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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMN-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number811-03327
MFS SERIES TRUST XIII
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Christopher R. Bohane
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: February 28*
Date of reporting period: February 28, 2019
* | This FormN-CSR pertains to the following series of the Registrant: MFS Diversified Income Fund, MFS Government Securities Fund and MFS New Discovery Value Fund. The remaining series of the Registrant has a fiscal year end other than February 28. |
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ITEM 1. | REPORTS TO STOCKHOLDERS. |
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Annual Report
February 28, 2019
MFS® Diversified Income Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the complete reports will be made available on the fund’s Web site (funds.mfs.com), and you will be notified by mail each time a report is posted and provided with a Web site link to access the report.
If you are already signed up to receive shareholder reports by email, you will not be affected by this change and you need not take any action. You may sign up to receive shareholder reports and other communications from the fund by email by contacting your financial intermediary (such as a broker-dealer or bank) or, if you hold your shares directly with the fund, by calling 1-800-225-2606 or by logging on to MFS Access at mfs.com.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. Contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the fund, you can call 1-800-225-2606 or send an email request to orderliterature@mfs.com to let the fund know that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the MFS fund complex if you invest directly.
DIF-ANN
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MFS® Diversified Income Fund
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• MAY LOSE VALUE• NO BANK GUARANTEE
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LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Shareholders:
Markets experienced a bout of volatility in late 2018 as a result of higher interest rates, international trade friction and geopolitical uncertainty surrounding issues such as
Brexit. But concern over those issues dissipated in the early months of 2019 due to a more dovish posture by the U.S. Federal Reserve, progress toward a trade pact between the United States and China, and a consensus forming in the British Parliament against ano-deal Brexit. Over the past year, U.S. equities have outperformed their global peers due in part to fiscal stimulus undertaken in late 2017 and early 2019, which helped maintain healthy levels of U.S. economic output against a backdrop of slowing global growth, though returns, on average, have been modest.
Globally, inflation remains largely subdued thanks in part to stable
oil prices, though tight labor markets are keeping investors on the lookout for its potential reappearance. Rising incomes in many developed and emerging markets are supportive of gains in consumption, though a challenging backdrop for global trade has weighed on manufacturing in most regions. Should the U.S. and China reach a comprehensive trade agreement, sentiment could improve later this year.
As a global investment manager with nearly a century of expertise, MFS® firmly believes active risk management offers downside mitigation and may help improve investment outcomes. We built our active investment platform with this belief in mind. Our long-term perspective influences nearly every aspect of our business, ensuring that our investment decisions align with the investing time horizons of our clients.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
April 16, 2019
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure (i)
Top ten holdings (i) | ||||
Simon Property Group, Inc., REIT | 2.3% | |||
Fannie Mae, 3.5%, 30 Years | 2.1% | |||
U.S. Treasury Notes, 1.75%, 11/30/2021 | 2.1% | |||
Fannie Mae, 4%, 30 Years | 1.9% | |||
Public Storage, Inc., REIT | 1.7% | |||
Welltower, Inc., REIT | 1.3% | |||
Fannie Mae, 4.5%, 30 Years | 1.3% | |||
Medical Properties Trust, Inc., REIT | 1.3% | |||
Brixmor Property Group Inc., REIT | 1.2% | |||
Sun Communities, Inc., REIT | 1.1% |
GICS equity sectors (i) | ||||
Real Estate | 23.0% | |||
Health Care | 3.4% | |||
Consumer Staples | 3.0% | |||
Financials | 2.2% | |||
Energy | 1.7% | |||
Information Technology | 1.6% | |||
Utilities | 1.5% | |||
Industrials | 1.5% | |||
Consumer Discretionary | 1.2% | |||
Communication Services | 1.2% | |||
Materials | 0.4% | |||
Fixed income sectors (i) | ||||
Emerging Markets Bonds | 18.5% | |||
High Yield Corporates | 15.4% | |||
Mortgage-Backed Securities | 11.6% | |||
U.S. Treasury Securities | 7.7% | |||
U.S. Government Agencies | 1.2% | |||
Investment Grade Corporates | 1.0% | |||
Commercial Mortgage-Backed Securities | 0.5% | |||
Collateralized Debt Obligations | 0.4% | |||
Municipal Bonds | 0.3% | |||
Floating Rate Loans | 0.1% | |||
Asset-Backed Securities | 0.1% | |||
Non-U.S. Government Bonds (o) | 0.0% |
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Portfolio Composition – continued
Composition including fixed income credit quality (a)(i) |
| |||
AAA | 1.0% | |||
AA | 0.6% | |||
A | 1.4% | |||
BBB | 7.2% | |||
BB | 12.9% | |||
B | 11.5% | |||
CCC | 1.6% | |||
CC (o) | 0.0% | |||
U.S. Government | 6.7% | |||
Federal Agencies | 12.8% | |||
Not Rated | 1.2% | |||
Non-Fixed Income | 40.7% | |||
Cash & Cash Equivalents | 3.3% | |||
Other | (0.9)% |
Issuer country weightings (i)(x) |
| |||
United States | 67.4% | |||
Canada | 2.4% | |||
Switzerland | 2.2% | |||
United Kingdom | 1.7% | |||
France | 1.4% | |||
Argentina | 1.2% | |||
Japan | 1.1% | |||
China | 1.0% | |||
Chile | 1.0% | |||
Other Countries | 20.6% |
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agency fixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives, which have not been rated by any rating agency.Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
(i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
(o) | Less than 0.1%. |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of the portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents and Other. |
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Portfolio Composition – continued
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
The fund invests a portion of its assets in the MFS High Yield Pooled Portfolio. Percentages include the indirect exposure to the underlying holdings, including investments in money market funds and Other, of the MFS High Yield Pooled Portfolio and not the direct exposure from investing in the MFS High Yield Pooled Portfolio itself.
Cash & Cash Equivalents includes any direct exposure to cash, direct and indirect exposure to investments in money market funds, cash equivalents, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s direct cash position and other assets and liabilities.
Other includes the direct and indirect equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS.
Percentages are based on net assets as of February 28, 2019.
The portfolio is actively managed and current holdings may be different.
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Summary of Results
The MFS Diversified Income Fund (“fund”) includes investments in high yield corporate bonds, U.S. government debt, emerging markets debt, real estate investment trusts (“REITs”) and global equity securities.
For the twelve months ended February 28, 2019, Class A shares of the fund provided a total return of 6.10%, at net asset value. This compares with a return of 4.68% for the fund’s benchmark, the Standard & Poor’s 500 Stock Index. The fund’s other benchmark, the MFS Diversified Income Fund Blended Index (“Blended Index”) generated a return of 6.46% over the reporting period. The Blended Index reflects the blended returns of various equity and fixed income market indices, with percentage allocations to each index designed to resemble the allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
Market Environment
The global economy decelerated during the reporting period, led by weakness in China and Europe as business and investor sentiment was undermined by growing trade frictions. Slower growth, along with tighter financial conditions, contributed to an uptick in market volatility late in the period. Equity valuations fell and credit spreads widened, fueled in part by concerns that the US Federal Reserve was on course to further tighten monetary policy after it lifted rates for a fourth time during the period and indicated its intention to hike several more times while allowing its balance sheet to run off at its predetermined pace.
The market’s negative reaction to these policy signals prompted the Fed to reverse course at the end of the period and indicate that its policy was on hold as inflation pressures abated. The Fed also indicated that it will maintain a larger balance sheet than it had previously. These dovish shifts helped equity valuations rebound, reduced volatility and narrowed credit spreads. Central banks globally are tilting more dovish as well, with China lowering reserve requirements, The Bank of Canada and Bank of England holding rates steady and the European Central Bank acknowledging that it may not be able to hike rates in the fall of 2019 as it had earlier projected.
Emerging markets experienced considerable volatility during the period as tighter global financial conditions exposed structural weakness in some countries. Those pressures were somewhat relieved at the end of the period as the Fed adopted its more dovish posture. However, slowing global growth and ongoing trade frictions remained concerns.
From a geopolitical perspective, the lack of consensus in the United Kingdom on the best path toward a rapidly approaching Brexit, a fractious Eurosceptic Italian coalition government, large-scale protests in France over stagnant wages, and news that Germany’s Angela Merkel will not seek another term as chancellor were sources of uncertainty in Europe. In emerging markets, new Brazilian president Jair Bolsanaro took office, with markets generally encouraged by his market-friendly agenda. In contrast, markets were nervous about the less-market-friendly approach of Mexico’s new president Andres Manuel Lopez Obrador. For much of the period, the contentious
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Management Review – continued
US-China trading relationship was a drag on global sentiment, although tentative signs of progress toward resolution helped steady markets late in the period. Concerns persisted about slowing Chinese economic activity.
Factors Affecting Performance
During the reporting period, both security selection and an overweight position in the fund’s emerging markets debt sleeve were primary detractors from performance relative to the Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index, which is a component of the Blended Index. Additionally, an overweight allocation to the U.S. Government debt segment held back relative returns.
Conversely, security selection and, to a lesser extent, an overweight position in the fund’s REIT segment contributed to relative performance as this asset class outpaced its respective benchmark, the MSCI U.S. REIT Index, during the reporting period. An underweight position in the fund’s high yield corporate debt sleeve also aided relative results as high yield securities lagged the Blended Index.
Respectfully,
Portfolio Manager(s)
Robert Almeida, Ward Brown, David Cole, Rick Gable, Matt Ryan, Jonathan Sage, Geoffrey Schechter, and Michael Skatrud
Note to Shareholders: Effective March 1, 2018, Robert Almeida and Michael Skatrud became Portfolio Managers of the Fund. Effective September 1, 2018, William Adams is no longer a Portfolio Manager of the Fund. Effective December 31, 2018, Jim Swanson is no longer a Portfolio Manager of the Fund.
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
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PERFORMANCE SUMMARYTHROUGH 2/28/19
The following chart illustrates a representative class of the fund’s historical performance in comparison to its benchmark(s). Performance results include the deduction of the maximum applicable sales charge and reflect the percentage change in net asset value, including reinvestment of dividends and capital gains distributions. The performance of other share classes will be greater than or less than that of the class depicted below. Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect sales charges, commissions or expenses. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares.
Growth of a Hypothetical $10,000 Investment
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Performance Summary – continued
Total Returns through 2/28/19
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr | Life (t) | |||||||||
A | 5/26/06 | 6.10% | 4.82% | 10.70% | N/A | |||||||||
C | 5/26/06 | 5.40% | 4.06% | 9.88% | N/A | |||||||||
I | 5/26/06 | 6.45% | 5.08% | 10.98% | N/A | |||||||||
R1 | 7/01/08 | 5.40% | 4.04% | 9.89% | N/A | |||||||||
R2 | 7/01/08 | 5.92% | 4.58% | 10.44% | N/A | |||||||||
R3 | 7/01/08 | 6.18% | 4.84% | 10.71% | N/A | |||||||||
R4 | 7/01/08 | 6.45% | 5.10% | 10.98% | N/A | |||||||||
R6 | 7/02/12 | 6.46% | 5.18% | N/A | 6.39% | |||||||||
Comparative benchmark(s) | ||||||||||||||
Standard & Poor’s 500 Stock Index (f) | 4.68% | 10.67% | 16.67% | N/A | ||||||||||
MFS Diversified Income Fund Blended Index (f)(w) | 6.46% | 4.79% | 10.80% | N/A | ||||||||||
Bloomberg Barclays U.S. Government/Mortgage Bond Index (f) | 3.37% | 1.95% | 2.74% | N/A | ||||||||||
Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index (f) | 4.31% | 4.54% | 11.41% | N/A | ||||||||||
JPMorgan Emerging Markets Bond Index Global (f) | 2.43% | 4.76% | 8.36% | N/A | ||||||||||
MSCI All Country World High Dividend Yield Index (net div) (f) | 1.54% | 4.71% | 12.54% | N/A | ||||||||||
MSCI U.S. REIT Index (net div) (f) | 19.80% | 7.04% | 17.04% | N/A | ||||||||||
Average annual with sales charge | ||||||||||||||
A With Initial Sales Charge (4.25%) | 1.59% | 3.91% | 10.22% | N/A | ||||||||||
C With CDSC (1% for 12 months) (v) | 4.40% | 4.06% | 9.88% | N/A |
CDSC – Contingent Deferred Sales Charge.
Class I, R1, R2, R3, R4, and R6 shares do not have a sales charge.
(f) | Source: FactSet Research Systems Inc. |
(t) | For the period from the class inception date through the stated period end (for those share classes with less than 10 years of performance history). No comparative benchmark performance information is provided for “life” periods. (See Notes to Performance Summary.) |
(v) | Assuming redemption at the end of the applicable period. |
(w) | As of February 28, 2019, the MFS Diversified Income Fund Blended Index (a custom index) was comprised of 25% Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index, 20% Bloomberg Barclays U.S. Government/Mortgage Bond Index, 15% JPMorgan Emerging Markets Bond Index Global, 20% Morgan Stanley Capital International (MSCI) U.S. REIT Index (net div), and 20% Morgan Stanley Capital International (MSCI) All Country World (ACWI) High Dividend Yield Index (net div). |
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Performance Summary – continued
Benchmark Definition(s)
Bloomberg Barclays U.S. Government/Mortgage Bond Index – measures debt issued by the U.S. Government, and its agencies, as well as mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index – a component of the Bloomberg Barclays U.S. High-Yield Corporate Bond Index, which measures performance of non-investment grade, fixed rate debt. The index limits the maximum exposure to any one issuer to 2%.
JPMorgan Emerging Markets Bond Index Global – measures the performance of U.S. dollar-denominated debt instruments issued by emerging market sovereign andquasi-sovereign entities: Brady bonds, loans, Eurobonds.
MSCI All Country World High Dividend Yield Index (net div) – is designed to reflect the performance of developed and emerging markets equities with higher-than-average dividend income and quality characteristics.
MSCI U.S. REIT Index (net div) – a market capitalization-weighted index that is designed to measure equity market performance for real estate investment trusts (REITs) that generate a majority of their revenue and income from real estate rental and leasing operations.
Standard & Poor’s 500 Stock Index – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
It is not possible to invest directly in an index.
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented. Life returns are presented where the share class has less than 10 years of performance history and represent the average annual total return from the class inception date to the stated period end date. As the fund’s share classes may have different inception dates, the life returns may represent different time periods and may not be comparable. As a result, no comparative benchmark performance information is provided for life periods.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund’s performance results would be less favorable. Please see the prospectus and financial statements for complete details.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
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Fund expenses borne by the shareholders during the period, September 1, 2018 through February 28, 2019
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.
In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the MFS High Yield Pooled Portfolio, an underlying MFS Pooled Portfolio in which the fund invests. MFS Pooled Portfolios are mutual funds advised by MFS that do not pay management fees to MFS but do incur investment and operating costs. If these transactional and indirect costs were included, your costs would have been higher.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period September 1, 2018 through February 28, 2019.
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.
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Expense Table – continued
Share Class | Annualized Ratio | Beginning Account Value 9/01/18 | Ending Account Value | Expenses Paid During 9/01/18-2/28/19 | ||||||||||||||
A | Actual | 0.97% | $1,000.00 | $1,023.02 | $4.87 | |||||||||||||
Hypothetical (h) | 0.97% | $1,000.00 | $1,019.98 | $4.86 | ||||||||||||||
C | Actual | 1.73% | $1,000.00 | $1,020.03 | $8.66 | |||||||||||||
Hypothetical (h) | 1.73% | $1,000.00 | $1,016.22 | $8.65 | ||||||||||||||
I | Actual | 0.72% | $1,000.00 | $1,025.11 | $3.62 | |||||||||||||
Hypothetical (h) | 0.72% | $1,000.00 | $1,021.22 | $3.61 | ||||||||||||||
R1 | Actual | 1.73% | $1,000.00 | $1,020.04 | $8.66 | |||||||||||||
Hypothetical (h) | 1.73% | $1,000.00 | $1,016.22 | $8.65 | ||||||||||||||
R2 | Actual | 1.23% | $1,000.00 | $1,022.57 | $6.17 | |||||||||||||
Hypothetical (h) | 1.23% | $1,000.00 | $1,018.70 | $6.16 | ||||||||||||||
R3 | Actual | 0.98% | $1,000.00 | $1,023.84 | $4.92 | |||||||||||||
Hypothetical (h) | 0.98% | $1,000.00 | $1,019.93 | $4.91 | ||||||||||||||
R4 | Actual | 0.73% | $1,000.00 | $1,025.11 | $3.67 | |||||||||||||
Hypothetical (h) | 0.73% | $1,000.00 | $1,021.17 | $3.66 | ||||||||||||||
R6 | Actual | 0.64% | $1,000.00 | $1,024.73 | $3.21 | |||||||||||||
Hypothetical (h) | 0.64% | $1,000.00 | $1,021.62 | $3.21 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying funds in which the fund invests. If these indirect costs were included, your costs would have been higher. |
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2/28/19
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Common Stocks - 40.5% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
Aerospace - 0.3% | ||||||||
Boeing Co. | 21,381 | $ | 9,406,785 | |||||
Airlines - 0.4% | ||||||||
Aena S.A. | 21,687 | $ | 3,870,390 | |||||
Air Canada (a) | 463,553 | 11,663,239 | ||||||
|
| |||||||
$ | 15,533,629 | |||||||
Alcoholic Beverages - 0.1% | ||||||||
Molson Coors Brewing Co. | 72,709 | $ | 4,483,237 | |||||
Automotive - 0.4% | ||||||||
Magna International, Inc. | 244,363 | $ | 12,894,538 | |||||
Biotechnology - 0.2% | ||||||||
Biogen, Inc. (a) | 22,592 | $ | 7,410,402 | |||||
Broadcasting - 0.2% | ||||||||
Publicis Groupe | 103,245 | $ | 5,722,657 | |||||
Brokerage & Asset Managers - 0.1% | ||||||||
ASX Ltd. | 34,457 | $ | 1,705,323 | |||||
Business Services - 1.2% | ||||||||
DXC Technology Co. | 149,484 | $ | 9,845,016 | |||||
Equinix, Inc., REIT | 76,181 | 32,262,654 | ||||||
|
| |||||||
$ | 42,107,670 | |||||||
Computer Software - 0.1% | ||||||||
Adobe Systems, Inc. (a) | 19,560 | $ | 5,134,500 | |||||
Computer Software - Systems - 0.2% | ||||||||
Hitachi Ltd. | 186,700 | $ | 5,586,009 | |||||
Construction - 0.2% | ||||||||
Persimmon PLC | 140,086 | $ | 4,520,589 | |||||
Toll Brothers, Inc. | 107,269 | 3,818,776 | ||||||
|
| |||||||
$ | 8,339,365 | |||||||
Consumer Products - 0.5% | ||||||||
Kimberly-Clark Corp. | 161,490 | $ | 18,866,877 |
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Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Electrical Equipment - 0.5% | ||||||||
Schneider Electric S.A. | 224,923 | $ | 17,504,481 | |||||
Electronics - 0.8% | ||||||||
Samsung Electronics Co. Ltd. | 121,333 | $ | 4,865,402 | |||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 562,477 | 21,964,727 | ||||||
|
| |||||||
$ | 26,830,129 | |||||||
Energy - Independent - 0.7% | ||||||||
Frontera Energy Corp. | 72,682 | $ | 692,604 | |||||
Marathon Petroleum Corp. | 250,347 | 15,524,018 | ||||||
Phillips 66 | 88,717 | 8,548,770 | ||||||
|
| |||||||
$ | 24,765,392 | |||||||
Energy - Integrated - 1.0% | ||||||||
BP PLC | 790,758 | $ | 5,604,904 | |||||
China Petroleum & Chemical Corp. | 10,280,000 | 8,879,060 | ||||||
Eni S.p.A. | 155,953 | 2,690,278 | ||||||
Exxon Mobil Corp. | 75,373 | 5,956,728 | ||||||
Galp Energia SGPS S.A. | 389,249 | 6,388,901 | ||||||
LUKOIL PJSC, ADR | 81,297 | 6,763,910 | ||||||
|
| |||||||
$ | 36,283,781 | |||||||
Food & Beverages - 0.6% | ||||||||
General Mills, Inc. | 93,616 | $ | 4,412,122 | |||||
J.M. Smucker Co. | 57,329 | 6,071,715 | ||||||
Marine Harvest A.S.A. (l) | 164,559 | 3,796,339 | ||||||
Tyson Foods, Inc., “A” | 100,049 | 6,169,021 | ||||||
|
| |||||||
$ | 20,449,197 | |||||||
Food & Drug Stores - 0.2% | ||||||||
Wesfarmers Ltd. | 329,507 | $ | 7,755,353 | |||||
Insurance - 1.2% | ||||||||
AXA | 258,673 | $ | 6,559,804 | |||||
MetLife, Inc. | 173,311 | 7,831,924 | ||||||
Prudential Financial, Inc. | 65,927 | 6,319,103 | ||||||
Samsung Fire & Marine Insurance Co. Ltd. | 3,655 | 979,801 | ||||||
Zurich Insurance Group AG | 61,913 | 20,471,209 | ||||||
|
| |||||||
$ | 42,161,841 | |||||||
Machinery & Tools - 0.3% | ||||||||
Eaton Corp. PLC | 112,500 | $ | 8,974,125 |
13
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Major Banks - 0.7% | ||||||||
ABSA Group Ltd. | 372,705 | $ | 4,775,913 | |||||
China Construction Bank | 13,966,000 | 12,418,571 | ||||||
National Australia Bank Ltd. | 90,368 | 1,610,897 | ||||||
Royal Bank of Canada | 87,075 | 6,807,524 | ||||||
|
| |||||||
$ | 25,612,905 | |||||||
Medical & Health Technology & Services - 0.8% | ||||||||
HCA Healthcare, Inc. | 100,990 | $ | 14,041,650 | |||||
McKesson Corp. | 10,870 | 1,382,229 | ||||||
Walgreens Boots Alliance, Inc. | 173,334 | 12,339,647 | ||||||
|
| |||||||
$ | 27,763,526 | |||||||
Metals & Mining - 0.1% | ||||||||
POSCO | 9,260 | $ | 2,165,360 | |||||
Natural Gas - Distribution - 0.2% | ||||||||
ENGIE | 383,032 | $ | 5,772,756 | |||||
Network & Telecom - 0.2% | ||||||||
Cisco Systems, Inc. | 156,466 | $ | 8,100,245 | |||||
Other Banks & Diversified Financials - 0.2% | ||||||||
DBS Group Holdings Ltd. | 132,300 | $ | 2,430,719 | |||||
Komercni Banka A.S. | 22,250 | 934,106 | ||||||
ORIX Corp. | 157,200 | 2,273,417 | ||||||
Sberbank of Russia, ADR | 155,350 | 1,982,266 | ||||||
|
| |||||||
$ | 7,620,508 | |||||||
Pharmaceuticals - 2.7% | ||||||||
Bayer AG | 137,624 | $ | 11,001,660 | |||||
Bristol-Myers Squibb Co. | 263,536 | 13,614,270 | ||||||
Eli Lilly & Co. | 51,423 | 6,494,211 | ||||||
Novartis AG | 292,128 | 26,647,295 | ||||||
Pfizer, Inc. | 279,023 | 12,095,647 | ||||||
Roche Holding AG | 94,283 | 26,195,758 | ||||||
|
| |||||||
$ | 96,048,841 | |||||||
Real Estate - 21.6% | ||||||||
Alexandria Real Estate Equities, Inc., REIT | 313,055 | $ | 42,541,044 | |||||
American Homes 4 Rent, “A”, REIT | 1,254,852 | 27,405,968 | ||||||
AvalonBay Communities, Inc., REIT | 223,020 | 43,406,383 | ||||||
Boardwalk, REIT | 676,685 | 21,170,350 | ||||||
Boston Properties, Inc., REIT | 181,949 | 24,142,813 |
14
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Real Estate - continued | ||||||||
Brixmor Property Group Inc., REIT | 2,169,381 | $ | 37,877,392 | |||||
CK Asset Holdings Ltd. | 405,000 | 3,361,349 | ||||||
Corporate Office Properties Trust, REIT | 332,213 | 8,634,216 | ||||||
Equity Lifestyle Properties, Inc., REIT | 299,428 | 32,529,858 | ||||||
Farmland Partners, Inc., REIT | 380,839 | 1,957,512 | ||||||
Industrial Logistics Properties Trust, REIT | 262,393 | 5,473,518 | ||||||
Medical Properties Trust, Inc., REIT | 2,583,797 | 47,102,619 | ||||||
Mid-America Apartment Communities, Inc., REIT | 387,794 | 40,167,702 | ||||||
Prologis, Inc., REIT | 407,875 | 28,575,722 | ||||||
Public Storage, Inc., REIT | 294,571 | 62,298,821 | ||||||
Rexford Industrial Realty, Inc., REIT | 443,041 | 15,187,445 | ||||||
RPT Realty, REIT | 1,826,287 | 23,157,319 | ||||||
Simon Property Group, Inc., REIT | 440,029 | 79,715,654 | ||||||
STAG Industrial, Inc., REIT | 830,129 | 22,977,971 | ||||||
STORE Capital Corp., REIT | 1,264,234 | 41,049,678 | ||||||
Sun Communities, Inc., REIT | 273,506 | 31,062,076 | ||||||
Unibail - Rodamco-Westfield, REIT | 27,032 | 4,366,152 | ||||||
Urban Edge Properties, REIT | 1,552,967 | 30,158,619 | ||||||
VICI Properties, Inc., REIT | 944,292 | 20,122,863 | ||||||
W.P. Carey, Inc., REIT | 263,314 | 19,451,005 | ||||||
Welltower, Inc., REIT | 573,107 | 42,587,581 | ||||||
|
| |||||||
$ | 756,481,630 | |||||||
Restaurants - 0.4% | ||||||||
Greggs PLC | 210,195 | $ | 4,990,379 | |||||
Starbucks Corp. | 135,672 | 9,532,315 | ||||||
|
| |||||||
$ | 14,522,694 | |||||||
Specialty Chemicals - 0.3% | ||||||||
PTT Global Chemical PLC | 4,348,100 | $ | 9,934,572 | |||||
Telecommunications - Wireless - 1.3% | ||||||||
American Tower Corp., REIT | 91,729 | $ | 16,158,063 | |||||
KDDI Corp. | 611,100 | 14,739,536 | ||||||
SK Telecom Co. Ltd. | 17,379 | 4,025,277 | ||||||
Vodafone Group PLC | 5,501,548 | 9,798,382 | ||||||
|
| |||||||
$ | 44,721,258 | |||||||
Telephone Services - 0.2% | ||||||||
TELUS Corp. | 173,491 | $ | 6,301,812 | |||||
TELUS Corp. | 61,009 | 2,215,847 | ||||||
|
| |||||||
$ | 8,517,659 |
15
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Tobacco - 1.4% | ||||||||
Imperial Brands PLC | 237,121 | $ | 7,895,659 | |||||
Japan Tobacco, Inc. | 690,100 | 17,539,616 | ||||||
Philip Morris International, Inc. | 255,117 | 22,179,872 | ||||||
|
| |||||||
$ | 47,615,147 | |||||||
Utilities - Electric Power - 1.2% | ||||||||
E.ON AG | 281,460 | $ | 3,100,621 | |||||
Exelon Corp. | 353,085 | 17,156,400 | ||||||
SSE PLC | 1,021,914 | 16,109,114 | ||||||
Xcel Energy, Inc. | 102,612 | 5,629,294 | ||||||
|
| |||||||
$ | 41,995,429 | |||||||
Total Common Stocks (Identified Cost, $1,212,056,180) |
| $ | 1,418,787,821 | |||||
Bonds - 39.4% | ||||||||
Asset-Backed & Securitized - 1.1% | ||||||||
A Voce CLO Ltd.,2014-1A, “A1R”, FLR, 3.947% (LIBOR -3mo. + 1.16%), 7/15/2026 (n) | $ | 2,969,991 | $ | 2,969,545 | ||||
Chesapeake Funding II LLC,2018-1A, “A1”, 3.04%, 4/15/2030 (n) | 1,751,198 | 1,752,394 | ||||||
Chesapeake Funding II LLC,2018-3A, “A1”, 3.39%, 1/15/2031 (n) | 2,800,000 | 2,818,955 | ||||||
Citigroup Commercial Mortgage Trust, 2015-GC27, “A5”, 3.137%, 2/10/2048 | 2,850,000 | 2,833,335 | ||||||
Commercial Mortgage Trust,2015-DC1, “A5”, 3.35%, 2/10/2048 | 2,574,000 | 2,571,338 | ||||||
Commercial Mortgage Trust,2015-PC1, “A5”, 3.902%, 7/10/2050 | 1,800,000 | 1,852,155 | ||||||
CSAIL Commercial Mortgage Trust,2015-C2, “A4”, 3.504%, 6/15/2057 | 58,835 | 59,316 | ||||||
Dryden Senior Loan Fund,2018-55A, “A1”, CLO, FLR, 3.807% (LIBOR - 3mo. + 1.02%), 4/15/2031 (n) | 2,267,245 | 2,240,580 | ||||||
GS Mortgage Securities Trust, 2015-GC30, “A4”, 3.382%, 5/10/2050 | 1,750,000 | 1,761,013 | ||||||
JPMBB Commercial Mortgage Securities Trust,2014-C26, 3.494%, 1/15/2048 | 1,888,516 | 1,911,745 | ||||||
Loomis, Sayles & Co., CLO, “A2”, FLR, 4.179% (LIBOR -3mo. + 1.4%), 4/15/2028 (n) | 2,261,785 | 2,229,322 | ||||||
Madison Park Funding Ltd.,2014-13A, “BR2”, FLR, 4.261% (LIBOR - 3mo. + 1.5%), 4/19/2030 (n) | 2,390,920 | 2,358,129 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust,2017-C34, “A4”, 3.536%, 11/15/2052 | 700,873 | 700,726 | ||||||
Morgan Stanley Capital I Trust,2018-H4, “XA”, 0.869%, 12/15/2051 (i) | 10,114,320 | 652,910 |
16
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Asset-Backed & Securitized - continued | ||||||||
Symphony CLO Ltd.,2016-17A, “BR”, FLR, 3.987% (LIBOR - 3mo. + 1.2%), 4/15/2028 (n) | $ | 2,026,203 | $ | 1,994,029 | ||||
TICP CLO Ltd., FLR, 3.601% (LIBOR - 3mo. + 0.8%), 4/20/2028 (n) | 3,317,451 | 3,290,059 | ||||||
UBS Commercial Mortgage Trust,2017-C1, “A4”, 3.544%, 11/15/2050 | 1,505,000 | 1,493,924 | ||||||
Wells Fargo Commercial Mortgage Trust,2015-C28, “A4”, 3.54%, 5/15/2048 | 1,516,848 | 1,533,887 | ||||||
Wells Fargo Commercial Mortgage Trust, 2015-NXS1, “A5”, 3.148%, 5/15/2048 | 1,258,254 | 1,246,548 | ||||||
Wells Fargo Commercial Mortgage Trust, 2016-LC25, “A4”, 3.64%, 12/15/2059 | 2,500,000 | 2,526,672 | ||||||
Wells Fargo Commercial Mortgage Trust,2018-C48, “XA”, 0.958%, 1/15/2052 (i)(n) | 5,970,996 | 438,796 | ||||||
West CLO Ltd.2013-1A, “A1AR”, FLR, 3.899% (LIBOR -3mo. + 1.16%), 11/07/2025 (n) | 328,834 | 328,693 | ||||||
|
| |||||||
$ | 39,564,071 | |||||||
Brokerage & Asset Managers - 0.0% | ||||||||
Banco BTG Pactual S.A. (Cayman Islands), 7.75% to 2/15/2024, FLR (CMT - 5yr. + 5.257%) to 2/15/2029 (n) | $ | 1,643,000 | $ | 1,644,068 | ||||
Cable TV - 0.1% | ||||||||
VTR Finance B.V., 6.875%, 1/15/2024 (n) | $ | 3,818,000 | $ | 3,922,995 | ||||
Chemicals - 0.2% | ||||||||
Consolidated Energy Finance S.A., 6.875%, 6/15/2025 (n) | $ | 680,000 | $ | 663,000 | ||||
Consolidated Energy Finance S.A., 6.875%, 6/15/2025 | 1,855,000 | 1,808,625 | ||||||
Sasol Chemicals (USA) LLC, 5.875%, 3/27/2024 | 1,629,000 | 1,689,275 | ||||||
Sasol Financing USA LLC, 6.5%, 9/27/2028 | 1,730,000 | 1,819,728 | ||||||
Sherwin Williams Co., 2.75%, 6/01/2022 | 1,564,000 | 1,538,126 | ||||||
|
| |||||||
$ | 7,518,754 | |||||||
Computer Software - 0.0% | ||||||||
Microsoft Corp., 3.125%, 11/03/2025 | $ | 476,000 | $ | 479,375 | ||||
Computer Software - Systems - 0.0% | ||||||||
Apple, Inc., 3.25%, 2/23/2026 | $ | 1,404,000 | $ | 1,403,526 | ||||
Conglomerates - 0.2% | ||||||||
Grupo KUO S.A.B. de C.V., 5.75%, 7/07/2027 (n) | $ | 5,300,000 | $ | 5,150,381 | ||||
United Technologies Corp., 3.95%, 8/16/2025 | 1,000,000 | 1,019,953 | ||||||
|
| |||||||
$ | 6,170,334 |
17
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Construction - 0.0% | ||||||||
Empresas ICA S.A.B. de C.V., 8.375%, 7/24/2019 (a)(d)(n) | $ | 1,409,000 | $ | 228,963 | ||||
Empresas ICA S.A.B. de C.V., 8.875%, 5/29/2024 (a)(d) | 2,102,000 | 320,555 | ||||||
Empresas ICA S.A.B. de C.V., 8.875%, 5/29/2024 (a)(d)(n) | 3,072,000 | 468,480 | ||||||
|
| |||||||
$ | 1,017,998 | |||||||
Consumer Products - 0.1% | ||||||||
Reckitt Benckiser Treasury Services PLC, 2.75%, 6/26/2024 (n) | $ | 1,734,000 | $ | 1,678,389 | ||||
Consumer Services - 0.1% | ||||||||
Alibaba Group Holding Ltd., 3.4%, 12/06/2027 | $ | 3,224,000 | $ | 3,086,633 | ||||
Containers - 0.1% | ||||||||
San Miguel Industrias PET S.A., 4.5%, 9/18/2022 (n) | $ | 2,724,000 | $ | 2,689,950 | ||||
San Miguel Industrias PET S.A., 4.5%, 9/18/2022 | 1,606,000 | 1,585,925 | ||||||
|
| |||||||
$ | 4,275,875 | |||||||
Emerging Market Quasi-Sovereign - 4.0% | ||||||||
Abu Dhabi Crude Oil Pipeline, 3.65%, 11/02/2029 (n) | $ | 802,000 | $ | 786,361 | ||||
Abu Dhabi Crude Oil Pipeline, 4.6%, 11/02/2047 (n) | 3,245,000 | 3,287,425 | ||||||
Aeropuerto Internacional de Tocumen S.A., 6%, 11/18/2048 (n) | 2,833,000 | 3,012,895 | ||||||
Autoridad del Canal de Panama, 4.95%, 7/29/2035 (n) | 281,000 | 292,594 | ||||||
Autoridad del Canal de Panama, 4.95%, 7/29/2035 | 1,220,000 | 1,270,337 | ||||||
Banco do Brasil S.A. (Cayman Branch), 9.25%, 2/15/2029 | 433,000 | 478,036 | ||||||
Banco do Brasil S.A. (Cayman Branch), 4.625%, 1/15/2025 | 2,728,000 | 2,699,356 | ||||||
CEMIG Geracao e Transmissao S.A., 9.25%, 12/05/2024 (n) | 357,000 | 396,391 | ||||||
Corporacion Nacional del Cobre de Chile, 4.375%, 2/05/2049 (n) | 2,000,000 | 1,951,800 | ||||||
Empresa Nacional del Petroleo, 4.375%, 10/30/2024 (n) | 2,469,000 | 2,511,687 | ||||||
Empresa Nacional del Petroleo, 5.25%, 11/06/2029 (n) | 1,233,000 | 1,303,198 | ||||||
Equate Petrochemical B.V., 4.25%, 11/03/2026 | 1,500,000 | 1,497,633 | ||||||
Eskom Holdings SOC Ltd., 6.35%, 8/10/2028 (n) | 2,885,000 | 2,955,302 | ||||||
Eskom Holdings SOC Ltd., 8.45%, 8/10/2028 (n) | 1,043,000 | 1,106,734 | ||||||
Export-Import Bank of India, 3.875%, 2/01/2028 (n) | 10,026,000 | 9,625,983 | ||||||
JSC State Savings Bank of Ukraine, 9.625%, 3/20/2025 | 3,063,000 | 3,017,545 | ||||||
Kazakhstan Temir Zholy Finance B.V., 4.85%, 11/17/2027 (n) | 6,560,000 | 6,658,400 | ||||||
KazMunayGas National Co., JSC, 5.375%, 4/24/2030 (n) | 6,669,000 | 6,902,415 | ||||||
KazMunayGas National Co., JSC, 5.375%, 4/24/2030 | 3,453,000 | 3,573,855 | ||||||
KazMunayGas National Co., JSC, 6.375%, 10/24/2048 | 3,652,000 | 3,930,867 | ||||||
Lima Metro Line 2 Finance Ltd., 5.875%, 7/05/2034 | 4,620,000 | 4,731,804 | ||||||
Magyar Export-Import Bank PLC, 4%, 1/30/2020 | 2,518,000 | 2,529,311 |
18
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Emerging Market Quasi-Sovereign - continued | ||||||||
NTPC Ltd., 7.375%, 8/10/2021 | INR | 120,000,000 | $ | 1,630,622 | ||||
NTPC Ltd., 7.25%, 5/03/2022 | 90,000,000 | 1,217,146 | ||||||
NTPC Ltd., 4.375%, 11/26/2024 | $ | 5,157,000 | 5,175,142 | |||||
OCP S.A., 6.875%, 4/25/2044 | 2,448,000 | 2,663,424 | ||||||
Office Cherifien des Phosphates, 4.5%, 10/22/2025 (n) | 2,898,000 | 2,869,484 | ||||||
Office Cherifien des Phosphates, 6.875%, 4/25/2044 (n) | 2,519,000 | 2,740,672 | ||||||
Petroamazonas, 4.625%, 11/06/2020 (n) | 302,000 | 291,430 | ||||||
Petrobras Global Finance B.V., 8.75%, 5/23/2026 | 2,801,000 | 3,303,807 | ||||||
Petrobras Global Finance B.V., 5.75%, 2/01/2029 | 2,057,000 | 2,050,520 | ||||||
Petrobras International Finance Co., 6.75%, 1/27/2041 | 2,276,000 | 2,322,373 | ||||||
Petroleos del Peru S.A., 4.75%, 6/19/2032 (n) | 4,117,000 | 4,055,245 | ||||||
Petroleos del Peru S.A., 5.625%, 6/19/2047 (n) | 379,000 | 386,580 | ||||||
Petroleos del Peru S.A., 5.625%, 6/19/2047 | 4,758,000 | 4,853,160 | ||||||
Petroleos Mexicanos, 6.75%, 9/21/2047 | 5,319,000 | 4,622,477 | ||||||
PT Indonesia Asahan Aluminium (Persero), 5.71%, 11/15/2023 (n) | 1,120,000 | 1,182,142 | ||||||
PT Perusahaan Listrik Negara, 5.45%, 5/21/2028 (n) | 2,190,000 | 2,282,780 | ||||||
PT Perusahaan Listrik Negara, 5.375%, 1/25/2029 (n) | 1,958,000 | 2,027,902 | ||||||
PT Perusahaan Listrik Negara, 6.15%, 5/21/2048 (n) | 1,317,000 | 1,402,061 | ||||||
Southern Gas Corridor CJSC, 6.875%, 3/24/2026 (n) | 8,595,000 | 9,568,367 | ||||||
State Grid Overseas Investment (2016) Ltd., 3.5%, 5/04/2027 (n) | 3,774,000 | 3,665,872 | ||||||
State Grid Overseas Investment (2016) Ltd., 3.5%, 5/04/2027 | 7,145,000 | 6,940,290 | ||||||
State Oil Company of the Azerbaijan Republic, 4.75%, 3/13/2023 | 3,933,000 | 3,975,162 | ||||||
State Oil Company of the Azerbaijan Republic, 6.95%, 3/18/2030 | 1,463,000 | 1,618,444 | ||||||
Trade & Development Bank of Mongolia LLC, 9.375%, 5/19/2020 | 4,312,000 | 4,497,821 | ||||||
|
| |||||||
$ | 139,862,852 | |||||||
Emerging Market Sovereign - 9.7% | ||||||||
Arab Republic of Egypt, 6.125%, 1/31/2022 (n) | $ | 2,754,000 | $ | 2,795,304 | ||||
Arab Republic of Egypt, 6.125%, 1/31/2022 | 8,324,000 | 8,448,843 | ||||||
Arab Republic of Egypt, 5.577%, 2/21/2023 (n) | 3,045,000 | 3,029,775 | ||||||
Arab Republic of Egypt, 5.875%, 6/11/2025 | 2,005,000 | 1,979,416 | ||||||
Arab Republic of Egypt, 7.5%, 1/31/2027 | 1,900,000 | 1,964,315 | ||||||
Arab Republic of Egypt, 6.588%, 2/21/2028 (n) | 4,360,000 | 4,245,768 | ||||||
Arab Republic of Egypt, 7.6%, 3/01/2029 (n) | 4,598,000 | 4,710,651 | ||||||
Arab Republic of Egypt, 8.5%, 1/31/2047 | 640,000 | 654,787 | ||||||
Arab Republic of Egypt, 8.7%, 3/01/2049 (n) | 2,692,000 | 2,792,950 | ||||||
Dominican Republic, 5.5%, 1/27/2025 (n) | 1,211,000 | 1,229,165 |
19
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Emerging Market Sovereign - continued | ||||||||
Dominican Republic, 6.875%, 1/29/2026 | $ | 5,450,000 | $ | 5,906,437 | ||||
Dominican Republic, 5.95%, 1/25/2027 | 3,057,000 | 3,168,581 | ||||||
Dominican Republic, 6%, 7/19/2028 (n) | 5,087,000 | 5,265,045 | ||||||
Dominican Republic, 6.5%, 2/15/2048 (n) | 4,694,000 | 4,705,735 | ||||||
Emirate of Abu Dhabi, 3.125%, 10/11/2027 (n) | 443,000 | 431,380 | ||||||
Emirate of Abu Dhabi, 4.125%, 10/11/2047 (n) | 590,000 | 584,849 | ||||||
Federal Republic of Nigeria, 7.625%, 11/21/2025 (n) | 1,927,000 | 2,047,438 | ||||||
Federal Republic of Nigeria, 6.5%, 11/28/2027 (n) | 2,571,000 | 2,526,110 | ||||||
Federal Republic of Nigeria, 7.143%, 2/23/2030 (n) | 1,113,000 | 1,108,871 | ||||||
Federal Republic of Nigeria, 7.696%, 2/23/2038 (n) | 1,425,000 | 1,406,903 | ||||||
Federal Republic of Nigeria, 7.696%, 2/23/2038 | 4,078,000 | 4,026,209 | ||||||
Federative Republic of Brazil, 5%, 1/27/2045 | 2,604,000 | 2,369,640 | ||||||
Federative Republic of Brazil, 5.625%, 2/21/2047 | 1,678,000 | 1,646,974 | ||||||
Government of Jamaica, 7.875%, 7/28/2045 | 432,000 | 513,000 | ||||||
Government of Papua New Guinea, 8.375%, 10/04/2028 (n) | 1,069,000 | 1,135,813 | ||||||
Government of Ukraine, 7.75%, 9/01/2022 | 4,009,000 | 3,898,753 | ||||||
Government of Ukraine, 8.994%, 2/01/2024 (n) | 1,928,000 | 1,908,759 | ||||||
Government of Ukraine, 7.75%, 9/01/2024 (n) | 2,600,000 | 2,449,980 | ||||||
Government of Ukraine, 7.75%, 9/01/2024 | 2,000,000 | 1,884,600 | ||||||
Government of Ukraine, 7.75%, 9/01/2025 (n) | 2,600,000 | 2,420,548 | ||||||
Government of Ukraine, 7.75%, 9/01/2025 | 4,148,000 | 3,861,705 | ||||||
Government of Ukraine, 7.75%, 9/01/2026 | 6,867,000 | 6,335,220 | ||||||
Ivory Coast, 5.75%, 12/31/2032 | 2,578,345 | 2,440,197 | ||||||
Kingdom of Morocco, 5.5%, 12/11/2042 | 2,188,000 | 2,297,400 | ||||||
Kingdom of Saudi Arabia, 4.375%, 4/16/2029 (n) | 5,264,000 | 5,369,175 | ||||||
Oriental Republic of Uruguay, 4.375%, 1/23/2031 | 1,415,000 | 1,442,593 | ||||||
Oriental Republic of Uruguay, 4.125%, 11/20/2045 | 1,312,000 | 1,220,160 | ||||||
Oriental Republic of Uruguay, 4.975%, 4/20/2055 | 3,778,000 | 3,798,817 | ||||||
Republic of Angola, 8.25%, 5/09/2028 (n) | 4,896,000 | 5,097,421 | ||||||
Republic of Argentina, 0%, 4/30/2019 | ARS | 52,941,000 | 1,637,072 | |||||
Republic of Argentina, 6.875%, 4/22/2021 | $ | 4,987,000 | 4,730,219 | |||||
Republic of Argentina, 4.625%, 1/11/2023 | 7,576,000 | 6,428,312 | ||||||
Republic of Argentina, 7.5%, 4/22/2026 | 2,928,000 | 2,548,853 | ||||||
Republic of Argentina, 6.875%, 1/26/2027 | 4,875,000 | 4,046,250 | ||||||
Republic of Argentina, 5.875%, 1/11/2028 | 4,330,000 | 3,377,400 | ||||||
Republic of Argentina, 2.5%, 12/31/2038 | 3,066,000 | 1,789,042 | ||||||
Republic of Argentina, 7.625%, 4/22/2046 | 3,061,000 | 2,448,800 | ||||||
Republic of Argentina, FLR,59.563% (Argentina Badlar -7 Day), 6/21/2020 | ARS | 88,124,000 | 2,439,634 | |||||
Republic of Belarus, 7.625%, 6/29/2027 (n) | $ | 2,102,000 | 2,261,163 | |||||
Republic of Belarus, 7.625%, 6/29/2027 | 609,000 | 655,113 | ||||||
Republic of Chile, 4.7%, 9/01/2030 | CLP | 1,020,000,000 | 1,600,241 | |||||
Republic of Colombia, 3.875%, 4/25/2027 | $ | 1,350,000 | 1,330,439 |
20
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Emerging Market Sovereign - continued | ||||||||
Republic of Colombia, 4.5%, 3/15/2029 | $ | 1,844,000 | $ | 1,884,568 | ||||
Republic of Colombia, 6.125%, 1/18/2041 | 2,582,000 | 2,917,660 | ||||||
Republic of Colombia, 5%, 6/15/2045 | 5,143,000 | 5,150,766 | ||||||
Republic of Colombia, 5.2%, 5/15/2049 | 2,306,000 | 2,357,885 | ||||||
Republic of Costa Rica, 7%, 4/04/2044 | 247,000 | 234,650 | ||||||
Republic of Cote d’Ivoire, 5.25%, 3/22/2030 (n) | EUR | 2,432,000 | 2,632,667 | |||||
Republic of Ecuador, 7.95%, 6/20/2024 | $ | 5,425,000 | 5,374,547 | |||||
Republic of Ecuador, 9.625%, 6/02/2027 | 2,693,000 | 2,797,219 | ||||||
Republic of Ecuador, 7.875%, 1/23/2028 (n) | 692,000 | 656,500 | ||||||
Republic of Ecuador, 7.875%, 1/23/2028 | 8,394,000 | 7,963,388 | ||||||
Republic of El Salvador, 5.875%, 1/30/2025 | 1,684,000 | 1,628,209 | ||||||
Republic of El Salvador, 7.625%, 2/01/2041 | 4,133,000 | 4,201,194 | ||||||
Republic of Gabon, 6.95%, 6/16/2025 | 3,072,000 | 2,968,934 | ||||||
Republic of Hungary, 5.75%, 11/22/2023 | 5,468,000 | 5,987,460 | ||||||
Republic of Hungary, 5.375%, 3/25/2024 | 11,712,000 | 12,720,403 | ||||||
Republic of Indonesia, 4.75%, 1/08/2026 (n) | 4,918,000 | 5,093,917 | ||||||
Republic of Indonesia, 4.35%, 1/08/2027 | 7,986,000 | 8,067,457 | ||||||
Republic of Indonesia, 8.375%, 3/15/2034 | IDR | 22,091,000,000 | 1,604,029 | |||||
Republic of Indonesia, 7.5%, 5/15/2038 | 52,848,000,000 | 3,487,235 | ||||||
Republic of Kenya, 6.875%, 6/24/2024 | $ | 3,222,000 | 3,307,383 | |||||
Republic of Kenya, 7.25%, 2/28/2028 (n) | 3,480,000 | 3,516,644 | ||||||
Republic of Kenya, 8.25%, 2/28/2048 (n) | 1,974,000 | 1,987,226 | ||||||
Republic of Mongolia, 5.625%, 5/01/2023 | 1,683,000 | 1,697,511 | ||||||
Republic of Panama, 3.875%, 3/17/2028 | 2,654,000 | 2,699,118 | ||||||
Republic of Panama, 4.5%, 4/16/2050 | 1,283,000 | 1,284,296 | ||||||
Republic of Paraguay, 6.1%, 8/11/2044 | 4,048,000 | 4,440,575 | ||||||
Republic of Paraguay, 5.6%, 3/13/2048 (n) | 1,194,000 | 1,240,411 | ||||||
Republic of Paraguay, 5.6%, 3/13/2048 | 2,669,000 | 2,772,744 | ||||||
Republic of Paraguay, 5.4%, 3/30/2050 (n) | 1,369,000 | 1,388,440 | ||||||
Republic of Philippines, 8%, 7/19/2031 | PHP | 75,570,000 | 1,645,116 | |||||
Republic of Rwanda, 6.625%, 5/02/2023 | $ | 1,257,000 | 1,285,534 | |||||
Republic of Senegal, 4.75%, 3/13/2028 (n) | EUR | 1,883,000 | 2,087,630 | |||||
Republic of Senegal, 4.75%, 3/13/2028 | 1,153,000 | 1,278,299 | ||||||
Republic of Senegal, 6.75%, 3/13/2048 | $ | 1,061,000 | 966,147 | |||||
Republic of South Africa, 4.875%, 4/14/2026 | 5,118,000 | 5,062,398 | ||||||
Republic of South Africa, 4.85%, 9/27/2027 | 3,468,000 | 3,372,318 | ||||||
Republic of South Africa, 5.875%, 6/22/2030 | 4,330,000 | 4,434,249 | ||||||
Republic of Sri Lanka, 5.75%, 4/18/2023 (n) | 810,000 | 785,954 | ||||||
Republic of Sri Lanka, 6.125%, 6/03/2025 | 9,785,000 | 9,348,931 | ||||||
Republic of Turkey, 3.25%, 3/23/2023 | 2,486,000 | 2,270,712 | ||||||
Republic of Turkey, 7.25%, 12/23/2023 | 1,967,000 | 2,050,420 | ||||||
Republic of Turkey, 5.75%, 3/22/2024 | 5,759,000 | 5,650,040 | ||||||
Republic of Turkey, 6%, 3/25/2027 | 13,331,000 | 12,754,834 |
21
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Emerging Market Sovereign - continued | ||||||||
Republic of Turkey, 6.875%, 3/17/2036 | $ | 3,197,000 | $ | 3,069,120 | ||||
Russian Federation, 4.75%, 5/27/2026 | 5,400,000 | 5,481,000 | ||||||
Russian Federation, 4.25%, 6/23/2027 | 3,600,000 | 3,525,480 | ||||||
Russian Federation, 4.375%, 3/21/2029 (n) | 7,800,000 | 7,611,521 | ||||||
Russian Federation, 5.25%, 6/23/2047 | 2,400,000 | 2,379,418 | ||||||
Socialist Republic of Vietnam, 4.8%, 11/19/2024 | 1,543,000 | 1,613,049 | ||||||
State of Qatar, 5.103%, 4/23/2048 (n) | 5,813,000 | 6,270,774 | ||||||
United Mexican States, 3.75%, 1/11/2028 | 2,895,000 | 2,771,963 | ||||||
United Mexican States, 8.5%, 5/31/2029 | MXN | 88,240,000 | 4,658,715 | |||||
|
| |||||||
$ | 340,848,483 | |||||||
Energy - Independent - 0.2% | ||||||||
Afren PLC, 11.5%, 2/01/2020 (a)(d)(z) | $ | 200,000 | $ | 164 | ||||
Hunt Oil Co. of Peru LLC, 6.375%, 6/01/2028 (n) | 1,986,000 | 2,097,712 | ||||||
Hunt Oil Co. of Peru LLC, 6.375%, 6/01/2028 | 1,526,000 | 1,611,838 | ||||||
Tengizchevroil Finance Co. International Ltd., 4%, 8/15/2026 (n) | 2,119,000 | 2,040,699 | ||||||
|
| |||||||
$ | 5,750,413 | |||||||
Energy - Integrated - 0.0% | ||||||||
Inkia Energy Ltd., 5.875%, 11/09/2027 (n) | $ | 901,000 | $ | 869,474 | ||||
Food & Beverages - 0.2% | ||||||||
Central American Bottling Corp., 5.75%, 1/31/2027 (n) | $ | 800,000 | $ | 812,000 | ||||
Corporacion Lindley S.A., 6.75%, 11/23/2021 (n) | 1,145,000 | 1,209,406 | ||||||
Corporacion Lindley S.A., 6.75%, 11/23/2021 | 1,010,000 | 1,066,812 | ||||||
Marb Bondco PLC, 7%, 3/15/2024 (n) | 1,648,000 | 1,622,786 | ||||||
MHP Lux S.A., 6.95%, 4/03/2026 (n) | 3,200,000 | 2,935,232 | ||||||
|
| |||||||
$ | 7,646,236 | |||||||
Forest & Paper Products - 0.1% | ||||||||
Suzano Austria GmbH, 6%, 1/15/2029 (n) | $ | 1,631,000 | $ | 1,727,637 | ||||
Gaming & Lodging - 0.1% | ||||||||
Sands China Ltd., 5.4%, 8/08/2028 | $ | 2,871,000 | $ | 2,915,483 | ||||
Industrial - 0.0% | ||||||||
Indika Energy Capital II Pte. Ltd., 5.875%, 11/09/2024 (n) | $ | 1,412,000 | $ | 1,321,511 | ||||
International Market Sovereign - 0.1% | ||||||||
Government of Bermuda, 4.75%, 2/15/2029 (n) | $ | 1,582,000 | $ | 1,649,235 | ||||
Local Authorities - 0.3% | ||||||||
Buenos Aires Province, 7.5%, 6/01/2027 (n) | $ | 1,989,000 | $ | 1,829,900 | ||||
Province of Santa Fe, 6.9%, 11/01/2027 | 2,012,000 | 1,569,360 |
22
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Local Authorities - continued | ||||||||
Provincia de Cordoba, 7.125%, 6/10/2021 | $ | 7,306,000 | $ | 6,696,022 | ||||
|
| |||||||
$ | 10,095,282 | |||||||
Major Banks - 0.1% | ||||||||
Bank of America Corp., 3.124% to 1/20/2022, FLR (LIBOR - 3mo. + 1.16%) to 1/20/2023 | $ | 2,175,000 | $ | 2,164,698 | ||||
UBS Group Funding (Switzerland) AG, 3.491%, 5/23/2023 (n) | 829,000 | 826,795 | ||||||
|
| |||||||
$ | 2,991,493 | |||||||
Medical & Health Technology & Services - 0.1% | ||||||||
Montefiore Obligated Group, 5.246%, 11/01/2048 | $ | 3,192,000 | $ | 3,334,625 | ||||
Metals & Mining - 0.2% | ||||||||
First Quantum Minerals Ltd., 7.25%, 4/01/2023 | $ | 683,000 | $ | 671,048 | ||||
First Quantum Minerals Ltd., 6.5%, 3/01/2024 | 1,072,000 | 1,015,720 | ||||||
Petra Diamonds U.S. Treasury PLC, 7.25%, 5/01/2022 (n) | 682,000 | 634,260 | ||||||
Petra Diamonds U.S. Treasury PLC, 7.25%, 5/01/2022 | 2,699,000 | 2,510,070 | ||||||
Vale S.A., 6.25%, 8/10/2026 | 1,555,000 | 1,649,855 | ||||||
|
| |||||||
$ | 6,480,953 | |||||||
Mortgage-Backed - 11.6% | ||||||||
Fannie Mae, 4.5%, 6/01/2019 - 8/01/2046 | $ | 26,888,655 | $ | 28,205,506 | ||||
Fannie Mae, 5.5%, 7/01/2019 - 4/01/2040 | 5,270,654 | 5,731,363 | ||||||
Fannie Mae, 4.785%, 8/01/2019 | 47,133 | 47,365 | ||||||
Fannie Mae, 5.05%, 8/01/2019 | 21,509 | 21,640 | ||||||
Fannie Mae, 4.6%, 9/01/2019 | 117,273 | 118,105 | ||||||
Fannie Mae, 4.67%, 9/01/2019 | 26,355 | 26,566 | ||||||
Fannie Mae, 5%, 9/01/2019 - 3/01/2042 | 6,820,778 | 7,297,833 | ||||||
Fannie Mae, 4.14%, 8/01/2020 | 38,033 | 38,709 | ||||||
Fannie Mae, 5.19%, 9/01/2020 | 82,303 | 83,549 | ||||||
Fannie Mae, 3.416%, 10/01/2020 | 282,412 | 284,973 | ||||||
Fannie Mae, 4.58%, 1/01/2021 | 395,678 | 401,587 | ||||||
Fannie Mae, 3.99%, 7/01/2021 | 361,653 | 370,811 | ||||||
Fannie Mae, 6%, 7/01/2021 - 6/01/2038 | 345,588 | 377,978 | ||||||
Fannie Mae, 2.152%, 1/25/2023 | 1,298,000 | 1,269,355 | ||||||
Fannie Mae, 2.41%, 5/01/2023 | 225,283 | 222,712 | ||||||
Fannie Mae, 2.55%, 5/01/2023 | 194,310 | 193,122 | ||||||
Fannie Mae, 2.62%, 5/01/2023 | 267,077 | 266,151 | ||||||
Fannie Mae, 3.65%, 9/01/2023 | 787,337 | 809,434 | ||||||
Fannie Mae, 3.78%, 10/01/2023 | 462,356 | 480,967 | ||||||
Fannie Mae, 3.92%, 10/01/2023 | 987,000 | 1,029,032 | ||||||
Fannie Mae, 3.5%, 5/25/2025 - 8/01/2047 | 67,054,468 | 67,410,982 | ||||||
Fannie Mae, 2.7%, 7/01/2025 | 680,000 | 668,943 |
23
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Mortgage-Backed - continued | ||||||||
Fannie Mae, 3.59%, 9/01/2026 | $ | 363,356 | $ | 375,832 | ||||
Fannie Mae, 2.597%, 12/25/2026 | 3,827,000 | 3,680,572 | ||||||
Fannie Mae, 3.043%, 3/25/2028 | 2,027,000 | 1,996,210 | ||||||
Fannie Mae, 3.23%, 1/01/2029 | 4,065,094 | 4,046,811 | ||||||
Fannie Mae, 4.01%, 1/01/2029 | 692,705 | 725,472 | ||||||
Fannie Mae, 4.96%, 6/01/2030 | 1,104,591 | 1,227,215 | ||||||
Fannie Mae, 3%, 12/01/2031 - 11/01/2046 | 26,069,236 | 25,810,661 | ||||||
Fannie Mae, 6.5%, 1/01/2033 - 10/01/2037 | 99,996 | 111,323 | ||||||
Fannie Mae, 4%, 9/01/2040 - 9/01/2047 | 61,990,753 | 63,715,673 | ||||||
Fannie Mae, 2%, 5/25/2044 - 4/25/2046 | 2,410,190 | 2,313,995 | ||||||
Fannie Mae, TBA, 2.5%, 3/01/2034 - 4/01/2034 | 1,375,000 | 1,348,198 | ||||||
Freddie Mac, 2.086%, 3/25/2019 | 27,858 | 27,804 | ||||||
Freddie Mac, 1.883%, 5/25/2019 | 543,753 | 542,474 | ||||||
Freddie Mac, 2.456%, 8/25/2019 | 1,033,631 | 1,031,109 | ||||||
Freddie Mac, 4.186%, 8/25/2019 | 1,484,668 | 1,487,845 | ||||||
Freddie Mac, 4.251%, 1/25/2020 | 400,000 | 403,230 | ||||||
Freddie Mac, 4.224%, 3/25/2020 | 309,204 | 312,096 | ||||||
Freddie Mac, 5%, 5/01/2020 - 6/01/2040 | 162,418 | 169,831 | ||||||
Freddie Mac, 3.808%, 8/25/2020 | 806,000 | 814,434 | ||||||
Freddie Mac, 3.034%, 10/25/2020 | 499,961 | 500,637 | ||||||
Freddie Mac, 2.856%, 1/25/2021 | 1,424,597 | 1,423,769 | ||||||
Freddie Mac, 6%, 5/01/2021 - 10/01/2038 | 410,579 | 450,346 | ||||||
Freddie Mac, 2.791%, 1/25/2022 | 2,010,000 | 2,006,874 | ||||||
Freddie Mac, 2.455%, 3/25/2022 | 1,416,866 | 1,407,569 | ||||||
Freddie Mac, 2.716%, 6/25/2022 | 1,295,920 | 1,291,140 | ||||||
Freddie Mac, 2.51%, 11/25/2022 | 2,731,000 | 2,703,473 | ||||||
Freddie Mac, 2.637%, 1/25/2023 | 1,000,000 | 994,140 | ||||||
Freddie Mac, 3.32%, 2/25/2023 | 1,277,000 | 1,301,033 | ||||||
Freddie Mac, 3.25%, 4/25/2023 | 1,700,000 | 1,728,211 | ||||||
Freddie Mac, 3.3%, 4/25/2023 - 10/25/2026 | 4,285,940 | 4,350,573 | ||||||
Freddie Mac, 3.06%, 7/25/2023 | 886,000 | 892,705 | ||||||
Freddie Mac, 3.458%, 8/25/2023 | 675,000 | 690,715 | ||||||
Freddie Mac, 0.882%, 4/25/2024 (i) | 21,342,224 | 780,095 | ||||||
Freddie Mac, 0.608%, 7/25/2024 (i) | 24,686,461 | 682,265 | ||||||
Freddie Mac, 3.303%, 7/25/2024 | 5,037,000 | 5,128,252 | ||||||
Freddie Mac, 3.064%, 8/25/2024 | 2,626,852 | 2,641,810 | ||||||
Freddie Mac, 4.5%, 9/01/2024 - 5/01/2042 | 2,601,209 | 2,735,754 | ||||||
Freddie Mac, 2.67%, 12/25/2024 | 2,555,000 | 2,516,103 | ||||||
Freddie Mac, 2.811%, 1/25/2025 | 2,125,000 | 2,105,266 | ||||||
Freddie Mac, 3.023%, 1/25/2025 | 1,000,000 | 1,001,885 | ||||||
Freddie Mac, 3.329%, 5/25/2025 | 5,166,000 | 5,259,196 | ||||||
Freddie Mac, 3.284%, 6/25/2025 | 5,000,000 | 5,083,459 | ||||||
Freddie Mac, 4%, 7/01/2025 - 4/01/2044 | 2,878,752 | 2,955,001 |
24
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Mortgage-Backed - continued | ||||||||
Freddie Mac, 3.01%, 7/25/2025 | $ | 1,775,000 | $ | 1,774,240 | ||||
Freddie Mac, 2.745%, 1/25/2026 | 3,263,000 | 3,200,797 | ||||||
Freddie Mac, 2.673%, 3/25/2026 | 2,368,000 | 2,310,357 | ||||||
Freddie Mac, 3.224%, 3/25/2027 | 3,227,000 | 3,240,484 | ||||||
Freddie Mac, 3.243%, 4/25/2027 | 3,546,000 | 3,562,034 | ||||||
Freddie Mac, 3.117%, 6/25/2027 | 2,090,000 | 2,081,692 | ||||||
Freddie Mac, 0.578%, 7/25/2027 (i) | 45,753,161 | 1,929,736 | ||||||
Freddie Mac, 3.194%, 7/25/2027 | 3,516,000 | 3,514,934 | ||||||
Freddie Mac, 0.436%, 8/25/2027 (i) | 35,124,572 | 1,121,833 | ||||||
Freddie Mac, 3.187%, 9/25/2027 | 2,414,000 | 2,412,589 | ||||||
Freddie Mac, 3.286%, 11/25/2027 | 3,301,000 | 3,317,508 | ||||||
Freddie Mac, 3.444%, 12/25/2027 | 1,076,000 | 1,094,116 | ||||||
Freddie Mac, 0.291%, 1/25/2028 (i) | 64,189,735 | 1,601,733 | ||||||
Freddie Mac, 0.303%, 1/25/2028 (i) | 26,457,732 | 675,709 | ||||||
Freddie Mac, 0.134%, 2/25/2028 (i) | 79,160,600 | 1,047,588 | ||||||
Freddie Mac, 0.12%, 4/25/2028 (i) | 50,775,583 | 630,059 | ||||||
Freddie Mac, 3.85%, 5/25/2028 | 2,253,000 | 2,358,360 | ||||||
Freddie Mac, 5.5%, 6/01/2030 - 6/01/2041 | 714,322 | 775,077 | ||||||
Freddie Mac, 6.5%, 5/01/2037 | 15,389 | 16,960 | ||||||
Freddie Mac, 3.5%, 11/01/2037 - 1/01/2047 | 26,758,173 | 26,914,901 | ||||||
Freddie Mac, 3%, 1/01/2038 - 3/01/2047 | 28,498,977 | 27,985,058 | ||||||
Ginnie Mae, 2.5%, 7/20/2032 - 6/20/2042 | 1,045,000 | 965,158 | ||||||
Ginnie Mae, 5.5%, 5/15/2033 - 1/20/2042 | 300,959 | 328,038 | ||||||
Ginnie Mae, 4.5%, 7/20/2033 - 9/20/2041 | 4,877,495 | 5,118,184 | ||||||
Ginnie Mae, 4%, 10/15/2039 - 4/20/2041 | 242,611 | 250,741 | ||||||
Ginnie Mae, 3.5%, 12/15/2041 - 10/20/2048 | 10,660,388 | 10,796,951 | ||||||
Ginnie Mae, 3%, 11/20/2047 - 10/20/2048 | 17,806,590 | 17,591,930 | ||||||
Ginnie Mae, 6.158%, 4/20/2058 | 3,506 | 3,667 | ||||||
Ginnie Mae, 0.66%, 2/16/2059 (i) | 3,105,578 | 183,029 | ||||||
Ginnie Mae, TBA, 5%, 3/01/2049 | 1,900,000 | 1,979,275 | ||||||
|
| |||||||
$ | 404,910,477 | |||||||
Municipals - 0.3% | ||||||||
New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, “B”, AGM, 0%, 2/15/2023 | $ | 6,363,000 | $ | 5,477,143 | ||||
Philadelphia, PA, School District Rev., “A”, AGM, 5.995%, 9/01/2030 | 1,210,000 | 1,423,045 | ||||||
State of California (Build America Bonds), 7.6%, 11/01/2040 | 2,320,000 | 3,466,451 | ||||||
University of California Rev. (Build America Bonds), 5.77%, 5/15/2043 | 60,000 | 73,405 | ||||||
|
| |||||||
$ | 10,440,044 |
25
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Natural Gas - Distribution - 0.2% | ||||||||
GNL Quintero S.A., 4.634%, 7/31/2029 (n) | $ | 4,778,000 | $ | 4,831,752 | ||||
Infraestructura Energética Nova S.A.B. de C.V, 4.875%, 1/14/2048 (n) | 4,200,000 | 3,364,494 | ||||||
|
| |||||||
$ | 8,196,246 | |||||||
Natural Gas - Pipeline - 0.2% | ||||||||
Peru LNG, 5.375%, 3/22/2030 (n) | $ | 3,644,000 | $ | 3,727,994 | ||||
Peru LNG, 5.375%, 3/22/2030 | 1,542,000 | 1,577,543 | ||||||
|
| |||||||
$ | 5,305,537 | |||||||
Network & Telecom - 0.4% | ||||||||
C&W Senior Financing Designated Activity, 7.5%, 10/15/2026 (n) | $ | 1,212,000 | $ | 1,236,240 | ||||
Empresa Nacional de Telecomunicaciones S.A., 4.75%, 8/01/2026 | 5,020,000 | 4,976,403 | ||||||
Telefonica Celular del Paraguay S.A., 6.75%, 12/13/2022 (n) | 3,437,000 | 3,505,740 | ||||||
WTT Investment Ltd., 5.5%, 11/21/2022 (n) | 3,800,000 | 3,743,916 | ||||||
|
| |||||||
$ | 13,462,299 | |||||||
Oil Services - 0.0% | ||||||||
Shelf Drill Holdings Ltd., 8.25%, 2/15/2025 (n) | $ | 624,000 | $ | 595,920 | ||||
Oils - 0.1% | ||||||||
Thaioil Treasury Center Co. Ltd., 5.375%, 11/20/2048 (n) | $ | 1,550,000 | $ | 1,646,661 | ||||
Other Banks & Diversified Financials - 0.4% | ||||||||
Bangkok Bank (Hong Kong), 4.05%, 3/19/2024 (n) | $ | 4,000,000 | $ | 4,050,785 | ||||
Banque Federative du Credit Mutuel S.A., 2.5%, 4/13/2021 (n) | 1,152,000 | 1,135,340 | ||||||
ING Groep N.V., 3.15%, 3/29/2022 | 1,585,000 | 1,574,847 | ||||||
Kazkommertsbank JSC, 5.5%, 12/21/2022 | 8,000,000 | 7,968,000 | ||||||
|
| |||||||
$ | 14,728,972 | |||||||
Pollution Control - 0.0% | ||||||||
Aegea Finance S.à r.l., 5.75%, 10/10/2024 (n) | $ | 1,617,000 | $ | 1,591,144 | ||||
Restaurants - 0.1% | ||||||||
Starbucks Corp., 3.8%, 8/15/2025 | $ | 2,396,000 | $ | 2,431,415 | ||||
Supermarkets - 0.1% | ||||||||
Eurotorg LLC Via Bonitron DAC, 8.75%, 10/30/2022 | $ | 1,552,000 | $ | 1,575,901 | ||||
Eurotorg LLC Via Bonitron DAC, 8.75%, 10/30/2022 (n) | 1,028,000 | 1,043,831 | ||||||
|
| |||||||
$ | 2,619,732 |
26
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Supranational - 0.0% | ||||||||
Inter-American Development Bank, 4.375%, 1/24/2044 | $ | 511,000 | $ | 593,575 | ||||
Tobacco - 0.0% | ||||||||
B.A.T Capital Corp., 2.764%, 8/15/2022 | $ | 1,508,000 | $ | 1,468,635 | ||||
Transportation - Services - 0.2% | ||||||||
Aeropuertos Dominicanos Siglo XXI S.A., 6.75%, 3/30/2029 | $ | 1,200,000 | $ | 1,209,000 | ||||
JSL Europe S.A., 7.75%, 7/26/2024 (n) | 1,777,000 | 1,794,770 | ||||||
Rumo Luxembourg S.à r.l., 7.375%, 2/09/2024 | 2,508,000 | 2,691,836 | ||||||
Rumo Luxembourg S.à r.l., 5.875%, 1/18/2025 (n) | 1,231,000 | 1,258,697 | ||||||
Rumo Luxembourg S.à r.l., “A”, 7.375%, 2/09/2024 (n) | 632,000 | 678,326 | ||||||
Topaz Marine S.A., 9.125%, 7/26/2022 | 670,000 | 669,652 | ||||||
|
| |||||||
$ | 8,302,281 | |||||||
U.S. Government Agencies and Equivalents - 1.2% |
| |||||||
AID-Tunisia, 2.452%, 7/24/2021 | $ | 728,000 | $ | 724,885 | ||||
AID-Ukraine, 1.844%, 5/16/2019 | 3,674,000 | 3,669,338 | ||||||
AID-Ukraine, 1.847%, 5/29/2020 | 8,820,000 | 8,750,348 | ||||||
Fannie Mae, 1.75%, 11/26/2019 | 4,750,000 | 4,722,920 | ||||||
Fannie Mae, 1.625%, 1/21/2020 | 7,500,000 | 7,439,925 | ||||||
Freddie Mac, 1.5%, 10/21/2019 | 9,000,000 | 8,939,385 | ||||||
Hashemite Kingdom of Jordan, 1.945%, 6/23/2019 | 987,000 | 985,325 | ||||||
Hashemite Kingdom of Jordan, 2.503%, 10/30/2020 | 1,108,000 | 1,105,471 | ||||||
Private Export Funding Corp., 2.25%, 3/15/2020 | 419,000 | 417,553 | ||||||
Private Export Funding Corp., 2.3%, 9/15/2020 | 2,000,000 | 1,985,632 | ||||||
Small Business Administration, 6.34%, 5/01/2021 | 11,443 | 11,658 | ||||||
Small Business Administration, 6.07%, 3/01/2022 | 10,622 | 10,880 | ||||||
Small Business Administration, 5.16%, 2/01/2028 | 52,351 | 55,028 | ||||||
Small Business Administration, 2.21%, 2/01/2033 | 228,412 | 219,927 | ||||||
Small Business Administration, 2.22%, 3/01/2033 | 402,038 | 388,461 | ||||||
Small Business Administration, 3.15%, 7/01/2033 | 475,808 | 476,811 | ||||||
Small Business Administration, 3.16%, 8/01/2033 | 529,738 | 530,502 | ||||||
Small Business Administration, 3.62%, 9/01/2033 | 449,974 | 460,919 | ||||||
|
| |||||||
$ | 40,894,968 | |||||||
U.S. Treasury Obligations - 6.7% | ||||||||
U.S. Treasury Bonds, 6.375%, 8/15/2027 | $ | 106,000 | $ | 135,502 | ||||
U.S. Treasury Bonds, 5.25%, 2/15/2029 | 2,965,000 | 3,613,941 | ||||||
U.S. Treasury Bonds, 4.375%, 2/15/2038 | 1,349,000 | 1,642,671 | ||||||
U.S. Treasury Bonds, 4.5%, 8/15/2039 | 401,000 | 496,253 | ||||||
U.S. Treasury Bonds, 3.125%, 2/15/2043 | 9,137,900 | 9,222,140 | ||||||
U.S. Treasury Bonds, 2.875%, 5/15/2043 | 17,378,300 | 16,773,454 | ||||||
U.S. Treasury Bonds, 2.5%, 2/15/2045 (f) | 33,851,000 | 30,296,645 |
27
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
U.S. Treasury Obligations - continued | ||||||||
U.S. Treasury Bonds, 2.875%, 11/15/2046 | $ | 11,828,000 | $ | 11,369,203 | ||||
U.S. Treasury Bonds, TIPS, 0.375%, 1/15/2027 | 8,177,913 | 7,954,298 | ||||||
U.S. Treasury Notes, 2%, 11/30/2020 | 18,444,000 | 18,271,808 | ||||||
U.S. Treasury Notes, 3.125%, 5/15/2021 | 3,748,000 | 3,796,607 | ||||||
U.S. Treasury Notes, 1.75%, 11/30/2021 | 75,932,000 | 74,434,123 | ||||||
U.S. Treasury Notes, 1.75%, 5/15/2022 | 3,949,000 | 3,858,297 | ||||||
U.S. Treasury Notes, 2.5%, 8/15/2023 | 29,025,000 | 29,003,458 | ||||||
U.S. Treasury Notes, 2.75%, 2/15/2024 | 7,855,000 | 7,936,618 | ||||||
U.S. Treasury Notes, 2.5%, 5/15/2024 | 4,680,000 | 4,669,945 | ||||||
U.S. Treasury Notes, 2.875%, 7/31/2025 | 1,948,000 | 1,979,807 | ||||||
U.S. Treasury Notes, 2.25%, 8/15/2027 | 8,936,000 | 8,648,373 | ||||||
|
| |||||||
$ | 234,103,143 | |||||||
Utilities - Electric Power - 0.9% | ||||||||
Azure Power Energy Ltd., 5.5%, 11/03/2022 (n) | $ | 3,114,000 | $ | 3,041,693 | ||||
Cerro del Aguila S.A., 4.125%, 8/16/2027 (n) | 1,409,000 | 1,356,867 | ||||||
Enel Finance International N.V., 2.875%, 5/25/2022 (n) | 2,073,000 | 2,013,614 | ||||||
Energuate Trust, 5.875%, 5/03/2027 (n) | 762,000 | 727,718 | ||||||
Engie Energia Chile S.A., 5.625%, 1/15/2021 | 2,177,000 | 2,252,694 | ||||||
Engie Energia Chile S.A., 4.5%, 1/29/2025 (n) | 2,824,000 | 2,888,984 | ||||||
Genneia S.A., 8.75%, 1/20/2022 (n) | 1,250,000 | 1,159,000 | ||||||
Greenko Dutch B.V., 5.25%, 7/24/2024 (n) | 7,661,000 | 7,186,018 | ||||||
LLPL Capital Pte. Ltd., 6.875%, 2/04/2039 (n) | 1,160,000 | 1,192,957 | ||||||
TerraForm Global Operating LLC, 6.125%, 3/01/2026 (n) | 1,536,000 | 1,478,400 | ||||||
Transelec S.A., 4.25%, 1/14/2025 (n) | 2,631,000 | 2,621,160 | ||||||
Transelec S.A., 4.25%, 1/14/2025 | 1,953,000 | 1,945,696 | ||||||
Transelec S.A., 3.875%, 1/12/2029 (n) | 3,854,000 | 3,651,703 | ||||||
Virginia Electric & Power Co., 3.5%, 3/15/2027 | 813,000 | 808,843 | ||||||
|
| |||||||
$ | 32,325,347 | |||||||
Utilities - Gas - 0.0% | ||||||||
Gas Natural de Lima y Callao S.A., 4.375%, 4/01/2023 | $ | 1,259,000 | $ | 1,270,016 | ||||
Total Bonds (Identified Cost, $1,406,015,324) | $ | 1,381,142,107 | ||||||
Convertible Preferred Stocks - 0.2% | ||||||||
Conglomerates - 0.0% | ||||||||
Danaher Corp., 4.75% (a) | 857 | $ | 877,315 | |||||
Utilities - Electric Power - 0.2% | ||||||||
CenterPoint Energy, Inc., 7% | 67,302 | $ | 3,517,203 | |||||
NextEra Energy, Inc., 6.123% | 27,684 | 1,683,741 | ||||||
|
| |||||||
$ | 5,200,944 | |||||||
Total Convertible Preferred Stocks (Identified Cost, $5,872,254) | $ | 6,078,259 |
28
Table of Contents
Portfolio of Investments – continued
Investment Companies (h) - 18.5% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
Bond Funds - 16.8% | ||||||||
MFS High Yield Pooled Portfolio (v) | 65,172,602 | $ | 588,508,593 | |||||
Money Market Funds - 1.7% | ||||||||
MFS Institutional Money Market Portfolio, 2.49% (v) | 58,220,414 | $ | 58,220,415 | |||||
Total Investment Companies (Identified Cost, $644,110,158) | $ | 646,729,008 | ||||||
Collateral for Securities Loaned - 0.2% | ||||||||
JPMorgan U.S. Government Money Market Fund, 2.31% (j) (Identified Cost, $8,740,224) | 8,740,224 | $ | 8,740,224 | |||||
Other Assets, Less Liabilities - 1.2% | 43,641,614 | |||||||
Net Assets - 100.0% | $ | 3,505,119,033 |
(a) | Non-income producing security. |
(d) | In default. |
(f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
(h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $646,729,008 and $2,814,748,411, respectively. |
(i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
(j) | The rate quoted is the annualizedseven-day yield of the fund at period end. |
(l) | A portion of this security is on loan. See Note 2 for additional information. |
(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 $280,025,306, representing 8.0% of net assets. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-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 | |||||||
Afren PLC, 11.5%, 2/01/2020 | 11/20/15 | $194,048 | $164 | |||||||
% of Net assets | 0.0% |
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
AGM | Assured Guaranty Municipal |
CJSC | Closed Joint Stock Company |
29
Table of Contents
Portfolio of Investments – continued
CLO | Collateralized Loan Obligation |
CMT | Constant Maturity Treasury |
FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). Theperiod-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
JSC | Joint Stock Company |
LIBOR | London Interbank Offered Rate |
PJSC | Public Joint Stock Company |
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
TBA | To Be Announced |
TIPS | Treasury Inflation Protected Security |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
ARS | Argentine Peso |
BRL | Brazilian Real |
CLP | Chilean Peso |
EUR | Euro |
IDR | Indonesian Rupiah |
INR | Indian Rupee |
JPY | Japanese Yen |
MXN | Mexican Peso |
PHP | Philippine Peso |
TRY | Turkish Lira |
ZAR | South African Rand |
Derivative Contracts at 2/28/19
Forward Foreign Currency Exchange Contracts
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||
Asset Derivatives | ||||||||||||||||||
BRL | 4,641,000 | USD | 1,226,415 | Barclays Bank PLC | 4/02/2019 | $6,478 | ||||||||||||
BRL | 7,000,000 | USD | 1,853,323 | JPMorgan Chase Bank N.A. | 4/02/2019 | 6,244 | ||||||||||||
CLP | 1,703,842,000 | USD | 2,457,831 | Barclays Bank PLC | 4/03/2019 | 139,786 | ||||||||||||
PHP | 85,858,945 | USD | 1,650,055 | Barclays Bank PLC | 4/26/2019 | 2,961 | ||||||||||||
TRY | 1,911,000 | USD | 339,871 | BNP Paribas S.A. | 4/12/2019 | 10,038 | ||||||||||||
TRY | 8,343,000 | USD | 1,517,276 | Citibank N.A. | 4/12/2019 | 10,347 | ||||||||||||
TRY | 41,626,000 | USD | 7,358,665 | JPMorgan Chase Bank N.A. | 4/12/2019 | 263,154 | ||||||||||||
USD | 2,137,563 | BRL | 8,018,000 | Barclays Bank PLC | 4/02/2019 | 7,562 | ||||||||||||
USD | 4,992,313 | EUR | 4,315,000 | Goldman Sachs International | 4/12/2019 | 67,444 | ||||||||||||
USD | 1,683,400 | IDR | 23,722,472,800 | JPMorgan Chase Bank N.A. | 3/29/2019 | 1,287 | ||||||||||||
USD | 40,807,445 | JPY | 4,423,490,058 | Goldman Sachs International | 4/05/2019 | 1,016,908 |
30
Table of Contents
Portfolio of Investments – continued
Forward Foreign Currency Exchange Contracts - continued
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||
Asset Derivatives – continued | ||||||||||||||||||
USD | 4,571,991 | MXN | 88,308,000 | Goldman Sachs International | 4/12/2019 | $20,767 | ||||||||||||
USD | 3,156,769 | ZAR | 43,673,000 | Deutsche Bank AG | 4/12/2019 | 72,843 | ||||||||||||
|
| |||||||||||||||||
$1,625,819 | ||||||||||||||||||
|
| |||||||||||||||||
Liability Derivatives | ||||||||||||||||||
BRL | 8,851,000 | USD | 2,365,945 | Barclays Bank PLC | 4/02/2019 | $(14,655 | ) | |||||||||||
MXN | 66,771,000 | USD | 3,459,700 | Citibank N.A. | 4/12/2019 | (18,452 | ) | |||||||||||
TRY | 8,091,000 | USD | 1,495,831 | Citibank N.A. | 4/12/2019 | (14,350 | ) | |||||||||||
TRY | 5,329,000 | USD | 979,662 | JPMorgan Chase Bank N.A. | 4/12/2019 | (3,910 | ) | |||||||||||
ZAR | 43,673,000 | USD | 3,243,492 | Brown Brothers Harriman | 4/12/2019 | (159,565 | ) | |||||||||||
ZAR | 960 | USD | 68 | UBS AG | 4/12/2019 | (1 | ) | |||||||||||
USD | 816,300 | CLP | 537,451,920 | Barclays Bank PLC | 4/03/2019 | (3,080 | ) | |||||||||||
USD | 1,351,240 | EUR | 1,184,348 | HSBC Bank | 4/12/2019 | (500 | ) | |||||||||||
USD | 2,889,965 | INR | 207,066,000 | JPMorgan Chase Bank N.A. | 4/22/2019 | (1,868 | ) | |||||||||||
USD | 3,467,822 | MXN | 67,614,556 | JPMorgan Chase Bank N.A. | 4/12/2019 | (16,902 | ) | |||||||||||
USD | 5,464,934 | TRY | 31,275,000 | JPMorgan Chase Bank N.A. | 4/12/2019 | (261,592 | ) | |||||||||||
|
| |||||||||||||||||
$(494,875 | ) | |||||||||||||||||
|
|
Futures Contracts
Description | Long/ Short | Currency | Contracts | Notional Amount | Expiration Date | Value/ Unrealized Appreciation (Depreciation) | ||||||||||||||||
Liability Derivatives |
| |||||||||||||||||||||
Interest Rate Futures |
| |||||||||||||||||||||
U.S. Treasury Note 10 yr | Long | USD | 85 | $10,370,000 | June - 2019 | $(55,037 | ) | |||||||||||||||
U.S. Treasury Note 2 yr | Long | USD | 146 | 30,980,516 | June - 2019 | (32,452 | ) | |||||||||||||||
U.S. Treasury Note 5 yr | Long | USD | 38 | 4,353,375 | June - 2019 | (11,712 | ) | |||||||||||||||
|
| |||||||||||||||||||||
$(99,201 | ) | |||||||||||||||||||||
|
|
At February 28, 2019, the fund had cash collateral of $10,000 and other liquid securities with an aggregate value of $225,540 to cover any collateral or margin obligations for certain derivative contracts. Restricted cash and/or deposits with brokers in the Statement of Assets and Liabilities are comprised of cash collateral.
See Notes to Financial Statements
31
Table of Contents
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 2/28/19
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
Assets | ||||
Investments in unaffiliated issuers, at value, including $8,189,778 of securities on loan (identified cost, $2,632,683,982) | $2,814,748,411 | |||
Investments in affiliated issuers, at value (identified cost, $644,110,158) | 646,729,008 | |||
Foreign currency, at value (identified cost, $39,500,296) | 39,679,845 | |||
Restricted cash for | ||||
Forward foreign currency exchange contracts | 10,000 | |||
Receivables for | ||||
Forward foreign currency exchange contracts | 1,625,819 | |||
Investments sold | 51,976,415 | |||
TBA sale commitments | 674,126 | |||
Fund shares sold | 7,117,394 | |||
Interest and dividends | 16,679,335 | |||
Other assets | 11,725 | |||
Total assets | $3,579,252,078 | |||
Liabilities | ||||
Payable to custodian | $7,447 | |||
Payables for | ||||
Distributions | 950,218 | |||
Forward foreign currency exchange contracts | 494,875 | |||
Net daily variation margin on open futures contracts | 36,735 | |||
Investments purchased | 52,407,297 | |||
TBA purchase commitments | 3,997,104 | |||
Fund shares reacquired | 5,794,492 | |||
Collateral for securities loaned, at value | 8,740,224 | |||
Payable to affiliates | ||||
Investment adviser | 116,124 | |||
Shareholder servicing costs | 1,185,849 | |||
Distribution and service fees | 59,295 | |||
Payable for independent Trustees’ compensation | 467 | |||
Deferred country tax expense payable | 92,647 | |||
Accrued expenses and other liabilities | 250,271 | |||
Total liabilities | $74,133,045 | |||
Net assets | $3,505,119,033 | |||
Net assets consist of | ||||
Paid-in capital | $3,369,826,884 | |||
Total distributable earnings (loss) | 135,292,149 | |||
Net assets | $3,505,119,033 | |||
Shares of beneficial interest outstanding | 283,791,691 |
32
Table of Contents
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $1,315,625,273 | 106,495,434 | $12.35 | |||||||||
Class C | 756,643,215 | 61,283,995 | 12.35 | |||||||||
Class I | 1,181,299,522 | 95,650,436 | 12.35 | |||||||||
Class R1 | 192,755 | 15,621 | 12.34 | |||||||||
Class R2 | 3,485,930 | 282,320 | 12.35 | |||||||||
Class R3 | 19,159,254 | 1,550,636 | 12.36 | |||||||||
Class R4 | 10,063,069 | 814,492 | 12.36 | |||||||||
Class R6 | 218,650,015 | 17,698,757 | 12.35 |
(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 $12.90 [100 / 95.75 x $12.35]. On sales of $100,000 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 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 R6. |
See Notes to Financial Statements
33
Table of Contents
Financial Statements
Year ended 2/28/19
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 (loss) | ||||
Income | ||||
Interest | $58,326,679 | |||
Dividends | 54,372,544 | |||
Dividends from affiliated issuers | 38,765,030 | |||
Other | 237,797 | |||
Income on securities loaned | 145,538 | |||
Foreign taxes withheld | (1,886,828 | ) | ||
Total investment income | $149,960,760 | |||
Expenses | ||||
Management fee | $21,393,729 | |||
Distribution and service fees | 11,476,619 | |||
Shareholder servicing costs | 3,523,012 | |||
Administrative services fee | 513,483 | |||
Independent Trustees’ compensation | 35,369 | |||
Custodian fee | 299,595 | |||
Shareholder communications | 203,141 | |||
Audit and tax fees | 74,687 | |||
Legal fees | 27,675 | |||
Miscellaneous | 330,808 | |||
Total expenses | $37,878,118 | |||
Fees paid indirectly | (14,327 | ) | ||
Reduction of expenses by investment adviser and distributor | (353,896 | ) | ||
Net expenses | $37,509,895 | |||
Net investment income (loss) | $112,450,865 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers (net of $122,937 country tax) | $24,414,969 | |||
Affiliated issuers | (13,288,608 | ) | ||
Futures contracts | 698,021 | |||
Forward foreign currency exchange contracts | (2,634,226 | ) | ||
Foreign currency | 1,246,990 | |||
Net realized gain (loss) | $10,437,146 | |||
Change in unrealized appreciation or depreciation | $84,819,304 | |||
Affiliated issuers | 37,238 | |||
Futures contracts | (70,612 | ) | ||
Forward foreign currency exchange contracts | 962,426 | |||
Translation of assets and liabilities in foreign currencies | 40,638 | |||
Net unrealized gain (loss) | $85,788,994 | |||
Net realized and unrealized gain (loss) | $96,226,140 | |||
Change in net assets from operations | $208,677,005 |
See Notes to Financial Statements
34
Table of Contents
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.
Year ended | ||||||||
2/28/19 | 2/28/18 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $112,450,865 | $115,372,486 | ||||||
Net realized gain (loss) | 10,437,146 | 46,091,730 | ||||||
Net unrealized gain (loss) | 85,788,994 | (79,958,533 | ) | |||||
Change in net assets from operations | $208,677,005 | $81,505,683 | ||||||
Total distributions to shareholders (a) | $(136,328,886 | ) | $(143,131,979 | ) | ||||
Change in net assets from fund share transactions | $(460,118,606 | ) | $106,505,070 | |||||
Total change in net assets | $(387,770,487 | ) | $44,878,774 | |||||
Net assets | ||||||||
At beginning of period | 3,892,889,520 | 3,848,010,746 | ||||||
At end of period (b) | $3,505,119,033 | $3,892,889,520 |
(a) | Distributions from net investment income and from net realized gain are no longer required to be separately disclosed. See Note 2. For the year ended February 28, 2018, distributions from net investment income and from net realized gain were $123,629,741 and $19,502,238, respectively. |
(b) | Parenthetical disclosure of accumulated distributions in excess of net investment income is no longer required. See Note 2. For the year ended February 28, 2018, end of period net assets included accumulated distributions in excess of net investment income of $7,298,016. |
See Notes to Financial Statements
35
Table of Contents
Financial Statements
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that 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 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.10 | $12.28 | $11.22 | $12.70 | $12.21 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.39 | $0.37 | $0.39 | $0.38 | $0.34 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (0.10 | ) | 1.08 | (1.06 | ) | 0.75 | |||||||||||||
Total from investment operations | $0.72 | $0.27 | $1.47 | $(0.68 | ) | $1.09 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.39 | ) | $(0.39 | ) | $(0.41 | ) | $(0.39 | ) | $(0.36 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.47 | ) | $(0.45 | ) | $(0.41 | ) | $(0.80 | ) | $(0.60 | ) | ||||||||||
Net asset value, end of period (x) | $12.35 | $12.10 | $12.28 | $11.22 | $12.70 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.10 | 2.19 | 13.26 | (5.53 | ) | 9.09 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.99 | 0.99 | 1.02 | 1.06 | 1.06 | |||||||||||||||
Expenses after expense reductions (f)(h) | 0.98 | 0.98 | 1.00 | 1.01 | 1.03 | |||||||||||||||
Net investment income (loss) | 3.21 | 2.97 | 3.25 | 3.17 | 2.70 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $1,315,625 | $1,343,257 | $1,321,135 | $1,408,719 | $1,334,418 |
See Notes to Financial Statements
36
Table of Contents
Financial Highlights – continued
Class C | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.09 | $12.28 | $11.22 | $12.70 | $12.20 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.30 | $0.28 | $0.30 | $0.29 | $0.24 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | (0.11 | ) | 1.08 | (1.06 | ) | 0.77 | |||||||||||||
Total from investment operations | $0.64 | $0.17 | $1.38 | $(0.77 | ) | $1.01 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.30 | ) | $(0.30 | ) | $(0.32 | ) | $(0.30 | ) | $(0.27 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.38 | ) | $(0.36 | ) | $(0.32 | ) | $(0.71 | ) | $(0.51 | ) | ||||||||||
Net asset value, end of period (x) | $12.35 | $12.09 | $12.28 | $11.22 | $12.70 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 5.40 | 1.34 | 12.43 | (6.24 | ) | 8.36 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 1.75 | 1.74 | 1.77 | 1.81 | 1.81 | |||||||||||||||
Expenses after expense reductions (f)(h) | 1.74 | 1.73 | 1.75 | 1.76 | 1.78 | |||||||||||||||
Net investment income (loss) | 2.48 | 2.23 | 2.50 | 2.42 | 1.96 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $756,643 | $931,292 | $1,046,946 | $939,801 | $859,969 | |||||||||||||||
Class I | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.09 | $12.28 | $11.22 | $12.70 | $12.21 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.42 | $0.40 | $0.41 | $0.41 | $0.37 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | (0.11 | ) | 1.09 | (1.06 | ) | 0.75 | |||||||||||||
Total from investment operations | $0.76 | $0.29 | $1.50 | $(0.65 | ) | $1.12 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.42 | ) | $(0.42 | ) | $(0.44 | ) | $(0.42 | ) | $(0.39 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.50 | ) | $(0.48 | ) | $(0.44 | ) | $(0.83 | ) | $(0.63 | ) | ||||||||||
Net asset value, end of period (x) | $12.35 | $12.09 | $12.28 | $11.22 | $12.70 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.45 | 2.36 | 13.54 | (5.29 | ) | 9.36 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.74 | 0.74 | 0.77 | 0.81 | 0.81 | |||||||||||||||
Expenses after expense reductions (f)(h) | 0.74 | 0.73 | 0.75 | 0.76 | 0.78 | |||||||||||||||
Net investment income (loss) | 3.47 | 3.23 | 3.44 | 3.42 | 2.97 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $1,181,300 | $1,371,333 | $1,434,280 | $692,677 | $721,242 |
See Notes to Financial Statements
37
Table of Contents
Financial Highlights – continued
Class R1 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.08 | $12.26 | $11.21 | $12.68 | $12.20 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.31 | $0.28 | $0.31 | $0.29 | $0.24 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (0.10 | ) | 1.06 | (1.05 | ) | 0.75 | |||||||||||||
Total from investment operations | $0.64 | $0.18 | $1.37 | $(0.76 | ) | $0.99 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.30 | ) | $(0.30 | ) | $(0.320 | ) | $(0.30 | ) | $(0.27 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.38 | ) | $(0.36 | ) | $(0.32 | ) | $(0.71 | ) | $(0.51 | ) | ||||||||||
Net asset value, end of period (x) | $12.34 | $12.08 | $12.26 | $11.21 | $12.68 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 5.40 | 1.42 | 12.35 | (6.17 | ) | 8.20 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 1.75 | 1.75 | 1.77 | 1.81 | 1.81 | |||||||||||||||
Expenses after expense reductions (f)(h) | 1.74 | 1.74 | 1.75 | 1.76 | 1.78 | |||||||||||||||
Net investment income (loss) | 2.57 | 2.29 | 2.55 | 2.43 | 1.95 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $193 | $573 | $938 | $1,268 | $918 | |||||||||||||||
Class R2 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.09 | $12.28 | $11.22 | $12.70 | $12.20 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.36 | $0.34 | $0.36 | $0.35 | $0.31 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | (0.11 | ) | 1.08 | (1.06 | ) | 0.76 | |||||||||||||
Total from investment operations | $0.70 | $0.23 | $1.44 | $(0.71 | ) | $1.07 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.36 | ) | $(0.36 | ) | $(0.38 | ) | $(0.36 | ) | $(0.33 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.44 | ) | $(0.42 | ) | $(0.38 | ) | $(0.77 | ) | $(0.57 | ) | ||||||||||
Net asset value, end of period (x) | $12.35 | $12.09 | $12.28 | $11.22 | $12.70 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 5.92 | 1.85 | 12.98 | (5.77 | ) | 8.90 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 1.25 | 1.24 | 1.27 | 1.31 | 1.31 | |||||||||||||||
Expenses after expense reductions (f)(h) | 1.24 | 1.23 | 1.25 | 1.26 | 1.28 | |||||||||||||||
Net investment income (loss) | 2.99 | 2.73 | 2.99 | 2.94 | 2.47 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $3,486 | $4,396 | $4,223 | $3,139 | $2,113 |
See Notes to Financial Statements
38
Table of Contents
Financial Highlights – continued
Class R3 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.10 | $12.28 | $11.23 | $12.71 | $12.21 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.39 | $0.37 | $0.39 | $0.38 | $0.34 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.34 | (0.10 | ) | 1.07 | (1.06 | ) | 0.76 | |||||||||||||
Total from investment operations | $0.73 | $0.27 | $1.46 | $(0.68 | ) | $1.10 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.39 | ) | $(0.39 | ) | $(0.41 | ) | $(0.39 | ) | $(0.36 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.47 | ) | $(0.45 | ) | $(0.41 | ) | $(0.80 | ) | $(0.60 | ) | ||||||||||
Net asset value, end of period (x) | $12.36 | $12.10 | $12.28 | $11.23 | $12.71 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.18 | 2.19 | 13.16 | (5.52 | ) | 9.17 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 1.00 | 0.99 | 1.02 | 1.07 | 1.06 | |||||||||||||||
Expenses after expense reductions (f)(h) | 0.99 | 0.98 | 1.00 | 1.02 | 1.03 | |||||||||||||||
Net investment income (loss) | 3.21 | 2.97 | 3.24 | 3.19 | 2.70 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $19,159 | $20,013 | $19,274 | $15,393 | $7,995 | |||||||||||||||
Class R4 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.10 | $12.29 | $11.23 | $12.71 | $12.21 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.41 | $0.40 | $0.42 | $0.41 | $0.37 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.35 | (0.10 | ) | 1.08 | (1.06 | ) | 0.76 | |||||||||||||
Total from investment operations | $0.76 | $0.30 | $1.50 | $(0.65 | ) | $1.13 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.42 | ) | $(0.43 | ) | $(0.44 | ) | $(0.42 | ) | $(0.39 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.50 | ) | $(0.49 | ) | $(0.44 | ) | $(0.83 | ) | $(0.63 | ) | ||||||||||
Net asset value, end of period (x) | $12.36 | $12.10 | $12.29 | $11.23 | $12.71 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.45 | 2.36 | 13.53 | (5.29 | ) | 9.44 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.74 | 0.74 | 0.77 | 0.81 | 0.81 | |||||||||||||||
Expenses after expense reductions (f)(h) | 0.73 | 0.73 | 0.75 | 0.76 | 0.78 | |||||||||||||||
Net investment income (loss) | 3.43 | 3.20 | 3.50 | 3.42 | 2.96 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $10,063 | $7,915 | $6,179 | $5,173 | $4,936 |
See Notes to Financial Statements
39
Table of Contents
Financial Highlights – continued
Class R6 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $12.10 | $12.28 | $11.22 | $12.70 | $12.21 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.43 | $0.38 | $0.43 | $0.42 | $0.38 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.33 | (0.06 | )(g) | 1.08 | (1.06 | ) | 0.75 | |||||||||||||
Total from investment operations | $0.76 | $0.32 | $1.51 | $(0.64 | ) | $1.13 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.43 | ) | $(0.44 | ) | $(0.45 | ) | $(0.43 | ) | $(0.40 | ) | ||||||||||
From net realized gain | (0.08 | ) | (0.06 | ) | (0.00 | )(w) | (0.41 | ) | (0.24 | ) | ||||||||||
Total distributions declared to shareholders | $(0.51 | ) | $(0.50 | ) | $(0.45 | ) | $(0.84 | ) | $(0.64 | ) | ||||||||||
Net asset value, end of period (x) | $12.35 | $12.10 | $12.28 | $11.22 | $12.70 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.46 | 2.54 | 13.65 | (5.20 | ) | 9.46 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f)(h) | 0.65 | 0.65 | 0.67 | 0.70 | 0.72 | |||||||||||||||
Expenses after expense reductions (f)(h) | 0.64 | 0.64 | 0.65 | 0.65 | 0.69 | |||||||||||||||
Net investment income (loss) | 3.55 | 3.08 | 3.57 | 3.55 | 3.05 | |||||||||||||||
Portfolio turnover | 36 | 44 | 46 | 62 | 48 | |||||||||||||||
Net assets at end of period (000 omitted) | $218,650 | $214,111 | $15,036 | $11,073 | $2,569 |
(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. |
(h) | In addition to the fees and expenses which the fund bears directly, the fund indirectly bears a pro rata share of the fees and expenses of the underlying affiliated funds in which the fund invests. Accordingly, the expense ratio for the fund reflects only those fees and expenses borne directly by the fund. Because the underlying affiliated funds have varied expense and fee levels and the fund may own different proportions of the underlying affiliated funds at different times, the amount of fees and expenses incurred indirectly by the fund will vary. |
(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 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
40
Table of Contents
(1) Business and Organization
MFS Diversified Income Fund (the fund) is a diversified series of MFS Series Trust XIII (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as anopen-end management investment company.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(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 increases and decreases in net assets from operations 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 the MFS High Yield Pooled Portfolio (“High Yield Pooled Portfolio”). MFS does not receive a management fee from the High Yield Pooled Portfolio. The High Yield Pooled Portfolio’s investment objective is to seek total return with an emphasis on high current income, but also considering capital appreciation. The accounting policies of the High Yield Pooled Portfolio are outlined in its shareholder report, which is available without charge by calling1-800-225-2606 and on the Securities and Exchange Commission (SEC) web site at http://www.sec.gov. The accounting policies detailed in the Significant Accounting Policies note cover both the fund and the High Yield Pooled Portfolio. For purposes of this policy disclosure, “fund” refers to both the fund and the High Yield Pooled Portfolio in which the fund invests. The High Yield Pooled Portfolio’s shareholder report is not covered by this report. The fund and the High Yield Pooled Portfolio invest in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund and the High Yield Pooled Portfolio invest in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, and other conditions. The fund invests a significant amount of its net assets in U.S. and foreign real estate related investments and as a result is subject to certain risks associated with the direct ownership of real estate and the real estate industry in general. These include risks related to general, regional and local economic conditions; difficulties in valuing and disposing of real estate; fluctuations in interest rates and property tax rates, shifts in zoning laws, environmental
41
Table of Contents
Notes to Financial Statements – continued
regulations and other governmental action; cash flow dependency; increased operating expenses; lack of availability of mortgage funds; losses due to natural disasters; overbuilding; losses due to casualty or condemnation; changes in property values and rental rates; the management skill and creditworthiness of the manager; and other factors. 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 market, economic, industrial, political, regulatory, geopolitical, and other conditions. Investments in emerging markets can involve additional and greater risks than the risks associated with investments in developed foreign markets. Emerging markets can have less developed markets, greater custody and operational risk, less developed legal, regulatory, and accounting systems, and greater political, social, and economic instability than developed markets
In March 2017, the FASB issued Accounting Standards Update2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU2017-08”). For entities that hold callable debt securities at a premium, ASU2017-08 requires that the premium be amortized to the earliest call date. ASU2017-08 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Management has evaluated the potential impacts of ASU2017-08 and believes that adoption of ASU2017-08 will not have a material effect on the fund’s overall financial position or its overall results of operations.
In August 2018, the Securities and Exchange Commission (SEC) released its Final Rule on Disclosure Update and Simplification (the “Final Rule”) which is intended to simplify an issuer’s disclosure compliance efforts by removing redundant or outdated disclosure requirements without significantly altering the mix of information provided to investors. Effective with the current reporting period, the fund adopted the Final Rule with the impacts being that the fund is no longer required to present the components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributions to shareholders and the amount of undistributed net investment income on the Statements of Changes in Net Assets.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– The investments of the fund and the High Yield Pooled Portfolio are valued as described below.
42
Table of Contents
Notes to Financial Statements – continued
Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by athird-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price on their primary exchange as provided by a third-party pricing service. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation on their primary exchange as provided by a third-party pricing service. Options not traded on an exchange are generally valued at a broker/dealer bid quotation. Foreign currency options are generally valued at valuations provided by a third-party pricing service. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods.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. In determining values, 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
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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. Other financial instruments are derivative instruments,
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such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of February 28, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
United States | $1,033,421,654 | $— | $— | $1,033,421,654 | ||||||||||||
Switzerland | 73,314,262 | — | — | 73,314,262 | ||||||||||||
Canada | 61,053,309 | — | — | 61,053,309 | ||||||||||||
United Kingdom | 48,919,027 | — | — | 48,919,027 | ||||||||||||
Japan | 40,138,578 | — | — | 40,138,578 | ||||||||||||
France | 39,925,850 | — | — | 39,925,850 | ||||||||||||
Taiwan | 21,964,727 | — | — | 21,964,727 | ||||||||||||
China | 21,297,631 | — | — | 21,297,631 | ||||||||||||
Germany | 14,102,281 | — | — | 14,102,281 | ||||||||||||
Other Countries | 60,101,584 | 10,627,176 | — | 70,728,760 | ||||||||||||
U.S. Treasury Bonds & U.S. Government Agency & Equivalents | — | 274,998,111 | — | 274,998,111 | ||||||||||||
Non-U.S. Sovereign Debt | — | 482,954,145 | — | 482,954,145 | ||||||||||||
Municipal Bonds | — | 10,440,044 | — | 10,440,044 | ||||||||||||
U.S. Corporate Bonds | — | 13,180,561 | — | 13,180,561 | ||||||||||||
Residential Mortgage-Backed Securities | — | 404,910,477 | — | 404,910,477 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 19,582,366 | — | 19,582,366 | ||||||||||||
Asset-Backed Securities (including CDOs) | — | 19,981,705 | — | 19,981,705 | ||||||||||||
Foreign Bonds | — | 155,094,699 | — | 155,094,699 | ||||||||||||
Mutual Funds | 655,469,232 | — | — | 655,469,232 | ||||||||||||
Total | $2,069,708,135 | $1,391,769,284 | $— | $3,461,477,419 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts – Liabilities | $(99,201 | ) | $— | $— | $(99,201 | ) | ||||||||||
Forward Foreign Currency Exchange Contracts – Assets | — | 1,625,819 | — | 1,625,819 | ||||||||||||
Forward Foreign Currency Exchange Contracts – Liabilities | — | (494,875 | ) | — | (494,875 | ) |
For further information regarding security characteristics, see the Portfolio of Investments. Please refer to the High Yield Pooled Portfolio’s shareholder report for further information regarding the levels used in valuing its assets or liabilities.
Inflation-Adjusted Debt Securities– The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
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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.
Derivatives– The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were purchased options, futures contracts, and forward foreign currency exchange contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund may be unable to promptly close out a futures position in instances where the daily fluctuation in the price for that type of future exceeds the daily limit set by the exchange. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at February 28, 2019 as reported in the Statement of Assets and Liabilities:
Fair Value (a) | ||||||||||
Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives | |||||||
Interest Rate | Interest Rate Futures | $— | $(99,201 | ) | ||||||
Foreign Exchange | Forward Foreign Currency Exchange Contracts | 1,625,819 | (494,875 | ) | ||||||
Total | $1,625,819 | $(594,076 | ) |
(a) | Values presented in this table for futures contracts correspond to the values reported in the fund’s Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities. |
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The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended February 28, 2019 as reported in the Statement of Operations:
Risk | Futures Contracts | Forward Foreign Currency Exchange Contracts | Unaffiliated Issuers | |||||||||
Interest Rate | $698,021 | $— | $— | |||||||||
Foreign Exchange | — | (2,634,226 | ) | — | ||||||||
Equity | — | — | (2,505,687 | ) | ||||||||
Total | $698,021 | $(2,634,226 | ) | $(2,505,687 | ) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended February 28, 2019 as reported in the Statement of Operations:
Risk | Futures Contracts | Forward Foreign Currency Exchange Contracts | Unaffiliated Issuers (Purchased Options) | |||||||||
Interest Rate | $(70,612 | ) | $— | $— | ||||||||
Foreign Exchange | — | 962,426 | — | |||||||||
Equity | — | — | 1,560,000 | |||||||||
Total | $(70,612 | ) | $962,426 | $1,560,000 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, thenon-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund’s custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral
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support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Purchased Options– The fund purchased put options for a premium. Purchased put options entitle the holder to sell a specified number of shares or units of a particular security, currency or index at a specified price at a specified date or within a specified period of time. Purchasing put options may hedge against an anticipated decline in the value of portfolio securities or currency or decrease the fund’s exposure to an underlying instrument.
The premium paid is initially recorded as an investment in the Statement of Assets and Liabilities. That investment is subsequentlymarked-to-market daily with the difference between the premium paid and the market value of the purchased option being recorded as unrealized appreciation or depreciation. Premiums paid for purchased put options which have expired are treated as realized losses on investments in the Statement of Operations. Upon the exercise or closing of a purchased put option, the premium paid is offset against the proceeds on the sale of the underlying security or financial instrument in order to determine the realized gain or loss on investments.
Whether or not the option is exercised, the fund’s maximum risk of loss from purchasing an option is the amount of premium paid. All option contracts involve credit risk if the counterparty to the option contract fails to perform. For uncleared options, this risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Futures Contracts– The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less
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counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts– The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or fornon-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. Fornon-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans– Under its Securities Lending Agency Agreement with the fund, JPMorgan Chase and Co., as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes
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the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $8,189,778. The fair value of the fund’s investment securities on loan and a related liability of $8,740,224 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
Dollar Roll Transactions– The fund enters into dollar roll transactions, with respect to mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, in which the fund sells mortgage-backed securities to financial institutions and simultaneously agrees to purchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During the period between the sale and repurchase in a dollar roll transaction the fund will not be entitled to receive interest and principal payments on the securities sold but is compensated by interest earned on the proceeds of the initial sale and by a lower purchase price on the securities to be repurchased which enhances the fund’s total return. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions.
Loans and Other Direct Debt Instruments– The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which contractually obligate the fund to supply additional cash to the borrower on demand. The fund generally provides this financial support in order to preserve its existing investment or to obtain a more senior secured interest in the assets of the borrower. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.
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. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S.
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generally accepted accounting principles. Some securities may be purchased on a “when-issued” or “forward delivery” basis, which means that the securities will be delivered to the fund at a future date, usually beyond customary settlement time. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward based on the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. Dividends received in cash are recorded on theex-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 theex-dividend date. Dividend and interest payments received in additional securities are recorded on theex-dividend orex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed onnon-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by thewrite-off of the related interest receivables when deemed uncollectible. Distributions from REITs may be characterized as ordinary income, net capital gain, or a return of capital to the fund. The proper characterization of REIT distributions is generally not known until after the end of each calendar year. As such, estimates are used in reporting the character of income and distributions for financial statement purposes. The fund receives substantial distributions from holdings in REITs.
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.
The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. TBA securities resulting from these transactions are included in the Portfolio of Investments. TBA purchase (sale) commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within
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the fair value hierarchy. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
To mitigate the counterparty credit risk on TBA securities and other types of forward settling mortgage-backed securities, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, thenon-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund’s collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
Fees Paid Indirectly– The fund’s custody fee may be reduced by a credit earned under an arrangement that measures the value of U.S. dollars deposited with the custodian by the fund. The amount of the credit, for the year ended February 28, 2019, 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. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
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Distributions to shareholders are recorded on theex-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 amortization and accretion of debt securities, wash sale loss deferrals, and treating a portion of the proceeds from redemptions as a distribution for tax purposes.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
Year ended 2/28/19 | Year ended 2/28/18 | |||||||
Ordinary income (including any short-term capital gains) | $113,306,994 | $123,629,741 | ||||||
Long-term capital gains | 23,021,892 | 19,502,238 | ||||||
Total distributions | $136,328,886 | $143,131,979 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 2/28/19 | ||||
Cost of investments | $3,316,797,542 | |||
Gross appreciation | 217,073,987 | |||
Gross depreciation | (71,362,367 | ) | ||
Net unrealized appreciation (depreciation) | $145,711,620 | |||
Undistributed ordinary income | 1,645,023 | |||
Undistributed long-term capital gain | 1,015,116 | |||
Post-October capital loss deferral | (4,438,921 | ) | ||
Other temporary differences | (8,640,689 | ) |
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 and common expenses are allocated to shareholders based on the value of settled shares outstanding of each class. The fund’s realized and unrealized gain (loss) 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 C shares will convert to Class A
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shares approximately ten 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 | |||||||||||||||
Year ended 2/28/19 | Year ended 2/28/18 | Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||
Class A | $42,451,745 | $43,591,274 | $8,471,088 | $6,665,606 | ||||||||||||
Class C | 20,226,697 | 24,285,847 | 5,224,518 | 4,696,509 | ||||||||||||
Class I | 41,858,569 | 49,823,688 | 7,720,653 | 6,964,196 | ||||||||||||
Class R1 | 8,151 | 16,406 | 1,970 | 2,727 | ||||||||||||
Class R2 | 114,581 | 127,724 | 25,358 | 20,482 | ||||||||||||
Class R3 | 627,811 | 639,441 | 124,035 | 98,791 | ||||||||||||
Class R4 | 322,959 | 273,414 | 62,062 | 42,400 | ||||||||||||
Class R6 | 7,696,481 | 4,871,947 | 1,392,208 | 1,011,527 | ||||||||||||
Total | $113,306,994 | $123,629,741 | $23,021,892 | $19,502,238 |
(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 based on the fund’s average daily net assets:
Up to $1 billion | 0.65 | % | ||
In excess of $1 billion and up to $2.5 billion | 0.60 | % | ||
In excess of $2.5 billion and up to $5 billion | 0.55 | % | ||
In excess of $5 billion | 0.50 | % |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the year ended February 28, 2019, this management fee reduction amounted to $347,146, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended February 28, 2019 was equivalent to an annual effective rate of 0.59% 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, excluding interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses (such as fees and expenses associated with investments in investment companies and other similar investment vehicles), such that total fund operating expenses do not exceed the following rates annually of each class’s average daily net assets:
Classes | ||||||||||||||||||||||||||||
A | C | I | R1 | R2 | R3 | R4 | R6 | |||||||||||||||||||||
1.10% | 1.85% | 0.85% | 1.85% | 1.35% | 1.10% | 0.85% | 0.79% |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until June 30, 2020. For the year ended
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February 28, 2019, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
Distributor– MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $95,634 for the year ended February 28, 2019, 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 share classes pursuant to Rule12b-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% | $3,276,821 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 8,128,828 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 3,296 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 19,207 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 48,467 | |||||||||||||||
Total Distribution and Service Fees |
| $11,476,619 |
(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. Any rate changes, if applicable, are detailed below. |
(e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended February 28, 2019 based on each class’s average daily net assets. MFD has voluntarily agreed to rebate a portion of each class’s 0.25% service fee attributable to accounts for which MFD retains the 0.25% service fee except for accounts attributable to MFS or its affiliates’ seed money. For the year ended February 28, 2019, this rebate amounted to $6,662, $76, and $12 for Class A, Class C, and Class R2, respectively, and is included in the reduction of total expenses in the Statement of Operations. |
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. All contingent deferred sales charges are paid to MFD and during the year ended February 28, 2019, were as follows:
Amount | ||||
Class A | $80,183 | |||
Class C | 57,622 |
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
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determined periodically under the supervision of the fund’s Board of Trustees. For the year ended February 28, 2019, the fee was $203,417, which equated to 0.0057% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses,sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incursub-accounting fees. For the year ended February 28, 2019, theseout-of-pocket expenses,sub-accounting and other shareholder servicing costs amounted to $3,319,595.
Administrator– MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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 year ended February 28, 2019 was equivalent to an annual effective rate of 0.0144% 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 a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the year ended February 28, 2019, the fee paid by the fund under this agreement was $6,126 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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. This money market fund does not pay a management fee to MFS.
The fund invests in the High Yield Pooled Portfolio, which is a mutual fund advised by MFS that does not pay management fees to MFS but does incur investment and operating costs. The fund invests in the High Yield Pooled Portfolio to gain exposure to high income debt instruments, rather than investing in high income debt instruments directly. The High Yield Pooled Portfolio does not pay a management fee to MFS or distribution and/or service fee to MFD.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser orsub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule17a-7 under the
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Investment Company Act of 1940. During the year ended February 28, 2019, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $2,892,382 and $3,019,922, respectively. The sales transactions resulted in net realized gains (losses) of $(164,278).
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended February 28, 2019, this reimbursement amounted to $117,726, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended February 28, 2019, purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
Purchases | Sales | |||||||
U.S. Government securities | $284,689,974 | $372,637,540 | ||||||
Non-U.S. Government securities | $993,447,794 | $1,454,674,662 |
(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:
Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 21,934,805 | $265,151,851 | 32,663,388 | $405,127,853 | ||||||||||||
Class C | 4,188,252 | 50,577,898 | 10,511,622 | 130,379,562 | ||||||||||||
Class I | 22,659,066 | 273,950,836 | 41,660,723 | 516,626,466 | ||||||||||||
Class R1 | 8,524 | 102,465 | 9,953 | 122,941 | ||||||||||||
Class R2 | 51,826 | 628,809 | 142,870 | 1,761,794 | ||||||||||||
Class R3 | 362,563 | 4,396,138 | 458,513 | 5,714,468 | ||||||||||||
Class R4 | 208,446 | 2,524,964 | 288,177 | 3,573,718 | ||||||||||||
Class R6 | 4,082,655 | 49,402,988 | 18,315,715 | 227,403,049 | ||||||||||||
53,496,137 | $646,735,949 | 104,050,961 | $1,290,709,851 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions |
| |||||||||||||||
Class A | 4,055,421 | $49,172,684 | 3,879,327 | $48,278,886 | ||||||||||||
Class C | 1,854,376 | 22,477,917 | 2,045,252 | 25,440,252 | ||||||||||||
Class I | 3,323,850 | 40,297,462 | 3,793,515 | 47,182,111 | ||||||||||||
Class R1 | 821 | 9,953 | 1,522 | 18,903 | ||||||||||||
Class R2 | 8,811 | 106,837 | 8,720 | 108,397 | ||||||||||||
Class R3 | 61,945 | 751,330 | 58,926 | 733,359 | ||||||||||||
Class R4 | 31,748 | 384,955 | 25,291 | 315,016 | ||||||||||||
Class R6 | 713,063 | 8,646,570 | 437,007 | 5,456,254 | ||||||||||||
10,050,035 | $121,847,708 | 10,249,560 | $127,533,178 |
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Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares reacquired | ||||||||||||||||
Class A | (30,527,727 | ) | $(369,134,417 | ) | (33,059,857 | ) | $(410,091,568 | ) | ||||||||
Class C | (21,784,292 | ) | (263,227,928 | ) | (20,814,838 | ) | (258,114,378 | ) | ||||||||
Class I | (43,716,771 | ) | (528,719,177 | ) | (48,854,837 | ) | (605,562,197 | ) | ||||||||
Class R1 | (41,137 | ) | (496,708 | ) | (40,548 | ) | (501,002 | ) | ||||||||
Class R2 | (141,915 | ) | (1,717,400 | ) | (132,013 | ) | (1,633,720 | ) | ||||||||
Class R3 | (527,893 | ) | (6,421,964 | ) | (432,335 | ) | (5,404,920 | ) | ||||||||
Class R4 | (79,918 | ) | (959,463 | ) | (162,192 | ) | (2,030,584 | ) | ||||||||
Class R6 | (4,794,658 | ) | (58,025,206 | ) | (2,279,360 | ) | (28,399,590 | ) | ||||||||
(101,614,311 | ) | $(1,228,702,263 | ) | (105,775,980 | ) | $(1,311,737,959 | ) | |||||||||
Net change | ||||||||||||||||
Class A | (4,537,501 | ) | $(54,809,882 | ) | 3,482,858 | $43,315,171 | ||||||||||
Class C | (15,741,664 | ) | (190,172,113 | ) | (8,257,964 | ) | (102,294,564 | ) | ||||||||
Class I | (17,733,855 | ) | (214,470,879 | ) | (3,400,599 | ) | (41,753,620 | ) | ||||||||
Class R1 | (31,792 | ) | (384,290 | ) | (29,073 | ) | (359,158 | ) | ||||||||
Class R2 | (81,278 | ) | (981,754 | ) | 19,577 | 236,471 | ||||||||||
Class R3 | (103,385 | ) | (1,274,496 | ) | 85,104 | 1,042,907 | ||||||||||
Class R4 | 160,276 | 1,950,456 | 151,276 | 1,858,150 | ||||||||||||
Class R6 | 1,060 | 24,352 | 16,473,362 | 204,459,713 | ||||||||||||
(38,068,139 | ) | $(460,118,606 | ) | 8,524,541 | $106,505,070 |
Class T shares were not publicly available for sale during the period. Please see the fund’s prospectus for details.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 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 Overnight Bank Funding rate or daily 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. 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 Overnight Bank Funding rate plus an agreed upon spread. For the year ended February 28, 2019, the fund’s commitment fee and interest expense were $21,997 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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(7) Investments in 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 affiliated issuers:
Affiliated Issuers | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||||||
MFS High Yield Pooled Portfolio | 91,720,629 | 5,307,201 | (31,855,228 | ) | 65,172,602 | |||||||||||||||
MFS Institutional Money Market Portfolio | 31,460,646 | 650,884,884 | (624,125,116 | ) | 58,220,414 | |||||||||||||||
Affiliated Issuers | Realized Gain (Loss) | Change in Unrealized Appreciation/ Depreciation | Capital Gain Distributions | Dividend Income | Ending Value | |||||||||||||||
MFS High Yield Pooled Portfolio | $(13,290,733 | ) | $32,947 | $— | $37,705,887 | $588,508,593 | ||||||||||||||
MFS Institutional Money Market Portfolio | 2,125 | 4,291 | — | 1,059,143 | 58,220,415 | |||||||||||||||
$(13,288,608 | ) | $37,238 | $— | $38,765,030 | $646,729,008 |
(8) Legal Proceedings
In May 2015, the Motors Liquidation Company Avoidance Action Trust (hereafter, “AAT”) served upon the fund a complaint in an adversary proceeding in the U.S. Bankruptcy Court for the Southern District of New York, captionedMotors Liquidation Company Avoidance Action Trust v. JPMorgan Chase Bank, N.A., et al.(No.09-00504 (REG)). The complaint, which was originally filed in 2009 but not served on the fund until 2015, names as defendants over 500 entities (including the fund) that held an interest in a $1.5 billion General Motors (GM) term loan in 2009, when GM filed for bankruptcy. The AAT alleges that the fund and the other term loan lenders were improperly treated as secured lenders with respect to the term loan shortly before and immediately after GM’s bankruptcy, receiving full principal and interest payments under the loan. The AAT alleges that the fund and other term loan lenders should have been treated as unsecured (or partially unsecured) creditors because the main lien securing the collateral was allegedly not perfected at the time of GM’s bankruptcy due to an erroneous filing in October 2008 that terminated the financing statement perfecting the lien. The AAT seeks to claw back payments made to the fund and the other term loan lenders after, and during the 90 days before, GM’s June 2009 bankruptcy petition. During that time period, the fund received term loan payments of approximately $380,000. The fund cannot predict the outcome of this proceeding. Among other things, it is unclear whether the AAT’s claims will succeed; what the fund would be entitled to as an unsecured (or partially unsecured) creditor, given the existence of other collateral not impacted by the erroneous October 2008 filing; whether third parties responsible for the erroneous October 2008 filing would bear some or all of any liability; and the degree to which the fund may be entitled to indemnification from a third party for any amount required to be disgorged. The fund has and will continue to incur legal expenses associated with the defense of this action and in related claims against third parties.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of MFS Diversified Income Fund and the Board of
Trustees of MFS Series Trust XIII
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of MFS Diversified Income Fund (the “Fund”) (one of the funds constituting MFS Series Trust XIII (the “Trust”)), including the portfolio of investments, as of February 28, 2019, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting MFS Series Trust XIII) at February 28, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of February 28, 2019, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included
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evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more MFS investment companies since 1993.
Boston, Massachusetts
April 16, 2019
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TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of April 1, 2019, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 55) | Trustee | February 2004 | 135 | Massachusetts Financial Services Company, Executive Chairman (since January 2017); Director; Chairman of the Board; Chief Executive Officer (until 2015);Co-Chief Executive Officer (2015-2016) | N/A | |||||
Robin A. Stelmach (k) (age 57) | Trustee | January 2014 | 135 | Massachusetts Financial Services Company, Vice Chair (since January 2017); Chief Operating Officer and Executive Vice President (until January 2017) | N/A | |||||
INDEPENDENT TRUSTEES | ||||||||||
John P. Kavanaugh (age 64) | Trustee and Chair of Trustees | January 2009 | 135 | Private investor | N/A | |||||
Steven E. Buller (age 67) | Trustee | February 2014 | 135 | Financial Accounting Standards Advisory Council, Chairman (2014-2015); Public Company Accounting Oversight Board, Standing Advisory Group, Member (until 2014); BlackRock, Inc. (investment management), Managing Director (until 2014), BlackRock Finco UK (investment management), Director (until 2014) | N/A |
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Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
John A. Caroselli (age 64) | Trustee | March 2017 | 135 | JC Global Advisors, LLC (management consulting), President (since 2015); First Capital Corporation (commercial finance), Executive Vice President (until 2015) | N/A | |||||
Maureen R. Goldfarb (age 63) | Trustee | January 2009 | 135 | Private investor | N/A | |||||
Michael Hegarty (age 74) | Trustee | December 2004 | 135 | Private investor | Rouse Properties Inc., Director (until 2016); Capmark Financial Group Inc., Director (until 2015) | |||||
Peter D. Jones (age 63) | Trustee | January 2019 | 135 | Franklin Templeton Distributors, Inc. (investment management), President (until 2015); Franklin Templeton Institutional, LLC (investment management), Chairman (until 2015) | N/A | |||||
James W. Kilman, Jr. (age 57) | Trustee | January 2019 | 135 | KielStrand Capital LLC (family office and merchant bank), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking,Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | Alpha-En Corporation, Director (since 2016) |
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Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
Clarence Otis, Jr. (age 62) | Trustee | March 2017 | 135 | Darden Restaurants, Inc., Chief Executive Officer (until 2014) | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 63) | Trustee | May 2014 | 135 | American Century Investments (investment management), Senior Vice President and Chief Compliance Officer (until 2014) | N/A | |||||
Laurie J. Thomsen (age 61) | Trustee | March 2005 | 135 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 45) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kino Clark (k) (age 50) | Assistant Treasurer | January 2012 | 135 | Massachusetts Financial Services Company, Vice President |
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Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
John W. Clark, Jr. (k) (age 52) | Assistant Treasurer | April 2017 | 135 | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) | ||||
Thomas H. Connors (k) (age 59) | Assistant Secretary and Assistant Clerk | September 2012 | 135 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Ethan D. Corey (k) (age 55) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
David L. DiLorenzo (k) (age 50) | President | July 2005 | 135 | Massachusetts Financial Services Company, Senior Vice President | ||||
Heidi W. Hardin (k) (age 51) | Secretary and Clerk | April 2017 | 135 | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (from September 2015 to January 2017); Janus Capital Management LLC (investment management), Senior Vice President and General Counsel (until September 2015) | ||||
Brian E. Langenfeld (k) (age 46) | Assistant Secretary and Assistant Clerk | June 2006 | 135 | Massachusetts Financial Services Company, Vice President and Senior Counsel |
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Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
Amanda S. Mooradian (k) (age 40) | Assistant Secretary and Assistant Clerk | September 2018 | 135 | Massachusetts Financial Services Company, Assistant Vice President and Counsel | ||||
Susan A. Pereira (k) (age 48) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 48) | Assistant Treasurer | September 2012 | 135 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 44) | Assistant Secretary and Assistant Clerk | October 2014 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Frank L. Tarantino (age 75) | Independent Senior Officer | June 2004 | 135 | Tarantino LLC (provider of compliance services), Principal | ||||
Richard S. Weitzel (k) (age 48) | Assistant Secretary and Assistant Clerk | October 2007 | 135 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Martin J. Wolin (k) (age 51) | Chief Compliance Officer | July 2015 | 135 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015); Mercer (financial service provider), Chief Risk and Compliance Officer, North America and Latin America (until June 2015) | ||||
James O. Yost (k) (age 58) | Treasurer | September 1990 | 135 | Massachusetts Financial Services Company, Senior Vice President |
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(h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
(j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
(k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones and Kilman) has been elected by shareholders and each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Hegarty, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling1-800-225-2606.
Investment Adviser | Custodian | |
Massachusetts Financial Services Company Boston, MA 02199-7618 | JPMorgan Chase Bank, NA 4 Metrotech Center New York, NY 11245 | |
Distributor | Independent Registered Public Accounting Firm | |
MFS Fund Distributors, Inc. Boston, MA 02199-7618 | Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 | |
Portfolio Manager(s) | ||
Robert Almeida | ||
Ward Brown | ||
David Cole | ||
Rick Gable | ||
Matt Ryan | ||
Jonathan Sage | ||
Geoffrey Schechter | ||
Michael Skatrud |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling1-800-225-2606, by visitingmfs.com/proxyvoting,or by visiting the SEC’s Web site athttp://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 by August 31 of each year without charge by visitingmfs.com/proxyvoting,or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/openendfundsby choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/openendfundsby choosing the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2019 income tax forms in January 2020. The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates the maximum amount allowable as qualified dividend income eligible to be taxed at the same rate as long-term capital gain.
The fund designates the maximum amount allowable as Section 199A dividends as defined in Proposed Treasury Regulation §1.199A-3(d).
The fund designates $27,436,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 6.20% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
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rev. 3/16
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
• Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions
When you areno longer our customer, we continue to share your information as described in this notice. |
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does MFS share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | No | We don’t share | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For nonaffiliates to market to you | No | We don’t share |
Questions? | Call800-225-2606 or go tomfs.com. |
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Page 2 |
Who we are | ||
Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
What we do | ||
How does MFS protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. | |
How does MFS collect my personal information? | We collect your personal information, for example, when you
• open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | |
Why can’t I limit all sharing? | Federal law gives you the right to limit only
• sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. | |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share with nonaffiliates so they can market to you. | |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
• MFS doesn’t jointly market. |
Other important information | ||
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
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MFS® will send you prospectuses, |
reports, and proxies directly viae-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 219341
Kansas City, MO 64121-9341
OVERNIGHT MAIL
MFS Service Center, Inc.
Suite 219341
430 W 7th Street
Kansas City, MO 64105-1407
Table of Contents
Annual Report
February 28, 2019
MFS® Government Securities Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the complete reports will be made available on the fund’s Web site (funds.mfs.com), and you will be notified by mail each time a report is posted and provided with a Web site link to access the report.
If you are already signed up to receive shareholder reports by email, you will not be affected by this change and you need not take any action. You may sign up to receive shareholder reports and other communications from the fund by email by contacting your financial intermediary (such as a broker-dealer or bank) or, if you hold your shares directly with the fund, by calling 1-800-225-2606 or by logging on to MFS Access at mfs.com.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. Contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the fund, you can call 1-800-225-2606 or send an email request to orderliterature@mfs.com to let the fund know that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the MFS fund complex if you invest directly.
MFG-ANN
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MFS® Government Securities Fund
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• MAY LOSE VALUE• NO BANK GUARANTEE
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LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Shareholders:
Markets experienced a bout of volatility in late 2018 as a result of higher interest rates, international trade friction and geopolitical uncertainty surrounding issues such as
Brexit. But concern over those issues dissipated in the early months of 2019 due to a more dovish posture by the U.S. Federal Reserve, progress toward a trade pact between the United States and China, and a consensus forming in the British Parliament against ano-deal Brexit. Over the past year, U.S. equities have outperformed their global peers due in part to fiscal stimulus undertaken in late 2017 and early 2019, which helped maintain healthy levels of U.S. economic output against a backdrop of slowing global growth, though returns, on average, have been modest.
Globally, inflation remains largely subdued thanks in part to stable
oil prices, though tight labor markets are keeping investors on the lookout for its potential reappearance. Rising incomes in many developed and emerging markets are supportive of gains in consumption, though a challenging backdrop for global trade has weighed on manufacturing in most regions. Should the U.S. and China reach a comprehensive trade agreement, sentiment could improve later this year.
As a global investment manager with nearly a century of expertise, MFS® firmly believes active risk management offers downside mitigation and may help improve investment outcomes. We built our active investment platform with this belief in mind. Our long-term perspective influences nearly every aspect of our business, ensuring that our investment decisions align with the investing time horizons of our clients.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
April 16, 2019
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio structure (i)
Fixed income sectors (i) | ||||
Mortgage-Backed Securities | 52.4% | |||
U.S. Treasury Securities | 35.1% | |||
Investment Grade Corporates | 3.0% | |||
Commercial Mortgage-Backed Securities | 2.5% | |||
U.S. Government Agencies | 2.4% | |||
Collateralized Debt Obligations | 2.0% | |||
Municipal Bonds | 1.4% | |||
Asset-Backed Securities | 0.6% | |||
Non-U.S. Government Bonds | 0.1% |
Composition including fixed income credit quality (a)(i) |
| |||
AAA | 4.5% | |||
AA | 1.6% | |||
A | 2.3% | |||
BBB | 1.2% | |||
U.S. Government | 29.9% | |||
Federal Agencies | 54.8% | |||
Not Rated | 5.2% | |||
Cash & Cash Equivalents | 5.5% | |||
Other | (5.0)% | |||
Portfolio facts (i) | ||||
Average Duration (d) | 5.6 | |||
Average Effective Maturity (m) | 8.1 yrs. |
(a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. U.S. Government includes securities issued by the U.S. Department of the Treasury. Federal Agencies includes rated and unrated U.S. Agencyfixed-income securities, U.S. Agency mortgage-backed securities, and collateralized mortgage obligations of U.S. Agency mortgage-backed securities. Not Rated includes fixed income securities and fixed income derivatives, which have not been rated by any rating agency. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
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Portfolio Composition – continued
(d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a5-year duration is likely to lose about 5.00% of its value due to the interest rate move. |
(i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
(m) | In determining each instrument’s effective maturity for purposes of calculating the fund’s dollar-weighted average effective maturity, MFS uses the instrument’s stated maturity or, if applicable, an earlier date on which MFS believes it is probable that a maturity-shortening device (such as a put,pre-refunding or prepayment) will cause the instrument to be repaid. Such an earlier date can be substantially shorter than the instrument’s stated maturity. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions and may be negative.
Percentages are based on net assets as of February 28, 2019.
The portfolio is actively managed and current holdings may be different.
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Summary of Results
For the twelve months ended February 28, 2019, Class A shares of the MFS Government Securities Fund (“fund”) provided a total return of 2.75%, at net asset value. This compares with a return of 3.37% for the fund’s benchmark, the Bloomberg Barclays U.S. Government/Mortgage Bond Index.
Market Environment
The global economy decelerated during the reporting period, led by weakness in China and Europe as business and investor sentiment was undermined by growing trade frictions. Slower growth, along with tighter financial conditions, contributed to an uptick in market volatility late in the period. Equity valuations fell and credit spreads widened, fueled in part by concerns that the US Federal Reserve was on course to further tighten monetary policy after it lifted rates for a fourth time during the period and indicated its intention to hike several more times while allowing its balance sheet to run off at its predetermined pace.
The market’s negative reaction to these policy signals prompted the Fed to reverse course at the end of the period and indicate that its policy was on hold as inflation pressures abated. The Fed also indicated that it will maintain a larger balance sheet than it had previously. These dovish shifts helped equity valuations rebound, reduced volatility and narrowed credit spreads. Central banks globally are tilting more dovish as well, with China lowering reserve requirements, The Bank of Canada and Bank of England holding rates steady and the European Central Bank acknowledging that it may not be able to hike rates in the fall of 2019 as it had earlier projected.
Emerging markets experienced considerable volatility during the period as tighter global financial conditions exposed structural weakness in some countries. Those pressures were somewhat relieved at the end of the period as the Fed adopted its more dovish posture. However, slowing global growth and ongoing trade frictions remained concerns.
From a geopolitical perspective, the lack of consensus in the United Kingdom on the best path toward a rapidly approaching Brexit, a fractious Eurosceptic Italian coalition government, large-scale protests in France over stagnant wages, and news that Germany’s Angela Merkel will not seek another term as chancellor were sources of uncertainty in Europe. In emerging markets, new Brazilian president Jair Bolsanaro took office, with markets generally encouraged by his market-friendly agenda. In contrast, markets were nervous about the less-market-friendly approach of Mexico’s new president Andres Manuel Lopez Obrador. For much of the period, the contentiousUS-China trading relationship was a drag on global sentiment, although tentative signs of progress toward resolution helped steady markets late in the period. Concerns persisted about slowing Chinese economic activity.
Specific to the US Treasury sector, yields remained fairly range bound during the first half of the year but rose significantly in the third quarter of 2018 on robust economic growth. After the Fed Chair, Jay Powell, took on a surprisingly hawkish tone in October, coupled with concerns about peak growth and the impact of stalled trade negotiations, volatility increased and bullish investor sentiment waned. This was
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Management Review – continued
followed by a decline in yields from approximately 3.2% on the 10-year Treasury bond to 2.7% by the end of the reporting period. In order to soften some of these concerns, the Fed pivoted in January to a more dovish stance. Over the reporting period, the impact of the Fed hiking interest rates four times and concerns of a slowing economy helped flatten the curve; the 2-year to 10-year Treasury spread declined from approximately 0.61% to 0.20%.
The mortgage-backed securities sector was fairly stable during the first half of 2018 but underperformed starting in October as the Fed began to taper mortgage reinvestments and separately, volatility increased. At the beginning of 2019, mortgage-backed securities regained a fair amount of the underperformance suffered in the last quarter of 2018, as spread products, e.g., corporates, mortgages, and other securitized products, generally performed well.
Factors Affecting Performance
Relative to the Bloomberg Barclays U.S. Government/Mortgage Bond Index, the fund’sout-of-benchmark exposure tocommercial mortgage-backed securities (CMBS), which underperformed the benchmark over the reporting period, detracted from performance. Security selection within theMBS agency fixed ratesector also held back relative returns.
Conversely, the fund’s duration (d) and yield curve (y) positioning helped relative results as the yield curve flattened during the period, with rates rising in the front end and declining in the longer end. An underweight exposure and favorable bond selection within the Treasury sector further aided relative performance. Also contributing to performance was the fund’s hedged Yen carry trade; a strategy designed to benefit from the difference between the borrowing and lending rates of different currencies.
Respectfully,
Portfolio Manager(s)
Geoffrey Schechter and Jake Stone
(d) | Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a5-year duration is likely to lose about 5.00% of its value. |
(y) | A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates. |
Note to Shareholders: Effective September 1, 2018, Jake Stone became a Portfolio Manager of the Fund.
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
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PERFORMANCE SUMMARYTHROUGH 2/28/19
The following chart illustrates a representative class of the fund’s historical performance in comparison to its benchmark(s). Performance results include the deduction of the maximum applicable sales charge and reflect the percentage change in net asset value, including reinvestment of dividends and capital gains distributions. The performance of other share classes will be greater than or less than that of the class depicted below. Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect sales charges, commissions or expenses. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares.
Growth of a Hypothetical $10,000 Investment
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Performance Summary – continued
Total Returns through 2/28/19
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr | Life (t) | |||||||||
A | 7/25/84 | 2.75% | 1.27% | 2.31% | N/A | |||||||||
B | 8/30/93 | 1.99% | 0.52% | 1.55% | N/A | |||||||||
C | 4/01/96 | 1.88% | 0.50% | 1.53% | N/A | |||||||||
I | 1/02/97 | 2.90% | 1.51% | 2.56% | N/A | |||||||||
R1 | 4/01/05 | 1.99% | 0.52% | 1.55% | N/A | |||||||||
R2 | 10/31/03 | 2.50% | 1.02% | 2.06% | N/A | |||||||||
R3 | 4/01/05 | 2.65% | 1.25% | 2.30% | N/A | |||||||||
R4 | 4/01/05 | 3.01% | 1.51% | 2.56% | N/A | |||||||||
R6 | 7/02/12 | 3.13% | 1.62% | N/A | 1.22% | |||||||||
Comparative benchmark(s) | ||||||||||||||
Bloomberg Barclays U.S. Government/Mortgage Bond Index (f) | 3.37% | 1.95% | 2.74% | N/A | ||||||||||
Average annual with sales charge | ||||||||||||||
A With Initial Sales Charge (4.25%) | (1.61)% | 0.40% | 1.87% | N/A | ||||||||||
B With CDSC (Declining over six years from 4% to 0%) (v) | (2.01)% | 0.14% | 1.55% | N/A | ||||||||||
C With CDSC (1% for 12 months) (v) | 0.88% | 0.50% | 1.53% | N/A |
CDSC – Contingent Deferred Sales Charge.
Class I, R1, R2, R3, R4, and R6 shares do not have a sales charge.
(f) | Source: FactSet Research Systems Inc. |
(t) | For the period from the class inception date through the stated period end (for those share classes with less than 10 years of performance history). No comparative benchmark performance information is provided for “life” periods. (See Notes to Performance Summary.) |
(v) | Assuming redemption at the end of the applicable period. |
Benchmark Definition(s)
Bloomberg Barclays U.S. Government/Mortgage Bond Index – measures debt issued by the U.S. Government, and its agencies, as well as mortgage-backed pass-through securities of Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
It is not possible to invest directly in an index.
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented. Life returns are presented where the share class has less than 10 years of performance history and represent the average annual total return from the class inception date to the stated period end date. As the fund’s share classes may have different inception dates, the life returns may represent different time
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Performance Summary – continued
periods and may not be comparable. As a result, no comparative benchmark performance information is provided for life periods.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund’s performance results would be less favorable. Please see the prospectus and financial statements for complete details.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
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Fund expenses borne by the shareholders during the period, September 1, 2018 through February 28, 2019
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 1, 2018 through February 28, 2019.
The expenses include the payment of a portion of the transfer-agent-related expenses of MFS funds that invest in the fund. For further information, please see the Notes to Financial Statements.
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.
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Expense Table – continued
Share Class | Annualized Expense Ratio | Beginning Account Value 9/01/18 | Ending Account Value 2/28/19 | Expenses Paid During Period (p) 9/01/18-2/28/19 | ||||||||||||||
A | Actual | 0.83% | $1,000.00 | $1,017.48 | $4.15 | |||||||||||||
Hypothetical (h) | 0.83% | $1,000.00 | $1,020.68 | $4.16 | ||||||||||||||
B | Actual | 1.59% | $1,000.00 | $1,013.70 | $7.94 | |||||||||||||
Hypothetical (h) | 1.59% | $1,000.00 | $1,016.91 | $7.95 | ||||||||||||||
C | Actual | 1.59% | $1,000.00 | $1,013.68 | $7.94 | |||||||||||||
Hypothetical (h) | 1.59% | $1,000.00 | $1,016.91 | $7.95 | ||||||||||||||
I | Actual | 0.59% | $1,000.00 | $1,018.75 | $2.95 | |||||||||||||
Hypothetical (h) | 0.59% | $1,000.00 | $1,021.87 | $2.96 | ||||||||||||||
R1 | Actual | 1.59% | $1,000.00 | $1,013.70 | $7.94 | |||||||||||||
Hypothetical (h) | 1.59% | $1,000.00 | $1,016.91 | $7.95 | ||||||||||||||
R2 | Actual | 1.09% | $1,000.00 | $1,016.22 | $5.45 | |||||||||||||
Hypothetical (h) | 1.09% | $1,000.00 | $1,019.39 | $5.46 | ||||||||||||||
R3 | Actual | 0.84% | $1,000.00 | $1,017.48 | $4.20 | |||||||||||||
Hypothetical (h) | 0.84% | $1,000.00 | $1,020.63 | $4.21 | ||||||||||||||
R4 | Actual | 0.59% | $1,000.00 | $1,018.74 | $2.95 | |||||||||||||
Hypothetical (h) | 0.59% | $1,000.00 | $1,021.87 | $2.96 | ||||||||||||||
R6 | Actual | 0.48% | $1,000.00 | $1,019.29 | $2.40 | |||||||||||||
Hypothetical (h) | 0.48% | $1,000.00 | $1,022.41 | $2.41 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
Notes to Expense Table
Each class with a Rule12b-1 service fee is subject to a rebate of a portion of such fee. Such rebates are included in the expense ratios above. For Class A shares, this rebate reduced the expense ratio above by 0.01%. See Note 3 in the Notes to Financial Statements for additional information.
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2/28/19
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Bonds - 94.0% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
Asset-Backed & Securitized - 5.1% | ||||||||
A Voce CLO Ltd.,2014-1A, “A1R”, FLR, 3.947% (LIBOR - 3mo. + 1.16%), 7/15/2026 (n) | $ | 6,880,419 | $ | 6,879,386 | ||||
Chesapeake Funding II LLC,2018-1A, “A1”, 3.04%, 4/15/2030 (n) | 4,359,753 | 4,362,731 | ||||||
Chesapeake Funding II LLC,2018-3A, “A1”, 3.39%, 1/15/2031 (n) | 7,000,000 | 7,047,388 | ||||||
Citigroup Commercial Mortgage Trust, 2015-GC27, “A5”, 3.137%, 2/10/2048 | 1,000,000 | 994,152 | ||||||
Commercial Mortgage Trust, 2014-CR19, “A5”, 3.796%, 8/10/2047 | 1,000,000 | 1,030,380 | ||||||
Commercial Mortgage Trust,2015-DC1, “A5”, 3.35%, 2/10/2048 | 4,990,000 | 4,984,840 | ||||||
Commercial Mortgage Trust, 2015-LC21, “A4”, 3.708%, 7/10/2048 | 3,135,000 | 3,201,144 | ||||||
Commercial Mortgage Trust,2015-PC1, “A5”, 3.902%, 7/10/2050 | 5,300,000 | 5,453,568 | ||||||
Commercial Mortgage Trust, 2017-COR2, “A3”, 3.51%, 9/10/2050 | 5,351,861 | 5,323,752 | ||||||
CSAIL Commercial Mortgage Trust,2015-C2, “A4”, 3.504%, 6/15/2057 | 5,341,994 | 5,385,637 | ||||||
Dryden Senior Loan Fund,2018-55A, “A1”, CLO, FLR, 3.807% | ||||||||
(LIBOR - 3mo. + 1.02%), 4/15/2031 (n) | 6,145,237 | 6,072,963 | ||||||
GS Mortgage Securities Trust, 2015-GC30, “A4”, 3.382%, 5/10/2050 | 5,951,000 | 5,988,451 | ||||||
Loomis, Sayles & Co., CLO, “A2”, FLR, 4.179% (LIBOR - 3mo. + 1.4%), 4/15/2028 (n) | 5,409,775 | 5,332,128 | ||||||
Madison Park Funding Ltd.,2014-13A, “BR2”, FLR, 4.261% | ||||||||
(LIBOR - 3mo. + 1.5%), 4/19/2030 (n) | 5,711,934 | 5,633,595 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust,2017-C34, | ||||||||
“A4”, 3.536%, 11/15/2052 | 1,650,987 | 1,650,642 | ||||||
Morgan Stanley Capital I Trust,2018-H4, “XA”, 0.869%, 12/15/2051 (i) | 25,192,149 | 1,626,229 | ||||||
Symphony CLO Ltd.,2016-17A, “BR”, FLR, 3.987% (LIBOR - 3mo. + 1.2%), 4/15/2028 (n) | 4,840,622 | 4,763,758 | ||||||
TICP CLO Ltd., FLR, 3.601% (LIBOR - 3mo. + 0.8%), 4/20/2028 (n) | 8,140,500 | 8,073,284 | ||||||
UBS Commercial Mortgage Trust,2017-C1, “A4”, 3.544%, 11/15/2050 | 3,494,000 | 3,468,286 | ||||||
Wells Fargo Commercial Mortgage Trust,2015-C28, “A4”, 3.54%, 5/15/2048 | 5,531,348 | 5,593,483 |
11
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Asset-Backed & Securitized - continued | ||||||||
Wells Fargo Commercial Mortgage Trust, 2015-NXS1, “A5”, 3.148%, 5/15/2048 | $ | 2,177,277 | $ | 2,157,022 | ||||
Wells Fargo Commercial Mortgage Trust,2018-C48, “XA”, 0.958%, 1/15/2052 (i)(n) | 14,706,150 | 1,080,724 | ||||||
West CLO Ltd.2013-1A, “A1AR”, FLR, 3.899% (LIBOR - 3mo. + 1.16%), 11/07/2025 (n) | 832,462 | 832,104 | ||||||
|
| |||||||
$ | 96,935,647 | |||||||
Chemicals - 0.2% | ||||||||
Sherwin Williams Co., 2.75%, 6/01/2022 | $ | 5,063,000 | $ | 4,979,239 | ||||
Computer Software - 0.1% | ||||||||
Microsoft Corp., 3.125%, 11/03/2025 | $ | 1,640,000 | $ | 1,651,628 | ||||
Computer Software - Systems - 0.3% | ||||||||
Apple, Inc., 3.25%, 2/23/2026 | $ | 5,398,000 | $ | 5,396,179 | ||||
Conglomerates - 0.1% | ||||||||
United Technologies Corp., 3.95%, 8/16/2025 | $ | 2,647,000 | $ | 2,699,817 | ||||
Consumer Products - 0.2% | ||||||||
Reckitt Benckiser Treasury Services PLC, 2.75%, 6/26/2024 (n) | $ | 4,386,000 | $ | 4,245,336 | ||||
Major Banks - 0.3% | ||||||||
Bank of America Corp., 3.124% to 1/20/2022, FLR (LIBOR - 3mo. + 1.16%) to 1/20/2023 | $ | 3,275,000 | $ | 3,259,487 | ||||
UBS Group Funding (Switzerland) AG, 3.491%, 5/23/2023 (n) | 2,120,000 | 2,114,362 | ||||||
|
| |||||||
$ | 5,373,849 | |||||||
Medical & Health Technology & Services - 0.4% | ||||||||
Montefiore Obligated Group, 5.246%, 11/01/2048 | $ | 7,884,000 | $ | 8,236,274 | ||||
Mortgage-Backed - 52.2% | ||||||||
Fannie Mae, 5%, 4/01/2019 - 3/01/2042 | $ | 17,950,906 | $ | 19,165,545 | ||||
Fannie Mae, 4.84%, 5/01/2019 | 577,122 | 577,716 | ||||||
Fannie Mae, 5.5%, 5/01/2019 - 12/01/2038 | 17,086,333 | 18,538,513 | ||||||
Fannie Mae, 4.5%, 6/01/2019 - 6/01/2044 | 59,306,274 | 62,292,213 | ||||||
Fannie Mae, 4.785%, 8/01/2019 | 2,178,620 | 2,189,356 | ||||||
Fannie Mae, 5.05%, 8/01/2019 | 647,852 | 651,789 | ||||||
Fannie Mae, 4.67%, 9/01/2019 | 1,110,686 | 1,119,587 | ||||||
Fannie Mae, 4.94%, 9/01/2019 | 375,481 | 378,176 | ||||||
Fannie Mae, 4.14%, 8/01/2020 | 1,276,759 | 1,299,433 | ||||||
Fannie Mae, 5.19%, 9/01/2020 | 1,485,880 | 1,508,380 |
12
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Mortgage-Backed - continued | ||||||||
Fannie Mae, 6%, 2/01/2021 - 12/01/2037 | $ | 4,571,533 | $ | 5,003,169 | ||||
Fannie Mae, 2.152%, 1/25/2023 | 4,740,000 | 4,635,395 | ||||||
Fannie Mae, 2.41%, 5/01/2023 | 1,457,185 | 1,440,560 | ||||||
Fannie Mae, 2.55%, 5/01/2023 | 1,254,991 | 1,247,318 | ||||||
Fannie Mae, 2.59%, 5/01/2023 | 797,530 | 793,849 | ||||||
Fannie Mae, 3.78%, 10/01/2023 | 886,799 | 922,495 | ||||||
Fannie Mae, 3.5%, 5/25/2025 - 8/01/2048 | 106,723,285 | 107,292,982 | ||||||
Fannie Mae, 3.59%, 9/01/2026 | 1,017,210 | 1,052,136 | ||||||
Fannie Mae, 2.28%, 11/01/2026 | 913,301 | 871,733 | ||||||
Fannie Mae, 2.597%, 12/25/2026 | 10,346,000 | 9,950,142 | ||||||
Fannie Mae, 3.043%, 3/25/2028 | 4,554,000 | 4,484,826 | ||||||
Fannie Mae, 3.23%, 1/01/2029 | 2,710,063 | 2,697,874 | ||||||
Fannie Mae, 3%, 12/01/2031 - 11/01/2046 | 66,891,227 | 66,217,274 | ||||||
Fannie Mae, 6.5%, 1/01/2032 - 10/01/2037 | 1,900,412 | 2,119,813 | ||||||
Fannie Mae, 4%, 9/01/2040 - 10/01/2048 | 132,119,616 | 135,869,172 | ||||||
Fannie Mae, 2%, 5/25/2044 - 4/25/2046 | 5,693,221 | 5,465,287 | ||||||
Fannie Mae, TBA, 2.5%, 3/01/2034 - 4/01/2034 | 3,375,000 | 3,309,214 | ||||||
Fannie Mae, TBA, 3.5%, 3/01/2034 | 11,875,000 | 12,064,954 | ||||||
Freddie Mac, 1.883%, 5/25/2019 | 598,129 | 596,721 | ||||||
Freddie Mac, 6%, 8/01/2019 - 10/01/2038 | 3,295,239 | 3,581,421 | ||||||
Freddie Mac, 2.456%, 8/25/2019 | 2,412,787 | 2,406,900 | ||||||
Freddie Mac, 4.186%, 8/25/2019 | 2,800,000 | 2,805,992 | ||||||
Freddie Mac, 4.251%, 1/25/2020 | 3,106,000 | 3,131,082 | ||||||
Freddie Mac, 2.313%, 3/25/2020 | 6,780,410 | 6,748,037 | ||||||
Freddie Mac, 4.224%, 3/25/2020 | 4,136,712 | 4,175,399 | ||||||
Freddie Mac, 5%, 4/01/2020 - 7/01/2041 | 6,822,301 | 7,287,531 | ||||||
Freddie Mac, 3.808%, 8/25/2020 | 2,877,000 | 2,907,104 | ||||||
Freddie Mac, 3.034%, 10/25/2020 | 5,362,947 | 5,370,203 | ||||||
Freddie Mac, 2.856%, 1/25/2021 | 4,693,025 | 4,690,296 | ||||||
Freddie Mac, 5.5%, 4/01/2021 - 1/01/2038 | 4,846,032 | 5,235,362 | ||||||
Freddie Mac, 2.791%, 1/25/2022 | 2,546,000 | 2,542,040 | ||||||
Freddie Mac, 2.455%, 3/25/2022 | 3,365,154 | 3,343,072 | ||||||
Freddie Mac, 2.716%, 6/25/2022 | 4,738,552 | 4,721,075 | ||||||
Freddie Mac, 4.5%, 11/01/2022 - 5/01/2042 | 9,598,968 | 10,077,313 | ||||||
Freddie Mac, 2.51%, 11/25/2022 | 6,640,000 | 6,573,073 | ||||||
Freddie Mac, 3.32%, 2/25/2023 | 4,605,000 | 4,691,666 | ||||||
Freddie Mac, 3.25%, 4/25/2023 | 9,000,000 | 9,149,352 | ||||||
Freddie Mac, 3.3%, 4/25/2023 - 10/25/2026 | 12,522,861 | 12,702,914 | ||||||
Freddie Mac, 3.06%, 7/25/2023 | 3,476,000 | 3,502,304 | ||||||
Freddie Mac, 3.531%, 7/25/2023 | 240,000 | 246,249 | ||||||
Freddie Mac, 3.458%, 8/25/2023 | 4,600,000 | 4,707,092 | ||||||
Freddie Mac, 0.882%, 4/25/2024 (i) | 55,101,631 | 2,014,058 | ||||||
Freddie Mac, 0.608%, 7/25/2024 (i) | 59,803,309 | 1,652,796 |
13
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Mortgage-Backed - continued | ||||||||
Freddie Mac, 3.303%, 7/25/2024 | $ | 4,700,000 | $ | 4,785,147 | ||||
Freddie Mac, 3.064%, 8/25/2024 | 6,098,509 | 6,133,235 | ||||||
Freddie Mac, 2.67%, 12/25/2024 | 10,788,000 | 10,623,766 | ||||||
Freddie Mac, 2.811%, 1/25/2025 | 9,000,000 | 8,916,422 | ||||||
Freddie Mac, 3.329%, 5/25/2025 | 9,024,000 | 9,186,795 | ||||||
Freddie Mac, 4%, 7/01/2025 - 4/01/2044 | 8,444,409 | 8,675,671 | ||||||
Freddie Mac, 3.01%, 7/25/2025 | 2,651,000 | 2,649,865 | ||||||
Freddie Mac, 2.745%, 1/25/2026 | 8,567,000 | 8,403,686 | ||||||
Freddie Mac, 2.673%, 3/25/2026 | 7,802,000 | 7,612,081 | ||||||
Freddie Mac, 3.224%, 3/25/2027 | 8,182,000 | 8,216,188 | ||||||
Freddie Mac, 3.117%, 6/25/2027 | 5,518,817 | 5,496,880 | ||||||
Freddie Mac, 0.578%, 7/25/2027 (i) | 106,652,354 | 4,498,287 | ||||||
Freddie Mac, 3.194%, 7/25/2027 | 8,176,000 | 8,173,521 | ||||||
Freddie Mac, 0.436%, 8/25/2027 (i) | 85,011,442 | 2,715,155 | ||||||
Freddie Mac, 3.187%, 9/25/2027 | 19,816,000 | 19,804,420 | ||||||
Freddie Mac, 3.286%, 11/25/2027 | 7,673,000 | 7,711,371 | ||||||
Freddie Mac, 3.444%, 12/25/2027 | 2,558,000 | 2,601,068 | ||||||
Freddie Mac, 0.291%, 1/25/2028 (i) | 152,069,846 | 3,794,614 | ||||||
Freddie Mac, 0.303%, 1/25/2028 (i) | 62,582,531 | 1,598,308 | ||||||
Freddie Mac, 0.134%, 2/25/2028 (i) | 177,828,111 | 2,353,324 | ||||||
Freddie Mac, 0.12%, 4/25/2028 (i) | 114,176,786 | 1,416,785 | ||||||
Freddie Mac, 3.85%, 5/25/2028 | 5,062,000 | 5,298,722 | ||||||
Freddie Mac, 6.5%, 5/01/2037 | 335,354 | 369,594 | ||||||
Freddie Mac, 3.5%, 11/01/2037 - 1/01/2047 | 87,306,255 | 87,883,036 | ||||||
Freddie Mac, 3%, 1/01/2038 - 11/01/2046 | 59,007,039 | 57,994,775 | ||||||
Ginnie Mae, 2.5%, 7/20/2032 - 6/20/2042 | 2,551,000 | 2,355,732 | ||||||
Ginnie Mae, 5.5%, 3/15/2033 - 1/20/2042 | 3,727,173 | 4,038,595 | ||||||
Ginnie Mae, 4.5%, 7/20/2033 - 9/20/2041 | 9,970,318 | 10,465,922 | ||||||
Ginnie Mae, 4%, 10/15/2039 - 4/20/2041 | 2,117,205 | 2,186,951 | ||||||
Ginnie Mae, 3.5%, 12/15/2041 - 10/20/2048 | 45,446,677 | 45,974,439 | ||||||
Ginnie Mae, 3%, 2/20/2043 - 12/20/2048 | 57,175,106 | 56,487,378 | ||||||
Ginnie Mae, 6.158%, 4/20/2058 | 83,044 | 86,872 | ||||||
Ginnie Mae, 0.66%, 2/16/2059 (i) | 7,830,224 | 461,479 | ||||||
|
| |||||||
$ | 996,988,037 | |||||||
Municipals - 1.4% | ||||||||
New Jersey Economic Development Authority State Pension Funding Rev., Capital Appreciation, “B”, 0%, 2/15/2023 | $ | 14,792,000 | $ | 12,732,658 | ||||
Philadelphia, PA, School District Rev., “A”, 5.995%, 9/01/2030 | 3,280,000 | 3,857,510 | ||||||
State of California (Build America Bonds), 7.6%, 11/01/2040 | 4,220,000 | 6,305,355 | ||||||
University of California Rev. (Build America Bonds), 5.77%, 5/15/2043 | 2,750,000 | 3,364,405 | ||||||
|
| |||||||
$ | 26,259,928 |
14
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
Other Banks & Diversified Financials - 0.5% | ||||||||
Banque Federative du Credit Mutuel S.A., 2.5%, 4/13/2021 (n) | $ | 4,294,000 | $ | 4,231,902 | ||||
ING Groep N.V., 3.15%, 3/29/2022 | 5,120,000 | 5,087,204 | ||||||
|
| |||||||
$ | 9,319,106 | |||||||
Restaurants - 0.3% | ||||||||
Starbucks Corp., 3.8%, 8/15/2025 | $ | 6,062,000 | $ | 6,151,601 | ||||
Supranational - 0.2% | ||||||||
Inter-American Development Bank, 4.375%, 1/24/2044 | $ | 2,796,000 | $ | 3,247,817 | ||||
Tobacco - 0.2% | ||||||||
B.A.T Capital Corp., 2.764%, 8/15/2022 | $ | 4,264,000 | $ | 4,152,693 | ||||
U.S. Government Agencies and Equivalents - 2.4% | ||||||||
AID-Tunisia, 2.452%, 7/24/2021 | $ | 4,063,000 | $ | 4,045,614 | ||||
AID-Ukraine, 1.844%, 5/16/2019 | 7,271,000 | 7,261,773 | ||||||
AID-Ukraine, 1.847%, 5/29/2020 | 3,250,000 | 3,224,335 | ||||||
Hashemite Kingdom of Jordan, 1.945%, 6/23/2019 | 5,532,000 | 5,522,610 | ||||||
Hashemite Kingdom of Jordan, 2.503%, 10/30/2020 | 6,688,000 | 6,672,736 | ||||||
Private Export Funding Corp., 2.25%, 3/15/2020 | 1,681,000 | 1,675,194 | ||||||
Private Export Funding Corp., 2.3%, 9/15/2020 | 4,100,000 | 4,070,546 | ||||||
Small Business Administration, 6.35%, 4/01/2021 | 45,274 | 46,197 | ||||||
Small Business Administration, 6.34%, 5/01/2021 | 74,377 | 75,774 | ||||||
Small Business Administration, 6.44%, 6/01/2021 | 78,108 | 80,054 | ||||||
Small Business Administration, 6.625%, 7/01/2021 | 70,849 | 72,627 | ||||||
Small Business Administration, 6.07%, 3/01/2022 | 77,085 | 78,958 | ||||||
Small Business Administration, 4.98%, 11/01/2023 | 146,387 | 151,414 | ||||||
Small Business Administration, 4.89%, 12/01/2023 | 364,649 | 376,178 | ||||||
Small Business Administration, 4.77%, 4/01/2024 | 410,488 | 422,154 | ||||||
Small Business Administration, 5.52%, 6/01/2024 | 192,764 | 200,384 | ||||||
Small Business Administration, 4.99%, 9/01/2024 | 332,736 | 343,970 | ||||||
Small Business Administration, 4.86%, 10/01/2024 | 186,172 | 191,634 | ||||||
Small Business Administration, 4.86%, 1/01/2025 | 413,994 | 428,010 | ||||||
Small Business Administration, 5.11%, 4/01/2025 | 305,445 | 315,722 | ||||||
Small Business Administration, 2.21%, 2/01/2033 | 1,817,693 | 1,750,165 | ||||||
Small Business Administration, 2.22%, 3/01/2033 | 3,065,855 | 2,962,320 | ||||||
Small Business Administration, 3.15%, 7/01/2033 | 2,979,532 | 2,985,811 | ||||||
Small Business Administration, 3.16%, 8/01/2033 | 1,059,475 | 1,061,004 | ||||||
Small Business Administration, 3.62%, 9/01/2033 | 1,124,935 | 1,152,299 | ||||||
|
| |||||||
$ | 45,167,483 | |||||||
U.S. Treasury Obligations - 29.8% | ||||||||
U.S. Treasury Bonds, 6.25%, 8/15/2023 | $ | 1,445,000 | $ | 1,669,991 | ||||
U.S. Treasury Bonds, 6%, 2/15/2026 | 5,933,000 | 7,201,642 |
15
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Bonds - continued | ||||||||
U.S. Treasury Obligations - continued | ||||||||
U.S. Treasury Bonds, 6.75%, 8/15/2026 | $ | 981,000 | $ | 1,254,071 | ||||
U.S. Treasury Bonds, 6.375%, 8/15/2027 | 2,309,000 | 2,951,642 | ||||||
U.S. Treasury Bonds, 4.375%, 2/15/2038 | 2,078,000 | 2,530,371 | ||||||
U.S. Treasury Bonds, 4.5%, 8/15/2039 | 11,926,300 | 14,759,262 | ||||||
U.S. Treasury Bonds, 3.125%, 2/15/2043 | 9,748,800 | 9,838,672 | ||||||
U.S. Treasury Bonds, 2.875%, 5/15/2043 | 27,528,200 | 26,570,089 | ||||||
U.S. Treasury Bonds, 2.5%, 2/15/2045 | 97,983,000 | 87,694,785 | ||||||
U.S. Treasury Bonds, 2.875%, 11/15/2046 | 26,245,000 | 25,226,981 | ||||||
U.S. Treasury Bonds, TIPS, 0.375%, 1/15/2027 | 19,971,040 | 19,424,957 | ||||||
U.S. Treasury Notes, 2.625%, 8/15/2020 | 21,322,000 | 21,341,156 | ||||||
U.S. Treasury Notes, 3.125%, 5/15/2021 | 93,251,000 | 94,460,349 | ||||||
U.S. Treasury Notes, 1.75%, 5/15/2022 | 14,023,000 | 13,700,909 | ||||||
U.S. Treasury Notes, 2.5%, 8/15/2023 (f) | 136,673,000 | 136,571,563 | ||||||
U.S. Treasury Notes, 2.875%, 7/31/2025 | 67,640,000 | 68,744,434 | ||||||
U.S. Treasury Notes, 2%, 11/15/2026 | 25,204,000 | 24,074,743 | ||||||
U.S. Treasury Notes, 2.75%, 2/15/2028 | 10,157,000 | 10,200,643 | ||||||
|
| |||||||
$ | 568,216,260 | |||||||
Utilities - Electric Power - 0.3% | ||||||||
Enel Finance International N.V., 2.875%, 5/25/2022 (n) | $ | 5,254,000 | $ | 5,103,487 | ||||
Total Bonds (Identified Cost, $1,807,249,577) | $ | 1,794,124,381 | ||||||
Investment Companies (h) - 1.2% | ||||||||
Money Market Funds - 1.2% | ||||||||
MFS Institutional Money Market Portfolio, 2.49% (v) (Identified Cost, $23,226,593) | 23,226,827 | $ | 23,226,827 | |||||
Other Assets, Less Liabilities - 4.8% | 91,803,438 | |||||||
Net Assets - 100.0% | $ | 1,909,154,646 |
(f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
(h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $23,226,827 and $1,794,124,381, respectively. |
(i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the 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 $65,773,148, representing 3.4% of net assets. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
16
Table of Contents
Portfolio of Investments – continued
The following abbreviations are used in this report and are defined:
CLO | Collateralized Loan Obligation |
FLR | Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). Theperiod-end rate reported may not be the current rate. All reference rates are USD unless otherwise noted. |
LIBOR | London Interbank Offered Rate |
PLC | Public Limited Company |
TBA | To Be Announced |
TIPS | Treasury Inflation Protected Security |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
JPY | Japanese Yen |
Derivative Contracts at 2/28/19
Forward Foreign Currency Exchange Contracts
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||||
Asset Derivatives | ||||||||||||||||||
USD | 101,837,290 | JPY | 11,009,670,000 | Goldman Sachs International | 4/05/2019 | $2,802,215 | ||||||||||||
|
|
Futures Contracts
Description | Long/ Short | Currency | Contracts | Notional Amount | Expiration Date | Value/ Unrealized Appreciation (Depreciation) | ||||||||||||
Asset Derivatives | ||||||||||||||||||
Interest Rate Futures | ||||||||||||||||||
U.S. Treasury Note 10 yr | Short | USD | 325 | $39,650,000 | June - 2019 | $208,730 | ||||||||||||
|
| |||||||||||||||||
Liabilitiy Derivatives | ||||||||||||||||||
Interest Rate Futures | ||||||||||||||||||
U.S. Treasury Note 2 yr | Long | USD | 650 | $137,926,953 | June - 2019 | $(144,478 | ) | |||||||||||
|
|
At February 28, 2019, the fund had liquid securities with an aggregate value of $303,775 to cover any collateral or margin obligations for certain derivative contracts.
See Notes to Financial Statements
17
Table of Contents
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 2/28/19
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
Assets | ||||
Investments in unaffiliated issuers, at value (identified cost, $1,807,249,577) | $1,794,124,381 | |||
Investments in affiliated issuers, at value (identified cost, $23,226,593) | 23,226,827 | |||
Cash | 408 | |||
Foreign currency, at value (identified cost, $96,866,362) | 98,760,612 | |||
Receivables for | ||||
Forward foreign currency exchange contracts | 2,802,215 | |||
Net daily variation margin on open futures contracts | 10,160 | |||
Investments sold | 455,384 | |||
TBA sale commitments | 1,656,665 | |||
Fund shares sold | 1,754,508 | |||
Interest | 6,545,196 | |||
Other assets | 7,200 | |||
Total assets | $1,929,343,556 | |||
Liabilities | ||||
Payables for | ||||
Distributions | $366,170 | |||
Investments purchased | 883,180 | |||
TBA purchase commitments | 17,048,216 | |||
Fund shares reacquired | 1,080,445 | |||
Payable to affiliates | ||||
Investment adviser | 42,434 | |||
Shareholder servicing costs | 612,003 | |||
Distribution and service fees | 9,092 | |||
Payable for independent Trustees’ compensation | 8,439 | |||
Accrued expenses and other liabilities | 138,931 | |||
Total liabilities | $20,188,910 | |||
Net assets | $1,909,154,646 | |||
Net assets consist of | ||||
Paid-in capital | $2,016,136,645 | |||
Total distributable earnings (loss) | (106,981,999 | ) | ||
Net assets | $1,909,154,646 | |||
Shares of beneficial interest outstanding | 199,265,490 |
18
Table of Contents
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $596,678,172 | 62,236,959 | $9.59 | |||||||||
Class B | 8,810,522 | 920,140 | 9.58 | |||||||||
Class C | 19,919,075 | 2,074,408 | 9.60 | |||||||||
Class I | 43,626,750 | 4,555,160 | 9.58 | |||||||||
Class R1 | 2,124,914 | 221,909 | 9.58 | |||||||||
Class R2 | 86,430,716 | 9,025,933 | 9.58 | |||||||||
Class R3 | 66,976,799 | 6,989,451 | 9.58 | |||||||||
Class R4 | 58,676,635 | 6,121,326 | 9.59 | |||||||||
Class R6 | 1,025,911,063 | 107,120,204 | 9.58 |
(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 $10.02 [100 / 95.75 x $9.59]. On sales of $100,000 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 R6. |
See Notes to Financial Statements
19
Table of Contents
Financial Statements
Year ended 2/28/19
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 (loss) | ||||
Income | ||||
Interest | $57,352,340 | |||
Dividends from affiliated issuers | 1,011,372 | |||
Other | 218,925 | |||
Total investment income | $58,582,637 | |||
Expenses | ||||
Management fee | $7,904,953 | |||
Distribution and service fees | 2,515,624 | |||
Shareholder servicing costs | 2,098,250 | |||
Administrative services fee | 288,183 | |||
Independent Trustees’ compensation | 37,048 | |||
Custodian fee | 109,343 | |||
Shareholder communications | 76,288 | |||
Audit and tax fees | 63,906 | |||
Legal fees | 14,756 | |||
Miscellaneous | 278,120 | |||
Total expenses | $13,386,471 | |||
Fees paid indirectly | (3,022 | ) | ||
Reduction of expenses by investment adviser and distributor | (240,558 | ) | ||
Net expenses | $13,142,891 | |||
Net investment income (loss) | $45,439,746 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $(8,685,488 | ) | ||
Affiliated issuers | 2,489 | |||
Futures contracts | 1,147,797 | |||
Forward foreign currency exchange contracts | (6,014,793 | ) | ||
Foreign currency | 2,076,142 | |||
Net realized gain (loss) | $(11,473,853 | ) | ||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $16,787,844 | |||
Affiliated issuers | (1,918 | ) | ||
Futures contracts | 98,774 | |||
Forward foreign currency exchange contracts | 2,802,215 | |||
Translation of assets and liabilities in foreign currencies | 1,894,250 | |||
Net unrealized gain (loss) | $21,581,165 | |||
Net realized and unrealized gain (loss) | $10,107,312 | |||
Change in net assets from operations | $55,547,058 |
See Notes to Financial Statements
20
Table of Contents
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.
Year ended | ||||||||
2/28/19 | 2/28/18 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $45,439,746 | $46,140,406 | ||||||
Net realized gain (loss) | (11,473,853 | ) | (8,098,958 | ) | ||||
Net unrealized gain (loss) | 21,581,165 | (45,255,507 | ) | |||||
Change in net assets from operations | $55,547,058 | $(7,214,059 | ) | |||||
Total distributions to shareholders (a) | $(49,169,967 | ) | $(52,875,416 | ) | ||||
Change in net assets from fund share transactions | $(115,663,552 | ) | $(16,011,684 | ) | ||||
Total change in net assets | $(109,286,461 | ) | $(76,101,159 | ) | ||||
Net assets | ||||||||
At beginning of period | 2,018,441,107 | 2,094,542,266 | ||||||
At end of period (b) | $1,909,154,646 | $2,018,441,107 |
(a) | Distributions from net investment income and from net realized gain are no longer required to be separately disclosed. See Note 2. For the year ended February 28, 2018, distributions from net investment income were $52,875,416. |
(b) | Parenthetical disclosure of undistributed net investment income is no longer required. See Note 2. For the year ended February 28, 2018, end of period net assets included undistributed net investment income of $3,611,730. |
See Notes to Financial Statements
21
Table of Contents
Financial Statements
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that 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 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.55 | $9.84 | $10.17 | $10.20 | $10.05 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.20 | $0.20 | $0.19 | (c) | $0.18 | $0.16 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.06 | (0.26 | ) | (0.29 | ) | (0.01 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.26 | $(0.06 | ) | $(0.10 | ) | $0.17 | $0.36 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.22 | ) | $(0.23 | ) | $(0.23 | ) | $(0.20 | ) | $(0.21 | ) | ||||||||||
Net asset value, end of period (x) | $9.59 | $9.55 | $9.84 | $10.17 | $10.20 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 2.75 | (0.61 | ) | (0.97 | )(c) | 1.69 | 3.59 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.86 | 0.87 | 0.88 | (c) | 0.88 | 0.88 | ||||||||||||||
Expenses after expense reductions (f) | 0.84 | 0.85 | 0.86 | (c) | 0.87 | 0.87 | ||||||||||||||
Net investment income (loss) | 2.12 | 2.06 | 1.93 | (c) | 1.74 | 1.58 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $596,678 | $625,457 | $685,256 | $719,585 | $692,680 |
See Notes to Financial Statements
22
Table of Contents
Financial Highlights – continued
Class B | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.54 | $9.82 | $10.16 | $10.19 | $10.04 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.13 | $0.13 | $0.12 | (c) | $0.10 | $0.08 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.06 | (0.25 | ) | (0.30 | ) | (0.01 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.19 | $(0.12 | ) | $(0.18 | ) | $0.09 | $0.28 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.15 | ) | $(0.16 | ) | $(0.16 | ) | $(0.12 | ) | $(0.13 | ) | ||||||||||
Net asset value, end of period (x) | $9.58 | $9.54 | $9.82 | $10.16 | $10.19 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 1.99 | (1.26 | ) | (1.82 | )(c) | 0.93 | 2.82 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.61 | 1.62 | 1.63 | (c) | 1.63 | 1.63 | ||||||||||||||
Expenses after expense reductions (f) | 1.60 | 1.61 | 1.62 | (c) | 1.62 | 1.62 | ||||||||||||||
Net investment income (loss) | 1.37 | 1.31 | 1.18 | (c) | 0.99 | 0.83 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $8,811 | $12,968 | $18,013 | $22,289 | $23,857 | |||||||||||||||
Class C | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.57 | $9.85 | $10.19 | $10.22 | $10.07 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.13 | $0.13 | $0.12 | (c) | $0.10 | $0.08 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.05 | (0.25 | ) | (0.30 | ) | (0.01 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.18 | $(0.12 | ) | $(0.18 | ) | $0.09 | $0.28 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.15 | ) | $(0.16 | ) | $(0.16 | ) | $(0.12 | ) | $(0.13 | ) | ||||||||||
Net asset value, end of period (x) | $9.60 | $9.57 | $9.85 | $10.19 | $10.22 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 1.88 | (1.25 | ) | (1.81 | )(c) | 0.93 | 2.81 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.61 | 1.62 | 1.63 | (c) | 1.63 | 1.63 | ||||||||||||||
Expenses after expense reductions (f) | 1.60 | 1.61 | 1.62 | (c) | 1.62 | 1.62 | ||||||||||||||
Net investment income (loss) | 1.37 | 1.30 | 1.17 | (c) | 0.98 | 0.82 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $19,919 | $29,766 | $41,824 | $49,104 | $51,361 |
See Notes to Financial Statements
23
Table of Contents
Financial Highlights – continued
Class I | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.55 | $9.83 | $10.16 | $10.20 | $10.05 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.22 | $0.22 | $0.22 | (c) | $0.20 | $0.18 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.05 | (0.24 | ) | (0.29 | ) | (0.02 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.27 | $(0.02 | ) | $(0.07 | ) | $0.18 | $0.38 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.24 | ) | $(0.26 | ) | $(0.26 | ) | $(0.22 | ) | $(0.23 | ) | ||||||||||
Net asset value, end of period (x) | $9.58 | $9.55 | $9.83 | $10.16 | $10.20 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 2.90 | (0.26 | ) | (0.73 | )(c) | 1.85 | 3.85 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.61 | 0.62 | 0.63 | (c) | 0.63 | 0.63 | ||||||||||||||
Expenses after expense reductions (f) | 0.60 | 0.61 | 0.62 | (c) | 0.62 | 0.63 | ||||||||||||||
Net investment income (loss) | 2.36 | 2.29 | 2.17 | (c) | 1.98 | 1.80 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $43,627 | $39,572 | $43,439 | $42,563 | $22,984 | |||||||||||||||
Class R1 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.54 | $9.83 | $10.16 | $10.19 | $10.04 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.13 | $0.13 | $0.12 | (c) | $0.10 | $0.08 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.06 | (0.26 | ) | (0.29 | ) | (0.01 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.19 | $(0.13 | ) | $(0.17 | ) | $0.09 | $0.28 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.15 | ) | $(0.16 | ) | $(0.16 | ) | $(0.12 | ) | $(0.13 | ) | ||||||||||
Net asset value, end of period (x) | $9.58 | $9.54 | $9.83 | $10.16 | $10.19 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 1.99 | (1.36 | ) | (1.72 | )(c) | 0.93 | 2.82 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.61 | 1.62 | 1.63 | (c) | 1.63 | 1.63 | ||||||||||||||
Expenses after expense reductions (f) | 1.60 | 1.61 | 1.62 | (c) | 1.62 | 1.63 | ||||||||||||||
Net investment income (loss) | 1.37 | 1.31 | 1.18 | (c) | 0.99 | 0.82 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $2,125 | $2,237 | $3,265 | $4,671 | $5,128 |
See Notes to Financial Statements
24
Table of Contents
Financial Highlights – continued
Class R2 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.54 | $9.83 | $10.16 | $10.19 | $10.04 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.18 | $0.18 | $0.17 | (c) | $0.15 | $0.13 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.06 | (0.26 | ) | (0.29 | ) | (0.01 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.24 | $(0.08 | ) | $(0.12 | ) | $0.14 | $0.33 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.20 | ) | $(0.21 | ) | $(0.21 | ) | $(0.17 | ) | $(0.18 | ) | ||||||||||
Net asset value, end of period (x) | $9.58 | $9.54 | $9.83 | $10.16 | $10.19 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 2.50 | (0.86 | ) | (1.22 | )(c) | 1.44 | 3.33 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.11 | 1.12 | 1.13 | (c) | 1.13 | 1.13 | ||||||||||||||
Expenses after expense reductions (f) | 1.10 | 1.11 | 1.12 | (c) | 1.12 | 1.13 | ||||||||||||||
Net investment income (loss) | 1.87 | 1.80 | 1.68 | (c) | 1.49 | 1.33 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $86,431 | $98,060 | $111,123 | $122,117 | $139,048 | |||||||||||||||
Class R3 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.55 | $9.83 | $10.17 | $10.20 | $10.05 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.20 | $0.20 | $0.19 | (c) | $0.18 | $0.16 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.05 | (0.25 | ) | (0.30 | ) | (0.01 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.25 | $(0.05 | ) | $(0.11 | ) | $0.17 | $0.36 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.22 | ) | $(0.23 | ) | $(0.23 | ) | $(0.20 | ) | $(0.21 | ) | ||||||||||
Net asset value, end of period (x) | $9.58 | $9.55 | $9.83 | $10.17 | $10.20 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 2.65 | (0.51 | ) | (1.07 | )(c) | 1.69 | 3.59 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.86 | 0.87 | 0.88 | (c) | 0.88 | 0.88 | ||||||||||||||
Expenses after expense reductions (f) | 0.85 | 0.86 | 0.87 | (c) | 0.87 | 0.88 | ||||||||||||||
Net investment income (loss) | 2.12 | 2.05 | 1.93 | (c) | 1.74 | 1.57 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $66,977 | $79,274 | $88,434 | $109,531 | $105,929 |
See Notes to Financial Statements
25
Table of Contents
Financial Highlights – continued
Class R4 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.55 | $9.84 | $10.17 | $10.21 | $10.06 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.22 | $0.23 | $0.22 | (c) | $0.20 | $0.18 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.06 | (0.26 | ) | (0.29 | ) | (0.02 | ) | 0.20 | ||||||||||||
Total from investment operations | $0.28 | $(0.03 | ) | $(0.07 | ) | $0.18 | $0.38 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.24 | ) | $(0.26 | ) | $(0.26 | ) | $(0.22 | ) | $(0.23 | ) | ||||||||||
Net asset value, end of period (x) | $9.59 | $9.55 | $9.84 | $10.17 | $10.21 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 3.01 | (0.36 | ) | (0.72 | )(c) | 1.85 | 3.84 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.61 | 0.62 | 0.63 | (c) | 0.63 | 0.63 | ||||||||||||||
Expenses after expense reductions (f) | 0.60 | 0.61 | 0.62 | (c) | 0.62 | 0.63 | ||||||||||||||
Net investment income (loss) | 2.36 | 2.30 | 2.18 | (c) | 1.99 | 1.82 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $58,677 | $64,691 | $64,371 | $86,552 | $77,065 | |||||||||||||||
Class R6 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $9.54 | $9.83 | $10.16 | $10.20 | $10.05 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.24 | $0.24 | $0.23 | (c) | $0.21 | $0.20 | ||||||||||||||
Net realized and unrealized gain (loss) | 0.05 | (0.26 | ) | (0.29 | ) | (0.01 | ) | 0.19 | ||||||||||||
Total from investment operations | $0.29 | $(0.02 | ) | $(0.06 | ) | $0.20 | $0.39 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.25 | ) | $(0.27 | ) | $(0.27 | ) | $(0.24 | ) | $(0.24 | ) | ||||||||||
Net asset value, end of period (x) | $9.58 | $9.54 | $9.83 | $10.16 | $10.20 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 3.13 | (0.25 | ) | (0.61 | )(c) | 1.96 | 3.96 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.50 | 0.50 | 0.51 | (c) | 0.52 | 0.52 | ||||||||||||||
Expenses after expense reductions (f) | 0.49 | 0.50 | 0.50 | (c) | 0.51 | 0.51 | ||||||||||||||
Net investment income (loss) | 2.48 | 2.42 | 2.30 | (c) | 2.10 | 1.94 | ||||||||||||||
Portfolio turnover | 56 | 20 | 48 | 88 | 67 | |||||||||||||||
Net assets at end of period (000 omitted) | $1,025,911 | $1,066,416 | $1,038,818 | $1,020,504 | $1,038,851 |
See Notes to Financial Statements
26
Table of Contents
Financial Highlights – continued
(c) | Amount reflects aone-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(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 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
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(1) Business and Organization
MFS Government Securities Fund (the fund) is a diversified series of MFS Series Trust XIII (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as anopen-end management investment company.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(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 increases and decreases in net assets from operations 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.
In March 2017, the FASB issued Accounting Standards Update2017-08, Receivables –Nonrefundable Fees and Other Costs (Subtopic310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU2017-08”). For entities that hold callable debt securities at a premium, ASU2017-08 requires that the premium be amortized to the earliest call date. ASU2017-08 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Management has evaluated the potential impacts of ASU2017-08 and believes that adoption of ASU2017-08 will not have a material effect on the fund’s overall financial position or its overall results of operations.
In August 2018, the Securities and Exchange Commission (SEC) released its Final Rule on Disclosure Update and Simplification (the “Final Rule”) which is intended to simplify an issuer’s disclosure compliance efforts by removing redundant or outdated disclosure requirements without significantly altering the mix of information provided to investors. Effective with the current reporting period, the fund adopted the Final Rule with the impacts being that the fund is no longer required to present the components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributions to shareholders and the amount of undistributed net investment income on the Statements of Changes in Net Assets.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to
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setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by athird-party pricing service for proximate time periods.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. In determining values, 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. 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
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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. Other financial instruments are derivative instruments, such as futures contracts and forward foreign currency exchange contracts. The following is a summary of the levels used as of February 28, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
U.S. Treasury Bonds & U.S. Government Agency & Equivalents | $— | $613,383,743 | $— | $613,383,743 | ||||||||||||
Non-U.S. Sovereign Debt | — | 3,247,817 | — | 3,247,817 | ||||||||||||
Municipal Bonds | — | 26,259,928 | — | 26,259,928 | ||||||||||||
U.S. Corporate Bonds | — | 32,374,225 | — | 32,374,225 | ||||||||||||
Residential Mortgage-Backed Securities | — | 996,988,037 | — | 996,988,037 | ||||||||||||
Commercial Mortgage-Backed Securities | — | 47,938,309 | — | 47,938,309 | ||||||||||||
Asset-Backed Securities (including CDOs) | — | 48,997,338 | — | 48,997,338 | ||||||||||||
Foreign Bonds | — | 24,934,984 | — | 24,934,984 | ||||||||||||
Mutual Funds | 23,226,827 | — | — | 23,226,827 | ||||||||||||
Total | $23,226,827 | $1,794,124,381 | $— | $1,817,351,208 | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts – Assets | $208,730 | $— | $— | $208,730 | ||||||||||||
Futures Contracts – Liabilities | (144,478 | ) | — | — | (144,478 | ) | ||||||||||
Forward Foreign Currency Exchange Contracts – Assets | — | 2,802,215 | — | 2,802,215 |
For further information regarding security characteristics, see the Portfolio of Investments.
Inflation-Adjusted Debt Securities– The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par
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value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
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.
Derivatives– The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate or currency exposure, or as alternatives to direct investments. Derivatives are used for hedging ornon-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at February 28, 2019 as reported in the Statement of Assets and Liabilities:
Fair Value (a) | ||||||||||
Risk | Derivative Contracts | Asset Derivatives | Liability Derivatives | |||||||
Interest Rate | Interest Rate Futures | $208,730 | $(144,478 | ) | ||||||
Foreign Exchange | Forward Foreign Currency | |||||||||
Exchange Contracts | 2,802,215 | — | ||||||||
Total | $3,010,945 | $(144,478 | ) |
(a) | Values presented in this table for futures contracts correspond to the values reported in the fund’s Portfolio of Investments. Only the current day net variation margin for futures contracts is separately reported within the fund’s Statement of Assets and Liabilities. |
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The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended February 28, 2019 as reported in the Statement of Operations:
Risk | Futures Contracts | Forward Foreign Currency Exchange Contracts | ||||||
Interest Rate | $1,147,797 | $— | ||||||
Foreign Exchange | — | (6,014,793 | ) | |||||
Total | $1,147,797 | $(6,014,793 | ) |
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended February 28, 2019 as reported in the Statement of Operations:
Risk | Futures Contracts | Forward Foreign Currency Exchange Contracts | ||||||
Interest Rate | $98,774 | $— | ||||||
Foreign Exchange | — | 2,802,215 | ||||||
Total | $98,774 | $2,802,215 |
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, thenon-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund’s custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party
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to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts– The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
Forward Foreign Currency Exchange Contracts– The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or fornon-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. Fornon-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the
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terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Dollar Roll Transactions– The fund enters into dollar roll transactions, with respect to mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, in which the fund sells mortgage-backed securities to financial institutions and simultaneously agrees to purchase similar (same issuer, type and coupon) securities at a later date at an agreed-upon price. During the period between the sale and repurchase in a dollar roll transaction the fund will not be entitled to receive interest and principal payments on the securities sold but is compensated by interest earned on the proceeds of the initial sale and by a lower purchase price on the securities to be repurchased which enhances the fund’s total return. The fund accounts for dollar roll transactions as purchases and sales and realizes gains and losses on these transactions.
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. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Some securities may be purchased on a “when-issued” or “forward delivery” basis, which means that the securities will be delivered to the fund at a future date, usually beyond customary settlement time. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted upward or downward based on the rate of inflation. Interest is accrued based on the principal value, which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond is generally recorded as an increase or decrease in interest income, respectively, even though the adjusted principal is not received until maturity. Interest payments received in additional securities are recorded on theex-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.
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The fund invests a significant portion of its assets in asset-backed and/or mortgage-backed securities. For these securities, the value of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult. U.S. Government securities not supported as to the payment of principal or interest by the U.S. Treasury, such as those issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, are subject to greater credit risk than are U.S. Government securities supported by the U.S. Treasury, such as those issued by Ginnie Mae.
The fund purchased or sold debt securities on a when-issued or delayed delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction with delivery or payment to occur at a later date beyond the normal settlement period. At the time a fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security acquired is reflected in the fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. TBA securities resulting from these transactions are included in the Portfolio of Investments. TBA purchase (sale) commitments are held at carrying amount, which approximates fair value and are categorized as level 2 within the fair value hierarchy. No interest accrues to the fund until payment takes place. At the time that a fund enters into this type of transaction, the fund is required to have sufficient cash and/or liquid securities to cover its commitments. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract’s terms, or if the issuer does not issue the securities due to political, economic or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
To mitigate the counterparty credit risk on TBA securities and other types of forward settling mortgage-backed securities, the fund whenever possible enters into a Master Securities Forward Transaction Agreement (“MSFTA”) on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The MSFTA gives each party to the agreement the right to terminate all transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the MSFTA, thenon-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the MSFTA could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
For mortgage-backed securities traded under a MSFTA, the collateral and margining requirements are contract specific. Collateral amounts across all transactions traded under such agreement are netted and an amount is posted from one party to the other to collateralize such obligations. Cash that has been pledged to cover the fund’s collateral or margin obligations under a MSFTA, if any, will be reported separately on the Statement of Assets and Liabilities as restricted cash. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments.
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Fees Paid Indirectly– The fund’s custody fee may be reduced by a credit earned under an arrangement that measures the value of U.S. dollars deposited with the custodian by the fund. The amount of the credit, for the year ended February 28, 2019, 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. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on theex-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 amortization and accretion of debt securities and derivative transactions.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
Year ended 2/28/19 | Year ended 2/28/18 | |||||||
Ordinary income (including any short-term capital gains) | $49,169,967 | $52,875,416 |
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The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 2/28/19 | ||||
Cost of investments | $1,843,996,625 | |||
Gross appreciation | 14,056,836 | |||
Gross depreciation | (37,835,786 | ) | ||
Net unrealized appreciation (depreciation) | $(23,778,950 | ) | ||
Undistributed ordinary income | 6,390,765 | |||
Capital loss carryforwards | (87,800,547 | ) | ||
Other temporary differences | (1,793,267 | ) |
As of February 28, 2019, the fund had capital loss carryforwards available to offset future realized gains. These net capital losses may be carried forward indefinitely and their character is retained as short-term and/or long-term losses. Such losses are characterized as follows:
Short-Term | $(15,160,266 | ) | ||
Long-Term | (72,640,281 | ) | ||
Total | $(87,800,547 | ) |
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 and common expenses are allocated to shareholders based on the value of settled shares outstanding of each class. The fund’s realized and unrealized gain (loss) 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. Class C shares will convert to Class A shares approximately ten 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 | ||||||||
Year ended 2/28/19 | Year ended 2/28/18 | |||||||
Class A | $14,013,170 | $15,965,398 | ||||||
Class B | 167,498 | 250,984 | ||||||
Class C | 338,975 | 578,496 | ||||||
Class I | 1,204,386 | 1,026,086 | ||||||
Class R1 | 34,781 | 44,680 | ||||||
Class R2 | 1,919,411 | 2,239,532 | ||||||
Class R3 | 1,689,030 | 2,046,099 | ||||||
Class R4 | 1,598,449 | 1,697,045 | ||||||
Class R6 | 28,204,267 | 29,027,096 | ||||||
Total | $49,169,967 | $52,875,416 |
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(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 based on the fund’s average daily net assets:
Up to $2.5 billion | 0.40 | % | ||
In excess of $2.5 billion | 0.35 | % |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the year ended February 28, 2019, this management fee reduction amounted to $192,224, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended February 28, 2019 was equivalent to an annual effective rate of 0.39% of the fund’s average daily net assets.
Distributor– MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $21,999 for the year ended February 28, 2019, 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 share classes pursuant to Rule12b-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% | 0.24% | $1,519,349 | |||||||||||||||
Class B | 0.75% | 0.25% | 1.00% | 1.00% | 107,052 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 217,657 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 22,309 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 466,273 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 182,984 | |||||||||||||||
Total Distribution and Service Fees |
| $2,515,624 |
(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. Any rate changes, if applicable, are detailed below. |
(e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended February 28, 2019 based on each class’s average daily net assets. MFD has voluntarily agreed to rebate a portion of each class’s 0.25% service fee attributable to accounts for which MFD retains the 0.25% service fee except for accounts attributable to MFS or its affiliates’ seed money. For the year ended February 28, 2019, this rebate amounted to $47,948, $204, $112, and $70 for Class A, Class B, Class C, and Class R3, respectively, and is included in the reduction of total expenses in the Statement of Operations. |
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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 B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. All contingent deferred sales charges are paid to MFD and during the year ended February 28, 2019, were as follows:
Amount | ||||
Class A | $30,312 | |||
Class B | 26,780 | |||
Class C | 1,580 |
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 year ended February 28, 2019, the fee was $221,847, which equated to 0.0112% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses,sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incursub-accounting fees. For the year ended February 28, 2019, theseout-of-pocket expenses,sub-accounting and other shareholder servicing costs amounted to $1,144,806.
Under a Special Servicing Agreement among MFS, certain MFS funds which invest in other MFS funds (“MFSfund-of-funds”) and certain underlying funds in which a MFSfund-of-funds invests (“underlying funds”), each underlying fund may pay a portion of each MFSfund-of-funds’ transfer agent-related expenses, includingsub-accounting fees payable to financial intermediaries, to the extent such payments do not exceed the benefits realized or expected to be realized by the underlying fund from the investment in the underlying fund by the MFSfund-of-funds. For the year ended February 28, 2019, these costs for the fund amounted to $731,597 and are included in “Shareholder servicing costs” in the Statement of Operations.
Administrator– MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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 year ended February 28, 2019 was equivalent to an annual effective rate of 0.0146% 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.
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Notes to Financial Statements – continued
Prior to December 31, 2001, the fund had an unfunded defined benefit plan (“DB plan”) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with respect to then-current and any future independent Trustees, such that the DB plan covers only certain of those former independent Trustees who retired on or before December 31, 2001. Effective January 1, 2002, accrued benefits under the DB plan for then-current independent Trustees who continued were credited to an unfunded retirement deferral plan (the “Retirement Deferral plan”), which was established for and exists solely with respect to these credited amounts, and is not available for other deferrals by these or other independent Trustees. Although the Retirement Deferral plan is unfunded, amounts deferred under the plan are periodically adjusted for investment experience as if they had been invested in shares of the fund. The DB plan resulted in a pension expense of $4,172 and the Retirement Deferral plan, which terminated on December 31, 2018, resulted in an expense of $104. Both amounts are included in “Independent Trustees’ compensation” in the Statement of Operations for the year ended February 28, 2019. The liability for deferred retirement benefits payable to those former independent Trustees under the DB plan amounted to $8,349 at February 28, 2019, and is included in “Payable for independent Trustees’ compensation” in the Statement of Assets and Liabilities.
Other– This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the year ended February 28, 2019, the fee paid by the fund under this agreement was $3,382 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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. This money market fund does not pay a management fee to MFS.
On September 20, 2017, MFS purchased 126 shares of Class I for aggregate amount of $1,240.
(4) Portfolio Securities
For the year ended February 28, 2019, purchases and sales of investments, other than short-term obligations, were as follows:
Purchases | Sales | |||||||
U.S. Government securities | $980,539,391 | $1,076,947,063 | ||||||
Non-U.S. Government securities | $82,676,566 | $121,605,121 |
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Notes to Financial Statements – 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:
Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 13,369,605 | $127,040,479 | 22,234,771 | $218,274,413 | ||||||||||||
Class B | 101,804 | 968,658 | 123,641 | 1,209,979 | ||||||||||||
Class C | 696,160 | 6,631,256 | 340,173 | 3,339,878 | ||||||||||||
Class I | 6,780,100 | 64,435,992 | 3,998,991 | 39,228,415 | ||||||||||||
Class R1 | 52,689 | 501,029 | 36,094 | 353,337 | ||||||||||||
Class R2 | 1,522,580 | 14,465,185 | 1,875,222 | 18,326,570 | ||||||||||||
Class R3 | 1,502,126 | 14,284,823 | 2,147,611 | 21,025,138 | ||||||||||||
Class R4 | 1,616,200 | 15,334,165 | 2,654,703 | 26,078,951 | ||||||||||||
Class R6 | 8,913,219 | 84,764,781 | 11,311,418 | 110,623,136 | ||||||||||||
34,554,483 | $328,426,368 | 44,722,624 | $438,459,817 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Class A | 1,092,325 | $10,394,478 | 1,211,247 | $11,861,131 | ||||||||||||
Class B | 17,195 | 163,434 | 24,937 | 244,009 | ||||||||||||
Class C | 31,701 | 302,223 | 52,238 | 512,525 | ||||||||||||
Class I | 105,294 | 1,001,997 | 84,518 | 827,162 | ||||||||||||
Class R1 | 3,654 | 34,731 | 4,556 | 44,604 | ||||||||||||
Class R2 | 190,442 | 1,810,170 | 214,676 | 2,099,876 | ||||||||||||
Class R3 | 177,410 | 1,687,236 | 207,882 | 2,035,141 | ||||||||||||
Class R4 | 76,736 | 730,197 | 88,765 | 869,270 | ||||||||||||
Class R6 | 2,951,895 | 28,056,229 | 2,954,977 | 28,902,439 | ||||||||||||
4,646,652 | $44,180,695 | 4,843,796 | $47,396,157 | |||||||||||||
Shares reacquired | ||||||||||||||||
Class A | (17,702,525 | ) | $(168,195,468 | ) | (27,634,171 | ) | $(271,132,034 | ) | ||||||||
Class B | (558,082 | ) | (5,288,982 | ) | (622,857 | ) | (6,102,609 | ) | ||||||||
Class C | (1,764,500 | ) | (16,790,066 | ) | (1,526,199 | ) | (14,981,106 | ) | ||||||||
Class I | (6,475,837 | ) | (61,840,585 | ) | (4,358,097 | ) | (42,704,364 | ) | ||||||||
Class R1 | (68,905 | ) | (653,034 | ) | (138,429 | ) | (1,361,490 | ) | ||||||||
Class R2 | (2,964,009 | ) | (28,139,174 | ) | (3,122,194 | ) | (30,533,790 | ) | ||||||||
Class R3 | (2,992,677 | ) | (28,390,727 | ) | (3,047,165 | ) | (29,837,031 | ) | ||||||||
Class R4 | (2,344,610 | ) | (22,293,155 | ) | (2,514,771 | ) | (24,726,024 | ) | ||||||||
Class R6 | (16,496,735 | ) | (156,679,424 | ) | (8,222,700 | ) | (80,489,210 | ) | ||||||||
(51,367,880 | ) | $(488,270,615 | ) | (51,186,583 | ) | $(501,867,658 | ) |
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Notes to Financial Statements – continued
Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Net change | ||||||||||||||||
Class A | (3,240,595 | ) | $(30,760,511 | ) | (4,188,153 | ) | $(40,996,490 | ) | ||||||||
Class B | (439,083 | ) | (4,156,890 | ) | (474,279 | ) | (4,648,621 | ) | ||||||||
Class C | (1,036,639 | ) | (9,856,587 | ) | (1,133,788 | ) | (11,128,703 | ) | ||||||||
Class I | 409,557 | 3,597,404 | (274,588 | ) | (2,648,787 | ) | ||||||||||
Class R1 | (12,562 | ) | (117,274 | ) | (97,779 | ) | (963,549 | ) | ||||||||
Class R2 | (1,250,987 | ) | (11,863,819 | ) | (1,032,296 | ) | (10,107,344 | ) | ||||||||
Class R3 | (1,313,141 | ) | (12,418,668 | ) | (691,672 | ) | (6,776,752 | ) | ||||||||
Class R4 | (651,674 | ) | (6,228,793 | ) | 228,697 | 2,222,197 | ||||||||||
Class R6 | (4,631,621 | ) | (43,858,414 | ) | 6,043,695 | 59,036,365 | ||||||||||
(12,166,745 | ) | $(115,663,552 | ) | (1,620,163 | ) | $(16,011,684 | ) |
Class T shares were not publicly available for sale during the period. Please see the fund’s prospectus for details.
Effective June 1, 2019, purchases of the fund’s Class B shares are closed to new and existing investors subject to certain exceptions. Please see the fund’s prospectus for details.
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Moderate Allocation Fund, the MFS Conservative Allocation Fund, the MFS Lifetime Income Fund, the MFS Lifetime 2030 Fund, the MFS Lifetime 2020 Fund, and the MFS Lifetime 2025 Fund were the owners of record of approximately 27%, 15%, 3%, 2%, 2%, and 1%, respectively, of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 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 Overnight Bank Funding rate or daily 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. 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 Overnight Bank Funding rate plus an agreed upon spread. For the year ended February 28, 2019, the fund’s commitment fee and interest expense were $11,370 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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Notes to Financial Statements – continued
(7) Investments in 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 affiliated issuers:
Affiliated Issuers | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||||||
MFS Institutional Money Market Portfolio | 85,684,720 | 512,207,908 | (574,665,801 | ) | 23,226,827 | |||||||||||||||
Affiliated Issuers | Realized Gain (Loss) | Change in Unrealized Appreciation/ Depreciation | Capital Gain Distributions | Dividend Income | Ending Value | |||||||||||||||
MFS Institutional Money Market Portfolio | $2,489 | $(1,918 | ) | $— | $1,011,372 | $23,226,827 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of MFS Series Trust XIII and the Shareholders of MFS Government Securities Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Government Securities Fund (the “Fund”), including the portfolio of investments, as of February 28, 2019, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of February 28, 2019, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of February 28, 2019, by
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Report of Independent Registered Public Accounting Firm – continued
correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 16, 2019
We have served as the auditor of one or more of the MFS investment companies since 1924.
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TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of April 1, 2019, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 55) | Trustee | February 2004 | 135 | Massachusetts Financial Services Company, Executive Chairman (since January 2017); Director; Chairman of the Board; Chief Executive Officer (until 2015);Co-Chief Executive Officer (2015-2016) | N/A | |||||
Robin A. Stelmach (k) (age 57) | Trustee | January 2014 | 135 | Massachusetts Financial Services Company, Vice Chair (since January 2017); Chief Operating Officer and Executive Vice President (until January 2017) | N/A | |||||
INDEPENDENT TRUSTEES | ||||||||||
John P. Kavanaugh (age 64) | Trustee and Chair of Trustees | January 2009 | 135 | Private investor | N/A | |||||
Steven E. Buller (age 67) | Trustee | February 2014 | 135 | Financial Accounting Standards Advisory Council, Chairman (2014-2015); Public Company Accounting Oversight Board, Standing Advisory Group, Member (until 2014); BlackRock, Inc. (investment management), Managing Director (until 2014), BlackRock Finco UK (investment management), Director (until 2014) | N/A |
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Trustees and Officers – continued
Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
John A. Caroselli (age 64) | Trustee | March 2017 | 135 | JC Global Advisors, LLC (management consulting), President (since 2015); First Capital Corporation (commercial finance), Executive Vice President (until 2015) | N/A | |||||
Maureen R. Goldfarb (age 63) | Trustee | January 2009 | 135 | Private investor | N/A | |||||
Michael Hegarty (age 74) | Trustee | December 2004 | 135 | Private investor | Rouse Properties Inc., Director (until 2016); Capmark Financial Group Inc., Director (until 2015) | |||||
Peter D. Jones (age 63) | Trustee | January 2019 | 135 | Franklin Templeton Distributors, Inc. (investment management), President (until 2015); Franklin Templeton Institutional, LLC (investment management), Chairman (until 2015) | N/A | |||||
James W. Kilman, Jr. (age 57) | Trustee | January 2019 | 135 | KielStrand Capital LLC (family office and merchant bank), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking,Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | Alpha-En Corporation, Director (since 2016) |
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Trustees and Officers – continued
Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
Clarence Otis, Jr. (age 62) | Trustee | March 2017 | 135 | Darden Restaurants, Inc., Chief Executive Officer (until 2014) | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 63) | Trustee | May 2014 | 135 | American Century Investments (investment management), Senior Vice President and Chief Compliance Officer (until 2014) | N/A | |||||
Laurie J. Thomsen (age 61) | Trustee | March 2005 | 135 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 45) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kino Clark (k) (age 50) | Assistant Treasurer | January 2012 | 135 | Massachusetts Financial Services Company, Vice President |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
John W. Clark, Jr. (k) (age 52) | Assistant Treasurer | April 2017 | 135 | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) | ||||
Thomas H. Connors (k) (age 59) | Assistant Secretary and Assistant Clerk | September 2012 | 135 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Ethan D. Corey (k) (age 55) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
David L. DiLorenzo (k) (age 50) | President | July 2005 | 135 | Massachusetts Financial Services Company, Senior Vice President | ||||
Heidi W. Hardin (k) (age 51) | Secretary and Clerk | April 2017 | 135 | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (from September 2015 to January 2017); Janus Capital Management LLC (investment management), Senior Vice President and General Counsel (until September 2015) | ||||
Brian E. Langenfeld (k) (age 46) | Assistant Secretary and Assistant Clerk | June 2006 | 135 | Massachusetts Financial Services Company, Vice President and Senior Counsel |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
Amanda S. Mooradian (k) (age 40) | Assistant Secretary and Assistant Clerk | September 2018 | 135 | Massachusetts Financial Services Company, Assistant Vice President and Counsel | ||||
Susan A. Pereira (k) (age 48) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 48) | Assistant Treasurer | September 2012 | 135 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 44) | Assistant Secretary and Assistant Clerk | October 2014 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Frank L. Tarantino (age 75) | Independent Senior Officer | June 2004 | 135 | Tarantino LLC (provider of compliance services), Principal | ||||
Richard S. Weitzel (k) (age 48) | Assistant Secretary and Assistant Clerk | October 2007 | 135 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Martin J. Wolin (k) (age 51) | Chief Compliance Officer | July 2015 | 135 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015); Mercer (financial service provider), Chief Risk and Compliance Officer, North America and Latin America (until June 2015) | ||||
James O. Yost (k) (age 58) | Treasurer | September 1990 | 135 | Massachusetts Financial Services Company, Senior Vice President |
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Trustees and Officers – continued
(h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
(j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
(k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones and Kilman) has been elected by shareholders and each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Hegarty, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling1-800-225-2606.
Investment Adviser | Custodian | |
Massachusetts Financial Services Company Boston, MA 02199-7618 | JPMorgan Chase Bank, NA 4 Metrotech Center New York, NY 11245 | |
Distributor | Independent Registered Public Accounting Firm | |
MFS Fund Distributors, Inc. Boston, MA 02199-7618 | Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 | |
Portfolio Manager(s) | ||
Geoffrey Schechter | ||
Jake Stone |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling1-800-225-2606, by visitingmfs.com/proxyvoting,or by visiting the SEC’s Web site athttp://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 by August 31 of each year without charge by visitingmfs.com/proxyvoting,or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/openendfundsby choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/openendfundsby choosing the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2019 income tax forms in January 2020.
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rev. 3/16
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
• Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions
When you areno longer our customer, we continue to share your information as described in this notice. |
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does MFS share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | No | We don’t share | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For nonaffiliates to market to you | No | We don’t share |
Questions? | Call800-225-2606 or go tomfs.com. |
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Page 2 |
Who we are | ||
Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
What we do | ||
How does MFS protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. | |
How does MFS collect my personal information? | We collect your personal information, for example, when you
• open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | |
Why can’t I limit all sharing? | Federal law gives you the right to limit only
• sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. | |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share with nonaffiliates so they can market to you. | |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
• MFS doesn’t jointly market. |
Other important information | ||
If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. |
54
Table of Contents
MFS® will send you prospectuses, |
reports, and proxies directly viae-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
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1-800-637-8255
24 hours a day
ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
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MAILING ADDRESS
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OVERNIGHT MAIL
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Kansas City, MO 64105-1407
Table of Contents
Annual Report
February 28, 2019
MFS® New Discovery Value Fund
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the complete reports will be made available on the fund’s Web site (funds.mfs.com), and you will be notified by mail each time a report is posted and provided with a Web site link to access the report.
If you are already signed up to receive shareholder reports by email, you will not be affected by this change and you need not take any action. You may sign up to receive shareholder reports and other communications from the fund by email by contacting your financial intermediary (such as a broker-dealer or bank) or, if you hold your shares directly with the fund, by calling 1-800-225-2606 or by logging on to MFS Access at mfs.com.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. Contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the fund, you can call 1-800-225-2606 or send an email request to orderliterature@mfs.com to let the fund know that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the MFS fund complex if you invest directly.
NDV-ANN
Table of Contents
MFS® New Discovery Value Fund
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• MAY LOSE VALUE• NO BANK GUARANTEE
Table of Contents
LETTER FROM THE EXECUTIVE CHAIRMAN
Dear Shareholders:
Markets experienced a bout of volatility in late 2018 as a result of higher interest rates, international trade friction and geopolitical uncertainty surrounding issues such as
Brexit. But concern over those issues dissipated in the early months of 2019 due to a more dovish posture by the U.S. Federal Reserve, progress toward a trade pact between the United States and China, and a consensus forming in the British Parliament against ano-deal Brexit. Over the past year, U.S. equities have outperformed their global peers due in part to fiscal stimulus undertaken in late 2017 and early 2019, which helped maintain healthy levels of U.S. economic output against a backdrop of slowing global growth, though returns, on average, have been modest.
Globally, inflation remains largely subdued thanks in part to stable
oil prices, though tight labor markets are keeping investors on the lookout for its potential reappearance. Rising incomes in many developed and emerging markets are supportive of gains in consumption, though a challenging backdrop for global trade has weighed on manufacturing in most regions. Should the U.S. and China reach a comprehensive trade agreement, sentiment could improve later this year.
As a global investment manager with nearly a century of expertise, MFS® firmly believes active risk management offers downside mitigation and may help improve investment outcomes. We built our active investment platform with this belief in mind. Our long-term perspective influences nearly every aspect of our business, ensuring that our investment decisions align with the investing time horizons of our clients.
Respectfully,
Robert J. Manning
Executive Chairman
MFS Investment Management
April 16, 2019
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
1
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Portfolio structure
Top ten holdings |
| |||
KBR, Inc. | 1.9% | |||
Toll Brothers, Inc. | 1.8% | |||
Owens Corning | 1.8% | |||
Black Hills Corp. | 1.8% | |||
South Jersey Industries, Inc. | 1.8% | |||
Graphic Packaging Holding Co. | 1.7% | |||
Premier, Inc., “A” | 1.7% | |||
Portland General Electric Co. | 1.7% | |||
First Hawaiian, Inc. | 1.7% | |||
Signature Bank | 1.6% |
GICS equity sectors |
| |||
Financials | 24.6% | |||
Industrials | 19.9% | |||
Real Estate | 11.1% | |||
Consumer Discretionary | 9.6% | |||
Information Technology | 7.9% | |||
Materials | 7.5% | |||
Utilities | 6.2% | |||
Consumer Staples | 4.1% | |||
Energy | 4.1% | |||
Health Care | 2.9% | |||
Communication Services | 1.0% |
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS.
Percentages are based on net assets as of February 28, 2019.
The portfolio is actively managed and current holdings may be different.
2
Table of Contents
Summary of Results
For the twelve months ended February 28, 2019, Class A shares of the MFS New Discovery Value Fund (“fund”) provided a total return of 8.90%, at net asset value. This compares with a return of 4.42% for the fund’s benchmark, the Russell 2000® Value Index.
Market Environment
The global economy decelerated during the reporting period, led by weakness in China and Europe as business and investor sentiment was undermined by growing trade frictions. Slower growth, along with tighter financial conditions, contributed to an uptick in market volatility late in the period. Equity valuations fell and credit spreads widened, fueled in part by concerns that the US Federal Reserve was on course to further tighten monetary policy after it lifted rates for a fourth time during the period and indicated its intention to hike several more times while allowing its balance sheet to run off at its predetermined pace.
The market’s negative reaction to these policy signals prompted the Fed to reverse course at the end of the period and indicate that its policy was on hold as inflation pressures abated. The Fed also indicated that it will maintain a larger balance sheet than it had previously. These dovish shifts helped equity valuations rebound, reduced volatility and narrowed credit spreads. Central banks globally are tilting more dovish as well, with China lowering reserve requirements, The Bank of Canada and Bank of England holding rates steady and the European Central Bank acknowledging that it may not be able to hike rates in the fall of 2019 as it had earlier projected.
Emerging markets experienced considerable volatility during the period as tighter global financial conditions exposed structural weakness in some countries. Those pressures were somewhat relieved at the end of the period as the Fed adopted its more dovish posture. However, slowing global growth and ongoing trade frictions remained concerns.
From a geopolitical perspective, the lack of consensus in the United Kingdom on the best path toward a rapidly approaching Brexit, a fractious Eurosceptic Italian coalition government, large-scale protests in France over stagnant wages, and news that Germany’s Angela Merkel will not seek another term as chancellor were sources of uncertainty in Europe. In emerging markets, new Brazilian president Jair Bolsanaro took office, with markets generally encouraged by his market-friendly agenda. In contrast, markets were nervous about the less-market-friendly approach of Mexico’s new president Andres Manuel Lopez Obrador. For much of the period, the contentiousUS-China trading relationship was a drag on global sentiment, although tentative signs of progress toward resolution helped steady markets late in the period. Concerns persisted about slowing Chinese economic activity.
Contributors to Performance
Stock selection within thehealth care sector contributed to performance relative to the Russell 2000® Value Index, led by the timing of the fund’s overweight position in health care cost containment solutions provider HMS Holdings (h). Shares of HMS
3
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Management Review – continued
Holdings advanced during the reporting period, outpacing the benchmark, as strong growth in the company’s coordination of benefits and population management segments helped drive better-than-expected earnings.
Both security selection and an underweight position in theenergy sector also aided relative results. However, there were no individual securities within this sector that were among the fund’s top relative contributors during the reporting period.
Stock selection in theconsumer staples sector further benefited relative performance. Within this sector, the timing of the fund’s overweight position in poultry processing company Sanderson Farms and the fund’s holdings of food producer TreeHouse Foods (b) supported relative returns. Shares of TreeHouse Foods advanced as favorable pricing trends drove earnings results that beat consensus estimates.
Elsewhere, the fund’s holdings of real estate investment trusts, Medical Properties Trust (b) and STORE Capital (b), as well as holdings of commercial banking company Signature Bank (b), financial services firm Element Fleet Management (b) (Canada) and footwear company Skechers (b) helped relative results. Additionally, the fund’s overweight positions in diversified energy company Black Hills and integrated electric utility company Portland General Electric supported relative results.
Detractors from Performance
Both security selection and an overweight position in thematerials sector weakened relative performance during the reporting period. Within this sector, the fund’s holdings of specialty metal producer Ferroglobe (b) (United Kingdom) and paper-based packaging solutions provider Graphic Packaging Holding (b) hindered relative returns. The stock price of Graphic Packaging Holding declined after the company reported weaker-than-expected earnings results and lowered its full-year outlook as both rising inflation costs and reliability concerns at the recently acquired SBS mill in Augusta, Georgia, appeared to have weighed on investor sentiment.
An underweight position in thecommunication services sector also held back relative results. However, there were no individual securities within this sector that were among the fund’s top relative detractors during the reporting period.
Stocks in other sectors that weighed on relative performance included holdingover-the-counter pharmaceutical and personal care products manufacturer Genomma Lab Internacional (b)(Mexico), onshore contract drilling services providerPatterson-UTI Energy (b), arts and crafts specialty retailer Michaels Companies (b) and residential and commercial building materials manufacturer Owens Corning (b). Shares of Genomma Lab Internacional declined as weak sales in both the US and Mexico and a challenging foreign exchange rate environment hurt corporate earnings results. Overweight positions in suspended ceilings systems distributor GMS, global oilfield products company Forum Energy Technologies and label solutions provider Multi-Color Corporation (h), and not holding shares of strong-performing network and communications infrastructure company Ciena, also hurt relative results.
Respectfully,
Portfolio Manager(s)
Kevin Schmitz
4
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Management Review – continued
(b) | Security is not a benchmark constituent. |
(h) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio manager(s) only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
5
Table of Contents
PERFORMANCE SUMMARYTHROUGH2/28/19
The following chart illustrates a representative class of the fund’s historical performance in comparison to its benchmark(s). Performance results include the deduction of the maximum applicable sales charge and reflect the percentage change in net asset value, including reinvestment of dividends and capital gains distributions. The performance of other share classes will be greater than or less than that of the class depicted below. Benchmarks are unmanaged and may not be invested in directly. Benchmark returns do not reflect sales charges, commissions or expenses. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. Investment return and principal value fluctuate so your shares, when sold, may be worth more or less than the original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the redemption of fund shares.
Growth of a Hypothetical $10,000 Investment (t)
6
Table of Contents
Performance Summary – continued
Total Returns through 2/28/19
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | 5-yr | Life (t) | ||||||||
A | 5/26/11 | 8.90% | 8.26% | 11.38% | ||||||||
B | 5/26/11 | 8.05% | 7.45% | 10.54% | ||||||||
C | 5/26/11 | 8.09% | 7.43% | 10.54% | ||||||||
I | 5/26/11 | 9.19% | 8.53% | 11.65% | ||||||||
R1 | 5/26/11 | 8.04% | 7.43% | 10.54% | ||||||||
R2 | 5/26/11 | 8.59% | 7.99% | 11.10% | ||||||||
R3 | 5/26/11 | 8.88% | 8.26% | 11.38% | ||||||||
R4 | 5/26/11 | 9.19% | 8.54% | 11.66% | ||||||||
R6 | 7/02/12 | 9.28% | 8.64% | 13.16% | ||||||||
Comparative benchmark(s) | ||||||||||||
Russell 2000® Value Index (f) | 4.42% | 6.48% | 9.37% | |||||||||
Average annual with sales charge | ||||||||||||
A With Initial Sales Charge (5.75%) | 2.64% | 6.99% | 10.53% | |||||||||
B With CDSC (Declining over six years from 4% to 0%) (v) | 4.05% | 7.15% | 10.54% | |||||||||
C With CDSC (1% for 12 months) (v) | 7.09% | 7.43% | 10.54% |
CDSC – Contingent Deferred Sales Charge.
Class I, R1, R2, R3, R4, and R6 shares do not have a sales charge.
(f) | Source: FactSet Research Systems Inc. |
(t) | For the period from the class inception date through the stated period end. The comparative benchmark performance information provided for the “life” period is from the inception date of the Class A shares. (See Notes to Performance Summary.) |
(v) | Assuming redemption at the end of the applicable period. |
Benchmark Definition(s)
Russell 2000® Value Index – a market-capitalization-weighted, value-oriented index that measures the performance of small-capitalization stocks that have relatively lowprice-to-book ratios and lower forecasted growth values. The Russell 2000® Value Index is a trademark/service mark of the Frank Russell Company. Russell® is a trademark of the Frank Russell Company.
It is not possible to invest directly in an index.
Notes to Performance Summary
Average annual total return represents the average annual change in value for each share class for the periods presented. Life returns are presented where the share class has less than 10 years of performance history and represent the average annual total
7
Table of Contents
Performance Summary – continued
return from the class inception date to the stated period end date. As the fund’s share classes may have different inception dates, the life returns may represent different time periods and may not be comparable.
Performance results reflect any applicable expense subsidies and waivers in effect during the periods shown. Without such subsidies and waivers the fund’s performance results would be less favorable. Please see the prospectus and financial statements for complete details.
Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the financial highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
8
Table of Contents
Fund expenses borne by the shareholders during the period, September 1, 2018 through February 28, 2019
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 1, 2018 through February 28, 2019.
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.
9
Table of Contents
Expense Table – continued
Share Class | Annualized Expense Ratio | Beginning Account Value 9/01/18 | Ending Account Value 2/28/19 | Expenses 9/01/18-2/28/19 | ||||||||||||||
A | Actual | 1.28% | $1,000.00 | $946.94 | $6.18 | |||||||||||||
Hypothetical (h) | 1.28% | $1,000.00 | $1,018.45 | $6.41 | ||||||||||||||
B | Actual | 2.03% | $1,000.00 | $943.08 | $9.78 | |||||||||||||
Hypothetical (h) | 2.03% | $1,000.00 | $1,014.73 | $10.14 | ||||||||||||||
C | Actual | 2.03% | $1,000.00 | $943.44 | $9.78 | |||||||||||||
Hypothetical (h) | 2.03% | $1,000.00 | $1,014.73 | $10.14 | ||||||||||||||
I | Actual | 1.03% | $1,000.00 | $948.29 | $4.98 | |||||||||||||
Hypothetical (h) | 1.03% | $1,000.00 | $1,019.69 | $5.16 | ||||||||||||||
R1 | Actual | 2.03% | $1,000.00 | $943.12 | $9.78 | |||||||||||||
Hypothetical (h) | 2.03% | $1,000.00 | $1,014.73 | $10.14 | ||||||||||||||
R2 | Actual | 1.53% | $1,000.00 | $946.08 | $7.38 | |||||||||||||
Hypothetical (h) | 1.53% | $1,000.00 | $1,017.21 | $7.65 | ||||||||||||||
R3 | Actual | 1.28% | $1,000.00 | $947.12 | $6.18 | |||||||||||||
Hypothetical (h) | 1.28% | $1,000.00 | $1,018.45 | $6.41 | ||||||||||||||
R4 | Actual | 1.03% | $1,000.00 | $948.41 | $4.98 | |||||||||||||
Hypothetical (h) | 1.03% | $1,000.00 | $1,019.69 | $5.16 | ||||||||||||||
R6 | Actual | 0.92% | $1,000.00 | $948.59 | $4.44 | |||||||||||||
Hypothetical (h) | 0.92% | $1,000.00 | $1,020.23 | $4.61 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
10
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2/28/19
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Common Stocks- 98.9% | ||||||||
Issuer | Shares/Par | Value ($) | ||||||
Aerospace - 1.9% | ||||||||
CACI International, Inc., “A” (a) | 144,253 | $ | 26,291,552 | |||||
ManTech International Corp., “A” | 325,894 | 17,712,339 | ||||||
|
| |||||||
$ | 44,003,891 | |||||||
Apparel Manufacturers - 1.4% | ||||||||
Skechers USA, Inc., “A” (a) | 950,655 | $ | 31,970,528 | |||||
Automotive - 0.7% | ||||||||
Visteon Corp. (a) | 188,026 | $ | 16,106,307 | |||||
Brokerage & Asset Managers - 1.8% | ||||||||
Apollo Global Management LLC, “A” | 406,769 | $ | 11,918,332 | |||||
TMX Group Ltd. | 475,417 | 29,848,362 | ||||||
|
| |||||||
$ | 41,766,694 | |||||||
Business Services - 2.6% | ||||||||
BrightView Holdings, Inc. (a) | 1,640,039 | $ | 22,140,526 | |||||
PRA Group, Inc. (a) | 679,838 | 21,883,985 | ||||||
TravelportWorldwide Ltd. | 1,119,291 | 17,595,255 | ||||||
|
| |||||||
$ | 61,619,766 | |||||||
Computer Software - 0.5% | ||||||||
8x8, Inc. (a) | 586,404 | $ | 11,534,567 | |||||
Computer Software - Systems - 2.9% | ||||||||
Model N, Inc. (a) | 993,178 | $ | 17,181,979 | |||||
Presidio, Inc. | 1,249,659 | 20,781,829 | ||||||
Verint Systems, Inc. (a) | 577,259 | 30,739,042 | ||||||
|
| |||||||
$ | 68,702,850 | |||||||
Construction - 4.9% | ||||||||
Eagle Materials, Inc. | 227,024 | $ | 17,353,714 | |||||
GMS, Inc. (a) | 724,625 | 14,166,419 | ||||||
Owens Corning | 835,829 | 41,732,942 | ||||||
Toll Brothers, Inc. | 1,177,251 | 41,910,136 | ||||||
|
| |||||||
$ | 115,163,211 | |||||||
Consumer Products - 2.4% | ||||||||
Newell Brands, Inc. | 855,085 | $ | 13,878,029 | |||||
Prestige Brands Holdings, Inc. (a) | 436,000 | 12,757,360 |
11
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Consumer Products - continued | ||||||||
Sensient Technologies Corp. | 466,570 | $ | 30,187,079 | |||||
|
| |||||||
$ | 56,822,468 | |||||||
Containers - 3.0% | ||||||||
Berry Global Group, Inc. (a) | 577,522 | $ | 30,302,579 | |||||
Graphic Packaging Holding Co. | 3,326,382 | 40,515,333 | ||||||
|
| |||||||
$ | 70,817,912 | |||||||
Electrical Equipment - 3.1% | ||||||||
AZZ, Inc. | 123,476 | $ | 5,682,366 | |||||
HD Supply Holdings, Inc. (a) | 669,411 | 28,791,367 | ||||||
TriMas Corp. (a) | 628,479 | 20,318,726 | ||||||
WESCO International, Inc. (a) | 309,678 | 16,861,967 | ||||||
|
| |||||||
$ | 71,654,426 | |||||||
Electronics - 1.8% | ||||||||
nLIGHT, Inc. (a) | 677,419 | $ | 14,489,992 | |||||
OSI Systems, Inc. (a) | 106,880 | 9,282,528 | ||||||
Plexus Corp. (a) | 309,019 | 19,085,014 | ||||||
|
| |||||||
$ | 42,857,534 | |||||||
Energy - Independent - 0.7% | ||||||||
Matador Resources Co. (a) | 857,591 | $ | 15,951,192 | |||||
Engineering - Construction - 2.5% | ||||||||
Construction Partners, Inc., “A” (a)(h) | 1,182,346 | $ | 14,613,797 | |||||
KBR, Inc. | 2,250,249 | 44,464,920 | ||||||
|
| |||||||
$ | 59,078,717 | |||||||
Entertainment - 2.1% | ||||||||
IMAX Corp. (a) | 1,054,530 | $ | 24,159,282 | |||||
Merlin Entertainment | 4,354,722 | 20,885,597 | ||||||
Parques Reunidos Servicios Centrales S.A.U. | 411,929 | 4,910,387 | ||||||
|
| |||||||
$ | 49,955,266 | |||||||
Food & Beverages - 3.4% | ||||||||
Cal-Maine Foods, Inc. | 376,129 | $ | 16,587,289 | |||||
Hostess Brands, Inc. (a) | 2,057,568 | 24,978,875 | ||||||
Sanderson Farms, Inc. | 250,541 | 28,862,323 | ||||||
TreeHouse Foods, Inc. (a) | 158,044 | 9,574,306 | ||||||
|
| |||||||
$ | 80,002,793 | |||||||
Gaming & Lodging - 0.6% | ||||||||
Wyndham Hotels Group, LLC | 257,073 | $ | 13,514,328 |
12
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Insurance - 2.7% | ||||||||
Everest Re Group Ltd. | 98,429 | $ | 22,255,781 | |||||
Hanover Insurance Group, Inc. | 178,970 | 21,245,529 | ||||||
Safety Insurance Group, Inc. | 80,037 | 7,150,505 | ||||||
Third Point Reinsurance Ltd. (a) | 1,237,758 | 13,231,633 | ||||||
|
| |||||||
$ | 63,883,448 | |||||||
Internet - 0.4% | ||||||||
Stamps.com, Inc. (a) | 100,139 | $ | 9,412,065 | |||||
Leisure & Toys - 1.2% | ||||||||
Brunswick Corp. | 513,637 | $ | 27,089,215 | |||||
Machinery & Tools - 5.3% | ||||||||
AGCO Corp. | 267,491 | $ | 18,077,042 | |||||
Gardner Denver Holdings, Inc. (a) | 430,159 | 11,549,769 | ||||||
ITT, Inc. | 334,970 | 19,347,867 | ||||||
Kennametal, Inc. | 831,823 | 31,351,409 | ||||||
Regal Beloit Corp. | 297,524 | 24,920,610 | ||||||
Ritchie Bros. Auctioneers, Inc. | 471,647 | 17,686,763 | ||||||
|
| |||||||
$ | 122,933,460 | |||||||
Medical & Health Technology & Services - 1.7% | ||||||||
Premier, Inc., “A” (a) | 1,106,201 | $ | 40,464,832 | |||||
Medical Equipment - 0.4% | ||||||||
STERIS PLC | 81,134 | $ | 9,813,969 | |||||
Natural Gas - Distribution - 2.7% | ||||||||
New Jersey Resources Corp. | 456,417 | $ | 22,090,583 | |||||
South Jersey Industries, Inc. | 1,418,139 | 41,055,124 | ||||||
|
| |||||||
$ | 63,145,707 | |||||||
Oil Services - 4.6% | ||||||||
Apergy Corp. (a) | 236,692 | $ | 9,936,330 | |||||
Forum Energy Technologies, Inc. (a) | 1,638,795 | 9,554,175 | ||||||
Frank’s International N.V. (a) | 3,571,075 | 22,354,930 | ||||||
Liberty Oilfield Services, Inc. (l) | 732,974 | 12,006,114 | ||||||
NOW, Inc. (a) | 1,924,154 | 27,765,542 | ||||||
Patterson-UTI Energy, Inc. | 2,013,421 | 26,697,962 | ||||||
|
| |||||||
$ | 108,315,053 | |||||||
Other Banks & Diversified Financials - 19.8% | ||||||||
Air Lease Corp. | 572,916 | $ | 21,404,142 | |||||
Bank of Hawaii Corp. | 375,573 | 30,883,368 |
13
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Other Banks & Diversified Financials - continued | ||||||||
Berkshire Hills Bancorp, Inc. | 431,648 | $ | 13,519,215 | |||||
Brookline Bancorp, Inc. | 1,566,117 | 25,026,550 | ||||||
Cathay General Bancorp, Inc. | 675,800 | 26,248,072 | ||||||
Element Fleet Management Corp. | 4,649,468 | 26,604,730 | ||||||
First Hawaiian, Inc. | 1,475,528 | 39,780,235 | ||||||
Hanmi Financial Corp. | 1,027,140 | 23,706,391 | ||||||
Lakeland Financial Corp. | 665,351 | 32,149,760 | ||||||
Legacytextas Financial Group, Inc. | 785,111 | 32,762,682 | ||||||
Prosperity Bancshares, Inc. | 390,272 | 29,055,750 | ||||||
Sandy Spring Bancorp, Inc. | 487,407 | 17,093,364 | ||||||
Signature Bank | 282,291 | 38,323,826 | ||||||
TCF Financial Corp. | 1,246,497 | 28,544,781 | ||||||
Textainer Group Holdings Ltd. (a) | 1,076,468 | 11,744,266 | ||||||
UMB Financial Corp. | 536,794 | 36,936,795 | ||||||
Wintrust Financial Corp. | 407,512 | 30,021,409 | ||||||
|
| |||||||
$ | 463,805,336 | |||||||
Pharmaceuticals - 0.2% | ||||||||
Genomma Lab Internacional S.A., “B” (a) | 7,812,072 | $ | 5,157,700 | |||||
Pollution Control - 2.2% | ||||||||
Advanced Disposal Services, Inc. (a) | 930,956 | $ | 24,688,953 | |||||
EvoquaWater Technologies LLC (a) | 1,307,416 | 17,754,709 | ||||||
Stericycle, Inc. (a) | 176,661 | 7,875,548 | ||||||
|
| |||||||
$ | 50,319,210 | |||||||
Real Estate - 11.8% | ||||||||
Brixmor Property Group Inc., REIT | 1,387,739 | $ | 24,229,923 | |||||
Corporate Office Properties Trust, REIT | 1,264,073 | 32,853,257 | ||||||
Equity Commonwealth, REIT | 700,886 | 22,883,928 | ||||||
Industrial Logistics Properties Trust, REIT | 1,553,276 | 32,401,337 | ||||||
Life Storage, Inc., REIT | 240,974 | 23,519,063 | ||||||
Medical Properties Trust, Inc., REIT | 1,813,892 | 33,067,251 | ||||||
Office Properties Income Trust | 604,042 | 18,429,322 | ||||||
Spirit Realty Capital, Inc., REIT | 419,877 | 16,224,047 | ||||||
STAG Industrial, Inc., REIT | 1,214,476 | 33,616,696 | ||||||
STORE Capital Corp., REIT | 692,236 | 22,476,903 | ||||||
Two Harbors Investment Corp, REIT | 1,290,420 | 17,898,125 | ||||||
|
| |||||||
$ | 277,599,852 | |||||||
Specialty Chemicals - 3.5% | ||||||||
Axalta Coating Systems Ltd. (a) | 488,464 | $ | 13,056,643 | |||||
Ferro Corp. (a) | 1,345,548 | 26,090,176 |
14
Table of Contents
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Specialty Chemicals - continued | ||||||||
Ferroglobe PLC | 1,658,149 | $ | 4,559,910 | |||||
RPM International, Inc. | 226,068 | 13,082,555 | ||||||
Univar, Inc. (a) | 1,065,229 | 24,084,827 | ||||||
|
| |||||||
$ | 80,874,111 | |||||||
Specialty Stores - 2.6% | ||||||||
BJ’s Wholesale Club Holdings, Inc. (a) | 654,267 | $ | 16,566,040 | |||||
Michaels Co., Inc. (a) | 833,298 | 11,782,834 | ||||||
Urban Outfitters, Inc. (a) | 348,835 | 10,761,560 | ||||||
Zumiez, Inc. (a) | 902,231 | 22,285,106 | ||||||
|
| |||||||
$ | 61,395,540 | |||||||
Utilities - Electric Power - 3.5% | ||||||||
Black Hills Corp. | 587,732 | $ | 41,717,217 | |||||
Portland General Electric Co. | 796,040 | 39,913,446 | ||||||
|
| |||||||
$ | 81,630,663 | |||||||
Total Common Stocks (Identified Cost, $2,164,757,238) |
| $ | 2,317,362,611 | |||||
Investment Companies (h) - 2.4% | ||||||||
Money Market Funds - 2.4% | ||||||||
MFS Institutional Money Market Portfolio, 2.49% (v) (Identified Cost, $56,572,970) | 56,574,297 | $ | 56,574,297 | |||||
Collateral for Securities Loaned - 0.0% | ||||||||
State Street Navigator Securities Lending Government Money Market Portfolio, 2.43% (j) (Identified Cost, $1,154,698) | 1,154,698 | $ | 1,154,698 | |||||
Other Assets, Less Liabilities - (1.3)% | (31,058,382 | ) | ||||||
Net Assets - 100.0% | $ | 2,344,033,224 |
(a) | Non-income producing security. |
(h) | An affiliated issuer, which 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. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $71,188,094 and $2,303,903,512, respectively. |
(j) | The rate quoted is the annualizedseven-day yield of the fund at period end. |
(l) | A portion of this security is on loan. See Note 2 for additional information. |
(v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualizedseven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
PLC | Public Limited Company |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
15
Table of Contents
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 2/28/19
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
Assets | ||||
Investments in unaffiliated issuers, at value, including $1,347,321 of securities on loan (identified cost, $2,152,176,698) | $2,303,903,512 | |||
Investments in affiliated issuers, at value (identified cost, $70,308,208) | 71,188,094 | |||
Cash | 389,589 | |||
Receivables for | ||||
Investments sold | 8,410,794 | |||
Fund shares sold | 10,249,985 | |||
Interest and dividends | 2,042,054 | |||
Other assets | 6,437 | |||
Total assets | $2,396,190,465 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $48,261,225 | |||
Fund shares reacquired | 2,038,970 | |||
Collateral for securities loaned, at value (c) | 1,154,698 | |||
Payable to affiliates | ||||
Investment adviser | 108,915 | |||
Shareholder servicing costs | 366,590 | |||
Distribution and service fees | 7,689 | |||
Payable for independent Trustees’ compensation | 98 | |||
Accrued expenses and other liabilities | 219,056 | |||
Total liabilities | $52,157,241 | |||
Net assets | $2,344,033,224 | |||
Net assets consist of | ||||
Paid-in capital | $2,166,162,976 | |||
Total distributable earnings (loss) | 177,870,248 | |||
Net assets | $2,344,033,224 | |||
Shares of beneficial interest outstanding | 153,936,675 |
(c) | Non-cash collateral is not included. |
16
Table of Contents
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $318,067,498 | 20,982,151 | $15.16 | |||||||||
Class B | 7,198,118 | 495,585 | 14.52 | |||||||||
Class C | 41,046,387 | 2,840,059 | 14.45 | |||||||||
Class I | 917,166,980 | 60,154,340 | 15.25 | |||||||||
Class R1 | 1,580,812 | 108,772 | 14.53 | |||||||||
Class R2 | 3,719,005 | 246,453 | 15.09 | |||||||||
Class R3 | 45,354,968 | 2,984,151 | 15.20 | |||||||||
Class R4 | 71,765,470 | 4,700,300 | 15.27 | |||||||||
Class R6 | 938,133,986 | 61,424,864 | 15.27 |
(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 $16.08 [100 / 94.25 x $15.16]. 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 R6. |
See Notes to Financial Statements
17
Table of Contents
Financial Statements
Year ended 2/28/19
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 (loss) | ||||
Income | ||||
Dividends | $27,639,408 | |||
Dividends from affiliated issuers | 620,014 | |||
Other | 213,803 | |||
Income on securities loaned | 38,065 | |||
Foreign taxes withheld | (273,712 | ) | ||
Total investment income | $28,237,578 | |||
Expenses | ||||
Management fee | $14,264,840 | |||
Distribution and service fees | 1,341,038 | |||
Shareholder servicing costs | 1,161,740 | |||
Administrative services fee | 242,747 | |||
Independent Trustees’ compensation | 22,571 | |||
Custodian fee | 99,095 | |||
Shareholder communications | 181,814 | |||
Audit and tax fees | 56,392 | |||
Legal fees | 12,037 | |||
Miscellaneous | 347,861 | |||
Total expenses | $17,730,135 | |||
Reduction of expenses by investment adviser and distributor | (163,665 | ) | ||
Net expenses | $17,566,470 | |||
Net investment income (loss) | $10,671,108 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $106,716,763 | |||
Affiliated issuers | (1,779 | ) | ||
Foreign currency | 163 | |||
Net realized gain (loss) | $106,715,147 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $39,321,286 | |||
Affiliated issuers | 877,817 | |||
Translation of assets and liabilities in foreign currencies | 89 | |||
Net unrealized gain (loss) | $40,199,192 | |||
Net realized and unrealized gain (loss) | $146,914,339 | |||
Change in net assets from operations | $157,585,447 |
See Notes to Financial Statements
18
Table of Contents
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.
Year ended | ||||||||
2/28/19 | 2/28/18 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $10,671,108 | $3,100,827 | ||||||
Net realized gain (loss) | 106,715,147 | 68,697,037 | ||||||
Net unrealized gain (loss) | 40,199,192 | (24,328,730 | ) | |||||
Change in net assets from operations | $157,585,447 | $47,469,134 | ||||||
Total distributions to shareholders (a) | $(116,052,923 | ) | $(60,735,148 | ) | ||||
Change in net assets from fund share transactions | $1,006,106,615 | $443,720,146 | ||||||
Total change in net assets | $1,047,639,139 | $430,454,132 | ||||||
Net assets | ||||||||
At beginning of period | 1,296,394,085 | 865,939,953 | ||||||
At end of period (b) | $2,344,033,224 | $1,296,394,085 |
(a) | Distributions from net investment income and from net realized gain are no longer required to be separately disclosed. See Note 2. For the year ended February 28, 2018, distributions from net investment income and from net realized gain were $2,500,210 and $58,234,938, respectively. |
(b) | Parenthetical disclosure of undistributed net investment income is no longer required. See Note 2. For the year ended February 28, 2018, end of period net assets included undistributed net investment income of $307,615. |
See Notes to Financial Statements
19
Table of Contents
Financial Statements
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that 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 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $14.92 | $14.99 | $11.40 | $12.98 | $13.24 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.05 | $0.02 | $0.03 | (c) | $0.05 | $0.01 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.21 | 0.72 | 4.18 | (1.26 | ) | 0.55 | ||||||||||||||
Total from investment operations | $1.26 | $0.74 | $4.21 | $(1.21 | ) | $0.56 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.04 | ) | $(0.00 | )(w) | $(0.06 | ) | $(0.05 | ) | $(0.01 | ) | ||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(1.02 | ) | $(0.81 | ) | $(0.62 | ) | $(0.37 | ) | $(0.82 | ) | ||||||||||
Net asset value, end of period (x) | $15.16 | $14.92 | $14.99 | $11.40 | $12.98 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.90 | 4.98 | 37.22 | (c) | (9.38 | ) | 4.60 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.29 | 1.33 | 1.43 | (c) | 1.55 | 1.58 | ||||||||||||||
Expenses after expense reductions (f) | 1.28 | 1.32 | 1.39 | (c) | 1.39 | 1.45 | ||||||||||||||
Net investment income (loss) | 0.31 | 0.12 | 0.22 | (c) | 0.38 | 0.10 | ||||||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $318,067 | $250,525 | $189,746 | $52,645 | $18,215 |
See Notes to Financial Statements
20
Table of Contents
Financial Highlights – continued
Class B | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $14.40 | $14.60 | $11.16 | $12.76 | $13.11 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.07 | ) | $(0.09 | ) | $(0.07 | )(c) | $(0.05 | ) | $(0.08 | ) | ||||||||||
Net realized and unrealized gain (loss) | 1.17 | 0.70 | 4.08 | (1.23 | ) | 0.54 | ||||||||||||||
Total from investment operations | $1.10 | $0.61 | $4.01 | $(1.28 | ) | $0.46 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $(0.01 | ) | $— | $— | ||||||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(0.98 | ) | $(0.81 | ) | $(0.57 | ) | $(0.32 | ) | $(0.81 | ) | ||||||||||
Net asset value, end of period (x) | $14.52 | $14.40 | $14.60 | $11.16 | $12.76 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.05 | 4.21 | 36.17 | (c) | (10.10 | ) | 3.90 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.04 | 2.08 | 2.18 | (c) | 2.28 | 2.34 | ||||||||||||||
Expenses after expense reductions (f) | 2.03 | 2.07 | 2.14 | (c) | 2.14 | 2.20 | ||||||||||||||
Net investment income (loss) | (0.48 | ) | (0.63 | ) | (0.54 | )(c) | (0.38 | ) | (0.65 | ) | ||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $7,198 | $6,329 | $5,872 | $1,545 | $1,503 | |||||||||||||||
Class C | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $14.33 | $14.54 | $11.11 | $12.73 | $13.09 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.08 | ) | $(0.09 | ) | $(0.06 | )(c) | $(0.04 | ) | $(0.08 | ) | ||||||||||
Net realized and unrealized gain (loss) | 1.18 | 0.69 | 4.05 | (1.23 | ) | 0.53 | ||||||||||||||
Total from investment operations | $1.10 | $0.60 | $3.99 | $(1.27 | ) | $0.45 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $— | $(0.03 | ) | $— | ||||||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(0.98 | ) | $(0.81 | ) | $(0.56 | ) | $(0.35 | ) | $(0.81 | ) | ||||||||||
Net asset value, end of period (x) | $14.45 | $14.33 | $14.54 | $11.11 | $12.73 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.09 | 4.15 | 36.17 | (c) | (10.08 | ) | 3.83 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.04 | 2.08 | 2.18 | (c) | 2.30 | 2.33 | ||||||||||||||
Expenses after expense reductions (f) | 2.03 | 2.07 | 2.14 | (c) | 2.14 | 2.19 | ||||||||||||||
Net investment income (loss) | (0.56 | ) | (0.64 | ) | (0.46 | )(c) | (0.37 | ) | (0.64 | ) | ||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $41,046 | $52,616 | $63,140 | $35,227 | $4,144 |
See Notes to Financial Statements
21
Table of Contents
Financial Highlights – continued
Class I | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $15.00 | $15.06 | $11.44 | $13.01 | $13.28 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.12 | $0.06 | $0.06 | (c) | $0.08 | $0.04 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.19 | 0.73 | 4.20 | (1.26 | ) | 0.54 | ||||||||||||||
Total from investment operations | $1.31 | $0.79 | $4.26 | $(1.18 | ) | $0.58 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.08 | ) | $(0.04 | ) | $(0.08 | ) | $(0.07 | ) | $(0.04 | ) | ||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(1.06 | ) | $(0.85 | ) | $(0.64 | ) | $(0.39 | ) | $(0.85 | ) | ||||||||||
Net asset value, end of period (x) | $15.25 | $15.00 | $15.06 | $11.44 | $13.01 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 9.19 | 5.26 | 37.54 | (c) | (9.15 | ) | 4.84 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.04 | 1.08 | 1.18 | (c) | 1.29 | 1.34 | ||||||||||||||
Expenses after expense reductions (f) | 1.03 | 1.07 | 1.14 | (c) | 1.14 | 1.20 | ||||||||||||||
Net investment income (loss) | 0.77 | 0.37 | 0.42 | (c) | 0.62 | 0.34 | ||||||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $917,167 | $351,939 | $242,154 | $31,278 | $13,567 | |||||||||||||||
Class R1 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $14.41 | $14.61 | $11.16 | $12.76 | $13.12 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.06 | ) | $(0.09 | ) | $(0.06 | )(c) | $(0.05 | ) | $(0.08 | ) | ||||||||||
Net realized and unrealized gain (loss) | 1.16 | 0.70 | 4.07 | (1.23 | ) | 0.53 | ||||||||||||||
Total from investment operations | $1.10 | $0.61 | $4.01 | $(1.28 | ) | $0.45 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $— | $— | $— | |||||||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(0.98 | ) | $(0.81 | ) | $(0.56 | ) | $(0.32 | ) | $(0.81 | ) | ||||||||||
Net asset value, end of period (x) | $14.53 | $14.41 | $14.61 | $11.16 | $12.76 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.04 | 4.20 | 36.19 | (c) | (10.10 | ) | 3.82 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.04 | 2.08 | 2.18 | (c) | 2.28 | 2.33 | ||||||||||||||
Expenses after expense reductions (f) | 2.03 | 2.07 | 2.14 | (c) | 2.14 | 2.20 | ||||||||||||||
Net investment income (loss) | (0.42 | ) | (0.64 | ) | (0.45 | )(c) | (0.37 | ) | (0.64 | ) | ||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $1,581 | $1,228 | $210 | $200 | $302 |
See Notes to Financial Statements
22
Table of Contents
Financial Highlights – continued
Class R2 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $14.87 | $14.97 | $11.40 | $12.96 | $13.25 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.02 | $(0.02 | ) | $(0.00 | )(c)(w) | $0.02 | $(0.02 | ) | ||||||||||||
Net realized and unrealized gain (loss) | 1.19 | 0.73 | 4.17 | (1.25 | ) | 0.54 | ||||||||||||||
Total from investment operations | $1.21 | $0.71 | $4.17 | $(1.23 | ) | $0.52 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.01 | ) | $— | $(0.04 | ) | $(0.01 | ) | $— | ||||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(0.99 | ) | $(0.81 | ) | $(0.60 | ) | $(0.33 | ) | $(0.81 | ) | ||||||||||
Net asset value, end of period (x) | $15.09 | $14.87 | $14.97 | $11.40 | $12.96 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.59 | 4.78 | 36.81 | (c) | (9.58 | ) | 4.32 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.54 | 1.58 | 1.68 | (c) | 1.78 | 1.83 | ||||||||||||||
Expenses after expense reductions (f) | 1.53 | 1.57 | 1.64 | (c) | 1.64 | 1.70 | ||||||||||||||
Net investment income (loss) | 0.16 | (0.13 | ) | (0.02 | )(c) | 0.14 | (0.15 | ) | ||||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $3,719 | $2,349 | $1,216 | $528 | $567 | |||||||||||||||
Class R3 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $14.96 | $15.03 | $11.43 | $13.00 | $13.27 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.06 | $0.02 | $0.01 | (c) | $0.04 | $0.01 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.20 | 0.73 | 4.20 | (1.24 | ) | 0.54 | ||||||||||||||
Total from investment operations | $1.26 | $0.75 | $4.21 | $(1.20 | ) | $0.55 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.04 | ) | $(0.01 | ) | $(0.05 | ) | $(0.05 | ) | $(0.01 | ) | ||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(1.02 | ) | $(0.82 | ) | $(0.61 | ) | $(0.37 | ) | $(0.82 | ) | ||||||||||
Net asset value, end of period (x) | $15.20 | $14.96 | $15.03 | $11.43 | $13.00 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.88 | 5.04 | 37.11 | (c) | (9.30 | ) | 4.57 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.29 | 1.33 | 1.46 | (c) | 1.55 | 1.59 | ||||||||||||||
Expenses after expense reductions (f) | 1.28 | 1.32 | 1.39 | (c) | 1.39 | 1.45 | ||||||||||||||
Net investment income (loss) | 0.40 | 0.11 | 0.08 | (c) | 0.36 | 0.10 | ||||||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $45,355 | $26,095 | $14,208 | $2,095 | $739 |
See Notes to Financial Statements
23
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Financial Highlights – continued
Class R4 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $15.02 | $15.08 | $11.46 | $13.03 | $13.29 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.10 | $0.06 | $0.06 | (c) | $0.08 | $0.05 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.21 | 0.73 | 4.20 | (1.26 | ) | 0.54 | ||||||||||||||
Total from investment operations | $1.31 | $0.79 | $4.26 | $(1.18 | ) | $0.59 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.08 | ) | $(0.04 | ) | $(0.08 | ) | $(0.07 | ) | $(0.04 | ) | ||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(1.06 | ) | $(0.85 | ) | $(0.64 | ) | $(0.39 | ) | $(0.85 | ) | ||||||||||
Net asset value, end of period (x) | $15.27 | $15.02 | $15.08 | $11.46 | $13.03 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 9.19 | 5.28 | 37.46 | (c) | (9.12 | ) | 4.89 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.03 | 1.08 | 1.20 | (c) | 1.29 | 1.33 | ||||||||||||||
Expenses after expense reductions (f) | 1.03 | 1.07 | 1.14 | (c) | 1.14 | 1.20 | ||||||||||||||
Net investment income (loss) | 0.66 | 0.36 | 0.45 | (c) | 0.65 | 0.35 | ||||||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $71,765 | $5,469 | $2,440 | $584 | $178 | |||||||||||||||
Class R6 | Year ended | |||||||||||||||||||
2/28/19 | 2/28/18 | 2/28/17 | 2/29/16 | 2/28/15 | ||||||||||||||||
Net asset value, beginning of period | $15.02 | $15.08 | $11.45 | $13.02 | $13.28 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.12 | $0.07 | $0.10 | (c) | $0.09 | $0.06 | ||||||||||||||
Net realized and unrealized gain (loss) | 1.20 | 0.73 | 4.18 | (1.26 | ) | 0.55 | ||||||||||||||
Total from investment operations | $1.32 | $0.80 | $4.28 | $(1.17 | ) | $0.61 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.09 | ) | $(0.05 | ) | $(0.09 | ) | $(0.08 | ) | $(0.06 | ) | ||||||||||
From net realized gain | (0.98 | ) | (0.81 | ) | (0.56 | ) | (0.32 | ) | (0.81 | ) | ||||||||||
Total distributions declared to shareholders | $(1.07 | ) | $(0.86 | ) | $(0.65 | ) | $(0.40 | ) | $(0.87 | ) | ||||||||||
Net asset value, end of period (x) | $15.27 | $15.02 | $15.08 | $11.45 | $13.02 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 9.28 | 5.36 | 37.68 | (c) | (9.09 | ) | 5.00 | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.92 | 0.97 | 1.07 | (c) | 1.21 | 1.23 | ||||||||||||||
Expenses after expense reductions (f) | 0.92 | 0.96 | 1.02 | (c) | 1.06 | 1.10 | ||||||||||||||
Net investment income (loss) | 0.78 | 0.47 | 0.73 | (c) | 0.71 | 0.45 | ||||||||||||||
Portfolio turnover | 57 | 60 | 60 | 60 | 53 | |||||||||||||||
Net assets at end of period (000 omitted) | $938,134 | $599,845 | $346,955 | $290,204 | $312,860 |
See Notes to Financial Statements
24
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Financial Highlights – continued
(c) | Amount reflects aone-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
(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 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
25
Table of Contents
(1) Business and Organization
MFS New Discovery Value Fund (the fund) is a diversified series of MFS Series Trust XIII (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as anopen-end management investment company.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(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 increases and decreases in net assets from operations 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 will generally focus on securities of small size companies which may be more volatile than those of larger companies.
In August 2018, the Securities and Exchange Commission (SEC) released its Final Rule on Disclosure Update and Simplification (the “Final Rule”) which is intended to simplify an issuer’s disclosure compliance efforts by removing redundant or outdated disclosure requirements without significantly altering the mix of information provided to investors. Effective with the current reporting period, the fund adopted the Final Rule with the impacts being that the fund is no longer required to present the components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributions to shareholders and the amount of undistributed net investment income on the Statements of Changes in Net Assets.
Balance Sheet Offsetting– The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’sin-scope financial instruments and transactions.
Investment Valuations– Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there
26
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Notes to Financial Statements – continued
were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be 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. In determining values, 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,
27
Table of Contents
Notes to Financial Statements – 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 February 28, 2019 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $2,317,362,611 | $— | $— | $2,317,362,611 | ||||||||||||
Mutual Funds | 57,728,995 | — | — | 57,728,995 | ||||||||||||
Total | $2,375,091,606 | $— | $— | $2,375,091,606 |
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.
Security Loans– Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from
28
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Notes to Financial Statements – continued
collateral reinvestment for which the fund bears the risk of loss. At period end, the fund had investment securities on loan, all of which were classified as equity securities in the fund’s Portfolio of Investments, with a fair value of $1,347,321. The fair value of the fund’s investment securities on loan and a related liability of $1,154,698 for cash collateral received on securities loaned are both presented gross in the Statement of Assets and Liabilities. Additionally, these loans were collateralized by U.S. Treasury Obligations of $269,382 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. The liability for cash collateral for securities loaned is carried at fair value, which is categorized as level 2 within the fair value hierarchy. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income.
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 theex-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 theex-dividend date. Dividend payments received in additional securities are recorded on theex-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.
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. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries
29
Table of Contents
Notes to Financial Statements – continued
in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on theex-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 and treating a portion of the proceeds from redemptions as a distribution for tax purposes.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
Year ended 2/28/19 | Year ended 2/28/18 | |||||||
Ordinary income (including any short-term capital gains) | $59,674,693 | $29,802,893 | ||||||
Long-term capital gains | 56,378,230 | 30,932,255 | ||||||
Total distributions | $116,052,923 | $60,735,148 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 2/28/19 | ||||
Cost of investments | $2,239,188,657 | |||
Gross appreciation | 222,430,159 | |||
Gross depreciation | (86,527,210 | ) | ||
Net unrealized appreciation (depreciation) | $135,902,949 | |||
Undistributed ordinary income | 6,120,598 | |||
Undistributed long-term capital gain | 35,846,612 | |||
Other temporary differences | 89 |
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. Class C shares will convert to Class A shares approximately ten years after purchase. The fund’s distributions declared to
30
Table of Contents
Notes to Financial Statements – continued
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 | |||||||||||||||
Year ended 2/28/19 | Year ended 2/28/18 | Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||
Class A | $786,172 | $2,738 | $18,139,315 | $12,167,902 | ||||||||||||
Class B | — | — | 466,649 | 345,323 | ||||||||||||
Class C | — | — | 2,718,879 | 3,370,695 | ||||||||||||
Class I | 3,003,896 | 632,564 | 35,133,618 | 12,811,827 | ||||||||||||
Class R1 | — | — | 100,121 | 60,033 | ||||||||||||
Class R2 | 3,128 | — | 196,773 | 88,938 | ||||||||||||
Class R3 | 104,292 | 17,369 | 2,370,621 | 1,175,851 | ||||||||||||
Class R4 | 111,502 | 13,126 | 1,302,590 | 235,567 | ||||||||||||
Class R6 | 4,593,238 | 1,834,413 | 47,022,129 | 27,978,802 | ||||||||||||
Total | $8,602,228 | $2,500,210 | $107,450,695 | $58,234,938 |
(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 based on the fund’s average daily net assets:
Up to $1 billion | 0.90 | % | ||
In excess of $1 billion and up to $2.5 billion | 0.80 | % | ||
In excess of $2.5 billion | 0.75 | % |
MFS has agreed in writing to reduce its management fee by a specified amount if certain MFS mutual fund assets exceed thresholds agreed to by MFS and the fund’s Board of Trustees. For the year ended February 28, 2019, this management fee reduction amounted to $161,734, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended February 28, 2019 was equivalent to an annual effective rate of 0.85% 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, excluding 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’s average daily net assets:
Classes | ||||||||||||||||||||||||||||||||
A | B | C | I | R1 | R2 | R3 | R4 | R6 | ||||||||||||||||||||||||
1.39% | 2.14% | 2.14% | 1.14% | 2.14% | 1.64% | 1.39% | 1.14% | 1.10% |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until June 30, 2020. For the year ended February 28, 2019, the fund’s actual operating expenses did not exceed the limit and therefore, the investment adviser did not pay any portion of the fund’s expenses related to this agreement.
31
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Notes to Financial Statements – continued
Distributor– MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $209,850 for the year ended February 28, 2019, 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 share classes pursuant to Rule12b-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% | $702,702 | |||||||||||||||
Class B | 0.75% | 0.25% | 1.00% | 1.00% | 70,359 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 446,298 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 14,565 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 14,994 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 92,120 | |||||||||||||||
Total Distribution and Service Fees |
| $1,341,038 |
(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. Any rate changes, if applicable, are detailed below. |
(e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended February 28, 2019 based on each class’s average daily net assets. MFD has voluntarily agreed to rebate a portion of each class’s 0.25% service fee attributable to accounts for which MFD retains the 0.25% service fee except for accounts attributable to MFS or its affiliates’ seed money. For the year ended February 28, 2019, this rebate amounted to $1,884, $21, and $26 for Class A, Class B, and Class C, respectively, and is included in the reduction of total expenses in the Statement of Operations. |
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 B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. All contingent deferred sales charges are paid to MFD and during the year ended February 28, 2019, were as follows:
Amount | ||||
Class A | $11,852 | |||
Class B | 9,984 | |||
Class C | 5,587 |
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
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determined periodically under the supervision of the fund’s Board of Trustees. For the year ended February 28, 2019, the fee was $71,289, which equated to 0.0043% annually of the fund’s average daily net assets. MFSC also receives payment from the fund forout-of-pocket expenses,sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incursub-accounting fees. For the year ended February 28, 2019, theseout-of-pocket expenses,sub-accounting and other shareholder servicing costs amounted to $1,090,451.
Administrator– MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund 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 year ended February 28, 2019 was equivalent to an annual effective rate of 0.0146% 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 a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the year ended February 28, 2019, the fee paid by the fund under this agreement was $2,784 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.
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. This money market fund does not pay a management fee to MFS.
On August 15, 2017, MFS redeemed 821, 4,360, and 4,359 shares of Class R1, Class R2, and Class R4, respectively, for an aggregate amount of $136,534. On December 14, 2018, MFS redeemed 3,814 shares of Class R1 for an aggregate amount of $49,392.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser orsub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule17a-7 under the Investment Company Act of 1940. During the year ended February 28, 2019, the fund
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engaged in purchase transactions pursuant to this policy, which amounted to $7,382,793.
The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended February 28, 2019, this reimbursement amounted to $205,588, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended February 28, 2019, purchases and sales of investments, other than short-term obligations, aggregated $1,840,654,864 and $936,718,194, 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:
Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 8,041,062 | $122,957,850 | 7,620,306 | $115,730,935 | ||||||||||||
Class B | 108,564 | 1,644,646 | 111,800 | 1,626,432 | ||||||||||||
Class C | 1,128,691 | 16,438,519 | 953,724 | 13,897,391 | ||||||||||||
Class I | 47,776,948 | 719,626,709 | 18,261,014 | 280,012,577 | ||||||||||||
Class R1 | 31,229 | 465,123 | 98,395 | 1,425,401 | ||||||||||||
Class R2 | 122,320 | 1,876,434 | 122,873 | 1,876,309 | ||||||||||||
Class R3 | 2,064,259 | 31,092,121 | 1,042,355 | 16,091,843 | ||||||||||||
Class R4 | 4,568,336 | 68,736,857 | 257,328 | 4,001,163 | ||||||||||||
Class R6 | 28,244,020 | 421,028,847 | 19,772,291 | 299,835,093 | ||||||||||||
92,085,429 | $1,383,867,106 | 48,240,086 | $734,497,144 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Class A | 1,310,231 | $18,890,361 | 807,105 | $12,148,651 | ||||||||||||
Class B | 32,910 | 458,112 | 23,438 | 341,528 | ||||||||||||
Class C | 195,279 | 2,711,087 | 232,673 | 3,369,313 | ||||||||||||
Class I | 2,554,758 | 36,739,155 | 828,351 | 12,590,628 | ||||||||||||
Class R1 | 7,210 | 100,121 | 4,111 | 60,033 | ||||||||||||
Class R2 | 13,945 | 199,901 | 5,928 | 88,938 | ||||||||||||
Class R3 | 171,290 | 2,474,913 | 78,797 | 1,193,220 | ||||||||||||
Class R4 | 97,915 | 1,414,092 | 16,338 | 248,693 | ||||||||||||
Class R6 | 3,103,837 | 45,025,490 | 1,895,003 | 28,768,656 | ||||||||||||
7,487,375 | $108,013,232 | 3,891,744 | $58,809,660 |
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Notes to Financial Statements – continued
Year ended 2/28/19 | Year ended 2/28/18 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares reacquired | ||||||||||||||||
Class A | (5,159,565 | ) | $(77,005,362 | ) | (4,296,440 | ) | $(64,867,911 | ) | ||||||||
Class B | (85,354 | ) | (1,256,709 | ) | (97,933 | ) | (1,422,812 | ) | ||||||||
Class C | (2,154,430 | ) | (31,919,718 | ) | (1,859,500 | ) | (27,477,643 | ) | ||||||||
Class I | (13,637,977 | ) | (202,994,639 | ) | (11,707,017 | ) | (175,534,080 | ) | ||||||||
Class R1 | (14,868 | ) | (212,816 | ) | (31,691 | ) | (461,413 | ) | ||||||||
Class R2 | (47,806 | ) | (727,197 | ) | (52,011 | ) | (766,295 | ) | ||||||||
Class R3 | (996,009 | ) | (15,674,483 | ) | (321,589 | ) | (4,934,484 | ) | ||||||||
Class R4 | (330,031 | ) | (5,054,993 | ) | (71,354 | ) | (1,084,630 | ) | ||||||||
Class R6 | (9,852,865 | ) | (150,927,806 | ) | (4,743,740 | ) | (73,037,390 | ) | ||||||||
(32,278,905 | ) | $(485,773,723 | ) | (23,181,275 | ) | $(349,586,658 | ) | |||||||||
Net change | ||||||||||||||||
Class A | 4,191,728 | $64,842,849 | 4,130,971 | $63,011,675 | ||||||||||||
Class B | 56,120 | 846,049 | 37,305 | 545,148 | ||||||||||||
Class C | (830,460 | ) | (12,770,112 | ) | (673,103 | ) | (10,210,939 | ) | ||||||||
Class I | 36,693,729 | 553,371,225 | 7,382,348 | 117,069,125 | ||||||||||||
Class R1 | 23,571 | 352,428 | 70,815 | 1,024,021 | ||||||||||||
Class R2 | 88,459 | 1,349,138 | 76,790 | 1,198,952 | ||||||||||||
Class R3 | 1,239,540 | 17,892,551 | 799,563 | 12,350,579 | ||||||||||||
Class R4 | 4,336,220 | 65,095,956 | 202,312 | 3,165,226 | ||||||||||||
Class R6 | 21,494,992 | 315,126,531 | 16,923,554 | 255,566,359 | ||||||||||||
67,293,899 | $1,006,106,615 | 28,950,555 | $443,720,146 |
Class T shares were not publicly available for sale during the period. Please see the fund’s prospectus for details.
Effective June 1, 2019, purchases of the fund’s Class B shares are closed to new and existing investors subject to certain exceptions. Please see the fund’s prospectus for details.
The fund is one of several mutual funds in which certain MFS funds may invest. The MFS funds do not invest in the underlying funds for the purpose of exercising management or control. At the end of the period, the MFS Growth Allocation Fund, the MFS Moderate Allocation Fund, the MFS Aggressive Growth Allocation Fund, and the MFS Conservative Allocation Fund were the owners of record of approximately 4%, 4%, 2%, and 1%, respectively, of the value of outstanding voting shares of the fund. In addition, the MFS Lifetime 2020 Fund, the MFS Lifetime 2025 Fund, the MFS Lifetime 2030 Fund, the MFS Lifetime 2035 Fund, the MFS Lifetime 2040 Fund, the MFS Lifetime 2045 Fund, the MFS Lifetime 2050 Fund, the MFS Lifetime 2055 Fund, the MFS Lifetime 2060 Fund, and the MFS Lifetime Income Fund were each the owners of record of less than 1% of the value of outstanding voting shares of the fund.
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 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
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temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Overnight Bank Funding rate or daily 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. 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 Overnight Bank Funding rate plus an agreed upon spread. For the year ended February 28, 2019, the fund’s commitment fee and interest expense were $8,805 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(7) Investments in 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 affiliated issuers:
Affiliated Issuers | Beginning Shares/Par Amount | Acquisitions Shares/Par Amount | Dispositions Shares/Par Amount | Ending Shares/Par Amount | ||||||||||||||||
Construction Partners, Inc., “A” | — | 1,182,346 | — | 1,182,346 | ||||||||||||||||
MFS Institutional Money Market Portfolio | 25,271,435 | 931,592,135 | (900,289,273 | ) | 56,574,297 | |||||||||||||||
Affiliated Issuers | Realized Gain (Loss) | Change in Unrealized Appreciation/ Depreciation | Capital Gain Distributions | Dividend Income | Ending Value | |||||||||||||||
Construction Partners, Inc., “A” | $— | $878,559 | $— | $— | $14,613,797 | |||||||||||||||
MFS Institutional Money Market Portfolio | (1,779 | ) | (742 | ) | — | 620,014 | 56,574,297 | |||||||||||||
$(1,779 | ) | $877,817 | $— | $620,014 | $71,188,094 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of MFS New Discovery Value Fund and the Board of Trustees of MFS Series Trust XIII
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of MFS New Discovery Value Fund (the “Fund”) (one of the funds constituting MFS Series Trust XIII (the “Trust”)), including the portfolio of investments, as of February 28, 2019,and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund (one of the funds constituting MFS Series Trust XIII) at February 28, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of February 28, 2019,by correspondence with the custodian andothersor by other appropriate auditing procedures where replies from others were not received. Our audits also included
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evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more MFS investment companies since 1993.
Boston, Massachusetts
April 16, 2019
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TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of April 1, 2019, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and Officer is 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 55) | Trustee | February 2004 | 135 | Massachusetts Financial Services Company, Executive Chairman (since January 2017); Director; Chairman of the Board; Chief Executive Officer (until 2015);Co-Chief Executive Officer (2015-2016) | N/A | |||||
Robin A. Stelmach (k) (age 57) | Trustee | January 2014 | 135 | Massachusetts Financial Services Company, Vice Chair (since January 2017); Chief Operating Officer and Executive Vice President (until January 2017) | N/A | |||||
INDEPENDENT TRUSTEES | ||||||||||
John P. Kavanaugh (age 64) | Trustee and Chair of Trustees | January 2009 | 135 | Private investor | N/A | |||||
Steven E. Buller (age 67) | Trustee | February 2014 | 135 | Financial Accounting Standards Advisory Council, Chairman (2014-2015); Public Company Accounting Oversight Board, Standing Advisory Group, Member (until 2014); BlackRock, Inc. (investment management), Managing Director (until 2014), BlackRock Finco UK (investment management), Director (until 2014) | N/A |
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Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
John A. Caroselli (age 64) | Trustee | March 2017 | 135 | JC Global Advisors, LLC (management consulting), President (since 2015); First Capital Corporation (commercial finance), Executive Vice President (until 2015) | N/A | |||||
Maureen R. Goldfarb (age 63) | Trustee | January 2009 | 135 | Private investor | N/A | |||||
Michael Hegarty (age 74) | Trustee | December 2004 | 135 | Private investor | Rouse Properties Inc., Director (until 2016); Capmark Financial Group Inc., Director (until 2015) | |||||
Peter D. Jones (age 63) | Trustee | January 2019 | 135 | Franklin Templeton Distributors, Inc. (investment management), President (until 2015); Franklin Templeton Institutional, LLC (investment management), Chairman (until 2015) | N/A | |||||
James W. Kilman, Jr. (age 57) | Trustee | January 2019 | 135 | KielStrand Capital LLC (family office and merchant bank), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking,Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | Alpha-En Corporation, Director (since 2016) |
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Name, Age | Position(s) with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | Other Directorships | |||||
Clarence Otis, Jr. (age 62) | Trustee | March 2017 | 135 | Darden Restaurants, Inc., Chief Executive Officer (until 2014) | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 63) | Trustee | May 2014 | 135 | American Century Investments (investment management), Senior Vice President and Chief Compliance Officer (until 2014) | N/A | |||||
Laurie J. Thomsen (age 61) | Trustee | March 2005 | 135 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 45) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kino Clark (k) (age 50) | Assistant Treasurer | January 2012 | 135 | Massachusetts Financial Services Company, Vice President |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
John W. Clark, Jr. (k) (age 52) | Assistant Treasurer | April 2017 | 135 | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) | ||||
Thomas H. Connors (k) (age 59) | Assistant Secretary and Assistant Clerk | September 2012 | 135 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Ethan D. Corey (k) (age 55) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
David L. DiLorenzo (k) (age 50) | President | July 2005 | 135 | Massachusetts Financial Services Company, Senior Vice President | ||||
Heidi W. Hardin (k) (age 51) | Secretary and Clerk | April 2017 | 135 | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (from September 2015 to January 2017); Janus Capital Management LLC (investment management), Senior Vice President and General Counsel (until September 2015) | ||||
Brian E. Langenfeld (k) (age 46) | Assistant Secretary and Assistant Clerk | June 2006 | 135 | Massachusetts Financial Services Company, Vice President and Senior Counsel |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal the Past Five Years | ||||
Amanda S. Mooradian (k) (age 40) | Assistant Secretary and Assistant Clerk | September 2018 | 135 | Massachusetts Financial Services Company, Assistant Vice President and Counsel | ||||
Susan A. Pereira (k) (age 48) | Assistant Secretary and Assistant Clerk | July 2005 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 48) | Assistant Treasurer | September 2012 | 135 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 44) | Assistant Secretary and Assistant Clerk | October 2014 | 135 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Frank L. Tarantino (age 75) | Independent Senior Officer | June 2004 | 135 | Tarantino LLC (provider of compliance services), Principal | ||||
Richard S. Weitzel (k) (age 48) | Assistant Secretary and Assistant Clerk | October 2007 | 135 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Martin J. Wolin (k) (age 51) | Chief Compliance Officer | July 2015 | 135 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015); Mercer (financial service provider), Chief Risk and Compliance Officer, North America and Latin America (until June 2015) | ||||
James O. Yost (k) (age 58) | Treasurer | September 1990 | 135 | Massachusetts Financial Services Company, Senior Vice President |
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(h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
(j) | Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”). |
(k) | “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
Each Trustee (other than Messrs. Jones and Kilman) has been elected by shareholders and each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. The Trust does not hold annual meetings for the purpose of electing Trustees, and Trustees are not elected for fixed terms. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Hegarty, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling1-800-225-2606.
Investment Adviser | Custodian | |
Massachusetts Financial Services Company Boston, MA 02199-7618 | State Street Bank and Trust Company 1 Lincoln Street Boston, MA 02111-2900 | |
Distributor | Independent Registered Public Accounting Firm | |
MFS Fund Distributors, Inc. Boston, MA 02199-7618 | Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 | |
Portfolio Manager(s) | ||
Kevin Schmitz |
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling1-800-225-2606, by visitingmfs.com/proxyvoting,or by visiting the SEC’s Web site athttp://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 by August 31 of each year without charge by visitingmfs.com/proxyvoting,or by visiting the SEC’s Web site athttp://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website athttp://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year atmfs.com/openendfundsby choosing the fund’s name and then selecting the “Resources” tab and clicking on “Prospectus and Reports”.
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 athttps://www.mfs.com/en-us/what-we-do/announcements.htmlor atmfs.com/openendfundsby choosing the fund’s name.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent, 529 program manager (if applicable), and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2019 income tax forms in January 2020. The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates the maximum amount allowable as qualified dividend income eligible to be taxed at the same rate as long-term capital gain.
The fund designates $65,483,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 31.02% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund designates the maximum amount allowable as Section 199A dividends as defined in Proposed Treasury Regulation §1.199A-3(d).
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rev. 3/16
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
• Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions
When you areno longer our customer, we continue to share your information as described in this notice. |
How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does MFS share? | Can you limit this sharing? | ||
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No | ||
For our marketing purposes – to offer our products and services to you | No | We don’t share | ||
For joint marketing with other financial companies | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your transactions and experiences | No | We don’t share | ||
For our affiliates’ everyday business purposes – information about your creditworthiness | No | We don’t share | ||
For nonaffiliates to market to you | No | We don’t share |
Questions? | Call800-225-2606 or go tomfs.com. |
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Page 2 |
Who we are | ||
Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. |
What we do | ||
How does MFS protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. | |
How does MFS collect my personal information? | We collect your personal information, for example, when you
• open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | |
Why can’t I limit all sharing? | Federal law gives you the right to limit only
• sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. |
Definitions | ||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. | |
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share with nonaffiliates so they can market to you. | |
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
• MFS doesn’t jointly market. |
Other important information | ||
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CONTACT
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ACCOUNT SERVICE AND LITERATURE
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MAILING ADDRESS
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Kansas City, MO 64105-1407
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ITEM 2. | CODE OF ETHICS. |
The Registrant has adopted a Code of Ethics (the “Code”) pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in FormN-CSR that applies to the Registrant’s principal executive officer and principal financial and accounting officer. 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 definition enumerated in paragraph (b) of Item 2 of this FormN-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.
A copy of the Code of Ethics is filed as an exhibit to this FormN-CSR.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Messrs. Steven E. Buller, Michael Hegarty, James Kilman, and Clarence Otis, Jr. and Ms. Maryanne L. Roepke, members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of “audit committee financial expert” as such term is defined in FormN-CSR. In addition, Messrs. Buller, Hegarty, Kilman and Otis and Ms. Roepke are “independent” members of the Audit Committee (as such term has been defined by the Securities and Exchange Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The Securities and Exchange Commission has stated that the designation of a person as an audit committee financial expert pursuant to this Item 3 on the FormN-CSR does not impose on such a person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Items 4(a) through 4(d) and 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP (“Deloitte”) to serve as independent accountants to certain series of the Registrant and Ernst & Young LLP (“E&Y”) to serve in the same capacity to certain other series of the Registrant (each a “Fund” and collectively the “Funds”). The tables below set forth the audit fees billed to each Fund as well as fees fornon-audit services provided to each Fund and/or to each Fund’s investment adviser, Massachusetts Financial Services Company (“MFS”), and to various entities either controlling, controlled by, or under common control with MFS that provide ongoing services to the Funds (“MFS Related Entities”).
For the fiscal years ended February 28, 2019 and 2018, respectively, audit fees billed to each Fund by Deloitte and E&Y were as follows:
Audit Fees | ||||||||
2019 | 2018 | |||||||
Fees billed by Deloitte: | ||||||||
MFS Government Securities Fund | 54,910 | 53,693 |
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Audit Fees | ||||||||
2019 | 2018 | |||||||
Fees billed by E&Y: | ||||||||
MFS Diversified Income Fund | 58,786 | 57,482 | ||||||
MFS New Discovery Value Fund | 46,352 | 45,328 | ||||||
Total | 105,138 | 102,810 |
For the fiscal years ended February 28, 2019 and 2018, respectively, fees billed by Deloitte and E&Y for audit-related, tax and other services provided to each Fund and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:
Audit-Related Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Fees billed by Deloitte: | ||||||||||||||||||||||||
To MFS Government Securities Fund | 0 | 0 | 7,205 | 7,043 | 0 | 0 |
Audit-Related Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Fees billed by Deloitte: | ||||||||||||||||||||||||
To MFS and MFS Related Entities of MFS Government Securities Fund* | 0 | 0 | 0 | 0 | 5,390 | 5,390 |
Aggregate fees for non-audit services | ||||||||
2019 | 2018 | |||||||
Fees billed by Deloitte: | ||||||||
To MFS Government Securities Fund, MFS and MFS Related Entities# | 12,595 | 402,112 |
Audit-Related Fees1 | Tax Fees2 | All Other Fees4 | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Fees billed by E&Y: | ||||||||||||||||||||||||
To MFS Diversified Income Fund | 0 | 0 | 8,624 | 9,536 | 2,018 | 2,062 | ||||||||||||||||||
To MFS New Discovery Value Fund | 0 | 0 | 8,677 | 8,476 | 1,388 | 1,243 | ||||||||||||||||||
Total fees billed by E&Y To above Funds | 0 | 0 | 17,301 | 18,012 | 3,406 | 3,305 |
Audit-Related Fees1 | Tax Fees2 | All Other Fees4 | ||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Fees billed by E&Y: | ||||||||||||||||||||||||
To MFS and MFS Related Entities of MFS Diversified Income Fund* | 1,743,310 | 1,767,893 | 0 | 0 | 104,750 | 102,450 | ||||||||||||||||||
To MFS and MFS Related Entities of MFS New Discovery Value Fund* | 1,743,310 | 1,767,893 | 0 | 0 | 104,750 | 102,450 |
Aggregate fees for non-audit services | ||||||||
2019 | 2018 | |||||||
Fees billed by E&Y: | ||||||||
To MFS Diversified Income Fund, MFS and MFS Related Entities# | 2,071,602 | 2,048,941 | ||||||
To MFS New Discovery Value Fund, MFS and MFS Related Entities# | 2,071,025 | 2,047,062 |
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* | This amount reflects the fees billed to MFS and MFS Related Entities fornon-audit services relating directly to the operations and financial reporting of the Funds (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex). |
# | This amount reflects the aggregate fees billed by Deloitte or E&Y, as the case may be, fornon-audit services rendered to the Funds and fornon-audit services rendered to MFS and the MFS Related Entities. |
1 | The fees included under “Audit-Related Fees” are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under ‘‘Audit Fees,’’ including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal control reviews. |
2 | The fees included under “Tax Fees” are fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis. |
3 | The fees included under “All Other Fees” are fees for products and services provided by Deloitte other than those reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees”. |
4 | The fees included under “All Other Fees” are fees for products and services provided by E&Y other than those reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees,” including fees for services related to reviews of internal controls and review of Rule38a-1 compliance program. |
Item 4(e)(1):
Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees relating to thepre-approval of audit andnon-audit related services:
To the extent required by applicable law,pre-approval by the Audit Committee of the Board is needed for all audit and permissiblenon-audit services rendered to the Funds and all permissiblenon-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant.Pre-approval is currently on anengagement-by-engagement basis. In the eventpre-approval of such services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seekpre-approval at the next regular meeting of the Audit Committee,pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may notpre-approve any individual engagement for such services exceeding $50,000 or multiple engagements for such services in the aggregate exceeding $100,000 in each period between regular meetings of the Audit Committee. Any engagementpre-approved by the Chair between regular meetings of the Audit Committee shall be presented for ratification by the entire Audit Committee at its next regularly scheduled meeting.
Item 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule2-01 of RegulationS-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied).
Item 4(f):
Not applicable.
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Item 4(h):
The Registrant’s Audit Committee has considered whether the provision by a Registrant’s independent registered public accounting firm ofnon-audit services to MFS and MFS Related Entities that were notpre-approved by the Committee (because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrant’s principal auditors.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable to the Registrant.
ITEM 6. | INVESTMENTS |
A schedule of investments of the Registrant is included as part of the report to shareholders of such series under Item 1 of this FormN-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 8. | PORTFOLIO MANAGERS OFCLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BYCLOSED-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 RegulationS-K or this Item.
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ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on FormN-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 Rule30a-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. |
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 13. | EXHIBITS. |
(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: Code of Ethics attached hereto asEX-99.COE. |
(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule30a-2(a) under the Act (17 CFR270.30a-2): Attached hereto asEX-99.302CERT. |
(3) | Any written solicitation to purchase securities under Rule23c-1 under the Act (17 CFR270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. |
(4) | Change in the registrant’s independent public accountant. Not applicable. |
(b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule30a-2(b) under the Act (17 CFR270.30a-2(b)), Rule13a-14(b) or Rule15d-14(b) under the Exchange Act (17 CFR240.13a-14(b) or240.15d-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 asEX-99.906CERT. |
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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.
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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 XIII
By (Signature and Title)* | DAVID L. DILORENZO | |
David L. DiLorenzo, President |
Date: April 16, 2019
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)* | DAVID L. DILORENZO | |
David L. DiLorenzo, President (Principal Executive Officer) |
Date: April 16, 2019
By (Signature and Title)* | JAMES O. YOST | |
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: April 16, 2019
* | Print name and title of each signing officer under his or her signature. |