,781 | |
| Telefonica Brasil S.A., ADR | | | 1,470 | | | | 37,015 | |
| Verizon Communications, Inc. | | | 1,510 | | | | 65,851 | |
| | | | | | | | |
| | | | | | | $ | 318,826 | |
| Tobacco - 4.0% | | | | | | | | |
| Lorillard, Inc. | | | 2,210 | | | $ | 86,345 | |
| Philip Morris International, Inc. | | | 1,510 | | | | 133,122 | |
| | | | | | | | |
| | | | | | | $ | 219,467 | |
| Utilities - Electric Power - 4.2% | | | | | | | | |
| American Electric Power Co., Inc. | | | 1,990 | | | $ | 90,127 | |
| NRG Energy, Inc. | | | 2,410 | | | | 57,840 | |
| PG&E Corp. | | | 1,040 | | | | 44,346 | |
| PPL Corp. | | | 1,090 | | | | 33,016 | |
| | | | | | | | |
| | | | | | | $ | 225,329 | |
| Total Common Stocks (Identified Cost, $5,121,211) | | | | | | $ | 5,291,367 | |
8
Portfolio of Investments (unaudited) – continued
| | | | | | | | |
| Convertible Preferred Stocks - 0.4% | | | | | | | | |
| Issuer | | Shares/Par | | | Value ($) | |
| Utilities - Electric Power - 0.4% | | | | | | | | |
| PPL Corp., 8.75% | | | 180 | | | $ | 9,844 | |
| PPL Corp., 9.5% | | | 180 | | | | 9,731 | |
| Total Convertible Preferred Stocks (Identified Cost, $19,607) | | | | | | $ | 19,575 | |
| | |
| Money Market Funds - 2.8% | | | | | | | | |
MFS Institutional Money Market Portfolio, 0.14%,
at Cost and Net Asset Value (v) | | | 154,802 | | | $ | 154,802 | |
| Total Investments (Identified Cost, $5,295,620) | | | | | | $ | 5,465,744 | |
| | |
| Other Assets, Less Liabilities - (0.7)% | | | | | | | (39,940 | ) |
| Net Assets - 100.0% | | | | | | $ | 5,425,804 | |
| (a) | Non-income producing security. |
| (v) | Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
| ADR | | American Depositary Receipt |
| PLC | | Public Limited Company |
| REIT | | Real Estate Investment Trust |
See Notes to Financial Statements
9
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 1/31/13 (unaudited)
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | |
| Assets | | | | |
Investments- | | | | |
Non-affiliated issuers, at value (identified cost, $5,140,818) | | | $5,310,942 | |
Underlying affiliated funds, at cost and value | | | 154,802 | |
Total investments, at value (identified cost, $5,295,620) | | | $5,465,744 | |
Receivables for | | | | |
Fund shares sold | | | 381,430 | |
Dividends | | | 5,076 | |
Receivable from investment adviser | | | 13,322 | |
Other assets | | | 144 | |
Total assets | | | $5,865,716 | |
| Liabilities | | | | |
Payable to custodian | | | $9 | |
Payables for | | | | |
Investments purchased | | | 385,839 | |
Fund shares reacquired | | | 19,787 | |
Payable to affiliates | | | | |
Shareholder servicing costs | | | 581 | |
Distribution and service fees | | | 84 | |
Payable for independent Trustees’ compensation | | | 413 | |
Accrued expenses and other liabilities | | | 33,199 | |
Total liabilities | | | $439,912 | |
Net assets | | | $5,425,804 | |
| Net assets consist of | | | | |
Paid-in capital | | | $5,273,849 | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | | 170,094 | |
Accumulated net realized gain (loss) on investments and foreign currency | | | (18,749 | ) |
Undistributed net investment income | | | 610 | |
Net assets | | | $5,425,804 | |
Shares of beneficial interest outstanding | | | 526,492 | |
10
Statement of Assets and Liabilities (unaudited) – continued
| | | | | | | | | | | | |
| | | Net assets | | | Shares
outstanding | | | Net asset value
per share (a) | |
Class A | | | $2,700,207 | | | | 262,049 | | | | $10.30 | |
Class B | | | 151,079 | | | | 14,671 | | | | 10.30 | |
Class C | | | 592,512 | | | | 57,504 | | | | 10.30 | |
Class I | | | 114,568 | | | | 11,114 | | | | 10.31 | |
Class R1 | | | 103,412 | | | | 10,040 | | | | 10.30 | |
Class R2 | | | 103,593 | | | | 10,053 | | | | 10.30 | |
Class R3 | | | 103,680 | | | | 10,059 | | | | 10.31 | |
Class R4 | | | 103,772 | | | | 10,066 | | | | 10.31 | |
Class R5 | | | 1,452,981 | | | | 140,936 | | | | 10.31 | |
| (a) | Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $10.93 [100 / 94.25 x $10.30]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Classes I, R1, R2, R3, R4, and R5. |
See Notes to Financial Statements
11
Financial Statements
STATEMENT OF OPERATIONS
Period ended 1/31/13 (c) (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | |
| Net investment income | | | | |
Income | | | | |
Dividends | | | $29,065 | |
Dividends from underlying affiliated funds | | | 87 | |
Foreign taxes withheld | | | (240 | ) |
Total investment income | | | $28,912 | |
Expenses | | | | |
Management fee | | | $7,867 | |
Distribution and service fees | | | 2,320 | |
Shareholder servicing costs | | | 712 | |
Administrative services fee | | | 6,090 | |
Independent Trustees’ compensation | | | 413 | |
Custodian fee | | | 3,306 | |
Shareholder communications | | | 1,237 | |
Audit and tax fees | | | 7,577 | |
Legal fees | | | 556 | |
Registration fees | | | 24,849 | |
Miscellaneous | | | 2,724 | |
Total expenses | | | $57,651 | |
Reduction of expenses by investment adviser | | | (44,985 | ) |
Net expenses | | | $12,666 | |
Net investment income | | | $16,246 | |
| Realized and unrealized gain (loss) on investments and foreign currency | |
Realized gain (loss) (identified cost basis) | | | | |
Investments | | | $(19,091 | ) |
Foreign currency | | | 342 | |
Net realized gain (loss) on investments and foreign currency | | | $(18,749 | ) |
Change in unrealized appreciation (depreciation) | | | | |
Investments | | | $170,124 | |
Translation of assets and liabilities in foreign currencies | | | (30 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | $170,094 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | $151,345 | |
Change in net assets from operations | | | $167,591 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end. |
See Notes to Financial Statements
12
Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
This statement describes the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.
| | | | |
| Change in net assets | | Period ended
1/31/13 (c)
(unaudited) | |
| From operations | | | | |
Net investment income | | | $16,246 | |
Net realized gain (loss) on investments and foreign currency | | | (18,749 | ) |
Net unrealized gain (loss) on investments and foreign currency translation | | | 170,094 | |
Change in net assets from operations | | | $167,591 | |
| Distributions declared to shareholders | | | | |
From net investment income | | | $(15,636 | ) |
Change in net assets from fund share transactions | | | $5,273,849 | |
Total change in net assets | | | $5,425,804 | |
| Net assets | | | | |
At beginning of period | | | — | |
At end of period (including undistributed net investment income of $610) | | | $5,425,804 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end. |
See Notes to Financial Statements
13
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | |
| Class A | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.04 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.32 | |
Total from investment operations | | | $0.36 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.06 | ) |
Net asset value, end of period (x) | | | $10.30 | |
Total return (%) (r)(s)(t)(x) | | | 3.63 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 5.00 | (a) |
Expenses after expense reductions (f) | | | 1.25 | (a) |
Net investment income | | | 1.19 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $2,700 | |
See Notes to Financial Statements
14
Financial Highlights – continued
| | | | |
| Class B | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.03 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.31 | |
Total from investment operations | | | $0.34 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.04 | ) |
Net asset value, end of period (x) | | | $10.30 | |
Total return (%) (r)(s)(t)(x) | | | 3.44 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 6.44 | (a) |
Expenses after expense reductions (f) | | | 2.00 | (a) |
Net investment income | | | 0.85 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $151 | |
| |
| Class C | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.02 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.33 | |
Total from investment operations | | | $0.35 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.05 | ) |
Net asset value, end of period (x) | | | $10.30 | |
Total return (%) (r)(s)(t)(x) | | | 3.47 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 5.96 | (a) |
Expenses after expense reductions (f) | | | 2.00 | (a) |
Net investment income | | | 0.52 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $593 | |
See Notes to Financial Statements
15
Financial Highlights – continued
| | | | |
| Class I | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.05 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.33 | |
Total from investment operations | | | $0.38 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.07 | ) |
Net asset value, end of period (x) | | | $10.31 | |
Total return (%) (r)(s)(x) | | | 3.78 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 5.21 | (a) |
Expenses after expense reductions (f) | | | 1.00 | (a) |
Net investment income | | | 1.49 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $115 | |
| |
| Class R1 | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.03 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.31 | |
Total from investment operations | | | $0.34 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.04 | ) |
Net asset value, end of period (x) | | | $10.30 | |
Total return (%) (r)(s)(x) | | | 3.41 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 6.56 | (a) |
Expenses after expense reductions (f) | | | 2.00 | (a) |
Net investment income | | | 0.93 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $103 | |
See Notes to Financial Statements
16
Financial Highlights – continued
| | | | |
| Class R2 | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.05 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.30 | |
Total from investment operations | | | $0.35 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.05 | ) |
Net asset value, end of period (x) | | | $10.30 | |
Total return (%) (r)(s)(x) | | | 3.54 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 6.06 | (a) |
Expenses after expense reductions (f) | | | 1.50 | (a) |
Net investment income | | | 1.43 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $104 | |
| |
| Class R3 | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.06 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.31 | |
Total from investment operations | | | $0.37 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.06 | ) |
Net asset value, end of period (x) | | | $10.31 | |
Total return (%) (r)(s)(x) | | | 3.71 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 5.81 | (a) |
Expenses after expense reductions (f) | | | 1.25 | (a) |
Net investment income | | | 1.68 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $104 | |
See Notes to Financial Statements
17
Financial Highlights – continued
| | | | |
| Class R4 | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.07 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.31 | |
Total from investment operations | | | $0.38 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.07 | ) |
Net asset value, end of period (x) | | | $10.31 | |
Total return (%) (r)(s)(x) | | | 3.78 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 5.56 | (a) |
Expenses after expense reductions (f) | | | 1.00 | (a) |
Net investment income | | | 1.93 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $104 | |
| |
| Class R5 | | Period ended
1/31/13 (c) (unaudited) | |
| | |
Net asset value, beginning of period | | | $10.00 | |
| Income (loss) from investment operations | | | | |
Net investment income (d) | | | $0.07 | |
Net realized and unrealized gain (loss) on investments and foreign currency | | | 0.31 | |
Total from investment operations | | | $0.38 | |
| Less distributions declared to shareholders | | | | |
From net investment income | | | $(0.07 | ) |
Net asset value, end of period (x) | | | $10.31 | |
Total return (%) (r)(s)(x) | | | 3.79 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | |
Expenses before expense reductions (f) | | | 5.52 | (a) |
Expenses after expense reductions (f) | | | 0.97 | (a) |
Net investment income | | | 1.96 | (a) |
Portfolio turnover | | | 25 | (n) |
Net assets at end of period (000 omitted) | | | $1,453 | |
See Notes to Financial Statements
18
Financial Highlights – continued
| (c) | For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (t) | Total returns do not include any applicable sales charges. |
| (x) | The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
19
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) Business and Organization
MFS Equity Income Fund (the fund) is a series of MFS Series Trust VII (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 U.S. 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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to
20
Notes to Financial Statements (unaudited) – continued
the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:
| | | | | | | | | | | | | | | | |
| Investments at Value | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Equity Securities | | | $5,310,942 | | | | $— | | | | $— | | | | $5,310,942 | |
| Mutual Funds | | | 154,802 | | | | — | | | | — | | | | 154,802 | |
| Total Investments | | | $5,465,744 | | | | $— | | | | $— | | | | $5,465,744 | |
21
Notes to Financial Statements (unaudited) – continued
For further information regarding security characteristics, see the Portfolio of Investments.
Foreign Currency Translation – 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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the period ended January 31, 2013, custody fees were not reduced.
Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts
22
Notes to Financial Statements (unaudited) – continued
in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
The tax character of distributions made during the current period will be determined at fiscal year end.
The federal tax cost of securities held were as follows:
| | | | |
| As of 1/31/13 | | | |
| Cost of investments | | | $5,295,620 | |
| Gross appreciation | | | 233,508 | |
| Gross depreciation | | | (63,384 | ) |
| Net unrealized appreciation (depreciation) | | | $170,124 | |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statement of Changes in Net Assets are presented by class as follows:
| | | | |
| | | From net investment
income | |
| | | Period
ended
1/31/13 (c) | |
| Class A | | | $2,544 | |
| Class B | | | 514 | |
| Class C | | | 452 | |
| Class I | | | 671 | |
| Class R1 | | | 395 | |
| Class R2 | | | 525 | |
| Class R3 | | | 590 | |
| Class R4 | | | 655 | |
| Class R5 | | | 9,290 | |
| Total | | | $15,636 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end. |
23
Notes to Financial Statements (unaudited) – continued
(3) Transactions with Affiliates
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at the following annual rates:
| | | | |
| First $1 billion of average daily net assets | | | 0.75 | % |
| Next $1.5 billion of average daily net assets | | | 0.65 | % |
| Average daily net assets in excess of $2.5 billion | | | 0.60 | % |
The management fee incurred for the period ended January 31, 2013 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual fund operating expenses do not exceed the following rates annually of each class’s average daily net assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Classes | |
| A | | | B | | | C | | | I | | | R1 | | | R2 | | | R3 | | | R4 | | | R5 | |
| | 1.25% | | | | 2.00% | | | | 2.00% | | | | 1.00% | | | | 2.00% | | | | 1.50% | | | | 1.25% | | | | 1.00% | | | | 0.97% | |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the period ended January 31, 2013, this reduction amounted to $44,984 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $8,179 for the period ended January 31, 2013, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | | | | | | | | | | | |
| | | Distribution
Fee Rate (d) | | | Service
Fee Rate (d) | | | Total Distribution Plan (d) | | | Annual Effective Rate (e) | | | Distribution and Service Fee | |
| Class A | | | — | | | | 0.25% | | | | 0.25% | | | | 0.25% | | | | $672 | |
| Class B | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 395 | |
| Class C | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 645 | |
| Class R1 | | | 0.75% | | | | 0.25% | | | | 1.00% | | | | 1.00% | | | | 347 | |
| Class R2 | | | 0.25% | | | | 0.25% | | | | 0.50% | | | | 0.50% | | | | 174 | |
| Class R3 | | | — | | | | 0.25% | | | | 0.25% | | | | 0.25% | | | | 87 | |
| Total Distribution and Service Fees | | | | $2,320 | |
24
Notes to Financial Statements (unaudited) – continued
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’s average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period. |
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the period ended January 31, 2013 based on each class’s average daily net assets. |
Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD. There were no contingent deferred sales charges imposed during the period ended January 31, 2013.
Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent calculated as a percentage of the average daily net assets of the fund as determined periodically under the supervision of the fund’s Board of Trustees. For the period ended January 31, 2013, the fee was $132, which equated to 0.0126% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R5 shares do not incur sub-accounting fees. For the period ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $580.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the period ended January 31, 2013 was equivalent to an annual effective rate of 0.5807% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, 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, MFD, and MFSC.
Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any
25
Notes to Financial Statements (unaudited) – continued
time under the terms of the Agreements. For the period ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $56 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $1, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.
On September 26, 2012, MFS purchased 10,000 shares each of Class A, Class B, Class C, Class I, Class R1, Class R2, Class R3, and Class R4 and 140,000 shares of Class R5 for an aggregate amount of $2,200,000.
At January 31, 2013, MFS held 68%, 91%, 100%, 100%, 100%, 100%, and 100% of the outstanding shares of Class B, Class I, Class R1, Class R2, Class R3, Class R4, and Class R5, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than short-term obligations, aggregated $5,956,099 and $805,861, respectively.
(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:
| | | | | | | | |
| | | Period ended
1/31/13 (c) | |
| | | Shares | | | Amount | |
| Shares sold | | | | | | | | |
Class A | | | 264,078 | | | | $2,664,235 | |
Class B | | | 14,619 | | | | 146,167 | |
Class C | | | 57,458 | | | | 578,367 | |
Class I | | | 66,799 | | | | 657,179 | |
Class R1 | | | 10,000 | | | | 100,000 | |
Class R2 | | | 10,000 | | | | 100,000 | |
Class R3 | | | 10,000 | | | | 100,000 | |
Class R4 | | | 10,000 | | | | 100,000 | |
Class R5 | | | 140,000 | | | | 1,400,000 | |
| | | 582,954 | | | | $5,845,948 | |
26
Notes to Financial Statements (unaudited) – continued
| | | | | | | | |
| | | Period ended
1/31/13 (c) | |
| | | Shares | | | Amount | |
Shares issued to shareholders in
reinvestment of distributions | | | | | | | | |
Class A | | | 180 | | | | $1,786 | |
Class B | | | 52 | | | | 514 | |
Class C | | | 46 | | | | 452 | |
Class I | | | 66 | | | | 671 | |
Class R1 | | | 40 | | | | 395 | |
Class R2 | | | 53 | | | | 525 | |
Class R3 | | | 59 | | | | 590 | |
Class R4 | | | 66 | | | | 655 | |
Class R5 | | | 936 | | | | 9,290 | |
| | | 1,498 | | | | $14,878 | |
| | |
| Shares reacquired | | | | | | | | |
Class A | | | (2,209 | ) | | | $(22,621 | ) |
Class I | | | (55,751 | ) | | | (564,356 | ) |
| | | (57,960 | ) | | | $(586,977 | ) |
| | |
| Net change | | | | | | | | |
Class A | | | 262,049 | | | | $2,643,400 | |
Class B | | | 14,671 | | | | 146,681 | |
Class C | | | 57,504 | | | | 578,819 | |
Class I | | | 11,114 | | | | 93,494 | |
Class R1 | | | 10,040 | | | | 100,395 | |
Class R2 | | | 10,053 | | | | 100,525 | |
Class R3 | | | 10,059 | | | | 100,590 | |
Class R4 | | | 10,066 | | | | 100,655 | |
Class R5 | | | 140,936 | | | | 1,409,290 | |
| | | 526,492 | | | | $5,273,849 | |
| (c) | For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end. |
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an
27
Notes to Financial Statements (unaudited) – continued
agreed upon spread. For the period ended January 31, 2013, the fund’s commitment fee and interest expense were $20 and $0, respectively, and are included in “Miscellaneous expense” in the Statement of Operations.
(7) Transactions in Underlying Affiliated Funds-Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be an affiliated issuer:
| | | | | | | | | | | | | | | | |
| Underlying Affiliated Fund | | Beginning Shares/Par Amount | | | Acquisitions Shares/Par Amount | | | Dispositions Shares/Par Amount | | | Ending Shares/Par Amount | |
MFS Institutional Money
Market Portfolio | | | — | | | | 3,955,341 | | | | (3,800,539 | ) | | | 154,802 | |
| | | | |
| Underlying Affiliated Fund | | Realized Gain (Loss) | | | Capital Gain Distributions | | | Dividend
Income | | | Ending
Value | |
MFS Institutional Money
Market Portfolio | | | $— | | | | $— | | | | $87 | | | | $154,802 | |
28
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, initially approve the Fund’s investment advisory agreement with MFS (the “Agreement”) and, beginning on the second anniversary of the initial effective date of the Agreement, annually approve the continuation of the Agreement. In June 2012 and July 2012, the Board met to consider the initial approval of the Agreement (“the initial review meetings”). The independent Trustees were assisted in their evaluation of the Agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS. The independent Trustees were also assisted in this process by the MFS Funds’ Independent Chief Compliance Officer, a full-time senior officer appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the initial approval of the Agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services to be performed by MFS under the Agreement and other arrangements with the Fund.
In connection with their initial review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Lipper Inc., an independent third party, on the Fund’s proposed advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Lipper Inc. (the “Lipper expense group”), (ii) information provided by MFS on the fees it charges to other registered funds managed in a similar style to the Fund, and (iii) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” would be observed for the Fund. In addition, in connection with the independent Trustees’ meetings in May, June and July, 2012 (the “contract review meetings”) for the purpose of considering whether to approve the continuation of the investment advisory agreements for the other investment companies that the Board oversees (the “MFS Funds”), the independent Trustees received: (i) information provided by MFS on fees it charges to institutional accounts managed in styles similar to other MFS Funds, (ii) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the MFS Funds as a whole, and compared to MFS’ institutional business (iii) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (iv) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (v) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel that would provide investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative fee and expense information prepared and provided by Lipper Inc. was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
29
Board Approval of Investment Advisory Agreement – continued
The Trustees’ conclusion as to the initial approval of the Agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. Because the Fund is newly organized and had not yet commenced investment operations at the time of the initial review meetings, the Fund had no investment performance for the Trustees to review. The Trustees also considered that MFS will observe an expense limitation for the Fund, which may not be changed without the Trustees’ approval.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s proposed advisory fee and the estimated total expense ratio of the Fund’s Class A shares as a percentage of average daily net assets and the advisory fee and total expense ratios of peer groups of funds based on information provided by Lipper Inc. The Trustees considered that, according to the Lipper data (which takes into account any proposed fee reductions or expense limitations for the Fund), the Fund’s effective advisory fee rate would be lower than the Lipper expense group median and the Fund’s total expense ratio would be approximately at the Lipper expense group median.
The Trustees also considered whether the Fund is likely to benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund. They noted that the Fund’s proposed advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees concluded that the proposed breakpoints were sufficient to allow the Fund to benefit from economies of scale as its assets grow.
The Trustees did not consider MFS’ costs and profits with respect to the Fund because the Fund had not yet commenced operations. The Trustees considered information prepared by MFS relating to MFS’ costs and profits with respect to the MFS Funds considered as a group, and other investment companies and institutional accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the Agreement, that the advisory fee to be charged to the Fund represents reasonable compensation in light of the services to be provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages
30
Board Approval of Investment Advisory Agreement – continued
to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services to be provided to the Fund by MFS and its affiliates under agreements and plans other than the Agreement, including any 12b-1 fees the Fund will pay to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS may perform or arrange for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services to be provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund’s portfolio brokerage commissions, if applicable, to pay for investment research and various other factors. Additionally, the Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s Agreement with MFS should be approved for an initial two-year period, commencing upon its effective date, as set forth in the Agreement.
A discussion regarding the Board’s approval of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of the MFS Web site (mfs.com).
31
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the Public Reference Section at the above address.
FURTHER INFORMATION
From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.
PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES
The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.
32
Save paper with eDelivery.
| MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
CONTACT
WEB SITE
mfs.com
MFS TALK
1-800-637-8255
24 hours a day
ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
Financial advisors
1-800-343-2829
Retirement plan services
1-800-637-1255
MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
OVERNIGHT MAIL
MFS Service Center, Inc.
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Not applicable for semi-annual reports.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Not applicable for semi-annual reports.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable to the Registrant.
A schedule of investments for each series of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable to the Registrant.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
| ITEM 11. | CONTROLS AND PROCEDURES. |
| (a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
| (b) | There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| (a) | File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated. |
| | (1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit. |
| | (2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2): Attached hereto. |
| (b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto. |
Notice
A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST VII
| | |
| By (Signature and Title)* | | JOHN M. CORCORAN |
| | John M. Corcoran, President |
Date: March 18, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| By (Signature and Title)* | | JOHN M. CORCORAN |
| | John M. Corcoran, President (Principal Executive Officer) |
Date: March 18, 2013
| | |
| By (Signature and Title)* | | DAVID L. DILORENZO |
| | David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: March 18, 2013
| * | Print name and title of each signing officer under his or her signature. |
