UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2594
MFS SERIES TRUST IV
(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: August 31
Date of reporting period: August 31, 20201
1 | Effective August 21, 2020, the following series of the Registrant was liquidated: MFS Blended Research Global Equity Fund. |
ITEM 1. | REPORTS TO STOCKHOLDERS. |
As of the period end, MFS Blended Research Global Equity Fund, a series of the Registrant, did not have any shareholders as described in the introductory note on the cover page of this Form N-CSR.
Annual Report
August 31, 2020
MFS® Blended Research®
Emerging Markets Equity 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.
BRK-ANN
MFS® Blended Research®
Emerging Markets Equity Fund
Contact information | back cover |
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
LETTER FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Markets experienced dramatic swings in early 2020 as the coronavirus pandemic brought the global economy to a standstill for several months. Optimism over the
development of vaccines and therapeutics, along with a decline in cases in countries affected by the outbreak early on, brightened the economic and market outlook during the second quarter, as did the phased reopening of U.S. states. However, a great deal of uncertainty remains. While policymakers and public health officials have learned a great deal about combating the virus, much remains unknown at a time when the risks are rising for a second wave of infection. Political uncertainty is heightened as well, as the pandemic has caused many jurisdictions in the United States to adopt mail-in voting for the first time, raising questions over whether ballots in the November elections will be counted as quickly as they have been in the past.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support, though in the United States some of those measures were allowed to lapse at the end of July as negotiators found themselves at an impasse over the scope of additional funding. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can also sow the seeds of instability. In the aftermath of the crisis, societal changes may be likely, as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our unique global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
October 19, 2020
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
Portfolio structure
Top ten holdings | ||||
Tencent Holdings Ltd. | 7.1% | |||
Alibaba Group Holding Ltd., ADR | 6.9% | |||
Taiwan Semiconductor Manufacturing Co. Ltd. | 6.6% | |||
Samsung Electronics Co. Ltd. | 4.2% | |||
China Construction Bank | 2.0% | |||
Infosys Ltd. | 2.0% | |||
JD.com, Inc., ADR | 2.0% | |||
NetEase.com, Inc., ADR | 1.6% | |||
Hellenic Telecommunications Organization S.A. | 1.5% | |||
NAVER Corp. | 1.4% |
GICS equity sectors (g) | ||||
Consumer Discretionary | 18.5% | |||
Information Technology | 17.8% | |||
Financials | 16.7% | |||
Communication Services | 13.7% | |||
Consumer Staples | 7.0% | |||
Energy | 6.3% | |||
Materials | 6.2% | |||
Industrials | 3.9% | |||
Health Care | 3.7% | |||
Utilities | 2.6% | |||
Real Estate | 2.5% | |||
Issuer country weightings (x) | ||||
China | 42.6% | |||
South Korea | 12.8% | |||
Taiwan | 12.3% | |||
India | 7.0% | |||
Brazil | 4.8% | |||
Russia | 4.0% | |||
South Africa | 2.8% | |||
Malaysia | 1.8% | |||
Thailand | 1.6% | |||
Other Countries | 10.3% | |||
Currency exposure weightings (y) |
| |||
Hong Kong Dollar | 34.2% | |||
South Korean Won | 12.8% | |||
Taiwan Dollar | 12.3% | |||
Chinese Renminbi | 8.3% | |||
Indian Rupee | 7.0% | |||
Brazilian Real | 4.8% | |||
Russian Ruble | 4.0% | |||
South African Rand | 2.8% | |||
United States Dollar | 2.2% | |||
Other Currencies | 11.6% |
2
Portfolio Composition – continued
(g) | 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. |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
(y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
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.
Percentages are based on net assets as of August 31, 2020.
The portfolio is actively managed and current holdings may be different.
3
Summary of Results
For the twelve months ended August 31, 2020, Class A shares of the MFS Blended Research Emerging Markets Equity Fund (fund) provided a total return of 8.63%, at net asset value. This compares with a return of 14.49% for the fund’s benchmark, the MSCI Emerging Markets Index (net div).
Market Environment
Markets experienced an extraordinarily sharp selloff and in many cases an unusually rapid recovery late in the period. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the deepest, steepest, and possibly shortest recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and when vaccines or medicines will become available to prevent or treat it.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in a price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the United States also decreasing production, which – along with the gradual reopening of some major economies and the resultant boost in demand – helped stabilize the price of crude oil.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible average-inflation-targeting framework, which is expected to result in policy rates remaining at low levels for longer. In developed countries, monetary easing measures were complemented by large fiscal stimulus initiatives, although late in the period there was uncertainty surrounding the timing and scope of additional US recovery funding. Due to relatively manageable external liabilities and balances of payments in many countries, along with persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
As has often been the case in a crisis, market vulnerabilities have been revealed. For example, companies that have added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks have in many cases halted share repurchases and cut dividends, and some firms have been forced to recapitalize.
Detractors from Performance
Stock selection in the consumer discretionary sector was a primary detractor from performance relative to the MSCI Emerging Markets Index. Within this sector, the
4
Management Review – continued
fund’s overweight positions in department store chain Lojas Renner (Brazil) and leisure, hospitality and gambling company Genting Berhad (Malaysia) held back relative results. The timing of the fund’s ownership in shares of web-based shopping platform Meituan Dianping (China), and an underweight position in online and mobile commerce company Alibaba Group Holding (China), also hurt relative performance. Additionally, the fund’s holdings of travel retail company Dufry (b)(h) (Switzerland) further weighed on relative returns. The stock price of Dufry depreciated after the company reported earnings per share results that were short of expectations, driven by weaker-than-expected revenue results across all business segments.
Security selection within the financials sector held back relative performance. Here, the fund’s overweight positions in banking services firm ABSA Group (South Africa), insurance services provider China Pacific Insurance Group (China) and financial services firm Komercni Banka (Czech Republic) hampered relative returns. The potential for increased loan losses, as global economic activity ground to a virtual halt in an effort to stem the spread of the COVID-19 virus, combined with the decline in the US 10-year Treasury bond yields and the broader yield curves, pressured the share price of many banks.
Elsewhere, the fund’s overweight positions in power generation company ENGIE Brasil Energia (Brazil) and compact excavator machinery manufacturer Doosan Bobcat (h) (South Korea) weighed on relative results.
Contributors to Performance
Stock selection within the communication services sector was a primary contributor to relative performance, led by the fund’s overweight position in internet services and advertising company Tencent Holdings (China). The stock price of Tencent Holdings advanced on better-than-expected earnings results, driven by strong revenue from online games and online advertising.
Stocks in other sectors that also supported relative performance included the fund’s overweight positions in online product sales and distribution services provider Vipshop Holdings (China), semiconductor manufacturer Taiwan Semiconductor Manufacturing (Taiwan), wine producer Kweichow Moutai (China), real estate development company Longfor Group (China) and diesel engine manufacturer Weichai Power (h) (China). Avoiding shares of poor-performing oil and gas exploration and production company Petroleo Brasileiro (Brazil), bank Itau Unibanco (Brazil), financial services company Housing Development Finance (India) and global energy company Gazprom (Russia) also aided relative results.
Respectfully,
Portfolio Manager(s)
Jim Fallon, Matt Krummell, Jonathan Sage, and Jed Stocks
(b) | Security is not a benchmark constituent. |
(h) | Security was not held in the portfolio at period end. |
5
Management Review – continued
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.
6
PERFORMANCE SUMMARY THROUGH 8/31/20
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)
7
Performance Summary – continued
Total Returns through 8/31/20
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | Life (t) | |||||||
A | 9/15/15 | 8.63% | 8.08% | |||||||
B | 9/15/15 | 7.88% | 7.28% | |||||||
C | 9/15/15 | 7.87% | 7.28% | |||||||
I | 9/15/15 | 8.89% | 8.34% | |||||||
R1 | 9/15/15 | 7.84% | 7.28% | |||||||
R2 | 9/15/15 | 8.35% | 7.81% | |||||||
R3 | 9/15/15 | 8.61% | 8.07% | |||||||
R4 | 9/15/15 | 8.90% | 8.35% | |||||||
R6 | 9/15/15 | 9.00% | 8.43% | |||||||
Comparative benchmark(s) | ||||||||||
MSCI Emerging Markets Index (net div) (f) | 14.49% | 8.97% | ||||||||
Average annual with sales charge | ||||||||||
A With Initial Sales Charge (5.75%) | 2.39% | 6.80% | ||||||||
B With CDSC (Declining over six years from 4% to 0%) (v) | 3.88% | 6.98% | ||||||||
C With CDSC (1% for 12 months) (v) | 6.87% | 7.28% |
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. (See Notes to Performance Summary.) |
(v) | Assuming redemption at the end of the applicable period. |
Benchmark Definition(s)
MSCI Emerging Markets Index (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the global emerging markets. Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
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.
8
Performance Summary – continued
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.
9
Fund expenses borne by the shareholders during the period, March 1, 2020 through August 31, 2020
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 March 1, 2020 through August 31, 2020.
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.
10
Expense Table – continued
Share Class | Annualized Expense Ratio | Beginning Account Value 3/01/20 | Ending Account Value 8/31/20 | Expenses Paid During Period (p) 3/01/20-8/31/20 | ||||||||||||||
A | Actual | 1.24% | $1,000.00 | $1,059.64 | $6.42 | |||||||||||||
Hypothetical (h) | 1.24% | $1,000.00 | $1,018.90 | $6.29 | ||||||||||||||
B | Actual | 1.99% | $1,000.00 | $1,056.06 | $10.28 | |||||||||||||
Hypothetical (h) | 1.99% | $1,000.00 | $1,015.13 | $10.08 | ||||||||||||||
C | Actual | 1.99% | $1,000.00 | $1,056.15 | $10.29 | |||||||||||||
Hypothetical (h) | 1.99% | $1,000.00 | $1,015.13 | $10.08 | ||||||||||||||
I | Actual | 0.99% | $1,000.00 | $1,061.22 | $5.13 | |||||||||||||
Hypothetical (h) | 0.99% | $1,000.00 | $1,020.16 | $5.03 | ||||||||||||||
R1 | Actual | 1.99% | $1,000.00 | $1,055.92 | $10.28 | |||||||||||||
Hypothetical (h) | 1.99% | $1,000.00 | $1,015.13 | $10.08 | ||||||||||||||
R2 | Actual | 1.49% | $1,000.00 | $1,058.87 | $7.71 | |||||||||||||
Hypothetical (h) | 1.49% | $1,000.00 | $1,017.65 | $7.56 | ||||||||||||||
R3 | Actual | 1.24% | $1,000.00 | $1,059.59 | $6.42 | |||||||||||||
Hypothetical (h) | 1.24% | $1,000.00 | $1,018.90 | $6.29 | ||||||||||||||
R4 | Actual | 0.99% | $1,000.00 | $1,061.13 | $5.13 | |||||||||||||
Hypothetical (h) | 0.99% | $1,000.00 | $1,020.16 | $5.03 | ||||||||||||||
R6 | Actual | 0.94% | $1,000.00 | $1,061.08 | $4.87 | |||||||||||||
Hypothetical (h) | 0.94% | $1,000.00 | $1,020.41 | $4.77 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
11
8/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - 97.3% | ||||||||
Airlines - 0.2% | ||||||||
Zhejiang Expressway Co. Ltd., “H” | 134,000 | $ | 90,240 | |||||
Alcoholic Beverages - 1.4% | ||||||||
China Resources Beer Holdings Co. Ltd. | 20,000 | $ | 130,330 | |||||
Kweichow Moutai Co. Ltd., “A” | 1,297 | 338,025 | ||||||
Thai Beverage PLC | 281,600 | 127,011 | ||||||
|
| |||||||
$ | 595,366 | |||||||
Apparel Manufacturers - 1.4% | ||||||||
Li Ning Co. Ltd. | 56,500 | $ | 237,842 | |||||
Pou Chen Corp. | 155,000 | 145,843 | ||||||
Shenzhou International Group Holdings Ltd. | 13,700 | 219,705 | ||||||
|
| |||||||
$ | 603,390 | |||||||
Automotive - 2.3% | ||||||||
BAIC Motor Corp. Ltd., “H” | 239,000 | $ | 113,982 | |||||
Hero MotoCorp Ltd. | 5,018 | 204,930 | ||||||
Hotai Motor Co. Ltd. | 8,000 | 162,098 | ||||||
Kia Motors Corp. | 5,042 | 179,201 | ||||||
Maruti Suzuki India Ltd. | 1,010 | 93,691 | ||||||
Zhongsheng Group Holdings Ltd. | 34,500 | 214,290 | ||||||
|
| |||||||
$ | 968,192 | |||||||
Brokerage & Asset Managers - 0.4% | ||||||||
B3 Brasil Bolsa Balcao S.A. | 10,000 | $ | 107,329 | |||||
Bolsa Mexicana de Valores S.A. de C.V. | 39,420 | 83,048 | ||||||
|
| |||||||
$ | 190,377 | |||||||
Business Services - 2.5% | ||||||||
China Yuhua Education Corp. Ltd. | 130,000 | $ | 124,629 | |||||
HCL Technologies Ltd. | 10,588 | 99,885 | ||||||
Infosys Ltd. | 66,304 | 840,253 | ||||||
|
| |||||||
$ | 1,064,767 | |||||||
Computer Software - Systems - 2.2% | ||||||||
Chinasoft International Ltd. | 286,000 | $ | 201,930 | |||||
Hon Hai Precision Industry Co. Ltd. | 139,000 | 363,707 | ||||||
Pegatron Corp. | 65,000 | 138,456 | ||||||
Wistron Corp. | 201,000 | 217,846 | ||||||
|
| |||||||
$ | 921,939 |
12
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Conglomerates - 0.3% | ||||||||
CITIC Pacific Ltd. | 120,000 | $ | 108,977 | |||||
Construction - 1.3% | ||||||||
Anhui Conch Cement Co. Ltd. | 50,500 | $ | 364,881 | |||||
Taiwan Cement Corp. | 141,212 | 206,080 | ||||||
|
| |||||||
$ | 570,961 | |||||||
Consumer Products - 1.0% | ||||||||
Hindustan Unilever Ltd. | 11,608 | $ | 333,398 | |||||
Vinda International Holdings Ltd. | 22,000 | 75,224 | ||||||
|
| |||||||
$ | 408,622 | |||||||
Electronics - 13.0% | ||||||||
E Ink Holdings, Inc. | 94,000 | $ | 131,638 | |||||
LG Electronics, Inc. | 3,785 | 266,982 | ||||||
Samsung Electronics Co. Ltd. | 39,467 | 1,794,106 | ||||||
Silicon Motion Technology Corp., ADR | 5,462 | 207,064 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 192,000 | 2,790,859 | ||||||
United Microelectronics Corp. | 422,000 | 301,794 | ||||||
|
| |||||||
$ | 5,492,443 | |||||||
Energy - Independent - 2.3% | ||||||||
China Shenhua Energy Co. Ltd. | 209,000 | $ | 346,864 | |||||
CNOOC Ltd. | 236,000 | 266,440 | ||||||
Hindustan Petroleum Corp. Ltd. | 57,492 | 157,003 | ||||||
Reliance Industries Ltd. | 6,974 | 196,595 | ||||||
Reliance Industries Ltd. | 453 | 7,345 | ||||||
|
| |||||||
$ | 974,247 | |||||||
Energy - Integrated - 3.2% | ||||||||
China Petroleum & Chemical Corp. | 1,230,000 | $ | 565,289 | |||||
LUKOIL PJSC, ADR | 8,572 | 586,325 | ||||||
PetroChina Co. Ltd. | 566,000 | 194,853 | ||||||
|
| |||||||
$ | 1,346,467 | |||||||
Engineering - Construction - 0.2% | ||||||||
China Communications Construction Co. Ltd. | 126,000 | $ | 70,387 | |||||
Food & Beverages - 2.3% | ||||||||
Abdullah Al Othaim Markets Co. | 2,610 | $ | 86,851 | |||||
CJ CheilJedang Corp. | 716 | 244,434 | ||||||
Gruma S.A.B. de C.V. | 19,423 | 229,726 | ||||||
Inner Mongolia Yili Industrial Group Co. Ltd., “A” | 30,664 | 187,613 | ||||||
Orion Corp. | 1,884 | 222,233 | ||||||
|
| |||||||
$ | 970,857 |
13
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Food & Drug Stores - 0.8% | ||||||||
Magnit PJSC, GDR | 5,783 | $ | 84,837 | |||||
Raia Drogasil S.A. | 5,923 | 116,546 | ||||||
SPAR Group Ltd. | 10,080 | 96,131 | ||||||
Sun Art Retail Group Ltd. | 45,500 | 59,295 | ||||||
|
| |||||||
$ | 356,809 | |||||||
Gaming & Lodging - 0.6% | ||||||||
Genting Berhad | 306,400 | $ | 258,184 | |||||
General Merchandise - 1.0% | ||||||||
Bim Birlesik Magazalar A.S. | 12,563 | $ | 116,115 | |||||
Lojas Americanas S.A. | 34,543 | 172,636 | ||||||
Lojas Renner S.A. | 18,065 | 143,340 | ||||||
|
| |||||||
$ | 432,091 | |||||||
Health Maintenance Organizations - 0.2% | ||||||||
Qualicorp S.A. | 15,565 | $ | 88,756 | |||||
Insurance - 3.1% | ||||||||
AIA Group Ltd. | 23,800 | $ | 242,144 | |||||
China Pacific Insurance Co. Ltd. | 163,000 | 448,928 | ||||||
PICC Property & Casualty Co. Ltd. | 278,000 | 213,983 | ||||||
Samsung Fire & Marine Insurance Co. Ltd. | 2,714 | 426,037 | ||||||
|
| |||||||
$ | 1,331,092 | |||||||
Internet - 18.9% | ||||||||
Alibaba Group Holding Ltd., ADR (a) | 10,173 | $ | 2,919,956 | |||||
Meituan Dianping, “B” (a) | 13,200 | 433,852 | ||||||
Naspers Ltd. | 1,339 | 244,300 | ||||||
NAVER Corp. | 2,224 | 600,797 | ||||||
NetEase.com, Inc., ADR | 1,435 | 699,146 | ||||||
PChome Online, Inc. | 25,000 | 94,976 | ||||||
Tencent Holdings Ltd. | 44,300 | 3,018,934 | ||||||
|
| |||||||
$ | 8,011,961 | |||||||
Machinery & Tools - 1.5% | ||||||||
Sinotruk Hong Kong Ltd. | 73,000 | $ | 189,280 | |||||
Zhengzhou Yutong Bus Co. Ltd., “A” | 210,590 | 435,855 | ||||||
|
| |||||||
$ | 625,135 | |||||||
Major Banks - 4.6% | ||||||||
ABSA Group Ltd. | 51,758 | $ | 235,871 | |||||
Bank of China Ltd. | 770,000 | 251,100 | ||||||
China Construction Bank | 1,198,000 | 843,806 |
14
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Major Banks - continued | ||||||||
Industrial & Commercial Bank of China, “H” | 954,000 | $ | 532,697 | |||||
Nedbank Group Ltd. | 16,666 | 94,375 | ||||||
|
| |||||||
$ | 1,957,849 | |||||||
Medical Equipment - 1.2% | ||||||||
Hartalega Holdings Berhad | 21,800 | $ | 86,457 | |||||
Top Glove Corp. | 64,300 | 407,288 | ||||||
|
| |||||||
$ | 493,745 | |||||||
Metals & Mining - 1.9% | ||||||||
Kumba Iron Ore Ltd. | 7,448 | $ | 233,309 | |||||
MMC Norilsk Nickel PJSC, ADR | 12,169 | 317,002 | ||||||
POSCO | 1,157 | 179,701 | ||||||
Vale S.A. | 6,800 | 74,076 | ||||||
|
| |||||||
$ | 804,088 | |||||||
Natural Gas - Pipeline - 0.3% | ||||||||
Petronet LNG Ltd. | 44,182 | $ | 144,267 | |||||
Network & Telecom - 0.4% | ||||||||
VTech Holdings Ltd. | 26,100 | $ | 152,218 | |||||
Oil Services - 0.5% | ||||||||
Star Petroleum Refining PLC, “A” | 891,100 | $ | 196,129 | |||||
Other Banks & Diversified Financials - 7.9% | ||||||||
Banco Macro S.A., ADR (a) | 3,538 | $ | 67,045 | |||||
Bancolombia S.A., ADR | 5,501 | 154,358 | ||||||
Bank Rakyat Indonesia | 1,266,600 | 304,159 | ||||||
BNK Financial Group, Inc. | 19,005 | 80,914 | ||||||
BOC Aviation Ltd. (n) | 17,000 | 125,271 | ||||||
E.Sun Financial Holding Co. Ltd. | 494,782 | 457,983 | ||||||
Grupo Financiero Inbursa S.A. de C.V. (a) | 82,209 | 60,148 | ||||||
Haci Ömer Sabanci Holding A.S. | 152,686 | 160,777 | ||||||
Hana Financial Group, Inc. | 9,878 | 233,179 | ||||||
HDFC Bank Ltd., ADR (a) | 4,475 | 221,960 | ||||||
Industrial Bank of Korea | 14,787 | 100,409 | ||||||
KB Financial Group, Inc. | 9,357 | 289,686 | ||||||
Komercni Banka A.S. (a) | 10,327 | 248,661 | ||||||
Metropolitan Bank & Trust Co. | 143,040 | 98,421 | ||||||
Old Mutual Ltd. | 144,966 | 95,696 | ||||||
Sberbank of Russia PJSC, ADR (a) | 48,699 | 588,040 | ||||||
Turkiye Garanti Bankasi A.S. (a) | 81,137 | 74,716 | ||||||
|
| |||||||
$ | 3,361,423 |
15
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Pharmaceuticals - 2.3% | ||||||||
Ajanta Pharma Ltd. | 9,637 | $ | 194,370 | |||||
China Medical System Holdings Ltd. | 114,000 | 128,384 | ||||||
Gedeon Richter PLC | 12,320 | 300,608 | ||||||
Genomma Lab Internacional S.A., “B” (a) | 166,481 | 174,682 | ||||||
Kalbe Farma Tbk PT | 892,900 | 96,878 | ||||||
Luye Pharma Group Ltd. | 181,530 | 98,143 | ||||||
|
| |||||||
$ | 993,065 | |||||||
Precious Metals & Minerals - 0.4% | ||||||||
Harmony Gold, ADR (a) | 26,970 | $ | 174,766 | |||||
Railroad & Shipping - 0.4% | ||||||||
Shenzhen International Holdings Ltd. | 107,000 | $ | 171,396 | |||||
Real Estate - 3.1% | ||||||||
Country Garden Services Holdings Co. Ltd. | 34,000 | $ | 236,530 | |||||
KWG Group Holdings Ltd. | 51,500 | 97,947 | ||||||
Longfor Properties Co. Ltd. | 98,000 | 517,320 | ||||||
Shimao Property Holdings Ltd. | 102,500 | 459,967 | ||||||
|
| |||||||
$ | 1,311,764 | |||||||
Restaurants - 1.1% | ||||||||
Yum China Holdings, Inc. | 8,065 | $ | 465,431 | |||||
Specialty Chemicals - 3.8% | ||||||||
Asian Paints Ltd. | 13,623 | $ | 351,478 | |||||
LG Chem Ltd. | 214 | 132,469 | ||||||
Lotte Chemical Corp. | 938 | 148,952 | ||||||
Muyuan Foodstuff Co. Ltd. | 19,240 | 246,437 | ||||||
New Hope Liuhe Co. Ltd., “A” | 31,500 | 174,622 | ||||||
Orbia Advance Corp. S.A.B. de C.V. | 51,259 | 82,363 | ||||||
PTT Global Chemical PLC | 234,000 | 347,739 | ||||||
Wens Foodstuff Group Co. Ltd., “A” | 30,420 | 109,524 | ||||||
|
| |||||||
$ | 1,593,584 | |||||||
Specialty Stores - 2.7% | ||||||||
JD.com, Inc., ADR (a) | 10,684 | $ | 840,190 | |||||
Vipshop Holdings Ltd., ADR (a) | 17,287 | 285,408 | ||||||
|
| |||||||
$ | 1,125,598 | |||||||
Telecommunications - Wireless - 0.8% | ||||||||
LG Uplus Corp. | 7,825 | $ | 78,615 | |||||
Mobile TeleSystems PJSC, ADR | 13,137 | 122,437 | ||||||
PLDT, Inc. | 4,655 | 141,997 | ||||||
|
| |||||||
$ | 343,049 |
16
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Telephone Services - 2.7% | ||||||||
Hellenic Telecommunications Organization S.A. | 38,022 | $ | 621,618 | |||||
KT Corp., ADR | 13,528 | 133,115 | ||||||
PT Telekomunikasi Indonesia | 1,310,200 | 256,765 | ||||||
Telekomunikacja Polska S.A. (a) | 69,056 | 135,472 | ||||||
|
| |||||||
$ | 1,146,970 | |||||||
Trucking - 0.5% | ||||||||
S.F. Holding Co. Ltd. | 16,800 | $ | 208,566 | |||||
Utilities - Electric Power - 2.6% | ||||||||
Energisa S.A. | 39,200 | $ | 310,895 | |||||
ENGIE Energía Brasil S.A. | 54,965 | 427,701 | ||||||
NTPC Ltd. | 101,467 | 132,886 | ||||||
Terna Participacoes S.A., IEU | 45,692 | 235,278 | ||||||
|
| |||||||
$ | 1,106,760 | |||||||
Total Common Stocks (Identified Cost, $34,570,071) |
| $ | 41,231,928 | |||||
Preferred Stocks - 1.6% | ||||||||
Electronics - 0.8% | ||||||||
Samsung Electronics Co. Ltd. | 8,156 | $ | 324,699 | |||||
Major Banks - 0.8% | ||||||||
Banco Bradesco S.A. | 90,693 | $ | 343,337 | |||||
Total Preferred Stocks (Identified Cost, $668,489) |
| $ | 668,036 | |||||
Investment Companies (h) - 1.3% | ||||||||
Money Market Funds - 1.3% | ||||||||
MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $538,721) | 538,721 | $ | 538,721 | |||||
Other Assets, Less Liabilities - (0.2)% | (65,223) | |||||||
Net Assets - 100.0% | $ | 42,373,462 |
(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 $538,721 and $41,899,964, respectively. |
(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 $125,271, representing 0.3% 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 annualized seven-day yield of the fund at period end. |
17
Portfolio of Investments – continued
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
GDR | Global Depositary Receipt |
IEU | International Equity Unit |
See Notes to Financial Statements
18
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/20
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, $35,238,560) | $41,899,964 | |||
Investments in affiliated issuers, at value (identified cost, $538,721) | 538,721 | |||
Cash | 2,620 | |||
Foreign currency, at value (identified cost, $692) | 692 | |||
Receivables for | ||||
Fund shares sold | 8,885 | |||
Dividends | 58,815 | |||
Receivable from investment adviser | 14,381 | |||
Other assets | 57 | |||
Total assets | $42,524,135 | |||
Liabilities | ||||
Payables for | ||||
Fund shares reacquired | $12,753 | |||
Payable to affiliates | ||||
Administrative services fee | 193 | |||
Shareholder servicing costs | 7,365 | |||
Distribution and service fees | 236 | |||
Payable for independent Trustees’ compensation | 5 | |||
Deferred country tax expense payable | 14,211 | |||
Accrued expenses and other liabilities | 115,910 | |||
Total liabilities | $150,673 | |||
Net assets | $42,373,462 | |||
Net assets consist of | ||||
Paid-in capital | $38,794,431 | |||
Total distributable earnings (loss) | 3,579,031 | |||
Net assets | $42,373,462 | |||
Shares of beneficial interest outstanding | 3,258,828 |
19
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $5,701,828 | 439,710 | $12.97 | |||||||||
Class B | 311,576 | 24,332 | 12.81 | |||||||||
Class C | 343,792 | 26,894 | 12.78 | |||||||||
Class I | 21,272,899 | 1,636,350 | 13.00 | |||||||||
Class R1 | 70,846 | 5,518 | 12.84 | |||||||||
Class R2 | 72,625 | 5,609 | 12.95 | |||||||||
Class R3 | 80,872 | 6,230 | 12.98 | |||||||||
Class R4 | 96,982 | 7,449 | 13.02 | |||||||||
Class R6 | 14,422,042 | 1,106,736 | 13.03 |
(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 $13.76 [100 / 94.25 x $12.97]. 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
20
Financial Statements
Year ended 8/31/20
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 | $1,075,028 | |||
Non-cash dividends | 74,290 | |||
Other | 9,797 | |||
Dividends from affiliated issuers | 6,462 | |||
Foreign taxes withheld | (123,056 | ) | ||
Total investment income | $1,042,521 | |||
Expenses | ||||
Management fee | $234,969 | |||
Distribution and service fees | 21,532 | |||
Shareholder servicing costs | 21,188 | |||
Administrative services fee | 17,500 | |||
Independent Trustees’ compensation | 1,159 | |||
Custodian fee | 109,597 | |||
Shareholder communications | 11,894 | |||
Audit and tax fees | 78,173 | |||
Legal fees | 433 | |||
Registration fees | 124,920 | |||
Miscellaneous | 33,323 | |||
Total expenses | $654,688 | |||
Reduction of expenses by investment adviser and distributor | (332,931 | ) | ||
Net expenses | $321,757 | |||
Net investment income (loss) | $720,764 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers (net of $18 country tax) | $(2,087,326 | ) | ||
Affiliated issuers | (5 | ) | ||
Foreign currency | (31,759 | ) | ||
Net realized gain (loss) | $(2,119,090 | ) | ||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers (net of $5,468 increase in deferred country tax) | $5,449,985 | |||
Affiliated issuers | (39 | ) | ||
Translation of assets and liabilities in foreign currencies | 880 | |||
Net unrealized gain (loss) | $5,450,826 | |||
Net realized and unrealized gain (loss) | $3,331,736 | |||
Change in net assets from operations | $4,052,500 |
See Notes to Financial Statements
21
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 | ||||||||
8/31/20 | 8/31/19 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $720,764 | $480,879 | ||||||
Net realized gain (loss) | (2,119,090 | ) | (1,434,350 | ) | ||||
Net unrealized gain (loss) | 5,450,826 | (593,981 | ) | |||||
Change in net assets from operations | $4,052,500 | $(1,547,452 | ) | |||||
Total distributions to shareholders | $(465,097 | ) | $(1,004,056 | ) | ||||
Change in net assets from fund share transactions | $18,110,671 | $(681,729 | ) | |||||
Total change in net assets | $21,698,074 | $(3,233,237 | ) | |||||
Net assets | ||||||||
At beginning of period | 20,675,388 | 23,908,625 | ||||||
At end of period | $42,373,462 | $20,675,388 |
See Notes to Financial Statements
22
Financial Statements
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate 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 | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.12 | $13.66 | $14.37 | $11.37 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.24 | $0.25 | $0.24 | $0.28 | $0.24 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.81 | (1.20 | ) | (0.32 | ) | 2.86 | 1.18 | |||||||||||||
Total from investment operations | $1.05 | $(0.95 | ) | $(0.08 | ) | $3.14 | $1.42 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.20 | ) | $(0.22 | ) | $(0.16 | ) | $(0.06 | ) | $(0.04 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.20 | ) | $(0.59 | ) | $(0.63 | ) | $(0.14 | ) | $(0.05 | ) | ||||||||||
Net asset value, end of period (x) | $12.97 | $12.12 | $13.66 | $14.37 | $11.37 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.63 | (6.77 | ) | (0.77 | ) | 28.01 | 14.33 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.39 | 2.95 | 2.94 | 3.23 | 6.30 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.24 | 1.24 | 1.23 | 1.23 | 1.24 | (a) | ||||||||||||||
Net investment income (loss) | 1.98 | 2.01 | 1.65 | 2.22 | 2.36 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $5,702 | $5,174 | $7,145 | $4,982 | $957 |
See Notes to Financial Statements
23
Financial Highlights – continued
Class B | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $11.99 | $13.54 | $14.27 | $11.31 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.15 | $0.21 | $0.12 | $0.12 | $0.09 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.80 | (1.25 | ) | (0.30 | ) | 2.92 | 1.25 | |||||||||||||
Total from investment operations | $0.95 | $(1.04 | ) | $(0.18 | ) | $3.04 | $1.34 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.13 | ) | $(0.14 | ) | $(0.08 | ) | $(0.00) | (w) | $(0.02 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.13 | ) | $(0.51 | ) | $(0.55 | ) | $(0.08 | ) | $(0.03 | ) | ||||||||||
Net asset value, end of period (x) | $12.81 | $11.99 | $13.54 | $14.27 | $11.31 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 7.88 | (7.51 | ) | (1.47 | ) | 27.09 | 13.46 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 3.19 | 3.70 | 3.67 | 4.04 | 7.64 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.99 | 1.99 | 1.98 | 1.99 | 1.98 | (a) | ||||||||||||||
Net investment income (loss) | 1.22 | 1.63 | 0.79 | 0.97 | 0.93 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $312 | $391 | $318 | $213 | $86 | |||||||||||||||
Class C | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $11.95 | $13.50 | $14.23 | $11.31 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.15 | $0.16 | $0.11 | $0.14 | $0.09 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.78 | (1.19 | ) | (0.29 | ) | 2.89 | 1.25 | |||||||||||||
Total from investment operations | $0.93 | $(1.03 | ) | $(0.18 | ) | $3.03 | $1.34 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.10 | ) | $(0.15 | ) | $(0.08 | ) | $(0.03 | ) | $(0.02 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.10 | ) | $(0.52 | ) | $(0.55 | ) | $(0.11 | ) | $(0.03 | ) | ||||||||||
Net asset value, end of period (x) | $12.78 | $11.95 | $13.50 | $14.23 | $11.31 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 7.78 | (7.51 | ) | (1.48 | ) | 27.06 | 13.48 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 3.19 | 3.70 | 3.64 | 4.02 | 7.63 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.99 | 1.99 | 1.99 | 1.99 | 1.98 | (a) | ||||||||||||||
Net investment income (loss) | 1.22 | 1.31 | 0.75 | 1.16 | 0.95 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $344 | $420 | $453 | $438 | $91 |
See Notes to Financial Statements
24
Financial Highlights – continued
Class I | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.16 | $13.71 | $14.41 | $11.38 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.29 | $0.29 | $0.34 | $0.28 | $0.23 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.80 | (1.22 | ) | (0.39 | ) | 2.91 | 1.21 | |||||||||||||
Total from investment operations | $1.09 | $(0.93 | ) | $(0.05 | ) | $3.19 | $1.44 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.25 | ) | $(0.25 | ) | $(0.18 | ) | $(0.08 | ) | $(0.05 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.25 | ) | $(0.62 | ) | $(0.65 | ) | $(0.16 | ) | $(0.06 | ) | ||||||||||
Net asset value, end of period (x) | $13.00 | $12.16 | $13.71 | $14.41 | $11.38 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.89 | (6.55 | ) | (0.55 | ) | 28.44 | 14.51 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.91 | 2.70 | 2.78 | 3.05 | 6.27 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.99 | 0.99 | 0.99 | 0.99 | 0.99 | (a) | ||||||||||||||
Net investment income (loss) | 2.46 | 2.26 | 2.30 | 2.28 | 2.27 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $21,273 | $1,811 | $2,343 | $669 | $436 | |||||||||||||||
Class R1 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.01 | $13.57 | $14.27 | $11.31 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.15 | $0.17 | $0.10 | $0.11 | $0.07 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.80 | (1.20 | ) | (0.28 | ) | 2.93 | 1.27 | |||||||||||||
Total from investment operations | $0.95 | $(1.03 | ) | $(0.18 | ) | $3.04 | $1.34 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.12 | ) | $(0.16 | ) | $(0.05 | ) | $— | $(0.02 | ) | |||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.12 | ) | $(0.53 | ) | $(0.52 | ) | $(0.08 | ) | $(0.03 | ) | ||||||||||
Net asset value, end of period (x) | $12.84 | $12.01 | $13.57 | $14.27 | $11.31 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 7.84 | (7.47 | ) | (1.49 | ) | 27.08 | 13.46 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 3.14 | 3.70 | 3.64 | 4.06 | 7.86 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.99 | 1.99 | 1.99 | 1.99 | 1.97 | (a) | ||||||||||||||
Net investment income (loss) | 1.25 | 1.32 | 0.70 | 0.88 | 0.69 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $71 | $66 | $71 | $72 | $57 |
See Notes to Financial Statements
25
Financial Highlights – continued
Class R2 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.11 | $13.66 | $14.36 | $11.35 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.21 | $0.23 | $0.18 | $0.17 | $0.12 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.81 | (1.20 | ) | (0.30 | ) | 2.94 | 1.28 | |||||||||||||
Total from investment operations | $1.02 | $(0.97 | ) | $(0.12 | ) | $3.11 | $1.40 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.18 | ) | $(0.21 | ) | $(0.11 | ) | $(0.02 | ) | $(0.04 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.18 | ) | $(0.58 | ) | $(0.58 | ) | $(0.10 | ) | $(0.05 | ) | ||||||||||
Net asset value, end of period (x) | $12.95 | $12.11 | $13.66 | $14.36 | $11.35 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.35 | (6.97 | ) | (1.03 | ) | 27.71 | 14.04 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.64 | 3.20 | 3.14 | 3.56 | 7.36 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.49 | 1.49 | 1.49 | 1.49 | 1.47 | (a) | ||||||||||||||
Net investment income (loss) | 1.75 | 1.82 | 1.20 | 1.38 | 1.19 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $73 | $67 | $72 | $73 | $57 | |||||||||||||||
Class R3 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.14 | $13.69 | $14.39 | $11.37 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.21 | $0.24 | $0.24 | $0.20 | $0.14 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.83 | (1.19 | ) | (0.32 | ) | 2.95 | 1.28 | |||||||||||||
Total from investment operations | $1.04 | $(0.95 | ) | $(0.08 | ) | $3.15 | $1.42 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.20 | ) | $(0.23 | ) | $(0.15 | ) | $(0.05 | ) | $(0.04 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.20 | ) | $(0.60 | ) | $(0.62 | ) | $(0.13 | ) | $(0.05 | ) | ||||||||||
Net asset value, end of period (x) | $12.98 | $12.14 | $13.69 | $14.39 | $11.37 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.52 | (6.75 | ) | (0.80 | ) | 28.05 | 14.32 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.43 | 2.95 | 2.94 | 3.31 | 7.11 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.24 | 1.24 | 1.24 | 1.24 | 1.22 | (a) | ||||||||||||||
Net investment income (loss) | 1.71 | 1.89 | 1.66 | 1.63 | 1.44 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $81 | $71 | $102 | $73 | $57 |
See Notes to Financial Statements
26
Financial Highlights – continued
Class R4 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.17 | $13.72 | $14.41 | $11.38 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.28 | $0.30 | $0.26 | $0.23 | $0.17 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.81 | (1.23 | ) | (0.30 | ) | 2.96 | 1.27 | |||||||||||||
Total from investment operations | $1.09 | $(0.93 | ) | $(0.04 | ) | $3.19 | $1.44 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.24 | ) | $(0.25 | ) | $(0.18 | ) | $(0.08 | ) | $(0.05 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.24 | ) | $(0.62 | ) | $(0.65 | ) | $(0.16 | ) | $(0.06 | ) | ||||||||||
Net asset value, end of period (x) | $13.02 | $12.17 | $13.72 | $14.41 | $11.38 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.90 | (6.55 | ) | (0.50 | ) | 28.42 | 14.51 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.14 | 2.70 | 2.66 | 3.06 | 6.86 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.99 | 0.99 | 0.99 | 0.99 | 0.97 | (a) | ||||||||||||||
Net investment income (loss) | 2.25 | 2.36 | 1.76 | 1.89 | 1.69 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $97 | $85 | $82 | $74 | $57 | |||||||||||||||
Class R6 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $12.19 | $13.73 | $14.42 | $11.39 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.29 | $0.31 | $0.27 | $0.24 | $0.16 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.81 | (1.22 | ) | (0.30 | ) | 2.95 | 1.29 | |||||||||||||
Total from investment operations | $1.10 | $(0.91 | ) | $(0.03 | ) | $3.19 | $1.45 | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.26 | ) | $(0.26 | ) | $(0.19 | ) | $(0.08 | ) | $(0.05 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.47 | ) | (0.08 | ) | (0.01 | ) | |||||||||||
Total distributions declared to shareholders | $(0.26 | ) | $(0.63 | ) | $(0.66 | ) | $(0.16 | ) | $(0.06 | ) | ||||||||||
Net asset value, end of period (x) | $13.03 | $12.19 | $13.73 | $14.42 | $11.39 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 8.91 | (6.40 | ) | (0.42 | ) | 28.45 | 14.62 | (n) | ||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.05 | 2.58 | 2.56 | 2.98 | 6.84 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.92 | 0.87 | 0.90 | 0.91 | 0.94 | (a) | ||||||||||||||
Net investment income (loss) | 2.36 | 2.44 | 1.81 | 1.97 | 1.59 | (a) | ||||||||||||||
Portfolio turnover | 63 | 64 | 58 | 92 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $14,422 | $12,590 | $13,322 | $12,127 | $12,031 |
See Notes to Financial Statements
27
Financial Highlights – continued
(a) | Annualized. |
(c) | For the period from the commencement of the fund’s investment operations, September 15, 2015, through the stated period end. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(n) | Not annualized. |
(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
28
(1) Business and Organization
MFS Blended Research Emerging Markets Equity Fund (the fund) is a diversified series of MFS Series Trust IV (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
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 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, environmental, public health, 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, accounting, and auditing systems, and greater political, social, and economic instability than developed markets.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
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
29
Notes to Financial Statements – continued
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’s in-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 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 halt 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 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
30
Notes to Financial Statements – continued
purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of August 31, 2020 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
China | $6,832,013 | $11,231,456 | $— | $18,063,469 | ||||||||||||
South Korea | 2,106,922 | 3,328,607 | — | 5,435,529 | ||||||||||||
Taiwan | 3,136,379 | 2,081,965 | — | 5,218,344 | ||||||||||||
India | 1,357,121 | 1,620,940 | — | 2,978,061 | ||||||||||||
Brazil | 2,019,894 | — | — | 2,019,894 | ||||||||||||
Russia | 1,698,641 | — | — | 1,698,641 | ||||||||||||
South Africa | 1,174,448 | — | — | 1,174,448 | ||||||||||||
Malaysia | 344,641 | 407,288 | — | 751,929 | ||||||||||||
Thailand | — | 670,879 | — | 670,879 | ||||||||||||
Other Countries | 2,987,281 | 901,489 | — | 3,888,770 | ||||||||||||
Mutual Funds | 538,721 | — | — | 538,721 | ||||||||||||
Total | $22,196,061 | $20,242,624 | $— | $42,438,685 |
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.
31
Notes to Financial Statements – continued
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
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 the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
32
Notes to Financial Statements – continued
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Ordinary income (including any short-term capital gains) | $465,097 | $567,687 | ||||||
Long-term capital gains | — | 436,369 | ||||||
Total distributions | $465,097 | $1,004,056 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 8/31/20 | ||||
Cost of investments | $36,502,052 | |||
Gross appreciation | 8,542,489 | |||
Gross depreciation | (2,605,856 | ) | ||
Net unrealized appreciation (depreciation) | $5,936,633 | |||
Undistributed ordinary income | 743,667 | |||
Capital loss carryforwards | (3,090,340 | ) | ||
Other temporary differences | (10,929 | ) |
As of August 31, 2020, 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 | $(2,399,467 | ) | ||
Long-Term | (690,873 | ) | ||
Total | $(3,090,340 | ) |
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
33
Notes to Financial Statements – continued
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:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Class A | $83,064 | $263,367 | ||||||
Class B | 3,860 | 10,175 | ||||||
Class C | 3,499 | 21,350 | ||||||
Class I | 103,204 | 93,192 | ||||||
Class R1 | 633 | 2,759 | ||||||
Class R2 | 982 | 3,037 | ||||||
Class R3 | 1,187 | 4,513 | ||||||
Class R4 | 1,710 | 3,787 | ||||||
Class R6 | 266,958 | 601,876 | ||||||
Total | $465,097 | $1,004,056 |
(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 | 0.75 | % | ||
In excess of $1 billion and up to $2.5 billion | 0.70 | % | ||
In excess of $2.5 billion | 0.675 | % |
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 August 31, 2020, this management fee reduction amounted to $3,372, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended August 31, 2020 was equivalent to an annual effective rate of 0.74% 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 | ||||||||||||||||||||||||
1.24% | 1.99% | 1.99% | 0.99% | 1.99% | 1.49% | 1.24% | 0.99% | 0.95% |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until December 31, 2021. For the year ended August 31, 2020, this reduction amounted to $329,369, which is included in the reduction of total expenses in the Statement of Operations.
34
Notes to Financial Statements – continued
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $790 for the year ended August 31, 2020, 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 Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
Distribution Fee Rate (d) | Service Fee Rate (d) | Total Distribution Plan (d) | Annual Effective Rate (e) | Distribution and Service Fee | ||||||||||||||||
Class A | — | 0.25% | 0.25% | 0.25% | $13,284 | |||||||||||||||
Class B | 0.75% | 0.25% | 1.00% | 1.00% | 3,420 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 3,605 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 671 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 342 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 210 | |||||||||||||||
Total Distribution and Service Fees |
| $21,532 |
(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 August 31, 2020 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 there is no financial intermediary specified on the account except for accounts attributable to MFS or its affiliates’ seed money. For the year ended August 31, 2020, this rebate amounted to $189 and $1 for Class A 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 August 31, 2020, were as follows:
Amount | ||||
Class A | $47 | |||
Class B | 2,458 | |||
Class C | — |
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
35
Notes to Financial Statements – continued
year ended August 31, 2020, the fee was $5,031, which equated to 0.0161% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incur sub-accounting fees. For the year ended August 31, 2020, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $16,157.
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 August 31, 2020 was equivalent to an annual effective rate of 0.0558% 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – 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 but does incur investment and operating costs.
On December 14, 2018, MFS redeemed 5,332 shares of Class I for an aggregate amount of $65,906.
At August 31, 2020, MFS held approximately 91% and 77% of the outstanding shares of Class R3 and Class R4, respectively, and 100% of the outstanding shares of Class R1 and Class R2.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-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 Rule 17a-7 under the Investment Company Act of 1940. During the year ended August 31, 2020, the fund engaged in sale transactions pursuant to this policy, which amounted to $6,515. The sales transactions resulted in net realized gains (losses) of $(751).
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 August 31, 2020, this reimbursement amounted to $9,797, which is included in “Other” income in the Statement of Operations.
36
Notes to Financial Statements – continued
(4) Portfolio Securities
For the year ended August 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $37,559,724 and $19,422,546, 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 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 158,992 | $1,991,029 | 109,033 | $1,365,317 | ||||||||||||
Class B | — | — | 21,468 | 271,754 | ||||||||||||
Class C | 12,555 | 155,137 | 13,979 | 174,602 | ||||||||||||
Class I | 1,547,126 | 17,809,134 | 112,407 | 1,483,863 | ||||||||||||
Class R3 | 10,400 | 136,453 | 696 | 8,589 | ||||||||||||
Class R4 | 448 | 5,544 | 680 | 8,550 | ||||||||||||
Class R6 | 419,437 | 5,112,047 | 327,609 | 4,157,491 | ||||||||||||
2,148,958 | $25,209,344 | 585,872 | $7,470,166 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions |
| |||||||||||||||
Class A | 6,053 | $81,347 | 22,471 | $261,568 | ||||||||||||
Class B | 289 | 3,860 | 879 | 10,175 | ||||||||||||
Class C | 262 | 3,499 | 1,853 | 21,350 | ||||||||||||
Class I | 6,268 | 84,301 | 7,754 | 90,446 | ||||||||||||
Class R1 | 47 | 633 | 238 | 2,759 | ||||||||||||
Class R2 | 73 | 982 | 260 | 3,037 | ||||||||||||
Class R3 | 88 | 1,187 | 387 | 4,513 | ||||||||||||
Class R4 | 127 | 1,710 | 324 | 3,787 | ||||||||||||
Class R6 | 19,804 | 266,958 | 51,575 | 601,876 | ||||||||||||
33,011 | $444,477 | 85,741 | $999,511 | |||||||||||||
Shares reacquired |
| |||||||||||||||
Class A | (152,238 | ) | $(1,808,610 | ) | (227,589 | ) | $(2,900,829 | ) | ||||||||
Class B | (8,568 | ) | (106,675 | ) | (13,226 | ) | (166,596 | ) | ||||||||
Class C | (21,085 | ) | (257,158 | ) | (14,267 | ) | (173,013 | ) | ||||||||
Class I | (65,957 | ) | (745,548 | ) | (142,109 | ) | (1,825,448 | ) | ||||||||
Class R3 | (10,071 | ) | (129,033 | ) | (2,698 | ) | (34,133 | ) | ||||||||
Class R4 | (126 | ) | (1,490 | ) | (14 | ) | (178 | ) | ||||||||
Class R6 | (365,637 | ) | (4,494,636 | ) | (316,338 | ) | (4,051,209 | ) | ||||||||
(623,682 | ) | $(7,543,150 | ) | (716,241 | ) | $(9,151,406 | ) |
37
Notes to Financial Statements – continued
Year ended 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Net change |
| |||||||||||||||
Class A | 12,807 | $263,766 | (96,085 | ) | $(1,273,944 | ) | ||||||||||
Class B | (8,279 | ) | (102,815 | ) | 9,121 | 115,333 | ||||||||||
Class C | (8,268 | ) | (98,522 | ) | 1,565 | 22,939 | ||||||||||
Class I | 1,487,437 | 17,147,887 | (21,948 | ) | (251,139 | ) | ||||||||||
Class R1 | 47 | 633 | 238 | 2,759 | ||||||||||||
Class R2 | 73 | 982 | 260 | 3,037 | ||||||||||||
Class R3 | 417 | 8,607 | (1,615 | ) | (21,031 | ) | ||||||||||
Class R4 | 449 | 5,764 | 990 | 12,159 | ||||||||||||
Class R6 | 73,604 | 884,369 | 62,846 | 708,158 | ||||||||||||
1,558,287 | $18,110,671 | (44,628 | ) | $(681,729 | ) |
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 Lifetime 2040 Fund, the MFS Lifetime 2050 Fund, the MFS Lifetime 2045 Fund, the MFS Lifetime 2035 Fund, and the MFS Lifetime 2055 Fund were the owners of record of approximately 9%, 7%, 6%, 5%, and 4%, respectively, of the value of outstanding voting shares of the fund. In addition, the MFS Lifetime 2030 Fund and the MFS Lifetime 2060 Fund were 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 syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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 rates equal to customary reference rates plus an agreed upon spread. For the year ended August 31, 2020, the fund’s commitment fee and interest expense were $139 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 following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $418,199 | $27,132,907 | $27,012,341 | $(5 | ) | $(39 | ) | $538,721 | ||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio |
| $6,462 | $— |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
(9) Subsequent Event
On October 2, 2020, the fund announced that effective December 21, 2020, the time period will be shortened for the automatic conversion of Class C shares to Class A of the same fund, from approximately ten years to approximately eight years after purchase. On or about December 21, 2020 any Class C shares that have an original purchase date of December 31, 2012 or earlier will automatically convert to Class A shares of the same fund. Please see the fund’s prospectus for details.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of MFS Blended Research Emerging Markets Equity Fund and the Board of Trustees of MFS Series Trust IV
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of MFS Blended Research Emerging Markets Equity Fund (the “Fund”) (one of the funds constituting MFS Series Trust IV (the “Trust”)), including the portfolio of investments, as of August 31, 2020, 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 four years in the period then ended and the period from September 15, 2015 (commencement of operations) through August 31, 2016 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 IV) at August 31, 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 four years in the period then ended and the period from September 15, 2015 (commencement of operations) through August 31, 2016, 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 August 31, 2020, by correspondence with the custodian and others. Our audits also included evaluating the
40
Report of Independent Registered Public Accounting Firm – continued
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
October 19, 2020
41
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of October 1, 2020, 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) Held with Fund | Trustee/Officer Since (h) | Number of MFS Funds overseen by the Trustee | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 56) | Trustee | February 2004 | 133 | 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 59) | Trustee | January 2014 | 133 | 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 65) | Trustee and Chair of Trustees | January 2009 | 133 | Private investor | N/A | |||||
Steven E. Buller (age 69) | Trustee | February 2014 | 133 | Private investor; Financial Accounting Standards Advisory Council, Chairman (2014-2015) | N/A |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
John A. Caroselli (age 66) | Trustee | March 2017 | 133 | Private investor; 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 65) | Trustee | January 2009 | 133 | Private investor | N/A | |||||
Peter D. Jones (age 65) | Trustee | January 2019 | 133 | Private investor; Franklin Templeton Institutional, LLC (investment management), Chairman (since June 30, 2020); Franklin Templeton Distributors, Inc. (investment management), President (until 2015) | N/A |
43
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
James W. Kilman, Jr. (age 59) | Trustee | January 2019 | 133 | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), 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 (2016-2019) | |||||
Clarence Otis, Jr. (age 64) | Trustee | March 2017 | 133 | Private investor | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 64) | Trustee | May 2014 | 133 | Private investor | N/A | |||||
Laurie J. Thomsen (age 63) | Trustee | March 2005 | 133 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
44
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 46) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Kino Clark (k) (age 52) | Assistant Treasurer | January 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
John W. Clark, Jr. (k) (age 53) | Assistant Treasurer | April 2017 | 133 | 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 61) | Assistant Secretary and Assistant Clerk | September 2012 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
David L. DiLorenzo (k) (age 52) | President | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President |
45
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Heidi W. Hardin (k) (age 53) | Secretary and Clerk | April 2017 | 133 | 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 47) | Assistant Secretary and Assistant Clerk | June 2006 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Amanda S. Mooradian (k) (age 41) | Assistant Secretary and Assistant Clerk | September 2018 | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | ||||
Susan A. Pereira (k) (age 49) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 49) | Assistant Treasurer | September 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 45) | Assistant Secretary and Assistant Clerk | October 2014 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
46
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Martin J. Wolin (k) (age 53) | Chief Compliance Officer | July 2015 | 133 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015) | ||||
James O. Yost (k) (age 60) | Treasurer | September 1990 | 133 | Massachusetts Financial Services Company, Senior Vice President |
(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. Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. 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, 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.
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Trustees and Officers – continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
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) | ||
Jim Fallon Matt Krummell Jonathan Sage Jed Stocks |
48
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Blended Research Emerging Markets Equity Fund
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the
49
Board Review of Investment Advisory Agreement – continued
Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Class A shares in comparison to the performance of funds in its Broadridge performance universe over the three-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Class A shares was in the 3rd quintile relative to the other funds in the universe for the three-year period and was in the 4th quintile relative to the other funds in the universe for the one-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The Fund commenced operations on September 15, 2015; therefore, no performance data for the five-year period was available. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report. In addition, the Trustees reviewed the Fund’s Class I total return performance relative to the Fund’s benchmark performance for the three- and one-year periods ended December 31, 2019.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Class A shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information
50
Board Review of Investment Advisory Agreement – continued
provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life
51
Board Review of Investment Advisory Agreement – continued
Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
52
STATEMENT REGARDING LIQUIDITY RISK MANAGEMENT PROGRAM
The fund has adopted and implemented a liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program. The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests.
MFS provided a written report to the Board for consideration at its April 2020 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from the adoption of the Program on December 1, 2018 to December 31, 2019 (the “Covered Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
53
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 calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://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 as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/openendfunds by 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 at https://www.mfs.com/announcements or at mfs.com/openendfunds by choosing the fund’s name and then selecting the “Resources” tab and clicking on the “Announcements” tab, if any.
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 2020 income tax forms in January 2021. 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.
Income derived from foreign sources was $1,147,820. The fund intends to pass through foreign tax credits of $118,231 for the fiscal year.
54
rev. 3/16
| WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
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 are no 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? | Call 800-225-2606 or go to mfs.com. |
55
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. |
56
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MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
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
Annual Report
August 31, 2020
MFS® Blended Research®
International Equity 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.
BRX-ANN
MFS® Blended Research®
International Equity Fund
Contact information | back cover |
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
LETTER FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Markets experienced dramatic swings in early 2020 as the coronavirus pandemic brought the global economy to a standstill for several months. Optimism over the
development of vaccines and therapeutics, along with a decline in cases in countries affected by the outbreak early on, brightened the economic and market outlook during the second quarter, as did the phased reopening of U.S. states. However, a great deal of uncertainty remains. While policymakers and public health officials have learned a great deal about combating the virus, much remains unknown at a time when the risks are rising for a second wave of infection. Political uncertainty is heightened as well, as the pandemic has caused many jurisdictions in the United States to adopt mail-in voting for the first time, raising questions over whether ballots in the November elections will be counted as quickly as they have been in the past.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support, though in the United States some of those measures were allowed to lapse at the end of July as negotiators found themselves at an impasse over the scope of additional funding. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can also sow the seeds of instability. In the aftermath of the crisis, societal changes may be likely, as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our unique global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
October 19, 2020
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
Portfolio structure
Top ten holdings |
| |||
Roche Holding AG | 2.6% | |||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 2.5% | |||
Samsung Electronics Co. Ltd. | 2.2% | |||
Tencent Holdings Ltd. | 2.0% | |||
Novartis AG | 2.0% | |||
LVMH Moet Hennessy Louis Vuitton SE | 1.9% | |||
Nestle S.A. | 1.8% | |||
Schneider Electric S.A. | 1.6% | |||
Hitachi Ltd. | 1.5% | |||
Novo Nordisk A.S., “B” | 1.5% |
GICS equity sectors (g) |
| |||
Financials | 17.4% | |||
Consumer Discretionary | 12.6% | |||
Information Technology | 11.7% | |||
Industrials | 11.6% | |||
Health Care | 9.5% | |||
Consumer Staples | 9.2% | |||
Communication Services | 8.2% | |||
Materials | 7.4% | |||
Energy | 5.2% | |||
Utilities | 3.8% | |||
Real Estate | 2.3% | |||
Issuer country weightings (x) |
| |||
Japan | 15.4% | |||
China | 13.1% | |||
Switzerland | 9.2% | |||
France | 7.9% | |||
United Kingdom | 7.7% | |||
Canada | 7.2% | |||
Germany | 4.4% | |||
Australia | 4.1% | |||
South Korea | 3.9% | |||
Other Countries | 27.1% | |||
Currency exposure weightings (y) |
| |||
Euro | 19.4% | |||
Japanese Yen | 15.4% | |||
Hong Kong Dollar | 11.8% | |||
Swiss Franc | 9.2% | |||
British Pound Sterling | 8.3% | |||
Canadian Dollar | 5.6% | |||
Australian Dollar | 4.1% | |||
South Korean Won | 3.9% | |||
Taiwan Dollar | 3.4% | |||
Other Currencies | 18.9% |
2
Portfolio Composition – continued
(g) | 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. |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States (included in Other Countries) includes Cash & Cash Equivalents. |
(y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. For purposes of this presentation, United States Dollar (included in Other Currencies) includes Cash & Cash Equivalents. |
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.
Percentages are based on net assets as of August 31, 2020.
The portfolio is actively managed and current holdings may be different.
3
Summary of Results
For the twelve months ended August 31, 2020, Class A shares of the MFS Blended Research International Equity Fund (fund) provided a total return of 6.85%, at net asset value. This compares with a return of 8.31% for the fund’s benchmark, the MSCI All Country World (ex-US) Index (net div).
Market Environment
Markets experienced an extraordinarily sharp selloff and in many cases an unusually rapid recovery late in the period. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the deepest, steepest, and possibly shortest recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and when vaccines or medicines will become available to prevent or treat it.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in a price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the United States also decreasing production, which – along with the gradual reopening of some major economies and the resultant boost in demand – helped stabilize the price of crude oil.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible average-inflation-targeting framework, which is expected to result in policy rates remaining at low levels for longer. In developed countries, monetary easing measures were complemented by large fiscal stimulus initiatives, although late in the period there was uncertainty surrounding the timing and scope of additional US recovery funding. Due to relatively manageable external liabilities and balances of payments in many countries, along with persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
As has often been the case in a crisis, market vulnerabilities have been revealed. For example, companies that have added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks have in many cases halted share repurchases and cut dividends, and some firms have been forced to recapitalize.
Detractors from Performance
Security selection within the consumer discretionary sector was a primary factor that detracted from performance relative to the MSCI All Country World (ex-US) Index.
4
Management Review – continued
Here, the fund’s underweight position in online and mobile commerce company Alibaba Group Holding (China) held back relative returns. The stock price of Alibaba Group Holding rose as the company reported strong financial results, driven by strength in its core e-commerce segment as consumers shifted towards e-commerce amidst the COVID-19 pandemic.
Stock selection within the financials sector held back relative results, led by the fund’s overweight position in banking services firm ABSA Group (South Africa) and National Australia Bank (Australia). The share price for ABSA Group declined during the reporting period, due to the potential for increased loan losses as global economic activity ground to a virtual halt in an effort to stem the spread of the COVID-19 virus, combined with the decline in the US 10-year Treasury bond yield and the broader yield curves.
Stocks in other sectors that hindered relative returns included overweight positions in airline company Air Canada (h) (Canada), integrated oil company BP (United Kingdom), commercial property investment company Unibail-Rodamco-Westfield (h) (Netherlands), integrated oil company Eni (Italy) and convenience food products producer JBS (h) (Brazil). Not owning shares of strong-performing cloud-based e-commerce platform operator Shopify (Canada), and an underweight position in internet based, multiple services company Tencent (China) further weighed on relative performance.
Contributors to Performance
Stock selection in the materials sector contributed to relative performance during the reporting period, led by the fund’s overweight position in iron ore developer Fortescue Metals Group (Australia).
Security selection in the industrials sector also benefited relative returns. Here, the fund’s overweight position in electrical distribution equipment manufacturer Schneider Electric (France) supported relative performance. Schneider Electric’s stock price increased after management reported sales and margins results ahead of market expectations and confirmed its commitment to increase its dividend.
Elsewhere, the fund’s overweight positions in semiconductor company Taiwan Semiconductor Manufacturing (Taiwan), global information services and technology company Fujitsu (Japan), precision instruments and machines manufacturer Olympus (h) (Japan), pharmaceutical and diagnostic company Roche Holding (Switzerland) and real estate development company Longfor Properties (China) bolstered relative performance. Avoiding shares of global energy and petrochemicals company Royal Dutch Shell (United Kingdom) and banking and financial services company HSBC (United Kingdom) further benefited relative performance, as both companies underperformed the benchmark during the year.
5
Management Review – continued
The fund’s cash and/or cash equivalents position during the period was also a contributor to relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity.
Respectfully,
Portfolio Manager(s)
Jim Fallon, Matt Krummell, Jonathan Sage, and Jed Stocks
(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.
6
PERFORMANCE SUMMARY THROUGH 8/31/20
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)
7
Performance Summary – continued
Total Returns through 8/31/20
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | Life (t) | |||||||
A | 9/15/15 | 6.85% | 4.28% | |||||||
B | 9/15/15 | 6.06% | 3.49% | |||||||
C | 9/15/15 | 6.08% | 3.50% | |||||||
I | 9/15/15 | 7.09% | 4.53% | |||||||
R1 | 9/15/15 | 6.13% | 3.50% | |||||||
R2 | 9/15/15 | 6.56% | 4.01% | |||||||
R3 | 9/15/15 | 6.92% | 4.31% | |||||||
R4 | 9/15/15 | 7.18% | 4.54% | |||||||
R6 | 9/15/15 | 7.18% | 4.60% |
Comparative benchmark(s) |
MSCI All Country World (ex-US) Index (net div) (f) | 8.31% | 6.23% | ||||||||
Average annual with sales charge |
A With Initial Sales Charge (5.75%) | 0.71% | 3.04% | ||||||||
B With CDSC (Declining over six years from 4% to 0%) (v) | 2.06% | 3.14% | ||||||||
C With CDSC (1% for 12 months) (v) | 5.08% | 3.50% |
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. (See Notes to Performance Summary.) |
(v) | Assuming redemption at the end of the applicable period. |
Benchmark Definition(s)
MSCI All Country World (ex-US) Index (net div) – a market capitalization-weighted index that is designed to measure equity market performance in the developed and emerging markets, excluding the U.S. Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
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.
8
Performance Summary – continued
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.
9
Fund expenses borne by the shareholders during the period, March 1, 2020 through August 31, 2020
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 March 1, 2020 through August 31, 2020.
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.
10
Expense Table – continued
Share Class | Annualized Expense Ratio | Beginning Account Value 3/01/20 | Ending Account Value 8/31/20 | Expenses Paid During Period (p) 3/01/20-8/31/20 | ||||||||||||||
A | Actual | 0.89% | $1,000.00 | $1,048.59 | $4.58 | |||||||||||||
Hypothetical (h) | 0.89% | $1,000.00 | $1,020.66 | $4.52 | ||||||||||||||
B | Actual | 1.64% | $1,000.00 | $1,044.83 | $8.43 | |||||||||||||
Hypothetical (h) | 1.64% | $1,000.00 | $1,016.89 | $8.31 | ||||||||||||||
C | Actual | 1.64% | $1,000.00 | $1,044.92 | $8.43 | |||||||||||||
Hypothetical (h) | 1.64% | $1,000.00 | $1,016.89 | $8.31 | ||||||||||||||
I | Actual | 0.64% | $1,000.00 | $1,049.37 | $3.30 | |||||||||||||
Hypothetical (h) | 0.64% | $1,000.00 | $1,021.92 | $3.25 | ||||||||||||||
R1 | Actual | 1.64% | $1,000.00 | $1,045.14 | $8.43 | |||||||||||||
Hypothetical (h) | 1.64% | $1,000.00 | $1,016.89 | $8.31 | ||||||||||||||
R2 | Actual | 1.14% | $1,000.00 | $1,046.51 | $5.86 | |||||||||||||
Hypothetical (h) | 1.14% | $1,000.00 | $1,019.41 | $5.79 | ||||||||||||||
R3 | Actual | 0.89% | $1,000.00 | $1,049.18 | $4.58 | |||||||||||||
Hypothetical (h) | 0.89% | $1,000.00 | $1,020.66 | $4.52 | ||||||||||||||
R4 | Actual | 0.64% | $1,000.00 | $1,050.34 | $3.30 | |||||||||||||
Hypothetical (h) | 0.64% | $1,000.00 | $1,021.92 | $3.25 | ||||||||||||||
R6 | Actual | 0.55% | $1,000.00 | $1,050.34 | $2.83 | |||||||||||||
Hypothetical (h) | 0.55% | $1,000.00 | $1,022.37 | $2.80 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
11
8/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - 98.3% | ||||||||
Alcoholic Beverages - 0.7% | ||||||||
China Resources Beer Holdings Co. Ltd. | 178,000 | $ | 1,159,936 | |||||
Kweichow Moutai Co. Ltd., “A” | 5,060 | 1,318,738 | ||||||
|
| |||||||
$ | 2,478,674 | |||||||
Apparel Manufacturers - 2.1% | ||||||||
Burberry Group PLC | 44,722 | $ | 863,553 | |||||
LVMH Moet Hennessy Louis Vuitton SE | 13,832 | 6,483,722 | ||||||
|
| |||||||
$ | 7,347,275 | |||||||
Automotive - 4.3% | ||||||||
Bridgestone Corp. | 52,500 | $ | 1,661,471 | |||||
D’Ieteren S.A. | 29,452 | 1,922,516 | ||||||
Hero MotoCorp Ltd. | 46,890 | 1,914,936 | ||||||
Magna International, Inc. | 92,867 | 4,514,265 | ||||||
PSA Peugeot Citroen S.A. (a) | 142,548 | 2,444,476 | ||||||
Stanley Electric Co. Ltd. | 53,200 | 1,522,929 | ||||||
USS Co. Ltd. | 57,000 | 961,399 | ||||||
|
| |||||||
$ | 14,941,992 | |||||||
Brokerage & Asset Managers - 1.6% | ||||||||
ASX Ltd. | 18,714 | $ | 1,199,592 | |||||
DWS Group GmBH & Co. KGaA (a)(n) | 25,679 | 1,008,649 | ||||||
IG Group Holdings PLC | 312,408 | 3,297,042 | ||||||
|
| |||||||
$ | 5,505,283 | |||||||
Business Services - 1.8% | ||||||||
Infosys Ltd. | 220,995 | $ | 2,800,611 | |||||
Itochu Corp. | 102,500 | 2,628,889 | ||||||
Thomson Reuters Corp. | 11,823 | 902,923 | ||||||
|
| |||||||
$ | 6,332,423 | |||||||
Chemicals - 0.7% | ||||||||
Mitsubishi Chemical Holdings Corp. | 387,500 | $ | 2,260,658 | |||||
Computer Software - 0.4% | ||||||||
Enghouse Systems Ltd. | 14,981 | $ | 835,908 | |||||
Sage Group PLC | 71,690 | 709,729 | ||||||
|
| |||||||
$ | 1,545,637 |
12
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Computer Software - Systems - 4.3% | ||||||||
Chinasoft International Ltd. | 1,706,000 | $ | 1,204,519 | |||||
Constellation Software, Inc. | 967 | 1,119,454 | ||||||
Fujitsu Ltd. | 36,700 | 4,788,689 | ||||||
Hitachi Ltd. | 161,500 | 5,362,580 | ||||||
Hon Hai Precision Industry Co. Ltd. | 291,000 | 761,430 | ||||||
NICE Systems Ltd., ADR (a) | 6,696 | 1,539,076 | ||||||
|
| |||||||
$ | 14,775,748 | |||||||
Construction - 1.1% | ||||||||
Anhui Conch Cement Co. Ltd. | 309,500 | $ | 2,236,253 | |||||
Techtronic Industries Co. Ltd. | 112,000 | 1,415,358 | ||||||
|
| |||||||
$ | 3,651,611 | |||||||
Consumer Products - 1.2% | ||||||||
L’Oréal | 12,640 | $ | 4,176,745 | |||||
Consumer Services - 1.6% | ||||||||
Carsales.com Ltd. | 210,691 | $ | 3,188,089 | |||||
Moneysupermarket.com Group PLC | 567,901 | 2,312,345 | ||||||
|
| |||||||
$ | 5,500,434 | |||||||
Containers - 1.3% | ||||||||
Brambles Ltd. | 329,329 | $ | 2,673,995 | |||||
Viscofan S.A. | 25,943 | 1,919,463 | ||||||
|
| |||||||
$ | 4,593,458 | |||||||
Electrical Equipment - 2.5% | ||||||||
Legrand S.A. | 37,440 | $ | 3,123,064 | |||||
Schneider Electric SE | 45,086 | 5,582,102 | ||||||
|
| |||||||
$ | 8,705,166 | |||||||
Electronics - 5.7% | ||||||||
Delta Electronics, Inc. | 136,000 | $ | 873,769 | |||||
Hoya Corp. | 10,300 | 1,012,836 | ||||||
Samsung Electronics Co. Ltd. | 165,079 | 7,504,223 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 110,747 | 8,776,700 | ||||||
United Microelectronics Corp. | 2,165,000 | 1,548,301 | ||||||
|
| |||||||
$ | 19,715,829 | |||||||
Energy - Independent - 1.3% | ||||||||
China Shenhua Energy Co. Ltd. | 1,624,000 | $ | 2,695,253 | |||||
Tourmaline Oil Corp. | 134,024 | 1,702,593 | ||||||
|
| |||||||
$ | 4,397,846 |
13
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Energy - Integrated - 3.3% | ||||||||
BP PLC | 733,157 | $ | 2,589,286 | |||||
China Petroleum & Chemical Corp. | 6,124,000 | 2,814,497 | ||||||
Eni S.p.A. | 113,086 | 1,052,619 | ||||||
Galp Energia SGPS S.A., “B” | 163,424 | 1,749,738 | ||||||
LUKOIL PJSC, ADR | 47,493 | 3,192,955 | ||||||
|
| |||||||
$ | 11,399,095 | |||||||
Food & Beverages - 2.6% | ||||||||
CJ CheilJedang Corp. | 2,500 | $ | 853,471 | |||||
Ezaki Glico Co. Ltd. | 16,800 | 713,780 | ||||||
Fomento Economico Mexicano S.A.B. de C.V. | 259,278 | 1,509,078 | ||||||
Nestle S.A. | 50,881 | 6,110,561 | ||||||
|
| |||||||
$ | 9,186,890 | |||||||
Food & Drug Stores - 1.4% | ||||||||
Seven & I Holdings Co. Ltd. | 94,900 | $ | 3,075,973 | |||||
Tesco PLC | 632,953 | 1,850,421 | ||||||
|
| |||||||
$ | 4,926,394 | |||||||
Gaming & Lodging - 1.4% | ||||||||
Evolution Gaming Group AB | 9,444 | $ | 707,279 | |||||
Flutter Entertainment PLC | 23,707 | 3,997,483 | ||||||
|
| |||||||
$ | 4,704,762 | |||||||
General Merchandise - 0.6% | ||||||||
Bim Birlesik Magazalar A.S. | 140,432 | $ | 1,297,958 | |||||
Walmart de Mexico S.A.B. de C.V. | 337,080 | 809,196 | ||||||
|
| |||||||
$ | 2,107,154 | |||||||
Insurance - 4.9% | ||||||||
Aegon N.V. | 296,670 | $ | 825,955 | |||||
Aviva PLC | 330,095 | 1,247,427 | ||||||
China Pacific Insurance Co. Ltd. | 877,200 | 2,415,947 | ||||||
Manulife Financial Corp. | 269,709 | 3,978,381 | ||||||
PICC Property & Casualty Co. Ltd. | 1,292,000 | 994,481 | ||||||
St. James’s Place PLC | 143,400 | 1,878,178 | ||||||
T&D Holdings, Inc. | 132,500 | 1,375,102 | ||||||
Zurich Insurance Group AG | 11,693 | 4,320,440 | ||||||
|
| |||||||
$ | 17,035,911 | |||||||
Internet - 4.8% | ||||||||
Alibaba Group Holding Ltd., ADR (a) | 14,306 | $ | 4,106,251 | |||||
NAVER Corp. | 4,311 | 1,164,584 | ||||||
NetEase.com, Inc., ADR | 7,168 | 3,492,321 |
14
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Internet - continued | ||||||||
Scout24 AG | 9,790 | $ | 910,682 | |||||
Tencent Holdings Ltd. | 101,700 | 6,930,601 | ||||||
|
| |||||||
$ | 16,604,439 | |||||||
Leisure & Toys - 0.6% | ||||||||
GungHo Online Entertainment, Inc. | 37,200 | $ | 766,658 | |||||
Nexon Co. Ltd. | 56,000 | 1,312,826 | ||||||
|
| |||||||
$ | 2,079,484 | |||||||
Machinery & Tools - 3.5% | ||||||||
Atlas Copco AB, “A” | 89,634 | $ | 4,143,985 | |||||
Epiroc AB, “A” | 239,347 | 3,562,617 | ||||||
GEA Group AG | 69,980 | 2,552,085 | ||||||
VAT Group AG | 4,332 | 843,445 | ||||||
Zhengzhou Yutong Bus Co. Ltd., “A” | 510,700 | 1,056,987 | ||||||
|
| |||||||
$ | 12,159,119 | |||||||
Major Banks - 8.6% | ||||||||
ABSA Group Ltd. | 286,830 | $ | 1,307,138 | |||||
Banco do Brasil S.A. | 147,100 | 876,666 | ||||||
Bank of China Ltd. | 2,667,000 | 869,720 | ||||||
BNP Paribas (a) | 44,134 | 1,925,780 | ||||||
BOC Hong Kong Holdings Ltd. | 577,000 | 1,623,411 | ||||||
China Construction Bank | 5,202,000 | 3,664,004 | ||||||
DBS Group Holdings Ltd. | 300,700 | 4,603,632 | ||||||
Industrial & Commercial Bank of China, “H” | 1,461,000 | 815,797 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 193,900 | 807,287 | ||||||
National Australia Bank Ltd. | 254,436 | 3,302,639 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 131,600 | 3,859,869 | ||||||
Toronto-Dominion Bank | 27,730 | 1,383,364 | ||||||
UBS Group AG | 399,890 | 4,859,552 | ||||||
|
| |||||||
$ | 29,898,859 | |||||||
Medical & Health Technology & Services - 0.8% | ||||||||
Eurofins Scientific SE (a) | 2,307 | $ | 1,848,954 | |||||
Fresenius Medical Care AG & Co. KGaA | 11,390 | 965,866 | ||||||
|
| |||||||
$ | 2,814,820 | |||||||
Medical Equipment - 0.5% | ||||||||
Eiken Chemical Co. Ltd. | 38,700 | $ | 694,852 | |||||
Top Glove Corp. | 147,400 | 933,659 | ||||||
|
| |||||||
$ | 1,628,511 |
15
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Metals & Mining - 2.9% | ||||||||
Fortescue Metals Group Ltd. | 294,452 | $ | 3,740,069 | |||||
POSCO | 9,053 | 1,406,077 | ||||||
Rio Tinto PLC | 63,772 | 3,951,209 | ||||||
Vale S.A. | 105,300 | 1,147,085 | ||||||
|
| |||||||
$ | 10,244,440 | |||||||
Natural Gas - Distribution - 0.3% | ||||||||
Italgas S.p.A. | 157,601 | $ | 1,014,655 | |||||
Natural Gas - Pipeline - 0.6% | ||||||||
Pembina Pipeline Corp. | 85,929 | $ | 2,127,885 | |||||
Network & Telecom - 0.4% | ||||||||
VTech Holdings Ltd. | 254,600 | $ | 1,484,855 | |||||
Other Banks & Diversified Financials - 2.3% | ||||||||
Bancolombia S.A., ADR | 38,423 | $ | 1,078,149 | |||||
Hana Financial Group, Inc. | 51,647 | 1,219,175 | ||||||
ORIX Corp. | 224,200 | 2,768,019 | ||||||
Sberbank of Russia PJSC, ADR (a) | 231,683 | 2,797,572 | ||||||
|
| |||||||
$ | 7,862,915 | |||||||
Pharmaceuticals - 8.0% | ||||||||
Ajanta Pharma Ltd. | 30,403 | $ | 613,202 | |||||
Bayer AG | 65,959 | 4,371,675 | ||||||
Kyowa Kirin Co. Ltd. | 66,800 | 1,726,367 | ||||||
Novartis AG | 79,040 | 6,823,698 | ||||||
Novo Nordisk A.S., “B” | 77,500 | 5,133,203 | ||||||
Roche Holding AG | 25,833 | 9,022,046 | ||||||
|
| |||||||
$ | 27,690,191 | |||||||
Precious Metals & Minerals - 0.5% | ||||||||
B2Gold Corp. | 131,250 | $ | 881,474 | |||||
Impala Platinum Holdings Ltd. (l) | 101,879 | 939,802 | ||||||
|
| |||||||
$ | 1,821,276 | |||||||
Printing & Publishing - 1.7% | ||||||||
Transcontinental, Inc., “A” | 170,470 | $ | 2,004,837 | |||||
Wolters Kluwer N.V. | 47,043 | 3,862,348 | ||||||
|
| |||||||
$ | 5,867,185 | |||||||
Railroad & Shipping - 1.4% | ||||||||
Canadian Pacific Railway Ltd. | 8,207 | $ | 2,428,029 | |||||
Sankyu, Inc. | 56,900 | 2,372,640 | ||||||
|
| |||||||
$ | 4,800,669 |
16
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Real Estate - 2.4% | ||||||||
LEG Immobilien AG | 11,964 | $ | 1,759,813 | |||||
Longfor Properties Co. Ltd. | 860,000 | 4,539,744 | ||||||
Shimao Property Holdings Ltd. | 420,000 | 1,884,743 | ||||||
|
| |||||||
$ | 8,184,300 | |||||||
Restaurants - 0.3% | ||||||||
Greggs PLC | 60,523 | $ | 1,146,411 | |||||
Specialty Chemicals - 2.6% | ||||||||
Akzo Nobel N.V. | 22,181 | $ | 2,195,397 | |||||
L’Air Liquide S.A. | 11,181 | 1,855,323 | ||||||
Linde PLC | 4,424 | 1,112,894 | ||||||
Nitto Denko Corp. | 31,300 | 1,898,402 | ||||||
Orbia Advance Corp. S.A.B. de C.V. | 538,829 | 865,790 | ||||||
PTT Global Chemical PLC | 809,100 | 1,202,374 | ||||||
|
| |||||||
$ | 9,130,180 | |||||||
Specialty Stores - 2.6% | ||||||||
HelloFresh SE (a) | 28,028 | $ | 1,441,575 | |||||
JD.com, Inc., ADR (a) | 22,960 | 1,805,575 | ||||||
Just Eat Takeaway (a) | 15,721 | 1,768,206 | ||||||
K’s Holdings Corp. | 52,500 | 742,566 | ||||||
Ryohin Keikaku Co. Ltd. | 48,900 | 762,638 | ||||||
Vipshop Holdings Ltd., ADR (a) | 83,741 | 1,382,564 | ||||||
Zooplus AG (a) | 6,330 | 1,196,539 | ||||||
|
| |||||||
$ | 9,099,663 | |||||||
Telecommunications - Wireless - 2.6% | ||||||||
KDDI Corp. | 162,800 | $ | 4,721,074 | |||||
SoftBank Corp. | 23,000 | 1,428,274 | ||||||
Vodafone Group PLC | 2,010,508 | 2,995,002 | ||||||
|
| |||||||
$ | 9,144,350 | |||||||
Telephone Services - 0.4% | ||||||||
Hellenic Telecommunications Organization S.A. | 90,186 | $ | 1,474,442 | |||||
Tobacco - 2.1% | ||||||||
British American Tobacco PLC | 119,216 | $ | 4,035,843 | |||||
Japan Tobacco, Inc. | 173,000 | 3,232,283 | ||||||
|
| |||||||
$ | 7,268,126 | |||||||
Trucking - 0.3% | ||||||||
Yamato Holdings Co. Ltd. | 39,900 | $ | 1,042,003 |
17
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Utilities - Electric Power - 3.3% | ||||||||
AltaGas Ltd. | 157,159 | $ | 2,032,639 | |||||
Boralex, Inc., “A” | 40,930 | 1,051,217 | ||||||
E.ON SE | 85,380 | 1,009,713 | ||||||
Energisa S.A. | 187,700 | 1,488,649 | ||||||
Iberdrola S.A. | 282,351 | 3,554,755 | ||||||
NTPC Ltd. | 845,451 | 1,107,244 | ||||||
Terna Participacoes S.A., IEU | 242,001 | 1,246,116 | ||||||
|
| |||||||
$ | 11,490,333 | |||||||
Total Common Stocks (Identified Cost, $308,384,459) |
| $ | 341,368,096 | |||||
Preferred Stocks - 0.6% | ||||||||
Electronics - 0.4% | ||||||||
Samsung Electronics Co. Ltd. | 34,108 | $ | 1,357,876 | |||||
Utilities - Electric Power - 0.2% | ||||||||
Companhia Paranaense de Energia | 70,700 | $ | 797,271 | |||||
Total Preferred Stocks (Identified Cost, $2,054,260) |
| $ | 2,155,147 | |||||
Investment Companies (h) - 0.8% | ||||||||
Money Market Funds - 0.8% | ||||||||
MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $2,791,445) | 2,791,445 | $ | 2,791,445 | |||||
Other Assets, Less Liabilities - 0.3% | 864,601 | |||||||
Net Assets - 100.0% | $ | 347,179,289 |
(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 $2,791,445 and $343,523,243, respectively. |
(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 $1,008,649, representing 0.3% 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 annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
IEU | International Equity Unit |
See Notes to Financial Statements
18
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/20
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 $114,471 of securities on loan (identified cost, $310,438,719) | $343,523,243 | |||
Investments in affiliated issuers, at value (identified cost, $2,791,445) | 2,791,445 | |||
Foreign currency, at value (identified cost, $11,533) | 11,418 | |||
Receivables for | ||||
Fund shares sold | 374,765 | |||
Interest and dividends | 1,726,031 | |||
Receivable from investment adviser | 14,793 | |||
Other assets | 318 | |||
Total assets | $348,442,013 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $931,302 | |||
Fund shares reacquired | 163,113 | |||
Payable to affiliates | ||||
Administrative services fee | 617 | |||
Shareholder servicing costs | 27,842 | |||
Distribution and service fees | 2,646 | |||
Payable for independent Trustees’ compensation | 15 | |||
Accrued expenses and other liabilities | 137,189 | |||
Total liabilities | $1,262,724 | |||
Net assets | $347,179,289 | |||
Net assets consist of | ||||
Paid-in capital | $337,476,431 | |||
Total distributable earnings (loss) | 9,702,858 | |||
Net assets | $347,179,289 | |||
Shares of beneficial interest outstanding | 32,044,287 |
19
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $93,454,537 | 8,662,174 | $10.79 | |||||||||
Class B | 148,483 | 13,852 | 10.72 | |||||||||
Class C | 220,026 | 20,570 | 10.70 | |||||||||
Class I | 5,182,999 | 478,041 | 10.84 | |||||||||
Class R1 | 165,556 | 15,549 | �� | 10.65 | ||||||||
Class R2 | 155,979 | 14,436 | 10.80 | |||||||||
Class R3 | 63,532 | 5,842 | 10.88 | |||||||||
Class R4 | 62,313 | 5,745 | 10.85 | |||||||||
Class R6 | 247,725,864 | 22,828,078 | 10.85 |
(a) | Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $11.45 [100 / 94.25 x $10.79]. 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
20
Financial Statements
Year ended 8/31/20
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 | $11,235,698 | |||
Dividends from affiliated issuers | 41,191 | |||
Other | 35,186 | |||
Income on securities loaned | 4,386 | |||
Foreign taxes withheld | (956,697 | ) | ||
Total investment income | $10,359,764 | |||
Expenses | ||||
Management fee | $1,567,656 | |||
Distribution and service fees | 220,375 | |||
Shareholder servicing costs | 88,245 | |||
Administrative services fee | 52,353 | |||
Independent Trustees’ compensation | 8,890 | |||
Custodian fee | 112,984 | |||
Shareholder communications | 10,269 | |||
Audit and tax fees | 107,935 | |||
Legal fees | 2,656 | |||
Registration fees | 135,847 | |||
Miscellaneous | 37,612 | |||
Total expenses | $2,344,822 | |||
Reduction of expenses by investment adviser | (326,548 | ) | ||
Net expenses | $2,018,274 | |||
Net investment income (loss) | $8,341,490 | |||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers (net of $31,897 country tax) | $(21,942,023 | ) | ||
Affiliated issuers | (570 | ) | ||
Foreign currency | (76,312 | ) | ||
Net realized gain (loss) | $(22,018,905 | ) | ||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $38,887,520 | |||
Affiliated issuers | (291 | ) | ||
Translation of assets and liabilities in foreign currencies | 67,106 | |||
Net unrealized gain (loss) | $38,954,335 | |||
Net realized and unrealized gain (loss) | $16,935,430 | |||
Change in net assets from operations | $25,276,920 |
See Notes to Financial Statements
21
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 | ||||||||
8/31/20 | 8/31/19 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $8,341,490 | $8,826,898 | ||||||
Net realized gain (loss) | (22,018,905 | ) | (6,545,805 | ) | ||||
Net unrealized gain (loss) | 38,954,335 | (18,068,842 | ) | |||||
Change in net assets from operations | $25,276,920 | $(15,787,749 | ) | |||||
Total distributions to shareholders | $(9,250,211 | ) | $(17,092,195 | ) | ||||
Change in net assets from fund share transactions | $36,975,806 | $28,949,353 | ||||||
Total change in net assets | $53,002,515 | $(3,930,591 | ) | |||||
Net assets | ||||||||
At beginning of period | 294,176,774 | 298,107,365 | ||||||
At end of period | $347,179,289 | $294,176,774 |
See Notes to Financial Statements
22
Financial Statements
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate 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 | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.37 | $11.71 | $11.85 | $9.82 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.25 | $0.30 | $0.30 | $0.25 | $0.25 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | (1.01 | ) | (0.12 | ) | 1.82 | (0.32 | ) | ||||||||||||
Total from investment operations | $0.72 | $(0.71 | ) | $0.18 | $2.07 | $(0.07 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.30 | ) | $(0.26 | ) | $(0.18 | ) | $(0.04 | ) | $(0.06 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.30 | ) | $(0.63 | ) | $(0.32 | ) | $(0.04 | ) | $(0.11 | ) | ||||||||||
Net asset value, end of period (x) | $10.79 | $10.37 | $11.71 | $11.85 | $9.82 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.85 | (5.67 | ) | 1.47 | 21.15 | (0.64 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.99 | 1.00 | 0.99 | 0.98 | 5.84 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.89 | 0.89 | 0.89 | 0.89 | 0.89 | (a) | ||||||||||||||
Net investment income (loss) | 2.39 | 2.80 | 2.49 | 2.34 | 2.70 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $93,455 | $84,917 | $88,168 | $535 | $139 |
See Notes to Financial Statements
23
Financial Highlights – continued
Class B | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.32 | $11.64 | $11.75 | $9.78 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.17 | $0.24 | $0.20 | $0.16 | $0.15 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | (1.02 | ) | (0.11 | ) | 1.81 | (0.28 | ) | ||||||||||||
Total from investment operations | $0.64 | $(0.78 | ) | $0.09 | $1.97 | $(0.13 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.24 | ) | $(0.17 | ) | $(0.06 | ) | $— | $(0.04 | ) | |||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.24 | ) | $(0.54 | ) | $(0.20 | ) | $— | $(0.09 | ) | |||||||||||
Net asset value, end of period (x) | $10.72 | $10.32 | $11.64 | $11.75 | $9.78 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.06 | (6.41 | ) | 0.73 | 20.14 | (1.27 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.74 | 1.75 | 1.74 | 1.73 | 7.12 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.64 | 1.64 | 1.64 | 1.64 | 1.63 | (a) | ||||||||||||||
Net investment income (loss) | 1.61 | 2.28 | 1.63 | 1.51 | 1.64 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $148 | $152 | $97 | $109 | $54 | |||||||||||||||
Class C | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.28 | $11.59 | $11.75 | $9.78 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.17 | $0.22 | $0.21 | $0.16 | $0.16 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | (1.00 | ) | (0.11 | ) | 1.81 | (0.29 | ) | ||||||||||||
Total from investment operations | $0.64 | $(0.78 | ) | $0.10 | $1.97 | $(0.13 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.22 | ) | $(0.16 | ) | $(0.12 | ) | $— | $(0.04 | ) | |||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.22 | ) | $(0.53 | ) | $(0.26 | ) | $— | $(0.09 | ) | |||||||||||
Net asset value, end of period (x) | $10.70 | $10.28 | $11.59 | $11.75 | $9.78 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.08 | (6.42 | ) | 0.74 | 20.14 | (1.27 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.74 | 1.75 | 1.75 | 1.73 | 7.03 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.64 | 1.64 | 1.64 | 1.64 | 1.63 | (a) | ||||||||||||||
Net investment income (loss) | 1.64 | 2.04 | 1.73 | 1.54 | 1.70 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $220 | $240 | $284 | $133 | $59 |
See Notes to Financial Statements
24
Financial Highlights – continued
Class I | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.42 | $11.77 | $11.88 | $9.84 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.31 | $0.31 | $0.31 | $0.29 | $0.33 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.44 | (1.00 | ) | (0.10 | ) | 1.80 | (0.37 | ) | ||||||||||||
Total from investment operations | $0.75 | $(0.69 | ) | $0.21 | $2.09 | $(0.04 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.33 | ) | $(0.29 | ) | $(0.18 | ) | $(0.05 | ) | $(0.07 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.33 | ) | $(0.66 | ) | $(0.32 | ) | $(0.05 | ) | $(0.12 | ) | ||||||||||
Net asset value, end of period (x) | $10.84 | $10.42 | $11.77 | $11.88 | $9.84 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 7.09 | (5.45 | ) | 1.74 | 21.37 | (0.37 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.75 | 0.75 | 0.74 | 0.73 | 4.94 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.64 | 0.64 | 0.64 | 0.64 | 0.64 | (a) | ||||||||||||||
Net investment income (loss) | 3.06 | 2.89 | 2.50 | 2.70 | 3.65 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $5,183 | $1,652 | $1,760 | $1,259 | $640 | |||||||||||||||
Class R1 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.24 | $11.63 | $11.75 | $9.78 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.17 | $0.22 | $0.19 | $0.15 | $0.15 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | (1.01 | ) | (0.10 | ) | 1.82 | (0.28 | ) | ||||||||||||
Total from investment operations | $0.64 | $(0.79 | ) | $0.09 | $1.97 | $(0.13 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.23 | ) | $(0.23 | ) | $(0.07 | ) | $— | $(0.04 | ) | |||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.23 | ) | $(0.60 | ) | $(0.21 | ) | $— | $(0.09 | ) | |||||||||||
Net asset value, end of period (x) | $10.65 | $10.24 | $11.63 | $11.75 | $9.78 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.13 | (6.44 | ) | 0.72 | 20.14 | (1.27 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.74 | 1.75 | 1.73 | 1.72 | 7.19 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.64 | 1.64 | 1.64 | 1.64 | 1.63 | (a) | ||||||||||||||
Net investment income (loss) | 1.63 | 2.09 | 1.54 | 1.41 | 1.60 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $166 | $146 | $60 | $59 | $49 |
See Notes to Financial Statements
25
Financial Highlights – continued
Class R2 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.38 | $11.73 | $11.84 | $9.81 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.22 | $0.27 | $0.29 | $0.20 | $0.19 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | (1.01 | ) | (0.13 | ) | 1.83 | (0.28 | ) | ||||||||||||
Total from investment operations | $0.69 | $(0.74 | ) | $0.16 | $2.03 | $(0.09 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.27 | ) | $(0.24 | ) | $(0.13 | ) | $(0.00 | )(w) | $(0.05 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.27 | ) | $(0.61 | ) | $(0.27 | ) | $(0.00 | )(w) | $(0.10 | ) | ||||||||||
Net asset value, end of period (x) | $10.80 | $10.38 | $11.73 | $11.84 | $9.81 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.56 | (5.95 | ) | 1.27 | 20.74 | (0.82 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.24 | 1.25 | 1.25 | 1.22 | 6.68 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 1.14 | 1.14 | 1.14 | 1.14 | 1.13 | (a) | ||||||||||||||
Net investment income (loss) | 2.12 | 2.54 | 2.34 | 1.90 | 2.11 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $156 | $164 | $167 | $60 | $50 | |||||||||||||||
Class R3 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.45 | $11.80 | $11.91 | $9.84 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.25 | $0.30 | $0.28 | $0.23 | $0.29 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.49 | (1.02 | ) | (0.09 | ) | 1.84 | (0.34 | ) | ||||||||||||
Total from investment operations | $0.74 | $(0.72 | ) | $0.19 | $2.07 | $(0.05 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.31 | ) | $(0.26 | ) | $(0.16 | ) | $— | $(0.06 | ) | |||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.31 | ) | $(0.63 | ) | $(0.30 | ) | $— | $(0.11 | ) | |||||||||||
Net asset value, end of period (x) | $10.88 | $10.45 | $11.80 | $11.91 | $9.84 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 6.92 | (5.72 | ) | 1.50 | 21.04 | (0.44 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.99 | 1.00 | 0.98 | 0.97 | 5.94 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.89 | 0.89 | 0.89 | 0.89 | 0.87 | (a) | ||||||||||||||
Net investment income (loss) | 2.37 | 2.79 | 2.29 | 2.15 | 3.16 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $64 | $58 | $61 | $60 | $50 |
See Notes to Financial Statements
26
Financial Highlights – continued
Class R4 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.42 | $11.77 | $11.88 | $9.84 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.27 | $0.33 | $0.31 | $0.25 | $0.24 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.49 | (1.02 | ) | (0.10 | ) | 1.84 | (0.28 | ) | ||||||||||||
Total from investment operations | $0.76 | $(0.69 | ) | $0.21 | $2.09 | $(0.04 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.33 | ) | $(0.29 | ) | $(0.18 | ) | $(0.05 | ) | $(0.07 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.33 | ) | $(0.66 | ) | $(0.32 | ) | $(0.05 | ) | $(0.12 | ) | ||||||||||
Net asset value, end of period (x) | $10.85 | $10.42 | $11.77 | $11.88 | $9.84 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 7.18 | (5.45 | ) | 1.74 | 21.36 | (0.37 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.74 | 0.75 | 0.73 | 0.72 | 6.18 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.64 | 0.64 | 0.64 | 0.64 | 0.63 | (a) | ||||||||||||||
Net investment income (loss) | 2.62 | 3.04 | 2.54 | 2.41 | 2.60 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $62 | $58 | $62 | $60 | $50 | |||||||||||||||
Class R6 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 (c) | ||||||||||||||||
Net asset value, beginning of period | $10.43 | $11.78 | $11.88 | $9.84 | $10.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.29 | $0.34 | $0.32 | $0.26 | $0.24 | |||||||||||||||
Net realized and unrealized gain (loss) | 0.47 | (1.02 | ) | (0.09 | ) | 1.84 | (0.28 | ) | ||||||||||||
Total from investment operations | $0.76 | $(0.68 | ) | $0.23 | $2.10 | $(0.04 | ) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.34 | ) | $(0.30 | ) | $(0.19 | ) | $(0.06 | ) | $(0.07 | ) | ||||||||||
From net realized gain | — | (0.37 | ) | (0.14 | ) | — | (0.05 | ) | ||||||||||||
Total distributions declared to shareholders | $(0.34 | ) | $(0.67 | ) | $(0.33 | ) | $(0.06 | ) | $(0.12 | ) | ||||||||||
Net asset value, end of period (x) | $10.85 | $10.43 | $11.78 | $11.88 | $9.84 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 7.18 | (5.33 | ) | 1.86 | 21.41 | (0.36 | )(n) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.65 | 0.65 | 0.65 | 0.68 | 3.06 | (a) | ||||||||||||||
Expenses after expense reductions (f) | 0.55 | 0.54 | 0.54 | 0.60 | 0.60 | (a) | ||||||||||||||
Net investment income (loss) | 2.76 | 3.13 | 2.60 | 2.43 | 2.61 | (a) | ||||||||||||||
Portfolio turnover | 72 | 58 | 69 | 63 | 64 | (n) | ||||||||||||||
Net assets at end of period (000 omitted) | $247,726 | $206,790 | $207,449 | $196,685 | $163,355 |
See Notes to Financial Statements
27
Financial Highlights – continued
(a) | Annualized. |
(c) | For the period from the commencement of the fund’s investment operations, September 15, 2015, through the stated period end. |
(d) | Per share data is based on average shares outstanding. |
(f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
(n) | Not annualized. |
(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
28
(1) Business and Organization
MFS Blended Research International Equity Fund (the fund) is a diversified series of MFS Series Trust IV (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
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 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, environmental, public health, 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, accounting, and auditing systems, and greater political, social, and economic instability than developed markets.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
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
29
Notes to Financial Statements – continued
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’s in-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 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 halt 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 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
30
Notes to Financial Statements – continued
purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of August 31, 2020 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
Japan | $10,904,104 | $42,595,960 | $— | $53,500,064 | ||||||||||||
China | 12,105,449 | 33,282,482 | — | 45,387,931 | ||||||||||||
Switzerland | 31,979,742 | — | — | 31,979,742 | ||||||||||||
France | 27,440,166 | — | — | 27,440,166 | ||||||||||||
United Kingdom | 26,876,446 | — | — | 26,876,446 | ||||||||||||
Canada | 24,962,969 | — | — | 24,962,969 | ||||||||||||
Germany | 15,216,597 | — | — | 15,216,597 | ||||||||||||
Australia | — | 14,104,384 | — | 14,104,384 | ||||||||||||
South Korea | 8,910,300 | 4,595,106 | — | 13,505,406 | ||||||||||||
Other Countries | 74,786,993 | 15,762,545 | — | 90,549,538 | ||||||||||||
Mutual Funds | 2,791,445 | — | — | 2,791,445 | ||||||||||||
Total | $235,974,211 | $110,340,477 | $— | $346,314,688 |
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.
31
Notes to Financial Statements – continued
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 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 $114,471. These loans were collateralized by U.S. Treasury Obligations of $123,049 held by the lending agent. The collateral on securities loaned exceeded the value of securities on loan at period end. 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 the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/
32
Notes to Financial Statements – continued
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 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 the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to passive foreign investment companies and wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
Year ended 8/31/20 | Year ended 8/31/19 | |||||
Ordinary income (including any short-term capital gains) | $9,250,211 | $7,500,165 | ||||
Long-term capital gains | — | 9,592,030 | ||||
Total distributions | $9,250,211 | $17,092,195 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 8/31/20 | ||||
Cost of investments | $320,005,148 | |||
Gross appreciation | 48,546,728 | |||
Gross depreciation | (22,237,188 | ) | ||
Net unrealized appreciation (depreciation) | $26,309,540 | |||
Undistributed ordinary income | 6,758,565 | |||
Capital loss carryforwards | (23,361,368 | ) | ||
Other temporary differences | (3,879 | ) |
33
Notes to Financial Statements – continued
As of August 31, 2020, 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 | $(7,847,623 | ) | ||
Long-Term | (15,513,745 | ) | ||
Total | $(23,361,368 | ) |
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 shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Class A | $2,350,834 | $4,798,715 | ||||||
Class B | 3,422 | 4,279 | ||||||
Class C | 4,533 | 10,851 | ||||||
Class I | 51,103 | 97,467 | ||||||
Class R1 | 3,314 | 7,783 | ||||||
Class R2 | 3,830 | 8,777 | ||||||
Class R3 | 1,725 | 3,262 | ||||||
Class R4 | 1,860 | 3,445 | ||||||
Class R6 | 6,829,590 | 12,157,616 | ||||||
Total | $9,250,211 | $17,092,195 |
(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 | 0.50 | % | ||
In excess of $1 billion and up to $2.5 billion | 0.475 | % | ||
In excess of $2.5 billion | 0.45 | % |
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 August 31, 2020, this management fee reduction amounted to $33,400, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended August 31, 2020 was equivalent to an annual effective rate of 0.49% of the fund’s average daily net assets.
34
Notes to Financial Statements – continued
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 | ||||||||||||||||||||||||
0.89% | 1.64% | 1.64% | 0.64% | 1.64% | 1.14% | 0.89% | 0.64% | 0.60% |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until December 31, 2021. For the year ended August 31, 2020, this reduction amounted to $293,148, which is included in the reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $1,117 for the year ended August 31, 2020, 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 Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
Distribution Fee Rate (d) | Service Fee Rate (d) | Total Distribution Plan (d) | Annual Effective Rate (e) | Distribution and Service Fee | ||||||||||||||||
Class A | — | 0.25% | 0.25% | 0.25% | $214,146 | |||||||||||||||
Class B | 0.75% | 0.25% | 1.00% | 1.00% | 1,492 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 2,297 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 1,540 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 750 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 150 | |||||||||||||||
Total Distribution and Service Fees |
| $220,375 |
(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 August 31, 2020 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 there is no financial intermediary specified on the account except for accounts attributable to MFS or its affiliates’ seed money. There were no service fee rebates for the year ended August 31, 2020. |
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
35
Notes to Financial Statements – continued
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 August 31, 2020, were as follows:
Amount | ||
Class A | $— | |
Class B | — | |
Class C | 12 |
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 August 31, 2020, the fee was $1,749, which equated to 0.0006% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incur sub-accounting fees. For the year ended August 31, 2020, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $86,496.
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 August 31, 2020 was equivalent to an annual effective rate of 0.0167% 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – 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 but does incur investment and operating costs.
On December 14, 2018, MFS redeemed 5,214 shares of Class A for an aggregate amount of $54,118.
At August 31, 2020, MFS held approximately 97% of the outstanding shares of Class R3 and 100% of the outstanding shares of Class R4.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to
36
Notes to Financial Statements – continued
ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended August 31, 2020, the fund engaged in sale transactions pursuant to this policy, which amounted to $100,548. The sales transactions resulted in net realized gains (losses) of $(15,855).
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 August 31, 2020, this reimbursement amounted to $34,311, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended August 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $261,593,324 and $223,641,808, 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 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 5,001,865 | $51,610,948 | 2,480,072 | $25,752,781 | ||||||||||||
Class B | — | — | 6,820 | 73,292 | ||||||||||||
Class C | 4,359 | 43,607 | 7,632 | 77,887 | ||||||||||||
Class I | 711,263 | 7,109,625 | 129,773 | 1,406,786 | ||||||||||||
Class R1 | 1,039 | 10,850 | 8,502 | 98,823 | ||||||||||||
Class R2 | 203 | 2,087 | 654 | 7,027 | ||||||||||||
Class R3 | 175 | 1,846 | — | — | ||||||||||||
Class R6 | 7,300,536 | 74,505,088 | 4,783,747 | 50,967,030 | ||||||||||||
13,019,440 | $133,284,051 | 7,417,200 | $78,383,626 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Class A | 3,856 | $43,616 | 6,468 | $62,548 | ||||||||||||
Class B | 303 | 3,422 | 442 | 4,279 | ||||||||||||
Class C | 402 | 4,533 | 1,126 | 10,851 | ||||||||||||
Class I | 4,506 | 51,103 | 9,951 | 96,523 | ||||||||||||
Class R1 | 295 | 3,314 | 811 | 7,783 | ||||||||||||
Class R2 | 338 | 3,830 | 905 | 8,777 | ||||||||||||
Class R3 | 151 | 1,725 | 334 | 3,262 | ||||||||||||
Class R4 | 164 | 1,860 | 355 | 3,445 | ||||||||||||
Class R6 | 601,726 | 6,829,590 | 1,253,362 | 12,157,616 | ||||||||||||
611,741 | $6,942,993 | 1,273,754 | $12,355,084 |
37
Notes to Financial Statements – continued
Year ended 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares reacquired | ||||||||||||||||
Class A | (4,535,077 | ) | $(48,597,862 | ) | (1,822,540 | ) | $(19,350,684 | ) | ||||||||
Class B | (1,217 | ) | (12,710 | ) | (860 | ) | (9,450 | ) | ||||||||
Class C | (7,564 | ) | (78,575 | ) | (9,859 | ) | (104,993 | ) | ||||||||
Class I | (396,295 | ) | (3,652,420 | ) | (130,649 | ) | (1,380,360 | ) | ||||||||
Class R1 | — | — | (234 | ) | (2,338 | ) | ||||||||||
Class R2 | (1,891 | ) | (20,237 | ) | (24 | ) | (252 | ) | ||||||||
Class R3 | (1 | ) | (7 | ) | — | — | ||||||||||
Class R6 | (4,908,892 | ) | (50,889,427 | ) | (3,808,748 | ) | (40,941,280 | ) | ||||||||
(9,850,937 | ) | $(103,251,238 | ) | (5,772,914 | ) | $(61,789,357 | ) | |||||||||
Net change | ||||||||||||||||
Class A | 470,644 | $3,056,702 | 664,000 | $6,464,645 | ||||||||||||
Class B | (914 | ) | (9,288 | ) | 6,402 | 68,121 | ||||||||||
Class C | (2,803 | ) | (30,435 | ) | (1,101 | ) | (16,255 | ) | ||||||||
Class I | 319,474 | 3,508,308 | 9,075 | 122,949 | ||||||||||||
Class R1 | 1,334 | 14,164 | 9,079 | 104,268 | ||||||||||||
Class R2 | (1,350 | ) | (14,320 | ) | 1,535 | 15,552 | ||||||||||
Class R3 | 325 | 3,564 | 334 | 3,262 | ||||||||||||
Class R4 | 164 | 1,860 | 355 | 3,445 | ||||||||||||
Class R6 | 2,993,370 | 30,445,251 | 2,228,361 | 22,183,366 | ||||||||||||
3,780,244 | $36,975,806 | 2,918,040 | $28,949,353 |
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 Lifetime 2040 Fund, the MFS Lifetime 2030 Fund, the MFS Lifetime 2035 Fund, the MFS Lifetime 2050 Fund, the MFS Lifetime 2045 Fund, the MFS Lifetime Income Fund, the MFS Lifetime 2025 Fund, the MFS Lifetime 2055 Fund, the MFS Lifetime 2020 Fund, and the MFS Lifetime 2060 Fund were the owners of record of approximately 14%, 12%, 10%, 9%, 9%, 5%, 5%, 5%, 3%, 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 syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee,
38
Notes to Financial Statements – continued
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 rates equal to customary reference rates plus an agreed upon spread. For the year ended August 31, 2020, the fund’s commitment fee and interest expense were $1,659 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 following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $4,436,778 | $106,545,031 | $108,189,503 | $(570 | ) | $(291 | ) | $2,791,445 | ||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio |
| $41,191 | $— |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
(9) Subsequent Event
On October 2, 2020, the fund announced that effective December 21, 2020, the time period will be shortened for the automatic conversion of Class C shares to Class A of the same fund, from approximately ten years to approximately eight years after purchase. On or about December 21, 2020 any Class C shares that have an original purchase date of December 31, 2012 or earlier will automatically convert to Class A shares of the same fund. Please see the fund’s prospectus for details.
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of MFS Blended Research International Equity Fund and the Board of Trustees of MFS Series Trust IV
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of MFS Blended Research International Equity Fund (the “Fund”) (one of the funds constituting MFS Series Trust IV (the “Trust”)), including the portfolio of investments, as of August 31, 2020, 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 four years in the period then ended and the period from September 15, 2015 (commencement of operations) through August 31, 2016 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 IV) at August 31, 2020, 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 four years in the period then ended and the period from September 15, 2015 (commencement of operations) through August 31, 2016, 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 August 31, 2020, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included
40
Report of Independent Registered Public Accounting Firm – continued
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
October 19, 2020
41
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of October 1, 2020, 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) Held with Fund | Trustee/Officer Since (h) | Number of MFS Funds overseen by the Trustee | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 56) | Trustee | February 2004 | 133 | 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 59) | Trustee | January 2014 | 133 | 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 65) | Trustee and Chair of Trustees | January 2009 | 133 | Private investor | N/A | |||||
Steven E. Buller (age 69) | Trustee | February 2014 | 133 | Private investor; Financial Accounting Standards Advisory Council, Chairman (2014-2015) | N/A |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
John A. Caroselli (age 66) | Trustee | March 2017 | 133 | Private investor; 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 65) | Trustee | January 2009 | 133 | Private investor | N/A | |||||
Peter D. Jones (age 65) | Trustee | January 2019 | 133 | Private investor; Franklin Templeton Institutional, LLC (investment management), Chairman (since June 30, 2020); Franklin Templeton Distributors, Inc. (investment management), President (until 2015) | N/A |
43
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
James W. Kilman, Jr. (age 59) | Trustee | January 2019 | 133 | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), 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 (2016-2019) | |||||
Clarence Otis, Jr. (age 64) | Trustee | March 2017 | 133 | Private investor | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 64) | Trustee | May 2014 | 133 | Private investor | N/A | |||||
Laurie J. Thomsen (age 63) | Trustee | March 2005 | 133 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
44
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 46) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Kino Clark (k) (age 52) | Assistant Treasurer | January 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
John W. Clark, Jr. (k) (age 53) | Assistant Treasurer | April 2017 | 133 | 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 61) | Assistant Secretary and Assistant Clerk | September 2012 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
David L. DiLorenzo (k) (age 52) | President | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Heidi W. Hardin (k) (age 53) | Secretary and Clerk | April 2017 | 133 | 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 47) | Assistant Secretary and Assistant Clerk | June 2006 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Amanda S. Mooradian (k) (age 41) | Assistant Secretary and Assistant Clerk | September 2018 | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | ||||
Susan A. Pereira (k) (age 49) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 49) | Assistant Treasurer | September 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 45) | Assistant Secretary and Assistant Clerk | October 2014 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Martin J. Wolin (k) (age 53) | Chief Compliance Officer | July 2015 | 133 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015) | ||||
James O. Yost (k) (age 60) | Treasurer | September 1990 | 133 | Massachusetts Financial Services Company, Senior Vice President |
(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. Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. 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, 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.
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Trustees and Officers – continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
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) | ||
Jim Fallon Matt Krummell Jonathan Sage Jed Stocks |
48
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Blended Research International Equity Fund
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the Funds, such as
49
Board Review of Investment Advisory Agreement – continued
compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Class A shares in comparison to the performance of funds in its Broadridge performance universe over the three-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Class A shares was in the 1st quintile relative to the other funds in the universe for each of the three- and one-year periods (the 1st quintile being the best performers and the 5th quintile being the worst performers). The Fund commenced operations on September 15, 2015; therefore no performance data for the five-year period was available. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report. In addition, the Trustees reviewed the Fund’s Class I total return performance relative to the Fund’s benchmark performance for the three- and one-year periods ended December 31, 2019.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Class A shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’
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Board Review of Investment Advisory Agreement – continued
approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
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Board Review of Investment Advisory Agreement – continued
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
52
STATEMENT REGARDING LIQUIDITY RISK MANAGEMENT PROGRAM
The fund has adopted and implemented a liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program. The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests.
MFS provided a written report to the Board for consideration at its April 2020 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from the adoption of the Program on December 1, 2018 to December 31, 2019 (the “Covered Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
53
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 calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://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 as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/openendfunds by 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 at https://www.mfs.com/announcements or at mfs.com/openendfunds by choosing the fund’s name and then selecting the “Resources” tab and clicking on the “Announcements” tab, if any.
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 2020 income tax forms in January 2021. 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.
Income derived from foreign sources was $11,230,570. The fund intends to pass through foreign tax credits of $921,497 for the fiscal year.
54
rev. 3/16
| WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
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 are no 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? | Call 800-225-2606 or go to mfs.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. |
56
Save paper with eDelivery.
MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
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
Annual Report
August 31, 2020
MFS® Global New Discovery 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.
GND-ANN
MFS® Global New Discovery Fund
Contact information | back cover |
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
LETTER FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Markets experienced dramatic swings in early 2020 as the coronavirus pandemic brought the global economy to a standstill for several months. Optimism over the
development of vaccines and therapeutics, along with a decline in cases in countries affected by the outbreak early on, brightened the economic and market outlook during the second quarter, as did the phased reopening of U.S. states. However, a great deal of uncertainty remains. While policymakers and public health officials have learned a great deal about combating the virus, much remains unknown at a time when the risks are rising for a second wave of infection. Political uncertainty is heightened as well, as the pandemic has caused many jurisdictions in the United States to adopt mail-in voting for the first time, raising questions over whether ballots in the November elections will be counted as quickly as they have been in the past.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support, though in the United States some of those measures were allowed to lapse at the end of July as negotiators found themselves at an impasse over the scope of additional funding. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can also sow the seeds of instability. In the aftermath of the crisis, societal changes may be likely, as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our unique global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
October 19, 2020
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
Portfolio structure
Top ten holdings |
| |||
Clarivate PLC | 1.8% | |||
Gerresheimer AG | 1.8% | |||
Arthur J. Gallagher & Co. | 1.6% | |||
Cranswick PLC | 1.6% | |||
PRA Health Sciences, Inc. | 1.6% | |||
Cellnex Telecom S.A. | 1.6% | |||
Just Eat Takeaway | 1.4% | |||
Take-Two Interactive Software, Inc. | 1.3% | |||
Everbridge, Inc. | 1.3% | |||
Symrise AG | 1.3% |
GICS equity sectors (g) |
| |||
Industrials | 23.3% | |||
Information Technology | 18.1% | |||
Health Care | 11.5% | |||
Real Estate | 11.1% | |||
Materials | 9.1% | |||
Consumer Discretionary | 8.6% | |||
Communication Services | 5.7% | |||
Financials | 5.3% | |||
Consumer Staples | 3.3% | |||
Issuer country weightings (x) |
| |||
United States | 50.9% | |||
United Kingdom | 11.3% | |||
Japan | 7.6% | |||
Germany | 5.5% | |||
Netherlands | 3.8% | |||
France | 3.1% | |||
Spain | 2.3% | |||
Canada | 2.2% | |||
Australia | 2.1% | |||
Other Countries | 11.2% | |||
Currency exposure weightings (y) |
| |||
United States Dollar | 56.6% | |||
Euro | 15.3% | |||
British Pound Sterling | 9.0% | |||
Japanese Yen | 7.6% | |||
Australian Dollar | 2.1% | |||
Indian Rupee | 2.0% | |||
Swiss Franc | 1.8% | |||
Norwegian Krone | 1.2% | |||
Swedish Krona | 0.9% | |||
Other Currencies | 3.5% |
2
Portfolio Composition – continued
(g) | 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. |
(x) | Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets. For purposes of this presentation, United States includes Cash & Cash Equivalents. |
(y) | Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets. For purposes of this presentation, United States Dollar includes Cash & Cash Equivalents. |
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.
Percentages are based on net assets as of August 31, 2020.
The portfolio is actively managed and current holdings may be different.
3
Summary of Results
For the twelve months ended August 31, 2020, Class A shares of the MFS Global New Discovery Fund (fund) provided a total return of 18.63%, at net asset value. This compares with a return of 8.55% for the fund’s benchmark, the MSCI All Country World Small Mid Cap Index (net div).
Market Environment
Markets experienced an extraordinarily sharp selloff and in many cases an unusually rapid recovery late in the period. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the deepest, steepest, and possibly shortest recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and when vaccines or medicines will become available to prevent or treat it.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in a price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the United States also decreasing production, which – along with the gradual reopening of some major economies and the resultant boost in demand – helped stabilize the price of crude oil.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible average-inflation-targeting framework, which is expected to result in policy rates remaining at low levels for longer. In developed countries, monetary easing measures were complemented by large fiscal stimulus initiatives, although late in the period there was uncertainty surrounding the timing and scope of additional US recovery funding. Due to relatively manageable external liabilities and balances of payments in many countries, along with persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
As has often been the case in a crisis, market vulnerabilities have been revealed. For example, companies that have added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks have in many cases halted share repurchases and cut dividends, and some firms have been forced to recapitalize.
Contributors to Performance
Stock selection within the industrials sector was a primary contributor to performance relative to the MSCI All Country World Small Mid Cap Index. Here, the fund’s holdings
4
Management Review – continued
of analytics services provider Clarivate (b), and an overweight position in shares of logistics company SG Holdings (Japan), bolstered relative performance. The share price for SG Holdings increased during the reporting period after the firm announced positive operating profit results and guidance figures, driven by strong volume growth in its business to consumer segment.
In other sectors, the fund’s overweight positions in diagnostic healthcare products manufacturer Quidel, event management and enterprise safety software developer Everbridge, discount retailer Ollie’s Bargain Outlet Holdings, system services provider OBIC (Japan), glass and plastic products supplier Gerresheimer (Germany), software products provider Synopsys and pharmaceutical research company Charles River Laboratories International boosted relative results.
The fund’s cash and/or cash equivalents position during the period was also a contributor to relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity.
Detractors from Performance
Stock selection and an overweight position in the consumer discretionary sector detracted from relative performance. Here, the fund’s overweight position in child care and early education provider Bright Horizons Family Solutions and health and wellness spa services provider OneSpaWorld (h) (Bahamas) hurt relative returns. The stock price for Bright Horizons declined sharply in the latter half of the reporting period as investors appeared to have recognized the impacts of the closing of 50% of the company’s schools as a result of the COVID-19 virus.
Elsewhere, the fund’s overweight positions in oilfield and natural gas reservoir service firm Core Laboratories (h) (Netherlands), real estate investment trust STORE Capital (h), aviation engine and components manufacturer MTU Aero Engines (h) (Germany), real estate investment trust CoreSite Realty, construction materials company Summit Materials, enterprise software solutions provider Linx (h) (Brazil), coating systems manufacturer Axalta Coating Systems and packaging products manufacturer Essentra (United Kingdom) further held back relative returns.
Respectfully,
Portfolio Manager(s)
Eric Braz, Peter Fruzzetti, Michael Grossman, and Sandeep Mehta
Note to Shareholders: Effective December 31, 2019, Eric Braz and Sandeep Mehta were added as Portfolio Managers of the Fund.
(b) | Security is not a benchmark constituent. |
(h) | Security was not held in the portfolio at period end. |
5
Management Review – continued
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.
6
PERFORMANCE SUMMARY THROUGH 8/31/20
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)
7
Performance Summary – continued
Total Returns through 8/31/20
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | 5-yr | Life (t) | ||||||||
A | 12/16/11 | 18.63% | 11.53% | 12.58% | ||||||||
B | 12/16/11 | 17.72% | 10.70% | 11.75% | ||||||||
C | 12/16/11 | 17.72% | 10.70% | 11.75% | ||||||||
I | 12/16/11 | 18.94% | 11.81% | 12.87% | ||||||||
R1 | 12/16/11 | 17.73% | 10.69% | 11.74% | ||||||||
R2 | 12/16/11 | 18.33% | 11.25% | 12.30% | ||||||||
R3 | 12/16/11 | 18.63% | 11.54% | 12.59% | ||||||||
R4 | 12/16/11 | 18.94% | 11.79% | 12.86% | ||||||||
R6 | 1/02/13 | 19.01% | 11.92% | 11.13% | ||||||||
Comparative benchmark(s) | ||||||||||||
MSCI All Country World Small Mid Cap Index (net div) (f) | 8.55% | 7.45% | 9.69% | |||||||||
Average annual with sales charge | ||||||||||||
A With Initial Sales Charge (5.75%) | 11.80% | 10.22% | 11.82% | |||||||||
B With CDSC (Declining over six years from 4% to 0%) (v) | 13.72% | 10.43% | 11.75% | |||||||||
C With CDSC (1% for 12 months) (v) | 16.72% | 10.70% | 11.75% |
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)
MSCI All Country World Small Mid Cap Index (net div) – a free float weighted index that is designed to measure equity market performance of small and mid cap companies across global developed and emerging market countries. Morgan Stanley Capital International (“MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
It is not possible to invest directly in an index.
8
Performance Summary – continued
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.
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.
9
Fund expenses borne by the shareholders during the period, March 1, 2020 through August 31, 2020
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 March 1, 2020 through August 31, 2020.
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.
10
Expense Table – continued
Share Class | Annualized Expense Ratio | Beginning Account Value 3/01/20 | Ending Account Value 8/31/20 | Expenses Paid During Period (p) 3/01/20-8/31/20 | ||||||||||||||
A | Actual | 1.47% | $1,000.00 | $1,163.43 | $7.99 | |||||||||||||
Hypothetical (h) | 1.47% | $1,000.00 | $1,017.75 | $7.46 | ||||||||||||||
B | Actual | 2.22% | $1,000.00 | $1,159.63 | $12.05 | |||||||||||||
Hypothetical (h) | 2.22% | $1,000.00 | $1,013.98 | $11.24 | ||||||||||||||
C | Actual | 2.22% | $1,000.00 | $1,159.63 | $12.05 | |||||||||||||
Hypothetical (h) | 2.22% | $1,000.00 | $1,013.98 | $11.24 | ||||||||||||||
I | Actual | 1.22% | $1,000.00 | $1,165.61 | $6.64 | |||||||||||||
Hypothetical (h) | 1.22% | $1,000.00 | $1,019.00 | $6.19 | ||||||||||||||
R1 | Actual | 2.22% | $1,000.00 | $1,159.72 | $12.05 | |||||||||||||
Hypothetical (h) | 2.22% | $1,000.00 | $1,013.98 | $11.24 | ||||||||||||||
R2 | Actual | 1.73% | $1,000.00 | $1,162.62 | $9.40 | |||||||||||||
Hypothetical (h) | 1.73% | $1,000.00 | $1,016.44 | $8.77 | ||||||||||||||
R3 | Actual | 1.48% | $1,000.00 | $1,164.06 | $8.05 | |||||||||||||
Hypothetical (h) | 1.48% | $1,000.00 | $1,017.70 | $7.51 | ||||||||||||||
R4 | Actual | 1.23% | $1,000.00 | $1,164.99 | $6.69 | |||||||||||||
Hypothetical (h) | 1.23% | $1,000.00 | $1,018.95 | $6.24 | ||||||||||||||
R6 | Actual | 1.13% | $1,000.00 | $1,166.40 | $6.15 | |||||||||||||
Hypothetical (h) | 1.13% | $1,000.00 | $1,019.46 | $5.74 |
(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 184/366 (to reflect the one-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
Changes to the fund’s fee arrangements occurred during the six month period. Had these fee changes been in effect throughout the entire six month period, the annualized expense ratios, the actual expenses paid during the period, and the hypothetical expenses paid during the period would have been approximately 1.35%, $7.34, and $6.85 for Class A, 2.10%, $11.40, and $10.63 for Class B, 2.10%, $11.40, and $10.63 for Class C, 1.10%, $5.99, and $5.58 for Class I, 2.10%, $11.40, and $10.63 for Class R1, 1.60%, $8.70, and $8.11 for Class R2, 1.35%, $7.34, and $6.85 for Class R3, 1.10%, $5.99, and $5.58 for Class R4, and 1.00%, $5.45, and $5.08 for Class R6, respectively. For further information about the fund’s fee arrangements and changes to those fee arrangements, please see Note 3 in the Notes to Financial Statements.
11
8/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - 96.0% | ||||||||
Aerospace - 3.1% | ||||||||
CACI International, Inc., “A” (a) | 2,333 | $ | 546,365 | |||||
LISI Group (a) | 12,760 | 289,316 | ||||||
PAE, Inc. (a) | 59,630 | 526,831 | ||||||
Singapore Technologies Engineering Ltd. | 140,400 | 349,742 | ||||||
|
| |||||||
$ | 1,712,254 | |||||||
Apparel Manufacturers - 0.6% | ||||||||
Skechers USA, Inc., “A” (a) | 10,885 | $ | 324,917 | |||||
Automotive - 2.7% | ||||||||
Copart, Inc. (a) | 4,222 | $ | 436,217 | |||||
Koito Manufacturing Co. Ltd. | 7,200 | 348,196 | ||||||
LKQ Corp. (a) | 13,761 | 436,774 | ||||||
USS Co. Ltd. | 17,900 | 301,913 | ||||||
|
| |||||||
$ | 1,523,100 | |||||||
Brokerage & Asset Managers - 3.7% | ||||||||
B3 Brasil Bolsa Balcao S.A. | 36,000 | $ | 386,383 | |||||
Cboe Global Markets, Inc. | 5,978 | 548,721 | ||||||
Euronext N.V. | 4,613 | 560,401 | ||||||
NASDAQ, Inc. | 4,212 | 566,177 | ||||||
|
| |||||||
$ | 2,061,682 | |||||||
Business Services - 7.2% | ||||||||
AS ONE Corp. | 3,300 | $ | 421,867 | |||||
Auto Trader Group PLC | 55,505 | 417,874 | ||||||
Cancom SE | 6,830 | 376,883 | ||||||
Clarivate PLC (a) | 34,548 | 1,017,093 | ||||||
Electrocomponents PLC | 69,268 | 628,713 | ||||||
IHS Markit Ltd. | 8,718 | 696,742 | ||||||
WNS (Holdings) Ltd., ADR (a) | 6,948 | 461,000 | ||||||
|
| |||||||
$ | 4,020,172 | |||||||
Cable TV - 0.7% | ||||||||
Cable One, Inc. | 222 | $ | 408,553 | |||||
Chemicals - 2.0% | ||||||||
FMC Corp. | 5,354 | $ | 572,129 | |||||
IMCD Group N.V. | 4,829 | 515,645 | ||||||
|
| |||||||
$ | 1,087,774 |
12
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Computer Software - 8.9% | ||||||||
Cadence Design Systems, Inc. (a) | 3,608 | $ | 400,163 | |||||
Dun & Bradstreet Holdings, Inc. (a) | 14,512 | 368,024 | ||||||
Everbridge, Inc. (a) | 4,948 | 735,322 | ||||||
OBIC Co. Ltd. | 2,700 | 478,997 | ||||||
Oracle Corp. | 3,800 | 446,320 | ||||||
Ping Identity Holding Corp. (a) | 21,047 | 725,490 | ||||||
Rakus Co. Ltd. | 12,600 | 335,834 | ||||||
Synopsys, Inc. (a) | 2,652 | 586,888 | ||||||
VERTEX, Inc. (a) | 12,574 | 322,020 | ||||||
Zendesk, Inc. (a) | 5,743 | 553,511 | ||||||
|
| |||||||
$ | 4,952,569 | |||||||
Computer Software - Systems - 6.1% | ||||||||
Amadeus IT Group S.A. | 7,253 | $ | 406,023 | |||||
EPAM Systems, Inc. (a) | 1,736 | 567,846 | ||||||
NS Solutions Corp. | 12,700 | 368,898 | ||||||
Q2 Holdings, Inc. (a) | 5,424 | 527,701 | ||||||
Rapid7, Inc. (a) | 9,091 | 587,006 | ||||||
SS&C Technologies Holdings, Inc. | 8,045 | 512,627 | ||||||
TransUnion | 5,044 | 437,416 | ||||||
|
| |||||||
$ | 3,407,517 | |||||||
Construction - 5.4% | ||||||||
AZEK Co. LLC (a) | 16,145 | $ | 637,405 | |||||
Marshalls PLC | 34,069 | 289,645 | ||||||
Masco Corp. | 8,885 | 517,996 | ||||||
Mid-America Apartment Communities, Inc., REIT | 3,828 | 448,335 | ||||||
Otis Worldwide Corp. | 6,488 | 408,095 | ||||||
Somfy S.A. | 3,570 | 444,771 | ||||||
Summit Materials, Inc., “A” (a) | 19,519 | 290,638 | ||||||
|
| |||||||
$ | 3,036,885 | |||||||
Consumer Products - 0.5% | ||||||||
Dabur India Ltd. | 39,281 | $ | 253,273 | |||||
Consumer Services - 2.0% | ||||||||
51job, Inc., ADR (a) | 4,557 | $ | 298,666 | |||||
Boyd Group Services, Inc. | 2,088 | 332,502 | ||||||
Bright Horizons Family Solutions, Inc. (a) | 3,624 | 482,028 | ||||||
|
| |||||||
$ | 1,113,196 | |||||||
Containers - 3.0% | ||||||||
Gerresheimer AG | 8,599 | $ | 1,014,361 | |||||
Mayr-Melnhof Karton AG | 1,806 | 309,485 |
13
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Containers - continued | ||||||||
SIG Combibloc Group AG | 17,849 | $ | 350,286 | |||||
|
| |||||||
$ | 1,674,132 | |||||||
Electrical Equipment - 2.2% | ||||||||
AMETEK, Inc. | 5,014 | $ | 504,910 | |||||
Halma PLC | 11,949 | 354,277 | ||||||
Sensata Technologies Holding PLC (a) | 8,851 | 368,556 | ||||||
|
| |||||||
$ | 1,227,743 | |||||||
Electronics - 1.5% | ||||||||
ASM International N.V. | 2,614 | $ | 393,359 | |||||
Kardex AG | 2,010 | 416,253 | ||||||
|
| |||||||
$ | 809,612 | |||||||
Entertainment - 1.2% | ||||||||
CTS Eventim AG (a) | 7,738 | $ | 384,325 | |||||
Manchester United PLC, “A” | 20,125 | 309,522 | ||||||
|
| |||||||
$ | 693,847 | |||||||
Food & Beverages - 2.8% | ||||||||
Bakkafrost P/f (a) | 5,583 | $ | 349,589 | |||||
Cranswick PLC | 18,420 | 918,435 | ||||||
S Foods, Inc. | 11,800 | 320,344 | ||||||
|
| |||||||
$ | 1,588,368 | |||||||
Furniture & Appliances - 0.8% | ||||||||
SEB S.A. | 2,470 | $ | 433,588 | |||||
General Merchandise - 0.6% | ||||||||
Ollie’s Bargain Outlet Holdings, Inc. (a) | 3,581 | $ | 342,129 | |||||
Insurance - 1.6% | ||||||||
Arthur J. Gallagher & Co. | 8,739 | $ | 920,217 | |||||
Leisure & Toys - 2.3% | ||||||||
Take-Two Interactive Software, Inc. (a) | 4,403 | $ | 753,750 | |||||
Thule Group AB | 16,033 | 506,395 | ||||||
|
| |||||||
$ | 1,260,145 | |||||||
Machinery & Tools - 3.8% | ||||||||
Azbil Corp. | 12,600 | $ | 394,670 | |||||
IDEX Corp. | 2,113 | 380,826 | ||||||
Ingersoll Rand, Inc. (a) | 12,556 | 440,213 | ||||||
Ritchie Bros. Auctioneers, Inc. | 5,752 | 336,204 | ||||||
Spirax-Sarco Engineering PLC | 2,453 | 335,939 |
14
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Machinery & Tools - continued | ||||||||
VAT Group AG | 1,286 | $ | 250,386 | |||||
|
| |||||||
$ | 2,138,238 | |||||||
Medical & Health Technology & Services - 4.3% | ||||||||
Charles River Laboratories International, Inc. (a) | 2,881 | $ | 630,795 | |||||
ICON PLC (a) | 2,864 | 533,878 | ||||||
PRA Health Sciences, Inc. (a) | 8,514 | 910,232 | ||||||
Selcuk Ecza Deposu Ticaret ve Sanayi A.S. | 313,200 | 340,889 | ||||||
|
| |||||||
$ | 2,415,794 | |||||||
Medical Equipment - 4.6% | ||||||||
Masimo Corp. (a) | 1,790 | $ | 400,960 | |||||
Nakanishi, Inc. | 16,200 | 258,982 | ||||||
PerkinElmer, Inc. | 4,907 | 577,652 | ||||||
Quidel Corp. (a) | 3,580 | 629,937 | ||||||
STERIS PLC | 4,524 | 722,211 | ||||||
|
| |||||||
$ | 2,589,742 | |||||||
Network & Telecom - 2.2% | ||||||||
CoreSite Realty Corp., REIT | 4,310 | $ | 527,759 | |||||
QTS Realty Trust, Inc., REIT, “A” | 10,167 | 689,526 | ||||||
|
| |||||||
$ | 1,217,285 | |||||||
Printing & Publishing - 0.8% | ||||||||
Wolters Kluwer N.V. | 5,645 | $ | 463,469 | |||||
Railroad & Shipping - 0.9% | ||||||||
Kansas City Southern Co. | 2,883 | $ | 524,821 | |||||
Real Estate - 8.2% | ||||||||
Big Yellow Group PLC, REIT | 36,101 | $ | 517,326 | |||||
Corporacion Inmobiliaria Vesta S.A.B. de C.V. | 181,727 | 271,569 | ||||||
Embassy Office Parks, REIT | 85,600 | 421,142 | ||||||
Goodman Group, REIT | 45,098 | 604,575 | ||||||
Industrial Logistics Properties Trust, REIT | 12,935 | 279,008 | ||||||
LEG Immobilien AG | 3,909 | 574,984 | ||||||
National Storage, REIT | 388,156 | 540,487 | ||||||
STAG Industrial, Inc., REIT | 15,870 | 512,601 | ||||||
Sun Communities, Inc., REIT | 2,524 | 376,278 | ||||||
Unite Group PLC, REIT | 34,961 | 452,152 | ||||||
|
| |||||||
$ | 4,550,122 | |||||||
Restaurants - 0.8% | ||||||||
Yum China Holdings, Inc. | 7,584 | $ | 437,673 |
15
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Specialty Chemicals - 5.8% | ||||||||
Axalta Coating Systems Ltd. (a) | 15,755 | $ | 375,757 | |||||
Borregaard ASA | 21,331 | 310,599 | ||||||
Croda International PLC | 6,992 | 551,447 | ||||||
Essentra PLC | 131,000 | 536,900 | ||||||
Ferro Corp. (a) | 29,281 | 365,134 | ||||||
RPM International, Inc. | 4,535 | 384,432 | ||||||
Symrise AG | 5,276 | 727,516 | ||||||
|
| |||||||
$ | 3,251,785 | |||||||
Specialty Stores - 2.1% | ||||||||
Burlington Stores, Inc. (a) | 2,070 | $ | 407,645 | |||||
Just Eat Takeaway (a) | 6,835 | 760,517 | ||||||
|
| |||||||
$ | 1,168,162 | |||||||
Telecommunications - Wireless - 1.6% | ||||||||
Cellnex Telecom S.A. | 14,099 | $ | 903,168 | |||||
Trucking - 2.0% | ||||||||
GFL Environmental, Inc. | 29,309 | $ | 534,889 | |||||
SG Holdings Co. Ltd. | 12,100 | 556,933 | ||||||
|
| |||||||
$ | 1,091,822 | |||||||
Total Common Stocks (Identified Cost, $38,763,584) |
| $ | 53,603,754 | |||||
Investment Companies (h) - 3.9% | ||||||||
Money Market Funds - 3.9% | ||||||||
MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $2,190,445) | 2,190,378 | $ | 2,190,378 | |||||
Other Assets, Less Liabilities - 0.1% | 45,103 | |||||||
Net Assets - 100.0% | $ | 55,839,235 |
(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 $2,190,378 and $53,603,754, respectively. |
(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 annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
16
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/20
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, $38,763,584) | $53,603,754 | |||
Investments in affiliated issuers, at value (identified cost, $2,190,445) | 2,190,378 | |||
Foreign currency, at value (identified cost, $2,309) | 2,480 | |||
Receivables for | ||||
Investments sold | 79,944 | |||
Fund shares sold | 98,626 | |||
Dividends | 84,487 | |||
Receivable from investment adviser | 19,253 | |||
Other assets | 450 | |||
Total assets | $56,079,372 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $117,600 | |||
Fund shares reacquired | 24,603 | |||
Payable to affiliates | ||||
Administrative services fee | 70 | |||
Shareholder servicing costs | 13,233 | |||
Distribution and service fees | 1,144 | |||
Payable for independent Trustees’ compensation | 13 | |||
Accrued expenses and other liabilities | 83,474 | |||
Total liabilities | $240,137 | |||
Net assets | $55,839,235 | |||
Net assets consist of | ||||
Paid-in capital | $39,970,098 | |||
Total distributable earnings (loss) | 15,869,137 | |||
Net assets | $55,839,235 | |||
Shares of beneficial interest outstanding | 2,582,727 |
17
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $17,028,508 | 789,276 | $21.57 | |||||||||
Class B | 2,678,034 | 133,545 | 20.05 | |||||||||
Class C | 3,421,822 | 170,647 | 20.05 | |||||||||
Class I | 18,688,145 | 851,050 | 21.96 | |||||||||
Class R1 | 120,061 | 5,991 | 20.04 | |||||||||
Class R2 | 177,521 | 8,419 | 21.09 | |||||||||
Class R3 | 205,782 | 9,541 | 21.57 | |||||||||
Class R4 | 87,317 | 3,976 | 21.96 | |||||||||
Class R6 | 13,432,045 | 610,282 | 22.01 |
(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 $22.89 [100 / 94.25 x $21.57]. 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
18
Financial Statements
Year ended 8/31/20
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 | $575,106 | |||
Dividends from affiliated issuers | 18,447 | |||
Income on securities loaned | 9,734 | |||
Other | 133 | |||
Foreign taxes withheld | (36,493 | ) | ||
Total investment income | $566,927 | |||
Expenses | ||||
Management fee | $476,072 | |||
Distribution and service fees | 93,382 | |||
Shareholder servicing costs | 46,640 | |||
Administrative services fee | 17,500 | |||
Independent Trustees’ compensation | 1,196 | |||
Custodian fee | 35,676 | |||
Shareholder communications | 16,129 | |||
Audit and tax fees | 69,439 | |||
Legal fees | 617 | |||
Registration fees | 127,568 | |||
Miscellaneous | 34,470 | |||
Total expenses | $918,689 | |||
Reduction of expenses by investment adviser and distributor | (232,987 | ) | ||
Net expenses | $685,702 | |||
Net investment income (loss) | $(118,775 | ) | ||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers (net of $7,795 country tax) | $2,517,088 | |||
Affiliated issuers | 244 | |||
Foreign currency | 750 | |||
Net realized gain (loss) | $2,518,082 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers (net of $12,656 decrease in deferred country tax) | $5,842,937 | |||
Affiliated issuers | (117 | ) | ||
Translation of assets and liabilities in foreign currencies | 3,477 | |||
Net unrealized gain (loss) | $5,846,297 | |||
Net realized and unrealized gain (loss) | $8,364,379 | |||
Change in net assets from operations | $8,245,604 |
See Notes to Financial Statements
19
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 | ||||||||
8/31/20 | 8/31/19 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(118,775 | ) | $(40,526 | ) | ||||
Net realized gain (loss) | 2,518,082 | 994,662 | ||||||
Net unrealized gain (loss) | 5,846,297 | (2,756,304 | ) | |||||
Change in net assets from operations | $8,245,604 | $(1,802,168 | ) | |||||
Total distributions to shareholders | $(1,495,013 | ) | $(3,638,101 | ) | ||||
Change in net assets from fund share transactions | $4,053,286 | $(3,359,876 | ) | |||||
Total change in net assets | $10,803,877 | $(8,800,145 | ) | |||||
Net assets | ||||||||
At beginning of period | 45,035,358 | 53,835,503 | ||||||
At end of period | $55,839,235 | $45,035,358 |
See Notes to Financial Statements
20
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 | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $18.72 | $21.27 | $18.31 | $15.69 | $14.85 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.06 | ) | $(0.03 | ) | $(0.03 | ) | $(0.02 | ) | $0.01 | |||||||||||
Net realized and unrealized gain (loss) | 3.49 | (0.62 | ) | 3.57 | 2.66 | 0.84 | ||||||||||||||
Total from investment operations | $3.43 | $(0.65 | ) | $3.54 | $2.64 | $0.85 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $(0.02 | ) | $— | $(0.02 | ) | $(0.01 | ) | ||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.90 | ) | $(0.58 | ) | $(0.02 | ) | $(0.01 | ) | ||||||||||
Net asset value, end of period (x) | $21.57 | $18.72 | $21.27 | $18.31 | $15.69 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 18.63 | (1.65 | ) | 19.70 | 16.85 | 5.75 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.97 | 2.04 | 1.94 | 2.33 | 2.35 | |||||||||||||||
Expenses after expense reductions (f) | 1.49 | 1.51 | 1.50 | 1.50 | 1.50 | |||||||||||||||
Net investment income (loss) | (0.32 | ) | (0.16 | ) | (0.17 | ) | (0.15 | ) | 0.07 | |||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $17,029 | $11,255 | $11,581 | $7,893 | $11,699 |
See Notes to Financial Statements
21
Financial Highlights – continued
Class B | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $17.57 | $20.21 | $17.55 | $15.13 | $14.42 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.19 | ) | $(0.16 | ) | $(0.17 | ) | $(0.13 | ) | $(0.09 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.25 | (0.60 | ) | 3.41 | 2.55 | 0.80 | ||||||||||||||
Total from investment operations | $3.06 | $(0.76 | ) | $3.24 | $2.42 | $0.71 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $— | $— | $— | |||||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.88 | ) | $(0.58 | ) | $— | $— | ||||||||||||
Net asset value, end of period (x) | $20.05 | $17.57 | $20.21 | $17.55 | $15.13 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 17.72 | (2.35 | ) | 18.83 | 15.99 | 4.92 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.72 | 2.79 | 2.69 | 3.07 | 3.09 | |||||||||||||||
Expenses after expense reductions (f) | 2.24 | 2.26 | 2.25 | 2.25 | 2.25 | |||||||||||||||
Net investment income (loss) | (1.08 | ) | (0.91 | ) | (0.90 | ) | (0.83 | ) | (0.62 | ) | ||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $2,678 | $2,508 | $2,488 | $1,513 | $1,188 | |||||||||||||||
Class C | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $17.57 | $20.21 | $17.55 | $15.13 | $14.42 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.19 | ) | $(0.16 | ) | $(0.18 | ) | $(0.13 | ) | $(0.09 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.25 | (0.60 | ) | 3.42 | 2.55 | 0.80 | ||||||||||||||
Total from investment operations | $3.06 | $(0.76 | ) | $3.24 | $2.42 | $0.71 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $— | $— | $— | |||||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.88 | ) | $(0.58 | ) | $— | $— | ||||||||||||
Net asset value, end of period (x) | $20.05 | $17.57 | $20.21 | $17.55 | $15.13 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 17.72 | (2.35 | ) | 18.83 | 15.99 | 4.92 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.72 | 2.78 | 2.69 | 3.08 | 3.09 | |||||||||||||||
Expenses after expense reductions (f) | 2.24 | 2.26 | 2.25 | 2.25 | 2.24 | |||||||||||||||
Net investment income (loss) | (1.08 | ) | (0.91 | ) | (0.93 | ) | (0.84 | ) | (0.64 | ) | ||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $3,422 | $3,287 | $4,470 | $4,944 | $5,017 |
See Notes to Financial Statements
22
Financial Highlights – continued
Class I | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $19.00 | $21.54 | $18.49 | $15.86 | $15.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.02 | ) | $0.01 | $0.02 | $0.04 | $0.07 | ||||||||||||||
Net realized and unrealized gain (loss) | 3.56 | (0.62 | ) | 3.61 | 2.67 | 0.82 | ||||||||||||||
Total from investment operations | $3.54 | $(0.61 | ) | $3.63 | $2.71 | $0.89 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $(0.05 | ) | $— | $(0.08 | ) | $(0.03 | ) | ||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | )�� | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.93 | ) | $(0.58 | ) | $(0.08 | ) | $(0.03 | ) | ||||||||||
Net asset value, end of period (x) | $21.96 | $19.00 | $21.54 | $18.49 | $15.86 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 18.94 | (1.41 | ) | 20.01 | 17.20 | 5.98 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.72 | 1.76 | 1.69 | 2.06 | 2.06 | |||||||||||||||
Expenses after expense reductions (f) | 1.24 | 1.26 | 1.25 | 1.25 | 1.25 | |||||||||||||||
Net investment income (loss) | (0.09 | ) | 0.05 | 0.11 | 0.21 | 0.44 | ||||||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $18,688 | $14,059 | $28,463 | $17,606 | $5,052 | |||||||||||||||
Class R1 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $17.56 | $20.20 | $17.55 | $15.13 | $14.42 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.19 | ) | $(0.16 | ) | $(0.18 | ) | $(0.14 | ) | $(0.10 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.25 | (0.60 | ) | 3.41 | 2.56 | 0.81 | ||||||||||||||
Total from investment operations | $3.06 | $(0.76 | ) | $3.23 | $2.42 | $0.71 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $— | $— | $— | |||||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.88 | ) | $(0.58 | ) | $— | $— | ||||||||||||
Net asset value, end of period (x) | $20.04 | $17.56 | $20.20 | $17.55 | $15.13 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 17.73 | (2.35 | ) | 18.77 | 15.99 | 4.92 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.72 | 2.79 | 2.69 | 3.08 | 3.12 | |||||||||||||||
Expenses after expense reductions (f) | 2.24 | 2.26 | 2.25 | 2.25 | 2.25 | |||||||||||||||
Net investment income (loss) | (1.08 | ) | (0.92 | ) | (0.92 | ) | (0.86 | ) | (0.70 | ) | ||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $120 | $101 | $73 | $62 | $66 |
See Notes to Financial Statements
23
Financial Highlights – continued
Class R2 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $18.36 | $20.93 | $18.06 | $15.50 | $14.71 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.11 | ) | $(0.07 | ) | $(0.07 | ) | $(0.05 | ) | $(0.03 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.42 | (0.62 | ) | 3.52 | 2.62 | 0.82 | ||||||||||||||
Total from investment operations | $3.31 | $(0.69 | ) | $3.45 | $2.57 | $0.79 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $— | $— | $(0.01 | ) | $— | ||||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.88 | ) | $(0.58 | ) | $(0.01 | ) | $— | |||||||||||
Net asset value, end of period (x) | $21.09 | $18.36 | $20.93 | $18.06 | $15.50 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 18.33 | (1.89 | ) | 19.47 | 16.58 | 5.37 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 2.22 | 2.29 | 2.18 | 2.57 | 2.59 | |||||||||||||||
Expenses after expense reductions (f) | 1.74 | 1.76 | 1.75 | 1.75 | 1.75 | |||||||||||||||
Net investment income (loss) | (0.58 | ) | (0.41 | ) | (0.33 | ) | (0.32 | ) | (0.17 | ) | ||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $178 | $218 | $211 | $115 | $89 | |||||||||||||||
Class R3 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $18.72 | $21.26 | $18.30 | $15.70 | $14.85 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.06 | ) | $(0.03 | ) | $(0.04 | ) | $(0.02 | ) | $0.01 | |||||||||||
Net realized and unrealized gain (loss) | 3.49 | (0.62 | ) | 3.58 | 2.66 | 0.84 | ||||||||||||||
Total from investment operations | $3.43 | $(0.65 | ) | $3.54 | $2.64 | $0.85 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $(0.01 | ) | $— | $(0.04 | ) | $— | |||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.89 | ) | $(0.58 | ) | $(0.04 | ) | $— | |||||||||||
Net asset value, end of period (x) | $21.57 | $18.72 | $21.26 | $18.30 | $15.70 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 18.63 | (1.63 | ) | 19.72 | 16.87 | 5.72 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.97 | 2.04 | 1.94 | 2.32 | 2.34 | |||||||||||||||
Expenses after expense reductions (f) | 1.49 | 1.51 | 1.50 | 1.50 | 1.50 | |||||||||||||||
Net investment income (loss) | (0.31 | ) | (0.16 | ) | (0.18 | ) | (0.13 | ) | 0.07 | |||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $206 | $152 | $144 | $116 | $80 |
See Notes to Financial Statements
24
Financial Highlights – continued
Class R4 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $19.00 | $21.56 | $18.50 | $15.87 | $15.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.02 | ) | $0.02 | $0.02 | $0.03 | $0.05 | ||||||||||||||
Net realized and unrealized gain (loss) | 3.56 | (0.64 | ) | 3.62 | 2.67 | 0.83 | ||||||||||||||
Total from investment operations | $3.54 | $(0.62 | ) | $3.64 | $2.70 | $0.88 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $(0.06 | ) | $— | $(0.07 | ) | $(0.01 | ) | ||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.94 | ) | $(0.58 | ) | $(0.07 | ) | $(0.01 | ) | ||||||||||
Net asset value, end of period (x) | $21.96 | $19.00 | $21.56 | $18.50 | $15.87 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 18.94 | (1.43 | ) | 20.05 | 17.11 | 5.91 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.72 | 1.78 | 1.69 | 2.08 | 2.09 | |||||||||||||||
Expenses after expense reductions (f) | 1.24 | 1.26 | 1.25 | 1.25 | 1.25 | |||||||||||||||
Net investment income (loss) | (0.08 | ) | 0.08 | 0.08 | 0.18 | 0.30 | ||||||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $87 | $73 | $74 | $62 | $53 | |||||||||||||||
Class R6 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $19.03 | $21.58 | $18.51 | $15.87 | $15.03 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.01 | $0.05 | $0.04 | $0.03 | $0.07 | |||||||||||||||
Net realized and unrealized gain (loss) | 3.55 | (0.64 | ) | 3.61 | 2.70 | 0.84 | ||||||||||||||
Total from investment operations | $3.56 | $(0.59 | ) | $3.65 | $2.73 | $0.91 | ||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $— | $(0.08 | ) | $— | $(0.09 | ) | $(0.07 | ) | ||||||||||||
From net realized gain | (0.58 | ) | (1.88 | ) | (0.58 | ) | — | — | ||||||||||||
Total distributions declared to shareholders | $(0.58 | ) | $(1.96 | ) | $(0.58 | ) | $(0.09 | ) | $(0.07 | ) | ||||||||||
Net asset value, end of period (x) | $22.01 | $19.03 | $21.58 | $18.51 | $15.87 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 19.01 | (1.26 | ) | 20.09 | 17.31 | 6.06 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.62 | 1.69 | 1.60 | 1.97 | 1.98 | |||||||||||||||
Expenses after expense reductions (f) | 1.15 | 1.16 | 1.16 | 1.15 | 1.13 | |||||||||||||||
Net investment income (loss) | 0.03 | 0.24 | 0.18 | 0.21 | 0.44 | |||||||||||||||
Portfolio turnover | 84 | 55 | 36 | 37 | 37 | |||||||||||||||
Net assets at end of period (000 omitted) | $13,432 | $13,382 | $6,332 | $4,609 | $2,317 |
See Notes to Financial Statements
25
Financial Highlights – continued
(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
26
(1) Business and Organization
MFS Global New Discovery Fund (the fund) is a diversified series of MFS Series Trust IV (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
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 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, environmental, public health, and other conditions.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
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’s in-scope financial instruments and transactions.
27
Notes to Financial Statements – continued
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 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 halt 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 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.
28
Notes to Financial Statements – continued
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of August 31, 2020 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities: | ||||||||||||||||
United States | $26,197,286 | $— | $— | $26,197,286 | ||||||||||||
United Kingdom | 6,329,323 | — | — | 6,329,323 | ||||||||||||
Japan | 2,239,951 | 1,993,003 | — | 4,232,954 | ||||||||||||
Germany | 3,078,069 | — | — | 3,078,069 | ||||||||||||
Netherlands | 2,132,990 | — | — | 2,132,990 | ||||||||||||
France | 1,728,076 | — | — | 1,728,076 | ||||||||||||
Spain | 1,309,191 | — | — | 1,309,191 | ||||||||||||
Canada | 1,203,595 | — | — | 1,203,595 | ||||||||||||
Australia | — | 1,145,062 | — | 1,145,062 | ||||||||||||
Other Countries | 5,897,466 | 349,742 | — | 6,247,208 | ||||||||||||
Mutual Funds | 2,190,378 | — | — | 2,190,378 | ||||||||||||
Total | $52,306,325 | $3,487,807 | $— | $55,794,132 |
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
29
Notes to Financial Statements – continued
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 collateral reinvestment for which the fund bears the risk of loss. 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. At August 31, 2020, there were no securities on loan or collateral outstanding.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
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
30
Notes to Financial Statements – continued
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 the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to net operating losses, passive foreign investment companies, 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 8/31/20 | Year ended 8/31/19 | |||||||
Ordinary income (including any short-term capital gains) | $— | $2,120,041 | ||||||
Long-term capital gains | 1,495,013 | 1,518,060 | ||||||
Total distributions | $1,495,013 | $3,638,101 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 8/31/20 | ||||
Cost of investments | $41,284,536 | |||
Gross appreciation | 15,221,896 | |||
Gross depreciation | (712,300 | ) | ||
Net unrealized appreciation (depreciation) | $14,509,596 | |||
Undistributed long-term capital gain | 1,498,102 | |||
Late year ordinary loss deferral | (140,496 | ) | ||
Other temporary differences | 1,935 |
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
31
Notes to Financial Statements – continued
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:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Class A | $373,287 | $1,059,493 | ||||||
Class B | 81,085 | 233,710 | ||||||
Class C | 107,440 | 376,368 | ||||||
Class I | 465,351 | 1,329,173 | ||||||
Class R1 | 3,350 | 9,502 | ||||||
Class R2 | 7,003 | 19,586 | ||||||
Class R3 | 4,715 | 12,995 | ||||||
Class R4 | 2,255 | 6,720 | ||||||
Class R6 | 450,527 | 590,554 | ||||||
Total | $1,495,013 | $3,638,101 |
(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 | 0.975 | % | ||
In excess of $1 billion and up to $2.5 billion | 0.90 | % | ||
In excess of $2.5 billion | 0.85 | % |
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 August 31, 2020, this management fee reduction amounted to $5,200, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended August 31, 2020 was equivalent to an annual effective rate of 0.96% of the fund’s average daily net assets.
For the period from September 1, 2019 through July 31, 2020, the investment adviser had 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 did not exceed the following rates annually of each class’s average daily net assets:
Classes | ||||||||||||||||||||||||||||||||
A | B | C | I | R1 | R2 | R3 | R4 | R6 | ||||||||||||||||||||||||
1.50% | 2.25% | 2.25% | 1.25% | 2.25% | 1.75% | 1.50% | 1.25% | 1.22% |
This written agreement terminated on July 31, 2020. For the period from September 1, 2019 through July 31, 2020, this reduction amounted to $203,332, which is included in the reduction of total expenses in the Statement of Operations.
32
Notes to Financial Statements – continued
Effective August 1, 2020, 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 | ||||||||||||||||||||||||
1.35% | 2.10% | 2.10% | 1.10% | 2.10% | 1.60% | 1.35% | 1.10% | 1.01% |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until December 31, 2021. For the period from August 1, 2020 through August 31, 2020, this reduction amounted to $24,172, which is included in the reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $9,011 for the year ended August 31, 2020, 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 Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
Distribution Fee Rate (d) | Service Fee Rate (d) | Total Distribution Plan (d) | Annual Effective Rate (e) | Distribution and Service Fee | ||||||||||||||||
Class A | — | 0.25% | 0.25% | 0.25% | $33,588 | |||||||||||||||
Class B | 0.75% | 0.25% | 1.00% | 1.00% | 24,592 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 32,562 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 1,055 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 1,156 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 429 | |||||||||||||||
Total Distribution and Service Fees |
| $93,382 |
(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 August 31, 2020 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 there is no financial intermediary specified on the account except for accounts attributable to MFS or its affiliates’ seed money. For the year ended August 31, 2020, this rebate amounted to $233 and $50 for Class A and Class C, respectively, and is included in the reduction of total expenses in the Statement of Operations. |
33
Notes to Financial Statements – continued
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 August 31, 2020, were as follows:
Amount | ||||
Class A | $— | |||
Class B | 2,361 | |||
Class C | 378 |
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 August 31, 2020, the fee was $7,518, which equated to 0.0154% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incur sub-accounting fees. For the year ended August 31, 2020, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $39,122.
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 August 31, 2020 was equivalent to an annual effective rate of 0.0358% 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – 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 but does incur investment and operating costs.
On December 14, 2018, MFS redeemed 3,461 shares of Class R6 for an aggregate amount of $56,449.
At August 31, 2020, MFS held approximately 69% of the outstanding shares of Class R1 and 100% of the outstanding shares of Class R4.
34
Notes to Financial Statements – continued
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-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 Rule 17a-7 under the Investment Company Act of 1940. During the year ended August 31, 2020, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $124,353 and $11,330, respectively. The sales transactions resulted in net realized gains (losses) of $367.
(4) Portfolio Securities
For the year ended August 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $40,360,476 and $39,667,726, 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 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 338,113 | $6,494,965 | 140,145 | $2,590,746 | ||||||||||||
Class B | 1,276 | 24,857 | 30,247 | 520,891 | ||||||||||||
Class C | 34,254 | 609,703 | 25,712 | 446,860 | ||||||||||||
Class I | 449,581 | 8,714,037 | 335,999 | 6,158,623 | ||||||||||||
Class R1 | 80 | 1,390 | 1,486 | 27,291 | ||||||||||||
Class R2 | 1,098 | 19,039 | 987 | 17,440 | ||||||||||||
Class R3 | 3,130 | 54,410 | 1,803 | 33,562 | ||||||||||||
Class R6 | 866,050 | 17,065,262 | 829,525 | 15,259,725 | ||||||||||||
1,693,582 | $32,983,663 | 1,365,904 | $25,055,138 | |||||||||||||
Shares issued to shareholders in reinvestment of distributions | ||||||||||||||||
Class A | 18,847 | $372,607 | 65,310 | $1,057,363 | ||||||||||||
Class B | 4,390 | 81,085 | 15,252 | 233,053 | ||||||||||||
Class C | 5,817 | 107,440 | 24,630 | 376,368 | ||||||||||||
Class I | 23,175 | 465,351 | 81,047 | 1,329,173 | ||||||||||||
Class R1 | 181 | 3,350 | 622 | 9,502 | ||||||||||||
Class R2 | 362 | 7,003 | 1,232 | 19,586 | ||||||||||||
Class R3 | 239 | 4,715 | 803 | 12,995 | ||||||||||||
Class R4 | 113 | 2,255 | 409 | 6,720 | ||||||||||||
Class R6 | 8,711 | 175,256 | 19,982 | 327,900 | ||||||||||||
61,835 | $1,219,062 | 209,287 | $3,372,660 |
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Notes to Financial Statements – continued
Year ended 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares reacquired | ||||||||||||||||
Class A | (168,839 | ) | $(3,111,028 | ) | (148,750 | ) | $(2,707,444 | ) | ||||||||
Class B | (14,874 | ) | (270,825 | ) | (25,853 | ) | (441,622 | ) | ||||||||
Class C | (56,516 | ) | (973,290 | ) | (84,383 | ) | (1,465,850 | ) | ||||||||
Class I | (361,621 | ) | (6,686,741 | ) | (998,589 | ) | (18,788,277 | ) | ||||||||
Class R1 | (1 | ) | (10 | ) | (2 | ) | (39 | ) | ||||||||
Class R2 | (4,936 | ) | (102,205 | ) | (407 | ) | (7,426 | ) | ||||||||
Class R3 | (1,972 | ) | (36,791 | ) | (1,226 | ) | (22,967 | ) | ||||||||
Class R6 | (967,876 | ) | (18,968,549 | ) | (439,476 | ) | (8,354,049 | ) | ||||||||
(1,576,635 | ) | $(30,149,439 | ) | (1,698,686 | ) | $(31,787,674 | ) | |||||||||
Net change | ||||||||||||||||
Class A | 188,121 | $3,756,544 | 56,705 | $940,665 | ||||||||||||
Class B | (9,208 | ) | (164,883 | ) | 19,646 | 312,322 | ||||||||||
Class C | (16,445 | ) | (256,147 | ) | (34,041 | ) | (642,622 | ) | ||||||||
Class I | 111,135 | 2,492,647 | (581,543 | ) | (11,300,481 | ) | ||||||||||
Class R1 | 260 | 4,730 | 2,106 | 36,754 | ||||||||||||
Class R2 | (3,476 | ) | (76,163 | ) | 1,812 | 29,600 | ||||||||||
Class R3 | 1,397 | 22,334 | 1,380 | 23,590 | ||||||||||||
Class R4 | 113 | 2,255 | 409 | 6,720 | ||||||||||||
Class R6 | (93,115 | ) | (1,728,031 | ) | 410,031 | 7,233,576 | ||||||||||
178,782 | $4,053,286 | (123,495 | ) | $(3,359,876 | ) |
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.
(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 syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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 rates equal to customary reference rates plus an agreed upon spread. For the year ended August 31, 2020, the fund’s commitment fee and interest expense were $256 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 following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $502,374 | $34,677,496 | $32,989,619 | $244 | $(117 | ) | $2,190,378 | |||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio |
| $18,447 | $— |
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
(9) Subsequent Event
On October 2, 2020, the fund announced that effective December 21, 2020, the time period will be shortened for the automatic conversion of Class C shares to Class A of the same fund, from approximately ten years to approximately eight years after purchase. On or about December 21, 2020 any Class C shares that have an original purchase date of December 31, 2012 or earlier will automatically convert to Class A shares of the same fund. Please see the fund’s prospectus for details.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of MFS Global New Discovery Fund and the Board of Trustees of MFS Series Trust IV
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of MFS Global New Discovery Fund (the “Fund”) (one of the funds constituting MFS Series Trust IV (the “Trust”)), including the portfolio of investments, as of August 31, 2020, 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 IV) at August 31, 2020, 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 August 31, 2020, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included
38
Report of Independent Registered Public Accounting Firm – continued
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
October 19, 2020
39
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of October 1, 2020, 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) Held with Fund | Trustee/Officer Since (h) | Number of MFS Funds overseen by the Trustee | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 56) | Trustee | February 2004 | 133 | 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 59) | Trustee | January 2014 | 133 | 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 65) | Trustee and Chair of Trustees | January 2009 | 133 | Private investor | N/A | |||||
Steven E. Buller (age 69) | Trustee | February 2014 | 133 | Private investor; Financial Accounting Standards Advisory Council, Chairman (2014-2015) | N/A |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
John A. Caroselli (age 66) | Trustee | March 2017 | 133 | Private investor; 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 65) | Trustee | January 2009 | 133 | Private investor | N/A | |||||
Peter D. Jones (age 65) | Trustee | January 2019 | 133 | Private investor; Franklin Templeton Institutional, LLC (investment management), Chairman (since June 30, 2020); Franklin Templeton Distributors, Inc. (investment management), President (until 2015) | N/A |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
James W. Kilman, Jr. (age 59) | Trustee | January 2019 | 133 | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), 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 (2016-2019) | |||||
Clarence Otis, Jr. (age 64) | Trustee | March 2017 | 133 | Private investor | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 64) | Trustee | May 2014 | 133 | Private investor | N/A | |||||
Laurie J. Thomsen (age 63) | Trustee | March 2005 | 133 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 46) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Kino Clark (k) (age 52) | Assistant Treasurer | January 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
John W. Clark, Jr. (k) (age 53) | Assistant Treasurer | April 2017 | 133 | 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 61) | Assistant Secretary and Assistant Clerk | September 2012 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
David L. DiLorenzo (k) (age 52) | President | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Heidi W. Hardin (k) (age 53) | Secretary and Clerk | April 2017 | 133 | 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 47) | Assistant Secretary and Assistant Clerk | June 2006 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Amanda S. Mooradian (k) (age 41) | Assistant Secretary and Assistant Clerk | September 2018 | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | ||||
Susan A. Pereira (k) (age 49) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 49) | Assistant Treasurer | September 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 45) | Assistant Secretary and Assistant Clerk | October 2014 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
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Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Martin J. Wolin (k) (age 53) | Chief Compliance Officer | July 2015 | 133 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015) | ||||
James O. Yost (k) (age 60) | Treasurer | September 1990 | 133 | Massachusetts Financial Services Company, Senior Vice President |
(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. Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. 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, 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.
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Trustees and Officers – continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
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) | ||
Eric Braz Peter Fruzzetti Michael Grossman Sandeep Mehta |
46
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Global New Discovery Fund
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the
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Board Review of Investment Advisory Agreement – continued
Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Class A shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Class A shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Class A shares was in the 2nd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report. In addition, the Trustees reviewed the Fund’s Class I total return performance relative to the Fund’s benchmark performance for the five-, three- and one-year periods ended December 31, 2019.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Class A shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information
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Board Review of Investment Advisory Agreement – continued
provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate was lower than the Broadridge expense group median and the Fund’s total expense ratio was approximately at the Broadridge expense group median. The Trustees also noted that MFS has agreed to further reduce the expense limitation for the Fund effective August 1, 2020, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending,
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Board Review of Investment Advisory Agreement – continued
and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
50
STATEMENT REGARDING LIQUIDITY RISK MANAGEMENT PROGRAM
The fund has adopted and implemented a liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program. The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests.
MFS provided a written report to the Board for consideration at its April 2020 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from the adoption of the Program on December 1, 2018 to December 31, 2019 (the “Covered Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
51
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 calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://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 as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/openendfunds by 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 at https://www.mfs.com/announcements or at mfs.com/openendfunds by choosing the fund’s name and then selecting the “Resources” tab and clicking on the “Announcements” tab, if any.
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 2020 income tax forms in January 2021. The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $1,900,000 as capital gain dividends paid during the fiscal year.
52
rev. 3/16
| WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
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 are no 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? | Call 800-225-2606 or go to mfs.com. |
53
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
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1-800-637-8255
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ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
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MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 219341
Kansas City, MO 64121-9341
OVERNIGHT MAIL
MFS Service Center, Inc.
Suite 219341
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Kansas City, MO 64105-1407
Annual Report
August 31, 2020
MFS® Mid Cap Growth 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.
OTC-ANN
MFS® Mid Cap Growth Fund
Contact information | back cover |
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
LETTER FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Markets experienced dramatic swings in early 2020 as the coronavirus pandemic brought the global economy to a standstill for several months. Optimism over the
development of vaccines and therapeutics, along with a decline in cases in countries affected by the outbreak early on, brightened the economic and market outlook during the second quarter, as did the phased reopening of U.S. states. However, a great deal of uncertainty remains. While policymakers and public health officials have learned a great deal about combating the virus, much remains unknown at a time when the risks are rising for a second wave of infection. Political uncertainty is heightened as well, as the pandemic has caused many jurisdictions in the United States to adopt mail-in voting for the first time, raising questions over whether ballots in the November elections will be counted as quickly as they have been in the past.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support, though in the United States some of those measures were allowed to lapse at the end of July as negotiators found themselves at an impasse over the scope of additional funding. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can also sow the seeds of instability. In the aftermath of the crisis, societal changes may be likely, as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our unique global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
October 19, 2020
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
Portfolio structure
Top ten holdings |
| |||
Cadence Design Systems, Inc. | 2.8% | |||
PerkinElmer, Inc. | 2.4% | |||
Take-Two Interactive Software, Inc. | 2.3% | |||
Bright Horizons Family Solutions, Inc. | 2.3% | |||
MSCI, Inc. | 2.2% | |||
Verisk Analytics, Inc., “A” | 2.2% | |||
Monolithic Power Systems, Inc. | 2.1% | |||
Clarivate PLC | 2.0% | |||
IHS Markit Ltd. | 1.8% | |||
Steris PLC | 1.8% |
GICS equity sectors (g) |
| |||
Information Technology | 27.2% | |||
Health Care | 20.0% | |||
Industrials | 18.6% | |||
Consumer Discretionary | 13.1% | |||
Financials | 6.9% | |||
Communication Services | 5.9% | |||
Materials | 3.1% | |||
Real Estate | 2.7% |
(g) | 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. |
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.
Percentages are based on net assets as of August 31, 2020.
The portfolio is actively managed and current holdings may be different.
2
Summary of Results
For the twelve months ended August 31, 2020, Class A shares of the MFS Mid Cap Growth Fund (fund) provided a total return of 23.16%, at net asset value. This compares with a return of 23.56% for the fund’s benchmark, the Russell Midcap® Growth Index.
Market Environment
Markets experienced an extraordinarily sharp selloff and in many cases an unusually rapid recovery late in the period. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the deepest, steepest, and possibly shortest recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and when vaccines or medicines will become available to prevent or treat it.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in a price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the United States also decreasing production, which – along with the gradual reopening of some major economies and the resultant boost in demand – helped stabilize the price of crude oil.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible average-inflation-targeting framework, which is expected to result in policy rates remaining at low levels for longer. In developed countries, monetary easing measures were complemented by large fiscal stimulus initiatives, although late in the period there was uncertainty surrounding the timing and scope of additional US recovery funding. Due to relatively manageable external liabilities and balances of payments in many countries, along with persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
As has often been the case in a crisis, market vulnerabilities have been revealed. For example, companies that have added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks have in many cases halted share repurchases and cut dividends, and some firms have been forced to recapitalize.
Detractors from Performance
Security selection within the consumer discretionary sector detracted from performance relative to the Russell Midcap® Growth Index. Within this sector, the fund’s overweight
3
Management Review – continued
positions in childcare and early education provider Bright Horizons Family Solutions and specialty value retailer Five Below (h) held back relative returns. The share price of Bright Horizons declined sharply at the beginning of the calendar year after the company closed 50% of its schools, as a result of the COVID-19 virus.
A combination of stock selection and an overweight position in the real estate sector also weighed on relative results. However, there were no individual stocks within this sector that were among the fund’s largest relative detractors during the period.
Stock selection in the health care sector further hindered relative performance, led by the timing of the fund’s ownership in shares of biotechnology company Seattle Genetics and an overweight position in medical and surgical equipment manufacturer STERIS. The share price of Seattle Genetics appreciated throughout the period as the company reported strong revenue growth, driven by solid commercial performance of newly-launched products, Padev and Tukysa, despite the headwinds caused by the COVID-19 pandemic.
Elsewhere, not owning shares of semiconductor firm Advanced Micro Devices, communication software services provider Twilio, digital music services provider Spotify Technology and software company Splunk also dampened relative results. The share price of Advanced Micro Devices appreciated, owing to market share gains in its server Segment. Better-than-expected full-year revenue guidance, primarily driven by its Data Center segment and positive demand trends in its PCs and Gaming business lines, further supported share price. Additionally, an overweight position in construction materials company Vulcan Materials further weakened relative performance.
The fund’s cash and/or cash equivalents position during the period was also a detractor from relative performance. Under normal market conditions, the fund strives to be fully invested and generally holds cash to buy new holdings and to provide liquidity. In a period when equity markets rose, as measured by the fund’s benchmark, holding cash hurt performance versus the benchmark, which has no cash position.
Contributors to Performance
Stock selection in both the financials and industrials sectors contributed to relative performance. Within the financials sector, the fund’s overweight position in index data provider MSCI boosted relative results. Despite market volatility, the share price of MSCI appreciated during the period following higher asset-backed and nonrecurring revenues, slightly lower-than-expected expenses and a lower tax rate. Within the industrials sector, the fund’s position in analytics services provider Clarivate (b) aided relative results. The share price of Clarivate benefited from strong revenue growth, particularly in its Science Product Group segment. Additionally, the stock price reacted positively to robust subscription growth and better-than-expected pricing.
Stocks in other sectors that contributed to relative performance included the fund’s positions in enterprise cloud computing solutions provider ServiceNow (b), software services provider Autodesk (b) and cloud-based web development services provider Wix.com (b) (Israel). Despite the ongoing market volatility, the share price of ServiceNow appreciated after its management reported robust earnings results, driven by a larger-than-anticipated increase in subscription billings and revenues. Overweight positions in power circuit systems provider Monolithic Power Systems, integrated
4
Management Review – continued
circuits and electronic devices developer Cadence Design Systems and diagnostics and life science research services provider PerkinElmer also supported relative returns. Additionally, not owning social networking service provider Twitter, and the timing of the fund’s ownership in shares of at-home live and on-demand fitness platform Peloton Interactive, further boosted relative results.
Respectfully,
Portfolio Manager(s)
Eric Fischman and Paul Gordon
(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
PERFORMANCE SUMMARY THROUGH 8/31/20
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
6
Performance Summary – continued
Total Returns through 8/31/20
Average annual without sales charge
Share Class | Class Inception Date | 1-yr | 5-yr | 10-yr | Life (t) | |||||||||
A | 12/01/93 | 23.16% | 16.38% | 16.58% | N/A | |||||||||
B | 12/01/93 | 22.20% | 15.51% | 15.71% | N/A | |||||||||
C | 8/01/94 | 22.23% | 15.52% | 15.70% | N/A | |||||||||
I | 1/02/97 | 23.45% | 16.68% | 16.87% | N/A | |||||||||
R1 | 4/01/05 | 22.18% | 15.51% | 15.71% | N/A | |||||||||
R2 | 10/31/03 | 22.83% | 16.10% | 16.28% | N/A | |||||||||
R3 | 4/01/05 | 23.16% | 16.39% | 16.58% | N/A | |||||||||
R4 | 4/01/05 | 23.45% | 16.66% | 16.87% | N/A | |||||||||
R6 | 1/02/13 | 23.57% | 16.80% | N/A | 17.30% | |||||||||
529A | 7/31/02 | 23.13% | 16.38% | 16.56% | N/A | |||||||||
529B | 7/31/02 | 22.17% | 15.47% | 15.67% | N/A | |||||||||
529C | 7/31/02 | 22.20% | 15.48% | 15.65% | N/A | |||||||||
Comparative benchmark(s) | ||||||||||||||
Russell Midcap® Growth Index (f) | 23.56% | 14.94% | 16.03% | N/A | ||||||||||
Average annual with sales charge | ||||||||||||||
A With Initial Sales Charge (5.75%) | 16.08% | 15.01% | 15.90% | N/A | ||||||||||
B With CDSC (Declining over six years from 4% to 0%) (v) | 18.20% | 15.28% | 15.71% | N/A | ||||||||||
C With CDSC (1% for 12 months) (v) | 21.23% | 15.52% | 15.70% | N/A | ||||||||||
529A With Initial Sales Charge (5.75%) | 16.05% | 15.01% | 15.87% | N/A | ||||||||||
529B With CDSC (Declining over six years from 4% to 0%) (v) | 18.17% | 15.24% | 15.67% | N/A | ||||||||||
529C With CDSC (1% for 12 months) (v) | 21.20% | 15.48% | 15.65% | 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. |
7
Performance Summary – continued
Benchmark Definition(s)
Russell Midcap® Growth Index – constructed to provide a comprehensive barometer for growth securities in the mid-cap segment of the U.S. equity universe. Companies in this index generally have higher price-to-book ratios and higher forecasted growth values. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this document.
It is not possible to invest directly in an index.
Notes to Performance Summary
Class 529 shares are only available in conjunction with qualified tuition programs, such as the MFS 529 Savings Plan. There also is an additional fee, which is detailed in the program description, on qualified tuition programs. If this fee was reflected, the performance for Class 529 shares would have been lower. This annual fee is waived for Oregon residents and for those accounts with assets of $25,000 or more.
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.
8
Fund expenses borne by the shareholders during the period, March 1, 2020 through August 31, 2020
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 March 1, 2020 through August 31, 2020.
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
Expense Table – continued
Share Class | Annualized Expense Ratio | Beginning Account Value 3/01/20 | Ending Account Value 8/31/20 | Expenses Paid During Period (p) 3/01/20-8/31/20 | ||||||||||||||
A | Actual | 1.03% | $1,000.00 | $1,214.88 | $5.73 | |||||||||||||
Hypothetical (h) | 1.03% | $1,000.00 | $1,019.96 | $5.23 | ||||||||||||||
B | Actual | 1.78% | $1,000.00 | $1,209.60 | $9.89 | |||||||||||||
Hypothetical (h) | 1.78% | $1,000.00 | $1,016.19 | $9.02 | ||||||||||||||
C | Actual | 1.79% | $1,000.00 | $1,210.30 | $9.95 | |||||||||||||
Hypothetical (h) | 1.79% | $1,000.00 | $1,016.14 | $9.07 | ||||||||||||||
I | Actual | 0.79% | $1,000.00 | $1,216.47 | $4.40 | |||||||||||||
Hypothetical (h) | 0.79% | $1,000.00 | $1,021.17 | $4.01 | ||||||||||||||
R1 | Actual | 1.79% | $1,000.00 | $1,210.14 | $9.94 | |||||||||||||
Hypothetical (h) | 1.79% | $1,000.00 | $1,016.14 | $9.07 | ||||||||||||||
R2 | Actual | 1.29% | $1,000.00 | $1,213.05 | $7.18 | |||||||||||||
Hypothetical (h) | 1.29% | $1,000.00 | $1,018.65 | $6.55 | ||||||||||||||
R3 | Actual | 1.04% | $1,000.00 | $1,214.78 | $5.79 | |||||||||||||
Hypothetical (h) | 1.04% | $1,000.00 | $1,019.91 | $5.28 | ||||||||||||||
R4 | Actual | 0.79% | $1,000.00 | $1,216.01 | $4.40 | |||||||||||||
Hypothetical (h) | 0.79% | $1,000.00 | $1,021.17 | $4.01 | ||||||||||||||
R6 | Actual | 0.69% | $1,000.00 | $1,216.61 | $3.84 | |||||||||||||
Hypothetical (h) | 0.69% | $1,000.00 | $1,021.67 | $3.51 | ||||||||||||||
529A | Actual | 1.06% | $1,000.00 | $1,214.65 | $5.90 | |||||||||||||
Hypothetical (h) | 1.06% | $1,000.00 | $1,019.81 | $5.38 | ||||||||||||||
529B | Actual | 1.84% | $1,000.00 | $1,209.74 | $10.22 | |||||||||||||
Hypothetical (h) | 1.84% | $1,000.00 | $1,015.89 | $9.32 | ||||||||||||||
529C | Actual | 1.82% | $1,000.00 | $1,209.68 | $10.11 | |||||||||||||
Hypothetical (h) | 1.82% | $1,000.00 | $1,015.99 | $9.22 |
(h) | 5% class return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to each class’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
Notes to Expense Table
Each class with a Rule 12b-1 service fee is subject to a rebate of a portion of such fee. Such rebates are included in the expense ratios above and are outside of the expense limitation arrangement. For Class 529A and Class 529C shares, this rebate reduced the expense ratios above by 0.03% and 0.01%, respectively. See Note 3 in the Notes to Financial Statements for additional information.
10
8/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - 97.5% | ||||||||
Automotive - 1.7% | ||||||||
Copart, Inc. (a) | 1,939,504 | $ | 200,389,553 | |||||
Biotechnology - 3.3% | ||||||||
Adaptive Biotechnologies Corp. (a) | 1,377,940 | $ | 57,336,083 | |||||
Alnylam Pharmaceuticals, Inc. (a) | 661,094 | 87,687,508 | ||||||
Ascendis Pharma (a) | 548,062 | 81,211,827 | ||||||
Exelixis, Inc. (a) | 2,738,648 | 60,852,759 | ||||||
Seattle Genetics, Inc. (a) | 622,313 | 98,537,041 | ||||||
|
| |||||||
$ | 385,625,218 | |||||||
Brokerage & Asset Managers - 2.8% | ||||||||
Apollo Global Management, Inc. | 1,201,921 | $ | 56,334,037 | |||||
NASDAQ, Inc. | 1,531,964 | 205,926,601 | ||||||
Tradeweb Markets, Inc. | 1,015,987 | 58,205,895 | ||||||
|
| |||||||
$ | 320,466,533 | |||||||
Business Services - 14.2% | ||||||||
Clarivate PLC (a) | 7,968,184 | $ | 234,583,337 | |||||
CoStar Group, Inc. (a) | 212,459 | 180,292,707 | ||||||
Equifax, Inc. | 679,204 | 114,289,657 | ||||||
Fidelity National Information Services, Inc. | 775,846 | 117,036,369 | ||||||
Global Payments, Inc. | 791,550 | 139,803,561 | ||||||
IHS Markit Ltd. | 2,611,548 | 208,714,916 | ||||||
MSCI, Inc. | 669,098 | 249,754,211 | ||||||
Tyler Technologies, Inc. (a) | 413,887 | 142,919,320 | ||||||
Verisk Analytics, Inc., “A” | 1,329,415 | 248,161,898 | ||||||
|
| |||||||
$ | 1,635,555,976 | |||||||
Computer Software - 12.5% | ||||||||
Autodesk, Inc. (a) | 634,086 | $ | 155,794,930 | |||||
Black Knight, Inc. (a) | 1,884,928 | 158,522,445 | ||||||
Cadence Design Systems, Inc. (a) | 2,905,014 | 322,195,103 | ||||||
Coupa Software, Inc. (a) | 514,202 | 168,524,564 | ||||||
DocuSign, Inc. (a) | 395,474 | 88,190,702 | ||||||
Duck Creek Technologies, Inc. (a) | 34,572 | 1,347,962 | ||||||
Dun & Bradstreet Holdings, Inc. (a) | 1,652,637 | 41,910,874 | ||||||
Everbridge, Inc. (a) | 668,844 | 99,396,907 | ||||||
Okta, Inc. (a) | 609,468 | 131,261,123 | ||||||
Paylocity Holding Corp. (a) | 366,720 | 53,999,520 | ||||||
RingCentral, Inc. (a) | 324,504 | 94,356,028 |
11
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Computer Software - continued | ||||||||
Synopsys, Inc. (a) | 537,889 | $ | 119,034,836 | |||||
|
| |||||||
$ | 1,434,534,994 | |||||||
Computer Software - Systems - 8.8% | ||||||||
Constellation Software, Inc. | 96,572 | $ | 111,797,258 | |||||
Guidewire Software, Inc. (a) | 814,080 | 91,429,325 | ||||||
NICE Systems Ltd., ADR (a) | 833,768 | 191,641,575 | ||||||
ServiceNow, Inc. (a) | 347,529 | 167,515,928 | ||||||
Square, Inc., “A” (a) | 707,037 | 112,814,824 | ||||||
SS&C Technologies Holdings, Inc. | 1,183,437 | 75,408,606 | ||||||
TransUnion | 1,860,436 | 161,337,010 | ||||||
Wix.com Ltd. (a) | 351,849 | 103,665,271 | ||||||
|
| |||||||
$ | 1,015,609,797 | |||||||
Construction - 3.3% | ||||||||
AZEK Co. LLC (a) | 202,520 | $ | 7,995,489 | |||||
Lennox International, Inc. | 406,012 | 113,817,344 | ||||||
Pool Corp. | 408,563 | 133,943,294 | ||||||
Vulcan Materials Co. | 1,078,295 | 129,395,400 | ||||||
|
| |||||||
$ | 385,151,527 | |||||||
Consumer Products - 1.3% | ||||||||
Scotts Miracle-Gro Co. | 921,344 | $ | 155,274,104 | |||||
Consumer Services - 2.9% | ||||||||
Bright Horizons Family Solutions, Inc. (a) | 1,992,060 | $ | 264,963,901 | |||||
Peloton Interactive, Inc., “A” (a) | 937,250 | 71,858,957 | ||||||
|
| |||||||
$ | 336,822,858 | |||||||
Electrical Equipment - 2.1% | ||||||||
AMETEK, Inc. | 1,957,826 | $ | 197,153,078 | |||||
Littlefuse, Inc. | 217,922 | 39,409,015 | ||||||
|
| |||||||
$ | 236,562,093 | |||||||
Electronics - 3.9% | ||||||||
ASM International N.V. | 228,230 | $ | 34,344,378 | |||||
Entegris, Inc. | 1,028,715 | 68,810,746 | ||||||
MKS Instruments, Inc. | 547,114 | 65,396,537 | ||||||
Monolithic Power Systems, Inc. | 910,661 | 243,264,873 | ||||||
Silicon Laboratories, Inc. (a) | 343,118 | 35,138,714 | ||||||
|
| |||||||
$ | 446,955,248 | |||||||
Food & Beverages - 0.6% | ||||||||
Chr. Hansen Holding A.S. | 651,157 | $ | 74,765,119 |
12
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Gaming & Lodging - 0.5% | ||||||||
Penn National Gaming, Inc. (a) | 402,165 | $ | 20,550,632 | |||||
Vail Resorts, Inc. | 152,850 | 33,270,859 | ||||||
|
| |||||||
$ | 53,821,491 | |||||||
General Merchandise - 0.3% | ||||||||
Dollar Tree, Inc. (a) | 365,543 | $ | 35,190,825 | |||||
Insurance - 1.7% | ||||||||
Arthur J. Gallagher & Co. | 1,804,974 | $ | 190,063,762 | |||||
Internet - 2.9% | ||||||||
DraftKings, Inc. (a) | 481,086 | $ | 17,011,201 | |||||
IAC/InterActiveCorp (a) | 813,221 | 108,150,261 | ||||||
Match Group, Inc. (a) | 1,832,236 | 204,624,116 | ||||||
|
| |||||||
$ | 329,785,578 | |||||||
Leisure & Toys - 2.9% | ||||||||
Electronic Arts, Inc. (a) | 499,875 | $ | 69,717,566 | |||||
Take-Two Interactive Software, Inc. (a) | 1,548,682 | 265,118,872 | ||||||
|
| |||||||
$ | 334,836,438 | |||||||
Machinery & Tools - 1.8% | ||||||||
IDEX Corp. | 628,658 | $ | 113,303,031 | |||||
Roper Technologies, Inc. | 207,809 | 88,773,927 | ||||||
|
| |||||||
$ | 202,076,958 | |||||||
Medical & Health Technology & Services - 5.6% | ||||||||
Charles River Laboratories International, Inc. (a) | 849,531 | $ | 186,004,813 | |||||
Guardant Health, Inc. (a) | 553,922 | 52,899,551 | ||||||
ICON PLC (a) | 856,399 | 159,641,338 | ||||||
IDEXX Laboratories, Inc. (a) | 196,889 | 76,995,412 | ||||||
Livongo Health, Inc. (a) | 760,378 | 104,399,899 | ||||||
PRA Health Sciences, Inc. (a) | 206,502 | 22,077,129 | ||||||
Quest Diagnostics, Inc. | 396,421 | 44,097,872 | ||||||
|
| |||||||
$ | 646,116,014 | |||||||
Medical Equipment - 11.0% | ||||||||
Agilent Technologies, Inc. | 695,906 | $ | 69,882,880 | |||||
Align Technology, Inc. (a) | 187,591 | 55,710,775 | ||||||
Bio-Techne Corp. | 569,686 | 145,531,986 | ||||||
Cooper Cos., Inc. | 102,408 | 32,195,027 | ||||||
DexCom, Inc. (a) | 242,931 | 103,345,277 | ||||||
Masimo Corp. (a) | 810,465 | 181,544,160 | ||||||
Mettler-Toledo International, Inc. (a) | 57,837 | 56,147,003 |
13
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Common Stocks - continued | ||||||||
Medical Equipment - continued | ||||||||
PerkinElmer, Inc. | 2,345,102 | $ | 276,065,407 | |||||
STERIS PLC | 1,295,188 | 206,763,812 | ||||||
West Pharmaceutical Services, Inc. | 500,454 | 142,108,918 | ||||||
|
| |||||||
$ | 1,269,295,245 | |||||||
Network & Telecom - 1.2% | ||||||||
CoreSite Realty Corp., REIT | 1,101,167 | $ | 134,837,899 | |||||
Other Banks & Diversified Financials - 0.3% | ||||||||
Dragoneer Growth Opportunities Corp. (a) | 1,721,149 | $ | 20,757,057 | |||||
Foley Trasimene Acquisition Corp. (a) | 1,704,566 | 17,079,751 | ||||||
|
| |||||||
$ | 37,836,808 | |||||||
Printing & Publishing - 1.6% | ||||||||
Warner Music Group Corp. | 1,028,061 | $ | 30,492,289 | |||||
Wolters Kluwer N.V. | 1,886,201 | 154,861,781 | ||||||
|
| |||||||
$ | 185,354,070 | |||||||
Railroad & Shipping - 0.7% | ||||||||
Kansas City Southern Co. | 452,067 | $ | 82,294,277 | |||||
Restaurants - 3.3% | ||||||||
Chipotle Mexican Grill, Inc., “A” (a) | 134,395 | $ | 176,095,081 | |||||
Domino’s Pizza, Inc. | 270,821 | 110,754,956 | ||||||
Dunkin Brands Group, Inc. | 1,190,751 | 90,592,336 | ||||||
|
| |||||||
$ | 377,442,373 | |||||||
Specialty Stores - 4.8% | ||||||||
Burlington Stores, Inc. (a) | 480,953 | $ | 94,714,074 | |||||
Chewy, Inc., “A” (a) | 1,286,064 | 78,539,929 | ||||||
Lululemon Athletica, Inc. (a) | 464,467 | 174,486,318 | ||||||
O’Reilly Automotive, Inc. (a) | 174,459 | 81,233,344 | ||||||
Tractor Supply Co. | 824,648 | 122,732,362 | ||||||
|
| |||||||
$ | 551,706,027 | |||||||
Telecommunications - Wireless - 1.5% | ||||||||
SBA Communications Corp., REIT | 578,431 | $ | 177,040,376 | |||||
Total Common Stocks (Identified Cost, $7,554,396,966) |
| $ | 11,235,411,161 |
14
Portfolio of Investments – continued
Issuer | Shares/Par | Value ($) | ||||||
Investment Companies (h) - 2.8% | ||||||||
Money Market Funds - 2.8% | ||||||||
MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $321,138,910) | 321,141,621 | $ | 321,141,622 | |||||
Other Assets, Less Liabilities - (0.3)% | (34,421,478) | |||||||
Net Assets - 100.0% | $ | 11,522,131,305 |
(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 $321,141,622 and $11,235,411,161, respectively. |
(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 annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
ADR | American Depositary Receipt |
REIT | Real Estate Investment Trust |
See Notes to Financial Statements
15
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/20
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, $7,554,396,966) | $11,235,411,161 | |||
Investments in affiliated issuers, at value (identified cost, $321,138,910) | 321,141,622 | |||
Cash | 8,418,496 | |||
Receivables for | ||||
Investments sold | 52,943,352 | |||
Fund shares sold | 33,559,352 | |||
Interest and dividends | 7,883,018 | |||
Other assets | 4,769 | |||
Total assets | $11,659,361,770 | |||
Liabilities | ||||
Payables for | ||||
Investments purchased | $126,317,481 | |||
Fund shares reacquired | 7,702,594 | |||
Payable to affiliates | ||||
Investment adviser | 795,165 | |||
Administrative services fee | 6,143 | |||
Shareholder servicing costs | 1,605,804 | |||
Distribution and service fees | 66,467 | |||
Program manager fees | 88 | |||
Payable for independent Trustees’ compensation | 14 | |||
Accrued expenses and other liabilities | 736,709 | |||
Total liabilities | $137,230,465 | |||
Net assets | $11,522,131,305 | |||
Net assets consist of | ||||
Paid-in capital | $7,821,742,034 | |||
Total distributable earnings (loss) | 3,700,389,271 | |||
Net assets | $11,522,131,305 | |||
Shares of beneficial interest outstanding | 443,744,275 |
16
Statement of Assets and Liabilities – continued
Net assets | Shares outstanding | Net asset value per share (a) | ||||||||||
Class A | $1,483,319,872 | 60,184,979 | $24.65 | |||||||||
Class B | 17,724,877 | 890,146 | 19.91 | |||||||||
Class C | 109,521,290 | 5,679,890 | 19.28 | |||||||||
Class I | 3,837,781,303 | 145,946,985 | 26.30 | |||||||||
Class R1 | 4,186,807 | 211,336 | 19.81 | |||||||||
Class R2 | 15,176,244 | 658,051 | 23.06 | |||||||||
Class R3 | 451,971,731 | 18,458,173 | 24.49 | |||||||||
Class R4 | 242,936,513 | 9,463,489 | 25.67 | |||||||||
Class R6 | 5,343,295,334 | 201,542,650 | 26.51 | |||||||||
Class 529A | 13,593,300 | 569,341 | 23.88 | |||||||||
Class 529B | 406,987 | 21,004 | 19.38 | |||||||||
Class 529C | 2,217,047 | 118,231 | 18.75 |
(a) | Maximum offering price per share was equal to the net asset value per share for all share classes, except for Classes A and 529A, for which the maximum offering prices per share were $26.15 [100 / 94.25 x $24.65] and $25.34 [100 / 94.25 x $23.88], respectively. On sales of $50,000 or more, the maximum offering prices of Class A and Class 529A shares are reduced. A contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class 529B, and Class 529C shares. Redemption price per share was equal to the net asset value per share for Classes I, R1, R2, R3, R4, R6, and 529A. |
See Notes to Financial Statements
17
Financial Statements
Year ended 8/31/20
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 | $53,021,429 | |||
Income on securities loaned | 2,135,991 | |||
Dividends from affiliated issuers | 2,008,896 | |||
Other | 354,386 | |||
Foreign taxes withheld | (342,092 | ) | ||
Total investment income | $57,178,610 | |||
Expenses | ||||
Management fee | $54,841,282 | |||
Distribution and service fees | 5,040,291 | |||
Shareholder servicing costs | 4,911,738 | |||
Program manager fees | 6,570 | |||
Administrative services fee | 573,616 | |||
Independent Trustees’ compensation | 76,699 | |||
Custodian fee | 287,042 | |||
Shareholder communications | 591,803 | |||
Audit and tax fees | 61,034 | |||
Legal fees | 75,050 | |||
Miscellaneous | 1,275,388 | |||
Total expenses | $67,740,513 | |||
Fees paid indirectly | (587 | ) | ||
Reduction of expenses by investment adviser and distributor | (920,471 | ) | ||
Net expenses | $66,819,455 | |||
Net investment income (loss) | $(9,640,845 | ) | ||
Realized and unrealized gain (loss) | ||||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $43,763,380 | |||
Affiliated issuers | (53,053 | ) | ||
Foreign currency | 180,452 | |||
Net realized gain (loss) | $43,890,779 | |||
Change in unrealized appreciation or depreciation | ||||
Unaffiliated issuers | $1,994,065,331 | |||
Affiliated issuers | (20,752 | ) | ||
Translation of assets and liabilities in foreign currencies | 31,128 | |||
Net unrealized gain (loss) | $1,994,075,707 | |||
Net realized and unrealized gain (loss) | $2,037,966,486 | |||
Change in net assets from operations | $2,028,325,641 |
See Notes to Financial Statements
18
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 | ||||||||
8/31/20 | 8/31/19 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $(9,640,845 | ) | $(5,766,982 | ) | ||||
Net realized gain (loss) | 43,890,779 | 75,577,283 | ||||||
Net unrealized gain (loss) | 1,994,075,707 | 523,617,842 | ||||||
Change in net assets from operations | $2,028,325,641 | $593,428,143 | ||||||
Total distributions to shareholders | $(64,368,451 | ) | $(147,690,129 | ) | ||||
Change in net assets from fund share transactions | $3,571,746,148 | $2,125,633,835 | ||||||
Total change in net assets | $5,535,703,338 | $2,571,371,849 | ||||||
Net assets | ||||||||
At beginning of period | 5,986,427,967 | 3,415,056,118 | ||||||
At end of period | $11,522,131,305 | $5,986,427,967 |
See Notes to Financial Statements
19
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 | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $20.19 | $19.16 | $16.34 | $14.82 | $14.40 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.07 | ) | $(0.07 | ) | $(0.09 | ) | $(0.06 | )(c) | $(0.06 | ) | ||||||||||
Net realized and unrealized gain (loss) | 4.71 | 1.83 | 4.32 | 2.36 | 0.88 | |||||||||||||||
Total from investment operations | $4.64 | $1.76 | $4.23 | $2.30 | $0.82 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $24.65 | $20.19 | $19.16 | $16.34 | $14.82 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 23.16 | 10.13 | 27.69 | 16.44 | (c) | 5.87 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.05 | 1.10 | 1.17 | 1.22 | (c) | 1.26 | ||||||||||||||
Expenses after expense reductions (f) | 1.04 | 1.09 | 1.16 | 1.20 | (c) | 1.22 | ||||||||||||||
Net investment income (loss) | (0.35 | ) | (0.36 | ) | (0.55 | ) | (0.42 | )(c) | (0.45 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $1,483,320 | $1,065,566 | $824,847 | $572,338 | $454,881 |
See Notes to Financial Statements
20
Financial Highlights – continued
Class B | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $16.47 | $15.90 | $13.88 | $12.80 | $12.58 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.19 | ) | $(0.17 | ) | $(0.19 | ) | $(0.15 | )(c) | $(0.15 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.81 | 1.47 | 3.62 | 2.01 | 0.77 | |||||||||||||||
Total from investment operations | $3.62 | $1.30 | $3.43 | $1.86 | $0.62 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $19.91 | $16.47 | $15.90 | $13.88 | $12.80 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 22.20 | 9.28 | 26.77 | 15.56 | (c) | 5.11 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.80 | 1.85 | 1.92 | 1.97 | (c) | 2.00 | ||||||||||||||
Expenses after expense reductions (f) | 1.79 | 1.84 | 1.91 | 1.95 | (c) | 1.97 | ||||||||||||||
Net investment income (loss) | (1.10 | ) | (1.12 | ) | (1.30 | ) | (1.16 | )(c) | (1.24 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $17,725 | $18,581 | $19,329 | $16,326 | $17,978 | |||||||||||||||
Class C | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $15.95 | $15.42 | $13.50 | $12.48 | $12.27 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.18 | ) | $(0.16 | ) | $(0.18 | ) | $(0.15 | )(c) | $(0.14 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.69 | 1.42 | 3.51 | 1.95 | 0.75 | |||||||||||||||
Total from investment operations | $3.51 | $1.26 | $3.33 | $1.80 | $0.61 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $19.28 | $15.95 | $15.42 | $13.50 | $12.48 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 22.23 | 9.31 | 26.77 | 15.48 | (c) | 5.16 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.80 | 1.85 | 1.92 | 1.97 | (c) | 2.00 | ||||||||||||||
Expenses after expense reductions (f) | 1.79 | 1.84 | 1.91 | 1.95 | (c) | 1.97 | ||||||||||||||
Net investment income (loss) | (1.10 | ) | (1.11 | ) | (1.30 | ) | (1.17 | )(c) | (1.22 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $109,521 | $78,858 | $54,080 | $58,623 | $53,862 |
See Notes to Financial Statements
21
Financial Highlights – continued
Class I | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $21.48 | $20.28 | $17.17 | $15.50 | $15.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.02 | ) | $(0.02 | ) | $(0.06 | ) | $(0.03 | )(c) | $(0.00 | )(w) | ||||||||||
Net realized and unrealized gain (loss) | 5.02 | 1.95 | 4.58 | 2.48 | 0.90 | |||||||||||||||
Total from investment operations | $5.00 | $1.93 | $4.52 | $2.45 | $0.90 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $26.30 | $21.48 | $20.28 | $17.17 | $15.50 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 23.45 | 10.42 | 28.05 | 16.70 | (c) | 6.17 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.80 | 0.84 | 0.92 | 0.97 | (c) | 1.02 | ||||||||||||||
Expenses after expense reductions (f) | 0.79 | 0.83 | 0.91 | 0.96 | (c) | 0.99 | ||||||||||||||
Net investment income (loss) | (0.10 | ) | (0.09 | ) | (0.30 | ) | (0.18 | )(c) | (0.01 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $3,837,781 | $1,330,368 | $332,008 | $100,858 | $110,803 | |||||||||||||||
Class R1 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $16.39 | $15.82 | $13.82 | $12.75 | $12.53 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.18 | ) | $(0.17 | ) | $(0.19 | ) | $(0.15 | )(c) | $(0.15 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.78 | 1.47 | 3.60 | 2.00 | 0.77 | |||||||||||||||
Total from investment operations | $3.60 | $1.30 | $3.41 | $1.85 | $0.62 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $19.81 | $16.39 | $15.82 | $13.82 | $12.75 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 22.18 | 9.33 | 26.73 | 15.54 | (c) | 5.13 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.80 | 1.85 | 1.92 | 1.97 | (c) | 2.00 | ||||||||||||||
Expenses after expense reductions (f) | 1.79 | 1.84 | 1.91 | 1.96 | (c) | 1.97 | ||||||||||||||
Net investment income (loss) | (1.09 | ) | (1.12 | ) | (1.30 | ) | (1.17 | )(c) | (1.25 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $4,187 | $3,472 | $2,827 | $2,348 | $2,057 |
See Notes to Financial Statements
22
Financial Highlights – continued
Class R2 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $18.95 | $18.08 | $15.53 | $14.16 | $13.80 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.12 | ) | $(0.11 | ) | $(0.13 | ) | $(0.10 | )(c) | $(0.10 | ) | ||||||||||
Net realized and unrealized gain (loss) | 4.41 | 1.71 | 4.09 | 2.25 | 0.86 | |||||||||||||||
Total from investment operations | $4.29 | $1.60 | $3.96 | $2.15 | $0.76 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $23.06 | $18.95 | $18.08 | $15.53 | $14.16 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 22.83 | 9.84 | 27.37 | 16.14 | (c) | 5.68 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.30 | 1.35 | 1.42 | 1.47 | (c) | 1.50 | ||||||||||||||
Expenses after expense reductions (f) | 1.29 | 1.34 | 1.41 | 1.46 | (c) | 1.47 | ||||||||||||||
Net investment income (loss) | (0.60 | ) | (0.61 | ) | (0.80 | ) | (0.67 | )(c) | (0.73 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $15,176 | $11,060 | $9,069 | $6,681 | $5,651 | |||||||||||||||
Class R3 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $20.06 | $19.04 | $16.24 | $14.74 | $14.32 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.07 | ) | $(0.06 | ) | $(0.09 | ) | $(0.07 | )(c) | $(0.06 | ) | ||||||||||
Net realized and unrealized gain (loss) | 4.68 | 1.81 | 4.30 | 2.35 | 0.88 | |||||||||||||||
Total from investment operations | $4.61 | $1.75 | $4.21 | $2.28 | $0.82 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $24.49 | $20.06 | $19.04 | $16.24 | $14.74 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 23.16 | 10.14 | 27.73 | 16.39 | (c) | 5.90 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.05 | 1.09 | 1.17 | 1.22 | (c) | 1.26 | ||||||||||||||
Expenses after expense reductions (f) | 1.04 | 1.09 | 1.16 | 1.21 | (c) | 1.23 | ||||||||||||||
Net investment income (loss) | (0.35 | ) | (0.34 | ) | (0.55 | ) | (0.44 | )(c) | (0.42 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $451,972 | $239,505 | $95,010 | $32,496 | $14,836 |
See Notes to Financial Statements
23
Financial Highlights – continued
Class R4 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $20.97 | $19.82 | $16.82 | $15.20 | $14.72 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.02 | ) | $(0.02 | ) | $(0.05 | ) | $(0.03 | )(c) | $(0.02 | ) | ||||||||||
Net realized and unrealized gain (loss) | 4.90 | 1.90 | 4.46 | 2.43 | 0.90 | |||||||||||||||
Total from investment operations | $4.88 | $1.88 | $4.41 | $2.40 | $0.88 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $25.67 | $20.97 | $19.82 | $16.82 | $15.20 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 23.45 | 10.40 | 27.98 | 16.70 | (c) | 6.15 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.80 | 0.84 | 0.92 | 0.97 | (c) | 1.01 | ||||||||||||||
Expenses after expense reductions (f) | 0.79 | 0.83 | 0.91 | 0.96 | (c) | 0.98 | ||||||||||||||
Net investment income (loss) | (0.10 | ) | (0.08 | ) | (0.30 | ) | (0.18 | )(c) | (0.17 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $242,937 | $173,441 | $54,141 | $22,346 | $13,883 | |||||||||||||||
Class R6 | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $21.63 | $20.40 | $17.25 | $15.55 | $15.03 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.00 | )(w) | $(0.00 | )(w) | $(0.04 | ) | $(0.01 | )(c) | $(0.02 | ) | ||||||||||
Net realized and unrealized gain (loss) | 5.06 | 1.96 | 4.60 | 2.49 | 0.94 | |||||||||||||||
Total from investment operations | $5.06 | $1.96 | $4.56 | $2.48 | $0.92 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $26.51 | $21.63 | $20.40 | $17.25 | $15.55 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 23.57 | 10.51 | 28.17 | 16.84 | (c) | 6.29 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.70 | 0.75 | 0.81 | 0.86 | (c) | 0.90 | ||||||||||||||
Expenses after expense reductions (f) | 0.69 | 0.74 | 0.81 | 0.84 | (c) | 0.87 | ||||||||||||||
Net investment income (loss) | (0.01 | ) | (0.01 | ) | (0.19 | ) | (0.05 | )(c) | (0.14 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $5,343,295 | $3,053,325 | $2,013,624 | $1,520,339 | $1,330,139 |
See Notes to Financial Statements
24
Financial Highlights – continued
Class 529A | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $19.57 | $18.60 | $15.90 | $14.45 | $14.04 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.08 | ) | $(0.07 | ) | $(0.09 | ) | $(0.06 | )(c) | $(0.07 | ) | ||||||||||
Net realized and unrealized gain (loss) | 4.57 | 1.77 | 4.20 | 2.29 | 0.88 | |||||||||||||||
Total from investment operations | $4.49 | $1.70 | $4.11 | $2.23 | $0.81 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $23.88 | $19.57 | $18.60 | $15.90 | $14.45 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 23.13 | 10.11 | 27.70 | 16.38 | (c) | 5.95 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.10 | 1.15 | 1.23 | 1.32 | (c) | 1.35 | ||||||||||||||
Expenses after expense reductions (f) | 1.06 | 1.10 | 1.18 | 1.21 | (c) | 1.23 | ||||||||||||||
Net investment income (loss) | (0.38 | ) | (0.38 | ) | (0.56 | ) | (0.43 | )(c) | (0.48 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $13,593 | $9,590 | $7,582 | $4,916 | $3,890 | |||||||||||||||
Class 529B | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $16.04 | $15.51 | $13.58 | $12.55 | $12.34 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.19 | ) | $(0.17 | ) | $(0.19 | ) | $(0.15 | )(c) | $(0.15 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.71 | 1.43 | 3.53 | 1.96 | 0.76 | |||||||||||||||
Total from investment operations | $3.52 | $1.26 | $3.34 | $1.81 | $0.61 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $19.38 | $16.04 | $15.51 | $13.58 | $12.55 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 22.17 | 9.26 | 26.69 | 15.47 | (c) | 5.13 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.85 | 1.90 | 1.98 | 2.07 | (c) | 2.11 | ||||||||||||||
Expenses after expense reductions (f) | 1.84 | 1.89 | 1.96 | 2.00 | (c) | 2.02 | ||||||||||||||
Net investment income (loss) | (1.15 | ) | (1.17 | ) | (1.35 | ) | (1.23 | )(c) | (1.26 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $407 | $361 | $304 | $210 | $209 |
See Notes to Financial Statements
25
Financial Highlights – continued
Class 529C | Year ended | |||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $15.52 | $15.04 | $13.20 | $12.22 | $12.03 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $(0.18 | ) | $(0.16 | ) | $(0.18 | ) | $(0.15 | )(c) | $(0.15 | ) | ||||||||||
Net realized and unrealized gain (loss) | 3.59 | 1.37 | 3.43 | 1.91 | 0.74 | |||||||||||||||
Total from investment operations | $3.41 | $1.21 | $3.25 | $1.76 | $0.59 | |||||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net realized gain | $(0.18 | ) | $(0.73 | ) | $(1.41 | ) | $(0.78 | ) | $(0.40 | ) | ||||||||||
Net asset value, end of period (x) | $18.75 | $15.52 | $15.04 | $13.20 | $12.22 | |||||||||||||||
Total return (%) (r)(s)(t)(x) | 22.20 | 9.21 | 26.78 | 15.48 | (c) | 5.09 | ||||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 1.85 | 1.90 | 1.99 | 2.07 | (c) | 2.10 | ||||||||||||||
Expenses after expense reductions (f) | 1.83 | 1.88 | 1.95 | 1.99 | (c) | 2.01 | ||||||||||||||
Net investment income (loss) | (1.14 | ) | (1.16 | ) | (1.34 | ) | (1.21 | )(c) | (1.27 | ) | ||||||||||
Portfolio turnover | 34 | 21 | 33 | 30 | 43 | |||||||||||||||
Net assets at end of period (000 omitted) | $2,217 | $2,299 | $2,236 | $1,955 | $1,641 |
(c) | Amount reflects a one-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
26
(1) Business and Organization
MFS Mid Cap Growth Fund (the fund) is a diversified series of MFS Series Trust IV (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
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 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
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’s in-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
27
Notes to Financial Statements – continued
exchange as provided by a third-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. 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 halt 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 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
28
Notes to Financial Statements – continued
measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of August 31, 2020 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Securities | $11,235,411,161 | $— | $— | $11,235,411,161 | ||||||||||||
Mutual Funds | 321,141,622 | — | — | 321,141,622 | ||||||||||||
Total | $11,556,552,783 | $— | $— | $11,556,552,783 |
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, 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 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
29
Notes to Financial Statements – continued
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. 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. At August 31, 2020, there were no securities on loan or collateral outstanding.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend payments received in additional securities are recorded on the ex-dividend date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
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 August 31, 2020, 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
30
Notes to Financial Statements – continued
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 the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to wash sale loss deferrals.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Long-term capital gains | $64,368,451 | $147,690,129 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 8/31/20 | ||||
Cost of investments | $7,899,584,683 | |||
Gross appreciation | 3,693,303,156 | |||
Gross depreciation | (36,335,056 | ) | ||
Net unrealized appreciation (depreciation) | $3,656,968,100 | |||
Undistributed long-term capital gain | 57,529,602 | |||
Late year ordinary loss deferral | (14,129,844 | ) | ||
Other temporary differences | 21,413 |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution, service, and program manager 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 and Class 529B shares will convert to Class A and Class 529A shares, respectively, approximately eight years after purchase. Class C and Class 529C shares will convert to Class A and Class 529A shares,
31
Notes to Financial Statements – continued
respectively, 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:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Class A | $9,859,800 | $32,483,357 | ||||||
Class B | 192,285 | 867,340 | ||||||
Class C | 934,695 | 2,626,254 | ||||||
Class I | 18,997,911 | 22,084,916 | ||||||
Class R1 | 44,903 | 148,603 | ||||||
Class R2 | 100,054 | 343,389 | ||||||
Class R3 | 2,828,218 | 4,573,131 | ||||||
Class R4 | 1,671,984 | 2,640,146 | ||||||
Class R6 | 29,619,366 | 81,483,319 | ||||||
Class 529A | 90,325 | 310,572 | ||||||
Class 529B | 3,816 | 15,636 | ||||||
Class 529C | 25,094 | 113,466 | ||||||
Total | $64,368,451 | $147,690,129 |
(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 | 0.75 | % | ||
In excess of $1 billion and up to $2.5 billion | 0.70 | % | ||
In excess of $2.5 billion and up to $5 billion | 0.65 | % | ||
In excess of $5 billion and up to $10 billion | 0.62 | % | ||
In excess of $10 billion | 0.60 | % |
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 August 31, 2020, this management fee reduction amounted to $892,749, which is included in the reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended August 31, 2020 was equivalent to an annual effective rate of 0.65% 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 | 529A | 529B | 529C | |||||||||||||||||||||||||||||||||
1.30% | 2.05% | 2.05% | 1.05% | 2.05% | 1.55% | 1.30% | 1.05% | 0.95% | 1.35% | 2.10% | 2.10% |
32
Notes to Financial Statements – continued
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until December 31, 2021. For the year ended August 31, 2020, 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 $640,240 and $8,315 for the year ended August 31, 2020, as its portion of the initial sales charge on sales of Class A and Class 529A shares of the fund, respectively.
The Board of Trustees has adopted a distribution plan for certain share classes pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
Distribution Fee Rate (d) | Service Fee Rate (d) | Total Distribution Plan (d) | Annual Effective Rate (e) | Distribution and Service Fee | ||||||||||||||||
Class A | — | 0.25% | 0.25% | 0.25% | $2,972,329 | |||||||||||||||
Class B | 0.75% | 0.25% | 1.00% | 1.00% | 170,899 | |||||||||||||||
Class C | 0.75% | 0.25% | 1.00% | 1.00% | 890,142 | |||||||||||||||
Class R1 | 0.75% | 0.25% | 1.00% | 1.00% | 37,967 | |||||||||||||||
Class R2 | 0.25% | 0.25% | 0.50% | 0.50% | 58,012 | |||||||||||||||
Class R3 | — | 0.25% | 0.25% | 0.25% | 859,526 | |||||||||||||||
Class 529A | — | 0.25% | 0.25% | 0.22% | 26,655 | |||||||||||||||
Class 529B | 0.75% | 0.25% | 1.00% | 1.00% | 3,518 | |||||||||||||||
Class 529C | 0.75% | 0.25% | 1.00% | 0.99% | 21,243 | |||||||||||||||
Total Distribution and Service Fees |
| $5,040,291 |
(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 August 31, 2020 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 there is no financial intermediary specified on the account except for accounts attributable to MFS or its affiliates’ seed money. For the year ended August 31, 2020, this rebate amounted to $23,351, $621, $211, $3,267, $4, and $268 for Class A, Class B, Class C, Class 529A, Class 529B, and Class 529C, 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 and Class 529B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. Class C and Class 529C shares are subject to a CDSC in
33
Notes to Financial Statements – continued
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 August 31, 2020, were as follows:
Amount | ||||
Class A | $28,260 | |||
Class B | 14,275 | |||
Class C | 29,654 | |||
Class 529B | 132 | |||
Class 529C | 151 |
The fund has entered into and may from time to time enter into contracts with program managers and other parties which administer the tuition programs through which an investment in the fund’s 529 share classes is made. The fund has entered into an agreement with MFD pursuant to which MFD receives an annual fee of up to 0.05% of the average daily net assets attributable to each 529 share class. The services provided by MFD, or a third party with which MFD contracts, include recordkeeping and tax reporting and account services, as well as services designed to maintain the program’s compliance with the Internal Revenue Code and other regulatory requirements. Program manager fees for the year ended August 31, 2020, were as follows:
Fee | ||||
Class 529A | $5,331 | |||
Class 529B | 176 | |||
Class 529C | 1,063 | |||
Total Program Manager Fees | $6,570 |
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 August 31, 2020, the fee was $416,422, which equated to 0.0050% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. Class R6 shares do not incur sub-accounting fees. For the year ended August 31, 2020, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $4,495,316.
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 August 31, 2020 was equivalent to an annual effective rate of 0.0069% 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
34
Notes to Financial Statements – continued
Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
Other – 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 but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-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 Rule 17a-7 under the Investment Company Act of 1940. During the year ended August 31, 2020, the fund engaged in purchase and sale transactions pursuant to this policy, which amounted to $27,488,212 and $23,267,524, respectively. The sales transactions resulted in net realized gains (losses) of $555,805.
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 August 31, 2020, this reimbursement amounted to $354,384, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended August 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $6,151,862,817 and $2,764,839,334, 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 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares sold | ||||||||||||||||
Class A | 19,150,294 | $397,151,871 | 16,893,741 | $308,308,947 | ||||||||||||
Class B | 40,035 | 659,617 | 167,116 | 2,461,117 | ||||||||||||
Class C | 2,088,030 | 34,325,371 | 2,361,735 | 33,981,644 | ||||||||||||
Class I | 118,050,630 | 2,647,030,965 | 55,660,527 | 1,097,623,178 | ||||||||||||
Class R1 | 95,610 | 1,623,960 | 93,143 | 1,378,704 | ||||||||||||
Class R2 | 320,112 | 6,206,067 | 310,813 | 5,354,226 | ||||||||||||
Class R3 | 10,948,478 | 226,467,798 | 8,813,818 | 159,118,047 | ||||||||||||
Class R4 | 3,758,366 | 81,341,594 | 6,170,894 | 120,974,054 | ||||||||||||
Class R6 | 97,278,087 | 2,184,427,324 | 59,950,469 | 1,157,462,328 | ||||||||||||
Class 529A | 128,965 | 2,618,266 | 116,776 | 2,035,524 | ||||||||||||
Class 529B | 1,265 | 18,728 | 3,691 | 52,714 | ||||||||||||
Class 529C | 14,594 | 240,063 | 27,845 | 402,462 | ||||||||||||
251,874,466 | $5,582,111,624 | 150,570,568 | $2,889,152,945 |
35
Notes to Financial Statements – continued
Year ended 8/31/20 | Year ended 8/31/19 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Shares issued to shareholders in reinvestment of distributions |
| |||||||||||||||
Class A | 440,258 | $9,095,745 | 1,862,516 | $29,949,263 | ||||||||||||
Class B | 11,391 | 191,132 | 64,768 | 853,647 | ||||||||||||
Class C | 55,628 | 903,950 | 197,157 | 2,517,694 | ||||||||||||
Class I | 835,859 | 18,388,907 | 1,256,574 | 21,449,719 | ||||||||||||
Class R1 | 2,689 | 44,903 | 11,326 | 148,603 | ||||||||||||
Class R2 | 4,761 | 92,224 | 19,261 | 291,223 | ||||||||||||
Class R3 | 137,760 | 2,828,218 | 286,358 | 4,573,131 | ||||||||||||
Class R4 | 75,746 | 1,627,032 | 151,596 | 2,527,104 | ||||||||||||
Class R6 | 1,273,386 | 28,230,957 | 4,554,939 | 78,253,843 | ||||||||||||
Class 529A | 4,510 | 90,253 | 19,934 | 310,572 | ||||||||||||
Class 529B | 234 | 3,816 | 1,218 | 15,636 | ||||||||||||
Class 529C | 1,587 | 25,075 | 9,128 | 113,466 | ||||||||||||
2,843,809 | $61,522,212 | 8,434,775 | $141,003,901 | |||||||||||||
Shares reacquired |
| |||||||||||||||
Class A | (12,182,500 | ) | $(250,900,560 | ) | (9,027,911 | ) | $(164,372,631 | ) | ||||||||
Class B | (289,584 | ) | (4,807,304 | ) | (319,581 | ) | (4,686,479 | ) | ||||||||
Class C | (1,406,988 | ) | (22,690,262 | ) | (1,121,734 | ) | (16,028,901 | ) | ||||||||
Class I | (34,879,710 | ) | (775,106,805 | ) | (11,346,369 | ) | (221,941,074 | ) | ||||||||
Class R1 | (98,817 | ) | (1,558,161 | ) | (71,287 | ) | (1,095,958 | ) | ||||||||
Class R2 | (250,454 | ) | (4,821,076 | ) | (248,049 | ) | (4,272,767 | ) | ||||||||
Class R3 | (4,567,435 | ) | (93,853,569 | ) | (2,149,812 | ) | (39,056,008 | ) | ||||||||
Class R4 | (2,641,306 | ) | (56,676,069 | ) | (783,122 | ) | (14,923,200 | ) | ||||||||
Class R6 | (38,173,178 | ) | (859,598,802 | ) | (22,054,119 | ) | (436,646,367 | ) | ||||||||
Class 529A | (54,306 | ) | (1,084,906 | ) | (54,257 | ) | (949,092 | ) | ||||||||
Class 529B | (3,034 | ) | (46,375 | ) | (1,951 | ) | (29,265 | ) | ||||||||
Class 529C | (46,093 | ) | (743,799 | ) | (37,575 | ) | (521,269 | ) | ||||||||
(94,593,405 | ) | $(2,071,887,688 | ) | (47,215,767 | ) | $(904,523,011 | ) | |||||||||
Net change |
| |||||||||||||||
Class A | 7,408,052 | $155,347,056 | 9,728,346 | $173,885,579 | ||||||||||||
Class B | (238,158 | ) | (3,956,555 | ) | (87,697 | ) | (1,371,715 | ) | ||||||||
Class C | 736,670 | 12,539,059 | 1,437,158 | 20,470,437 | ||||||||||||
Class I | 84,006,779 | 1,890,313,067 | 45,570,732 | 897,131,823 | ||||||||||||
Class R1 | (518 | ) | 110,702 | 33,182 | 431,349 | |||||||||||
Class R2 | 74,419 | 1,477,215 | 82,025 | 1,372,682 | ||||||||||||
Class R3 | 6,518,803 | 135,442,447 | 6,950,364 | 124,635,170 | ||||||||||||
Class R4 | 1,192,806 | 26,292,557 | 5,539,368 | 108,577,958 | ||||||||||||
Class R6 | 60,378,295 | 1,353,059,479 | 42,451,289 | 799,069,804 | ||||||||||||
Class 529A | 79,169 | 1,623,613 | 82,453 | 1,397,004 | ||||||||||||
Class 529B | (1,535 | ) | (23,831 | ) | 2,958 | 39,085 | ||||||||||
Class 529C | (29,912 | ) | (478,661 | ) | (602 | ) | (5,341 | ) | ||||||||
160,124,870 | $3,571,746,148 | 111,789,576 | $2,125,633,835 |
36
Notes to Financial Statements – continued
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 and Class 529B 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 Income Fund, 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, and the MFS Lifetime 2060 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 syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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 rates equal to customary reference rates plus an agreed upon spread. For the year ended August 31, 2020, the fund’s commitment fee and interest expense were $37,953 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 following were affiliated issuers:
Affiliated Issuers | Beginning Value | Purchases | Sales Proceeds | Realized Gain (Loss) | Change in Unrealized Appreciation or Depreciation | Ending Value | ||||||||||||||||||
MFS Institutional Money Market Portfolio | $154,554,360 | $2,582,290,985 | $2,415,629,918 | $(53,053 | ) | $(20,752 | ) | $321,141,622 | ||||||||||||||||
Affiliated Issuers | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||
MFS Institutional Money Market Portfolio |
| $2,008,896 | $— |
37
Notes to Financial Statements – continued
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
(9) Subsequent Event
On October 2, 2020, the fund announced that effective December 21, 2020, the time period will be shortened for the automatic conversion of Class C and Class 529C shares to Class A and Class 529A shares, respectively, of the same fund, from approximately ten years to approximately eight years after purchase. On or about December 21, 2020 any Class C and Class 529C shares that have an original purchase date of December 31, 2012 or earlier will automatically convert to Class A or Class 529A shares, respectively, of the same fund. Please see the fund’s prospectus for details.
On October 12, 2020, the fund recorded redemption proceeds for a distribution in-kind of portfolio securities and cash that were valued at $27,279,122. The redeeming shareholder generally receives a pro rata share of the securities held by the fund. The distribution of such securities generated a realized gain of $15,620,838 for the fund.
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of MFS Series Trust IV and the Shareholders of MFS Mid Cap Growth Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS Mid Cap Growth Fund (the “Fund”), including the portfolio of investments, as of August 31, 2020, 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 August 31, 2020, 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 August 31, 2020, by
39
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
October 19, 2020
We have served as the auditor of one or more of the MFS investment companies since 1924.
40
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of October 1, 2020, 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) Held with Fund | Trustee/Officer Since (h) | Number of MFS Funds overseen by the Trustee | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 56) | Trustee | February 2004 | 133 | 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 59) | Trustee | January 2014 | 133 | 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 65) | Trustee and Chair of Trustees | January 2009 | 133 | Private investor | N/A | |||||
Steven E. Buller (age 69) | Trustee | February 2014 | 133 | Private investor; Financial Accounting Standards Advisory Council, Chairman (2014-2015) | N/A |
41
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
John A. Caroselli (age 66) | Trustee | March 2017 | 133 | Private investor; 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 65) | Trustee | January 2009 | 133 | Private investor | N/A | |||||
Peter D. Jones (age 65) | Trustee | January 2019 | 133 | Private investor; Franklin Templeton Institutional, LLC (investment management), Chairman (since June 30, 2020); Franklin Templeton Distributors, Inc. (investment management), President (until 2015) | N/A |
42
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
James W. Kilman, Jr. (age 59) | Trustee | January 2019 | 133 | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), 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 (2016-2019) | |||||
Clarence Otis, Jr. (age 64) | Trustee | March 2017 | 133 | Private investor | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 64) | Trustee | May 2014 | 133 | Private investor | N/A | |||||
Laurie J. Thomsen (age 63) | Trustee | March 2005 | 133 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
43
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 46) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Kino Clark (k) (age 52) | Assistant Treasurer | January 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
John W. Clark, Jr. (k) (age 53) | Assistant Treasurer | April 2017 | 133 | 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 61) | Assistant Secretary and Assistant Clerk | September 2012 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
David L. DiLorenzo (k) (age 52) | President | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President |
44
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Heidi W. Hardin (k) (age 53) | Secretary and Clerk | April 2017 | 133 | 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 47) | Assistant Secretary and Assistant Clerk | June 2006 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Amanda S. Mooradian (k) (age 41) | Assistant Secretary and Assistant Clerk | September 2018 | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | ||||
Susan A. Pereira (k) (age 49) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 49) | Assistant Treasurer | September 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 45) | Assistant Secretary and Assistant Clerk | October 2014 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
45
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Martin J. Wolin (k) (age 53) | Chief Compliance Officer | July 2015 | 133 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015) | ||||
James O. Yost (k) (age 60) | Treasurer | September 1990 | 133 | Massachusetts Financial Services Company, Senior Vice President |
(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. Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. 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, 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.
46
Trustees and Officers – continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
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) | ||
Eric Fischman Paul Gordon |
47
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Mid Cap Growth Fund
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the
48
Board Review of Investment Advisory Agreement – continued
Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s Class A shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s Class A shares was in the 1st quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s Class A shares was in the 2nd quintile for the one-year period and the 1st quintile for the three-year period ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report. In addition, the Trustees reviewed the Fund’s Class I total return performance relative to the Fund’s benchmark performance for the ten-, five-, three- and one-year periods ended December 31, 2019.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s Class A shares as a percentage of average daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information
49
Board Review of Investment Advisory Agreement – continued
provided by Broadridge. The Trustees considered that MFS currently observes an expense limitation for the Fund, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each lower than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion, $2.5 billion, $5 billion, and $10 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoints and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life
50
Board Review of Investment Advisory Agreement – continued
Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements and plans other than the investment advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
51
STATEMENT REGARDING LIQUIDITY RISK MANAGEMENT PROGRAM
The fund has adopted and implemented a liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The fund’s Board of Trustees (the “Board”) has designated MFS as the administrator of the Program. The Program is reasonably designed to assess and manage the liquidity risk of the fund. Liquidity risk is the risk that the fund could not meet requests to redeem shares issued by the fund without significant dilution of remaining investors’ interests.
MFS provided a written report to the Board for consideration at its April 2020 meeting that addressed the operation of the Program and provided an assessment of the adequacy and effectiveness of the Program during the period from the adoption of the Program on December 1, 2018 to December 31, 2019 (the “Covered Period”). The report concluded that during the Covered Period the Program had operated effectively and had adequately and effectively been implemented to assess and manage the fund’s liquidity risk. MFS also reported that there were no liquidity events that impacted the fund or its ability to timely meet redemptions without dilution to existing shareholders during the Covered Period.
There can be no assurance that the Program will achieve its objectives in the future. Further information on liquidity risk, and other principal risks to which an investment in the fund may be subject, can be found in the prospectus.
52
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 calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://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 as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s website at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/openendfunds by 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 at https://www.mfs.com/announcements or at mfs.com/openendfunds by choosing the fund’s name and then selecting the “Resources” tab and clicking on the “Announcements” tab, if any.
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 2020 income tax forms in January 2021. The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates $70,836,000 as capital gain dividends paid during the fiscal year.
53
rev. 3/16
| WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
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 are no 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? | Call 800-225-2606 or go to mfs.com. |
54
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. |
55
Save paper with eDelivery.
MFS® will send you prospectuses, |
reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
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
Annual Report
August 31, 2020
MFS® U.S. Government Money Market 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.
MCM-ANN
MFS® U.S. Government Money Market Fund
Contact information | back cover |
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
LETTER FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Markets experienced dramatic swings in early 2020 as the coronavirus pandemic brought the global economy to a standstill for several months. Optimism over the
development of vaccines and therapeutics, along with a decline in cases in countries affected by the outbreak early on, brightened the economic and market outlook during the second quarter, as did the phased reopening of U.S. states. However, a great deal of uncertainty remains. While policymakers and public health officials have learned a great deal about combating the virus, much remains unknown at a time when the risks are rising for a second wave of infection. Political uncertainty is heightened as well, as the pandemic has caused many jurisdictions in the United States to adopt mail-in voting for the first time, raising questions over whether ballots in the November elections will be counted as quickly as they have been in the past.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and governments are deploying unprecedented levels of fiscal support, though in the United States some of those measures were allowed to lapse at the end of July as negotiators found themselves at an impasse over the scope of additional funding. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can also sow the seeds of instability. In the aftermath of the crisis, societal changes may be likely, as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our unique global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
October 19, 2020
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
Portfolio structure (u)
Composition including fixed income credit quality (a)(u) |
| |||
A-1+ | 52.8% | |||
A-1 | 47.3% | |||
Other Assets Less Liabilities | (0.1)% |
Maturity breakdown (u) |
| |||
0 - 7 days | 22.6% | |||
8 - 29 days | 44.2% | |||
30 - 59 days | 25.3% | |||
60 - 89 days | 4.0% | |||
90 - 365 days | 4.0% | |||
Other Assets Less Liabilities | (0.1)% |
(a) | Ratings are assigned to portfolio 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 scale. All ratings are subject to change. The fund did not hold unrated securities. The fund is not rated by these agencies. |
(u) | For purposes of this presentation, accrued interest, where applicable, is included. |
From time to time Other Assets Less Liabilities may be negative due to timing of cash receipts.
Percentages are based on net assets as of August 31, 2020.
The portfolio is actively managed and current holdings may be different.
2
PERFORMANCE SUMMARY THROUGH 8/31/20
Total returns as well as the current 7-day yield have been provided for the applicable time periods. Performance results reflect the percentage change in net asset value, including the reinvestment of any dividends and capital gains distributions. (See Notes to Performance Summary.)
Performance data shown represents past performance and is no guarantee of future results. You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect the sponsor will provide financial support to the fund at any time. 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.
Inception | 1-Year Total Return (without sales charge) | Current 7-day yield | ||||||
12/19/75 | 0.61% | 0.00% |
Yields quoted are based on the latest seven days ended as of August 31, 2020, with dividends annualized. The yield quotations more closely reflect the current earnings of the fund than the total return quotations. Shares of the fund can be purchased at net asset value without a sales charge.
Certain shares of the fund acquired through an exchange may be subject to a contingent deferred sales charge upon redemption depending on when the shares exchanged were originally purchased. See the notes to financial statements for more details.
Notes to Performance Summary
Performance results reflect any applicable expense subsidies, waivers and adjustments 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. All results are historical and assume the reinvestment of any dividends and capital gain distributions.
3
Fund expenses borne by the shareholders during the period, March 1, 2020 through August 31, 2020
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; 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 March 1, 2020 through August 31, 2020.
Actual Expenses
The first line 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 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 in the following table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
4
Expense Table – continued
Annualized Expense Ratio | Beginning Account Value 3/01/20 | Ending Account Value | Expenses Paid During 3/01/20-8/31/20 | |||||||||||||
Actual | 0.23% | $1,000.00 | $1,000.34 | $1.16 | ||||||||||||
Hypothetical (h) | 0.23% | $1,000.00 | $1,023.98 | $1.17 |
(h) | 5% fund return per year before expenses. |
(p) | “Expenses Paid During Period” are equal to the fund’s annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
Notes to Expense Table
As more fully disclosed in Note 3 in the Notes to Financial Statements, the expense ratios reported above include additional expense reductions to avoid a negative yield.
5
8/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
Issuer | Shares/Par | Value ($) | ||||||
U.S. Government Agencies and Equivalents (y) - 94.4% | ||||||||
Fannie Mae, 0.156%, due 9/09/2020 | $ | 16,590,000 | $ | 16,589,436 | ||||
Fannie Mae, 0.153%, due 9/16/2020 | 20,269,000 | 20,267,733 | ||||||
Fannie Mae, 0.092%, due 10/20/2020 | 16,678,000 | 16,675,957 | ||||||
Federal Farm Credit Bank, 0.081%, due 9/23/2020 | 9,400,000 | 9,399,541 | ||||||
Federal Home Loan Bank, 0.071%, due 9/01/2020 | 5,739,000 | 5,739,000 | ||||||
Federal Home Loan Bank, 0.071%, due 9/02/2020 | 3,105,000 | 3,104,994 | ||||||
Federal Home Loan Bank, 0.071%, due 9/04/2020 | 11,154,000 | 11,153,935 | ||||||
Federal Home Loan Bank, 0.061%, due 9/09/2020 | 23,420,000 | 23,419,688 | ||||||
Federal Home Loan Bank, 0.076%, due 9/09/2020 | 25,002,000 | 25,001,583 | ||||||
Federal Home Loan Bank, 0.076%, due 9/11/2020 | 14,938,000 | 14,937,689 | ||||||
Federal Home Loan Bank, 0.081%, due 9/11/2020 | 6,000,000 | 5,999,867 | ||||||
Federal Home Loan Bank, 0.096%, due 11/06/2020 | 20,900,000 | 20,896,398 | ||||||
Freddie Mac, 0.071%, due 9/11/2020 | 10,750,000 | 10,749,791 | ||||||
Freddie Mac, 0.081%, due 9/17/2020 | 6,376,000 | 6,375,773 | ||||||
Freddie Mac, 0.163%, due 9/17/2020 | 21,090,000 | 21,088,500 | ||||||
Freddie Mac, 0.066%, due 9/24/2020 | 4,500,000 | 4,499,813 | ||||||
U.S. Treasury Bill, 0.086%, due 9/01/2020 | 20,865,000 | 20,865,000 | ||||||
U.S. Treasury Bill, 0.061%, due 9/03/2020 | 20,900,000 | 20,899,930 | ||||||
U.S. Treasury Bill, 0.064%, due 9/08/2020 | 25,900,000 | 25,899,685 | ||||||
U.S. Treasury Bill, 0.082%, due 9/15/2020 | 20,890,000 | 20,889,346 | ||||||
U.S. Treasury Bill, 0.073%, due 9/22/2020 | 20,635,000 | 20,634,139 | ||||||
U.S. Treasury Bill, 0.089%, due 9/24/2020 | 8,460,000 | 8,459,524 | ||||||
U.S. Treasury Bill, 0.135%, due 9/24/2020 | 20,865,000 | 20,863,234 | ||||||
U.S. Treasury Bill, 0.131%, due 10/08/2020 | 20,895,000 | 20,892,241 | ||||||
U.S. Treasury Bill, 0.086%, due 10/13/2020 | 20,900,000 | 20,897,928 | ||||||
U.S. Treasury Bill, 0.086%, due 10/20/2020 | 20,865,000 | 20,862,586 | ||||||
U.S. Treasury Bill, 0.108%, due 10/22/2020 | 20,725,000 | 20,721,873 | ||||||
U.S. Treasury Bill, 0.104%, due 10/29/2020 | 31,125,000 | 31,119,860 | ||||||
U.S. Treasury Bill, 0.103%, due 12/01/2020 | 20,890,000 | 20,884,640 | ||||||
Total U.S. Government Agencies and Equivalents, at Amortized Cost and Value | $ | 489,789,684 | ||||||
Repurchase Agreements - 5.7% | ||||||||
JPMorgan Chase & Co. Repurchase Agreement, 0.07%, dated 8/31/2020, due 9/01/2020, total to be received $29,323,057 (secured by U.S. Treasury and Federal Agency obligations valued at $29,909,611 in a jointly traded account), at Cost and Value | $ | 29,323,000 | $ | 29,323,000 | ||||
Other Assets, Less Liabilities - (0.1)% | (461,837) | |||||||
Net Assets - 100.0% | $ | 518,650,847 |
(y) | The rate shown represents an annualized yield at time of purchase. |
See Notes to Financial Statements
6
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 8/31/20
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 cost and value | $519,112,684 | |||
Cash | 421 | |||
Receivables for | ||||
Fund shares sold | 845,859 | |||
Interest | 57 | |||
Receivable from investment adviser and distributor | 74,680 | |||
Other assets | 319 | |||
Total assets | $520,034,020 | |||
Liabilities | ||||
Payables for | ||||
Fund shares reacquired | $1,186,966 | |||
Payable to affiliates | ||||
Administrative services fee | 855 | |||
Shareholder servicing costs | 113,449 | |||
Payable for independent Trustees’ compensation | 2,763 | |||
Accrued expenses and other liabilities | 79,140 | |||
Total liabilities | $1,383,173 | |||
Net assets | $518,650,847 | |||
Net assets consist of | ||||
Paid-in capital | $518,651,284 | |||
Total distributable earnings (loss) | (437 | ) | ||
Net assets | $518,650,847 | |||
Shares of beneficial interest outstanding | 518,650,697 | |||
Net asset value per share (net assets of $518,650,847 / 518,650,697 shares of beneficial interest outstanding) | $1.00 |
A contingent deferred sales charge may be imposed on redemptions.
See Notes to Financial Statements
7
Financial Statements
Year ended 8/31/20
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 | $3,343,667 | |||
Other | 2,174 | |||
Total investment income | $3,345,841 | |||
Expenses | ||||
Management fee | $1,647,317 | |||
Shareholder servicing costs | 524,307 | |||
Administrative services fee | 65,892 | |||
Independent Trustees’ compensation | 9,351 | |||
Custodian fee | 20,011 | |||
Shareholder communications | 16,029 | |||
Audit and tax fees | 37,844 | |||
Legal fees | 4,142 | |||
Miscellaneous | 142,969 | |||
Total expenses | $2,467,862 | |||
Fees paid indirectly | (19,970 | ) | ||
Reduction of expenses by investment adviser and distributor | (970,850 | ) | ||
Net expenses | $1,477,042 | |||
Net investment income (loss) | $1,868,799 | |||
Realized gain (loss) (identified cost basis) | ||||
Unaffiliated issuers | $100 | |||
Change in net assets from operations | $1,868,899 |
See Notes to Financial Statements
8
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 | ||||||||
8/31/20 | 8/31/19 | |||||||
Change in net assets | ||||||||
From operations | ||||||||
Net investment income (loss) | $1,868,799 | $4,944,294 | ||||||
Net realized gain (loss) | 100 | 49 | ||||||
Change in net assets from operations | $1,868,899 | $4,944,343 | ||||||
Total distributions to shareholders | $(1,868,799 | ) | $(4,944,294 | ) | ||||
Change in net assets from fund share transactions | $214,851,860 | $39,428,695 | ||||||
Total change in net assets | $214,851,960 | $39,428,744 | ||||||
Net assets | ||||||||
At beginning of period | 303,798,887 | 264,370,143 | ||||||
At end of period | $518,650,847 | $303,798,887 |
See Notes to Financial Statements
9
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.
Year ended | ||||||||||||||||||||
8/31/20 | 8/31/19 | 8/31/18 | 8/31/17 | 8/31/16 | ||||||||||||||||
Net asset value, beginning of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | |||||||||||||||
Income (loss) from investment operations |
| |||||||||||||||||||
Net investment income (loss) (d) | $0.00 | (w) | $0.02 | $0.01 | $0.00 | (c)(w) | $0.00 | |||||||||||||
Net realized and unrealized gain (loss) | 0.01 | 0.00 | (w) | — | (0.00 | )(w) | (0.00 | )(w) | ||||||||||||
Total from investment operations | $0.01 | $0.02 | $0.01 | $0.00 | (w) | $(0.00 | )(w) | |||||||||||||
Less distributions declared to shareholders |
| |||||||||||||||||||
From net investment income | $(0.01 | ) | $(0.02 | ) | $(0.01 | ) | $(0.00 | )(w) | $— | |||||||||||
Contribution from adviser | $— | $— | $(0.00 | )(w) | $— | $— | ||||||||||||||
Net asset value, end of period | $1.00 | $1.00 | $1.00 | $1.00 | $1.00 | |||||||||||||||
Total return (%) (r)(t) | 0.61 | 1.70 | 0.83 | 0.17 | (c) | 0.00 | (w) | |||||||||||||
Ratios (%) (to average net assets) and Supplemental data: |
| |||||||||||||||||||
Expenses before expense reductions (f) | 0.60 | 0.62 | 0.63 | 0.56 | (c) | 0.61 | ||||||||||||||
Expenses after expense reductions (f) | 0.36 | 0.61 | 0.62 | 0.43 | (c) | 0.23 | ||||||||||||||
Net investment income (loss) | 0.45 | 1.69 | 0.81 | 0.17 | (c) | 0.00 | ||||||||||||||
Net assets at end of period (000 omitted) | $518,651 | $303,799 | $264,370 | $307,591 | $320,847 |
(c) | Amount reflects a one-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. |
(t) | Total returns do not include any applicable sales charges. |
(w) | Per share amount was less than $0.01 and total return or ratio was less than 0.01%, as applicable. |
See Notes to Financial Statements
10
(1) Business and Organization
MFS U.S. Government Money Market Fund (the fund) is a diversified series of MFS Series Trust IV (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
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 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
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’s in-scope financial instruments and transactions.
Investment Valuations – Pursuant to procedures approved by the Board of Trustees, investments held by the fund are generally valued at amortized cost, which approximates market value. Amortized cost involves valuing an instrument at its cost as
11
Notes to Financial Statements – continued
adjusted for amortization of premium or accretion of discount rather than its current market value. The amortized cost value of an instrument can be different from the market value of an instrument.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of August 31, 2020 in valuing the fund’s assets or liabilities:
Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Short-Term Securities | $— | $519,112,684 | $— | $519,112,684 |
For further information regarding security characteristics, see the Portfolio of Investments.
Repurchase Agreements – The fund enters into repurchase agreements under the terms of Master Repurchase Agreements with approved counterparties. Each repurchase agreement is recorded at cost. The fund requires that the securities collateral in a repurchase transaction be transferred to a custodian. The fund monitors, on a daily basis, the value of the collateral to ensure that its value, including accrued interest, is greater than amounts owed to the fund under each such repurchase agreement. Upon an event of default under a Master Repurchase Agreement, the non-defaulting party may close out all transactions traded under such agreement and net amounts owed under each transaction to one net amount payable by one party to the other. Absent an event of default, the Master Repurchase Agreement does not result in an offset of reported amounts of assets and liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund and other funds managed by MFS may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. At August 31, 2020, the fund had investments in repurchase agreements with a gross value of $29,323,000 included in investments in unaffiliated issuers in the Statement of Assets and Liabilities. The value of the related collateral exceeded the value of the repurchase agreements at period end.
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.
12
Notes to Financial Statements – continued
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.
Fees Paid Indirectly – The fund’s custody fee may be reduced by credits earned under a previous arrangement that measured the value of U.S. dollars deposited with the custodian by the fund. The amount of the credits that were used to reduce the fund’s custody fee for the year ended August 31, 2020, 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.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to 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 8/31/20 | Year ended 8/31/19 | |||||||
Ordinary income (including any short-term capital gains) | $1,868,799 | $4,944,294 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
As of 8/31/20 | ||||
Cost of investments | $519,112,684 | |||
Undistributed ordinary income | 2,749 | |||
Capital loss carryforwards | (437 | ) | ||
Other temporary differences | (2,749 | ) |
13
Notes to Financial Statements – continued
As of August 31, 2020, 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 | $(437 | ) |
(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 | 0.40 | % | ||
In excess of $1 billion | 0.35 | % |
During the year ended August 31, 2020, MFS voluntarily waived receipt of $793,448 of the fund’s management fee in order to avoid a negative yield. For the year ended August 31, 2020, this amount is included in the reduction of total expenses in the Statement of Operations. MFS has also 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 August 31, 2020, this management fee reduction amounted to $44,426, which is included in the reduction of total expenses in the Statement of Operations. For the year ended August 31, 2020, these waivers had the effect of reducing the management fee by 0.20% of average daily net assets on an annualized basis. The management fee incurred for the year ended August 31, 2020 was equivalent to an annual effective rate of 0.20% of the fund’s average daily net assets.
In order to avoid a negative yield for the year ended August 31, 2020, MFS voluntarily agreed to reduce certain other expenses in the amount of $79,970, which is included in the reduction of total expenses in the Statement of Operations.
Effective August 1, 2020, 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 0.45% annually of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until December 31, 2021. For the period from August 1, 2020 through August 31, 2020, this reduction amounted to $53,006 which is included in the reduction of total expenses in the Statement of Operations.
Distributor – Certain shares acquired through an exchange may be subject to a contingent deferred sales charge upon redemption depending on when the shares exchanged were originally purchased. Contingent deferred sales charges paid to MFS Distributors, Inc. (MFD) during the year ended August 31, 2020 were $16,341.
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
14
Notes to Financial Statements – continued
determined periodically under the supervision of the fund’s Board of Trustees. For the year ended August 31, 2020, the fee was $271,186, which equated to 0.0658% annually of the fund’s average daily net assets. MFSC also receives reimbursement from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the year ended August 31, 2020, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $253,121.
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 August 31, 2020 was equivalent to an annual effective rate of 0.0160% 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 from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS, MFD, and MFSC.
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. The DB plan resulted in a pension expense of $299 and is included in “Independent Trustees’ compensation” in the Statement of Operations for the year ended August 31, 2020. The liability for deferred retirement benefits payable to those former independent Trustees under the DB plan amounted to $2,749 at August 31, 2020, and is included in “Payable for independent Trustees’ compensation” in the Statement of Assets and Liabilities.
(4) 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. The number of shares sold, reinvested and reacquired corresponds to the net proceeds from the sale of shares, reinvestment of distributions and cost of shares reacquired, respectively, since shares are sold and reacquired at $1.00 per share. Transactions in fund shares were as follows:
Year ended 8/31/20 | Year ended 8/31/19 | |||||||
Shares sold | 532,195,804 | 210,809,484 | ||||||
Shares issued to shareholders in reinvestment of distributions | 1,528,478 | 4,144,578 | ||||||
Shares reacquired | (318,872,422 | ) | (175,525,367 | ) | ||||
Net change | 214,851,860 | 39,428,695 |
15
Notes to Financial Statements – continued
Effective at the close of business on May 29, 2020, purchases of the fund are closed to new and existing investors subject to certain exceptions. Please see the fund’s prospectus for details.
(5) 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 syndicate 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 highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, 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 rates equal to customary reference rates plus an agreed upon spread. For the year ended August 31, 2020, the fund’s commitment fee and interest expense were $1,732 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
(6) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of MFS Series Trust IV and the Shareholders of MFS U.S. Government Money Market Fund:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of MFS U.S. Government Money Market Fund (the “Fund”), including the portfolio of investments, as of August 31, 2020, 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 August 31, 2020, 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 August 31, 2020, by
17
Report of Independent Registered Public Accounting Firm – continued
correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 19, 2020
We have served as the auditor of one or more of the MFS investment companies since 1924.
18
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of October 1, 2020, 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) Held with Fund | Trustee/Officer Since (h) | Number of MFS Funds overseen by the Trustee | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
INTERESTED TRUSTEES | ||||||||||
Robert J. Manning (k) (age 56) | Trustee | February 2004 | 133 | 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 59) | Trustee | January 2014 | 133 | 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 65) | Trustee and Chair of Trustees | January 2009 | 133 | Private investor | N/A | |||||
Steven E. Buller (age 69) | Trustee | February 2014 | 133 | Private investor; Financial Accounting Standards Advisory Council, Chairman (2014-2015) | N/A |
19
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
John A. Caroselli (age 66) | Trustee | March 2017 | 133 | Private investor; 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 65) | Trustee | January 2009 | 133 | Private investor | N/A | |||||
Peter D. Jones (age 65) | Trustee | January 2019 | 133 | Private investor; Franklin Templeton Institutional, LLC (investment management), Chairman (since June 30, 2020); Franklin Templeton Distributors, Inc. (investment management), President (until 2015) | N/A |
20
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of | Principal Occupations During the Past Five Years | Other Directorships During the Past Five Years (j) | |||||
James W. Kilman, Jr. (age 59) | Trustee | January 2019 | 133 | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), 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 (2016-2019) | |||||
Clarence Otis, Jr. (age 64) | Trustee | March 2017 | 133 | Private investor | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | |||||
Maryanne L. Roepke (age 64) | Trustee | May 2014 | 133 | Private investor | N/A | |||||
Laurie J. Thomsen (age 63) | Trustee | March 2005 | 133 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
21
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
OFFICERS | ||||||||
Christopher R. Bohane (k) (age 46) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | ||||
Kino Clark (k) (age 52) | Assistant Treasurer | January 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
John W. Clark, Jr. (k) (age 53) | Assistant Treasurer | April 2017 | 133 | 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 61) | Assistant Secretary and Assistant Clerk | September 2012 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
David L. DiLorenzo (k) (age 52) | President | July 2005 | 133 | Massachusetts Financial Services Company, Senior Vice President |
22
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Heidi W. Hardin (k) (age 53) | Secretary and Clerk | April 2017 | 133 | 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 47) | Assistant Secretary and Assistant Clerk | June 2006 | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | ||||
Amanda S. Mooradian (k) (age 41) | Assistant Secretary and Assistant Clerk | September 2018 | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | ||||
Susan A. Pereira (k) (age 49) | Assistant Secretary and Assistant Clerk | July 2005 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | ||||
Kasey L. Phillips (k) (age 49) | Assistant Treasurer | September 2012 | 133 | Massachusetts Financial Services Company, Vice President | ||||
Matthew A. Stowe (k) (age 45) | Assistant Secretary and Assistant Clerk | October 2014 | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel |
23
Trustees and Officers – continued
Name, Age | Position(s) Held with Fund | Trustee/Officer Since (h) | Number of MFS | Principal Occupations During the Past Five Years | ||||
Martin J. Wolin (k) (age 53) | Chief Compliance Officer | July 2015 | 133 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015) | ||||
James O. Yost (k) (age 60) | Treasurer | September 1990 | 133 | Massachusetts Financial Services Company, Senior Vice President |
(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. Messrs. Jones and Kilman became Trustees of the Funds on January 1, 2019. 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, 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.
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Trustees and Officers – continued
The Statement of Additional Information for a Fund includes further information about the Trustees and is available without charge upon request by calling 1-800-225-2606.
Investment Adviser | Custodian | |
Massachusetts Financial Services Company 111 Huntington Avenue 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. 111 Huntington Avenue Boston, MA 02199-7618 | Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 | |
Portfolio Manager(s) | ||
Edward O’Dette |
25
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS U.S. Government Money Market Fund
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, annually approve the continuation of the Fund’s investment advisory agreement with MFS. The Trustees consider matters bearing on the Fund and its advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting. In addition, the independent Trustees met several times by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“contract review meetings”) for the specific purpose of considering whether to approve the continuation of the investment advisory agreement for the Fund and the other investment companies that the Board oversees (the “MFS Funds”). The independent Trustees were assisted in their evaluation of the Fund’s investment advisory agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS during various contract review meetings. The independent Trustees were also assisted in this process by an independent consultant who was retained by and reported to the independent Trustees.
In connection with their deliberations regarding the continuation of the investment advisory agreement, the Trustees, including the independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to be relevant. The investment advisory agreement for the Fund was considered separately, although the Trustees also took into account the common interests of all MFS Funds in their review. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services performed by MFS under the existing investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2019 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of portfolios of other clients of MFS, including institutional separate accounts and other clients, (iv) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” are observed for the Fund, (v) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the Fund and the MFS Funds as a whole, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of various functions performed by MFS for the
26
Board Review of Investment Advisory Agreement – continued
Funds, such as compliance monitoring and portfolio trading practices, and (viii) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel providing investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative performance, fee and expense information prepared and provided by Broadridge was not independently verified and the independent Trustees did not independently verify any information provided to them by MFS.
The Trustees’ conclusion as to the continuation of the investment advisory agreement was based on a comprehensive consideration of all information provided to the Trustees and not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors. It is also important to recognize that the fee arrangements for the Fund and other MFS Funds are the result of years of review and discussion between the independent Trustees and MFS, that certain aspects of such arrangements may receive greater scrutiny in some years than in others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements during the course of the year and in prior years.
Based on information provided by Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe over various time periods. The Trustees placed particular emphasis on the total return performance of the Fund’s shares in comparison to the performance of funds in its Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s shares was in the 4th quintile relative to the other funds in the universe for this five-year period (the 1st quintile being the best performers and the 5th quintile being the worst performers). The total return performance of the Fund’s shares was in the 4th quintile for each of the one- and three-year periods ended December 31, 2019 relative to the Broadridge performance universe. Because of the passage of time, these performance results may differ from the performance results for more recent periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account information provided by MFS in connection with the contract review meetings, as well as during investment review meetings conducted with portfolio management personnel during the course of the year regarding the Fund’s performance. In addition, the Trustees noted the market conditions affecting all money market funds, in particular the low interest rate environment during portions of the three- and five-year periods, and MFS’ voluntary waiver of all or a portion of its fees to ensure that the Fund avoided a negative yield during those periods. After reviewing these and related factors, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that they were satisfied with MFS’ responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s advisory fee and the total expense ratio of the Fund’s shares as a percentage of average daily net assets and the advisory fee and total
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Board Review of Investment Advisory Agreement – continued
expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each approximately at the Broadridge expense group median. The Trustees also noted that MFS has agreed to implement an expense limitation for the Fund effective August 1, 2020, which may not be changed without the Trustees’ approval.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. In comparing these fees, the Trustees considered information provided by MFS as to the generally broader scope of services provided by MFS to the Fund, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds. The Trustees also considered the higher demands placed on MFS’ investment personnel and trading infrastructure as a result of the daily cash in-flows and out-flows of the Fund in comparison to separate accounts.
The Trustees also considered whether the Fund may benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund and/or growth in assets of the MFS Funds as a whole. They noted that the Fund’s advisory fee rate schedule is subject to a contractual breakpoint that reduces the Fund’s advisory fee rate on average daily net assets over $1 billion. The Trustees also noted that MFS has agreed in writing to waive a portion of the management fees of certain MFS Funds, including the Fund, if the total combined assets of certain funds within the MFS Funds’ complex increase above agreed upon thresholds (the “group fee waiver”), enabling the Fund’s shareholders to share in the benefits from any economies of scale at the complex level. The group fee waiver is reviewed and renewed annually between the Board and MFS. The Trustees concluded that the breakpoint and the group fee waiver were sufficient to allow the Fund to benefit from economies of scale as its assets and overall complex assets grow.
The Trustees also considered information prepared by MFS relating to MFS’ costs and profits with respect to the Fund, the MFS Funds considered as a group, and other investment companies and accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds, the Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees concluded, within the context of their overall conclusions regarding the investment advisory agreement, that the advisory fees charged to the Fund represent reasonable compensation in light of the services being provided by MFS to the Fund.
In addition, the Trustees considered MFS’ resources and related efforts to continue to retain, attract and motivate capable personnel to serve the Fund. The Trustees also considered current and developing conditions in the financial services industry, including the presence of large and well-capitalized companies which are spending, and appear to be prepared to continue to spend, substantial sums to engage personnel
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Board Review of Investment Advisory Agreement – continued
and to provide services to competing investment companies. In this regard, the Trustees also considered the financial resources of MFS and its ultimate parent, Sun Life Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that also serves other investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of administrative, transfer agency, and distribution services provided to the Fund by MFS and its affiliates under agreements other than the investment advisory agreement. The Trustees also considered the nature, extent and quality of certain other services MFS performs or arranges for on the Fund’s behalf, which may include securities lending programs, directed expense payment programs, class action recovery programs, and MFS’ interaction with third-party service providers, principally custodians and sub-custodians. The Trustees concluded that the various non-advisory services provided by MFS and its affiliates on behalf of the Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including the independent Trustees, concluded that the Fund’s investment advisory agreement with MFS should be continued for an additional one-year period, commencing August 1, 2020.
29
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 calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The fund files monthly portfolio information with the SEC on Form N-MFP. The fund’s Form N-MFP reports are available on the SEC’s website at http://www.sec.gov. A shareholder can also access the fund’s portfolio holdings as of each month end and the fund’s Form N-MFP reports at mfs.com/openendfunds after choosing “Click here for access to Money Market fund 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 at https://www.mfs.com/announcements or at mfs.com/openendfunds by choosing the fund’s name and then selecting the “Resources” tab and clicking on the “Announcements” tab, if any.
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 2020 income tax forms in January 2021. The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Proposed Treasury Regulation §1.163(j)-1(b).
30
FACTS
| WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
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 are no 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? | Call 800-225-2606 or go to mfs.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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reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.
To sign up:
1. Go to mfs.com.
2. Log in via MFS® Access.
3. Select eDelivery.
If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.
CONTACT
WEB SITE
mfs.com
MFS TALK
1-800-637-8255
24 hours a day
ACCOUNT SERVICE AND LITERATURE
Shareholders
1-800-225-2606
Financial advisors
1-800-343-2829
Retirement plan services
1-800-637-1255
MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 219341
Kansas City, MO 64121-9341
OVERNIGHT MAIL
MFS Service Center, Inc.
Suite 219341
430 W 7th Street
Kansas City, MO 64105-1407
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 Form N-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 that relates to an element of the Code’s definition enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the Code is attached hereto as EX-99.COE.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Messrs. Steven E. Buller, 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 Form N-CSR. In addition, Messrs. Buller, 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 Form N-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 for non-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 August 31, 2020 and 2019, audit fees billed to each Fund by Deloitte and E&Y were as follows:
Audit Fees | ||||||||
2020 | 2019 | |||||||
Fees Billed by Deloitte | ||||||||
MFS Mid Cap Growth Fund | 48,104 | 47,313 | ||||||
MFS U.S. Government Money Market Fund | 33,740 | 33,189 | ||||||
|
|
|
| |||||
Total | 81,844 | 80,502 |
Audit Fees | ||||||||
2020 | 2019 | |||||||
Fees Billed by E&Y | ||||||||
MFS Blended Research Emerging Markets Equity Fund | 55,160 | 54,251 | ||||||
MFS Blended Research Global Equity Fund+ | 0 | 52,113 | ||||||
MFS Blended Research International Equity Fund | 55,160 | 54,251 | ||||||
MFS Global New Discovery Fund | 48,270 | 47,477 | ||||||
|
|
|
| |||||
Total | 158,591 | 208,092 |
For the fiscal years ended August 31, 2020 and 2019, 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 | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Fees Billed by Deloitte | ||||||||||||||||||||||||
To MFS Mid Cap Growth Fund | 0 | 0 | 7,123 | 7,004 | 0 | 0 | ||||||||||||||||||
To MFS U.S. Government Money Market Fund | 0 | 0 | 4,050 | 3,982 | 0 | 0 | ||||||||||||||||||
Total fees billed by Deloitte To above Funds | 0 | 0 | 11,173 | 10,986 | 0 | 0 | ||||||||||||||||||
Audit-Related Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Fees Billed by Deloitte | ||||||||||||||||||||||||
To MFS and MFS Related Entities of MFS Mid Cap Growth Fund* | 0 | 0 | 0 | 0 | 5,390 | 3,790 | ||||||||||||||||||
To MFS and MFS Related Entities of MFS U.S. Government Money Market Fund* | 0 | 0 | 0 | 0 | 5,390 | 3,790 |
Aggregate Fees for Non-audit Services | ||||||||
2020 | 2019 | |||||||
Fees Billed by Deloitte | ||||||||
To MFS Mid Cap Growth Fund, MFS and MFS Related Entities# | 906,263 | 10,794 | ||||||
To MFS U.S. Government Money Market Fund, MFS and MFS Related Entities# | 903,190 | 7,772 |
Audit-Related Fees1 | Tax Fees2 | All Other Fees4 | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Fees Billed by E&Y | ||||||||||||||||||||||||
To MFS Blended Research Emerging Markets Equity Fund | 0 | 0 | 10,372 | 10,215 | 1,006 | 1,006 | ||||||||||||||||||
To MFS Blended Research Global Equity Fund+ | 0 | 0 | 8,159 | 10,215 | 1,001 | 1,002 | ||||||||||||||||||
To MFS Blended Research International Equity Fund | 0 | 0 | 10,372 | 10,215 | 1,080 | 1,078 | ||||||||||||||||||
To MFS Global New Discovery Fund | 0 | 0 | 9,270 | 9,130 | 1,012 | 1,013 | ||||||||||||||||||
Total fees billed by E&Y To above Funds | 0 | 0 | 38,173 | 39,775 | 4,100 | 4,099 | ||||||||||||||||||
Audit-Related Fees1 | Tax Fees2 | All Other Fees4 | ||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Fees Billed by E&Y | ||||||||||||||||||||||||
To MFS and MFS Related Entities of MFS Blended Research Emerging Markets Equity Fund* | 1,785,828 | 1,679,277 | 0 | 0 | 104,750 | 104,750 | ||||||||||||||||||
To MFS and MFS Related Entities of MFS Blended Research Global Equity Fund*+ | 1,785,828 | 1,679,277 | 0 | 0 | 104,750 | 104,750 | ||||||||||||||||||
To MFS and MFS Related Entities of MFS Blended Research International Equity Fund* | 1,785,828 | 1,679,277 | 0 | 0 | 104,750 | 104,750 | ||||||||||||||||||
To MFS and MFS Related Entities of MFS Global New Discovery Fund* | 1,785,828 | 1,679,277 | 0 | 0 | 104,750 | 104,750 |
Aggregate Fees for Non-audit Services | ||||||||
2020 | 2019 | |||||||
Fees Billed by E&Y | ||||||||
To MFS Blended Research Emerging Markets Equity Fund, MFS and MFS Related Entities# | 2,080,956 | 1,982,448 | ||||||
To MFS Blended Research Global Equity Fund, MFS and MFS Related Entities#+ | 2,078,738 | 1,982,444 | ||||||
To MFS Blended Research International Equity Fund, MFS and MFS Related Entities# | 2,081,030 | 1,982,519 | ||||||
To MFS Global New Discovery Fund, MFS and MFS Related Entities# | 2,079,860 | 1,981,370 |
+ | MFS Blended Research Global Equity Fund liquidated effective August 21, 2020. |
* | This amount reflects the fees billed to MFS and MFS Related Entities for non-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 for non-audit services rendered to the Funds and for non-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 review of internal controls and review of Rule 38a-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 the pre-approval of audit and non-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 permissible non-audit services rendered to the Fund and all permissible non-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 an engagement-by-engagement basis. In the event pre-approval of such services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-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 not pre-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 engagement pre-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 Rule 2-01 of Regulation S-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.
Item 4(h):
The Registrant’s Audit Committee has considered whether the provision by a Registrant’s independent registered public accounting firm of non-audit services to MFS and MFS Related Entities that were not pre-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 Form N-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable to the Registrant.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. |
(b) | There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the 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 FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable to the Registrant.
ITEM 13. | EXHIBITS. |
(a) (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: Attached hereto as EX-99.COE. |
(2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto as EX-99.302CERT. |
(3) | Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-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 Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Attached hereto as EX-99.906CERT. |
Notice
A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST IV
By (Signature and Title)* | /S/ DAVID L. DILORENZO | |
David L. DiLorenzo, President |
Date: October 19, 2020
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)* | /S/ DAVID L. DILORENZO | |
David L. DiLorenzo, President (Principal Executive Officer) |
Date: October 19, 2020
By (Signature and Title)* | /S/ JAMES O. YOST | |
James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: October 19, 2020
* | Print name and title of each signing officer under his or her signature. |