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 811-6102
MFS SERIES TRUST VI
(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2008
| ITEM 1. | REPORTS TO STOCKHOLDERS. |
MFS® Global Equity Fund
SIPC Contact Information:
You may obtain information about the Securities Investor Protection Corporation (“SIPC”), including the SIPC Brochure, by contacting SIPC either by telephone (202-371-8300) or by accessing SIPC’s website address (www.sipc.org).
Note to Shareholders: At the close of business on April 18, 2008, Class R shares and Class R2 shares converted into Class R3 shares. Following this conversion, Class R3, Class R4, and Class R5 shares were renamed Class R2, Class R3, and Class R4 shares, respectively.
The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ
NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
10/31/08
LGE-ANN
LETTER FROM THE CEO
Dear Shareholders:
The global economy is not a very welcoming place these days. Headlines tell the story of slowing growth, accelerating inflation, and credit collapse. We have watched the rampant selling that has typified equity and credit markets since the strains in the financial system first became apparent last year.
The volatility in commodity and currency markets has further complicated investment choices. There are so many parts moving in so many directions; it has become very easy to get overwhelmed.
At MFS® we remind investors to keep their eye on the long term and not become panicked by the uncertainty of the day to day.
Remember that what goes down could very easily come back up. And that is where we as money managers like to turn our focus.
Investment opportunities may arise in declining markets. When markets experience substantial selloffs, assets often become undervalued. At MFS, we have a team of global sector analysts located in Boston, London, Mexico City, Singapore, Sydney, and Tokyo working together to do the kind of bottom-up research that will root out these investment opportunities.
In times like these, we encourage our investors to check in with their advisors to ensure they have an investment plan in place that will pay heed to the present, but that is firmly tailored to the future.
Respectfully,
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management®
December 15, 2008
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure
| | |
| Top ten holdings | | |
| Nestle S.A. | | 3.9% |
| Roche Holding AG | | 3.1% |
| Johnson & Johnson | | 2.5% |
| Heineken N.V. | | 2.4% |
| 3M Co. | | 2.4% |
| Diageo PLC | | 2.3% |
| NIKE, Inc., “B” | | 2.2% |
| Reckitt Benckiser Group PLC | | 2.1% |
| Kao Corp. | | 2.1% |
| Linde AG | | 2.1% |
| | |
| Equity sectors | | |
| Consumer Staples | | 20.2% |
| Health Care | | 15.2% |
| Financial Services | | 11.6% |
| Basic Materials | | 8.9% |
| Technology | | 8.0% |
| Retailing | | 7.8% |
| Leisure | | 7.0% |
| Energy | | 6.5% |
| Industrial Goods & Services | | 3.6% |
| Transportation | | 3.3% |
| Utilities & Communications | | 3.2% |
| Special Products & Services | | 2.6% |
| Autos & Housing | | 1.1% |
| |
| Country weightings | | |
| United States | | 37.7% |
| Switzerland | | 13.9% |
| France | | 11.3% |
| United Kingdom | | 9.5% |
| Japan | | 9.3% |
| Netherlands | | 6.4% |
| Germany | | 6.4% |
| South Korea | | 1.0% |
| Singapore | | 0.7% |
| Other Countries | | 3.8% |
Percentages are based on net assets as of 10/31/08.
The portfolio is actively managed and current holdings may be different.
2
MANAGEMENT REVIEW
Summary of Results
For the twelve months ended October 31, 2008, Class A shares of the MFS Global Equity Fund provided a total return of –34.51%, at net asset value. This compares with a return of –41.51% for the fund’s benchmark, the MSCI World Index.
Market Environment
The U.S. economy and financial markets experienced significant deterioration and extraordinary volatility over the reporting period. U.S. economic growth slowed significantly, despite the short-term bounce from the second quarter fiscal stimulus. Strong domestic headwinds included accelerated deterioration in the housing market, anemic corporate investment, a markedly weaker job market, and a much tighter credit environment. During the second half of the period, a seemingly continuous series of tumultuous financial events hammered markets, including: the distressed sale of failing Bear Stearns to JPMorgan, the conservatorship of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, the bankruptcy of investment bank Lehman Brothers, the Federal Reserve Bank’s complex intervention of insurance company American International Group (AIG), the nationalization of several large European banks, the failure of Washington Mutual, and the distressed sale of Wachovia. As a result of this barrage of turbulent news, global equity markets pushed significantly lower and credit markets witnessed the worst dislocation since the beginning of the credit crisis.
While reasonably resilient during the first half of the period, the global economy and financial system increasingly experienced considerable negative spillovers from the U.S. slowdown. Not only did Europe and Japan show obvious signs of economic softening, the more powerful engine of global growth – emerging markets – also began to display weakening dynamics.
During the reporting period, the U.S. Federal Reserve Board cut interest rates aggressively and introduced a multitude of new lending facilities to alleviate ever-tightening credit markets, while the U.S. federal government moved quickly to design and implement a modest fiscal stimulus package. Although several other global central banks also cut rates, the dilemma of rising energy and food prices heightened concerns among central bankers that inflationary expectations might become unhinged despite weaker growth. Only late in the reporting period did slowing global growth result in a precipitous decline in commodity prices, which began to ease inflation and inflationary expectations. As inflationary concerns diminished in the face of global deleveraging, and equity and credit markets deteriorated more sharply, a coordinated rate cut marked the beginning of much more aggressive easing by the major global central banks.
3
Management Review – continued
Contributors to Performance
Security selection in the basic materials sector contributed to the fund’s performance relative to the MSCI World Index. Holdings of industrial conglomerate company 3M were a top relative contributor in this sector for the reporting period. The company reported better-than-expected earnings and in-line with guidance expectation based on the broad strength across all of its businesses.
An overweighted position in the consumer staples sector was a positive area of relative performance. Food companies, Nestle (Switzerland) and General Mills, and household and industrial products manufacturer Kao Corp. (Japan) were among the fund’s top contributors. Shares of Nestle gained on continued strong sales and benefited relative to peers from its improved ability to manage costs. The stock was also aided by speculation about a potential alliance or an investment stake in the world’s second-largest chocolate maker, Hershey’s.
The fund’s underweighted position in the financial services sector also boosted relative returns. Holdings of financial services firm Bank of New York Mellon were among the fund’s top relative contributors.
Stocks in other sectors that helped relative returns included pharmaceutical and diagnostic company Roche Holding (Switzerland), health care products maker Johnson & Johnson, medical device manufacturer Synthes Inc. (Switzerland), enterprise software products maker Oracle, and athletic shoes and apparel manufacturer NIKE. The stock of NIKE appreciated after the company exceeded quarterly earnings estimates apparently benefiting from a boost due to the Beijing Olympic games.
Detractors from Performance
Stock selection in the leisure sector detracted from relative performance. Over the reporting period, the fund’s holdings of poor-performing U.K. gaming operators, William Hill and Ladbrokes, held back results. William Hill’s stock suffered due to decreases in its profit margins and higher costs with its extended winter opening hours.
Underweighted positioning in the utilities and communications sector also had a negative impact on relative results. No individual holdings within this sector were among the fund’s top detractors.
Although underweighting the financial services sector was a positive factor in relative performance, several individual securities within this sector were detractors. These included financial services firms, UBS (g) (Switzerland) and AXA (France), and banking operator Erste Bank (Austria). Not owning global financial services firm JPMorgan Chase, which outperformed the benchmark, also hurt relative returns.
4
Management Review – continued
Elsewhere, the fund’s positioning in retail giant Wal-Mart (g), electrical equipment manufacturer Schneider Electric (France), and brewing giant Heineken (The Netherlands) held back relative performance. Shares of Heineken declined as brewing companies were impacted by higher food and fuel prices, which increased packaging and distribution costs. Not owning strong-performing German car maker Volkswagen also hurt relative results.
Respectfully,
| | |
| David Mannheim | | Simon Todd |
| Portfolio Manager | | Portfolio Manager |
| (g) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio managers 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 10/31/08
The following chart illustrates a representative class of the fund’s historical performance in comparison to its benchmark. 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. Benchmark comparisons are unmanaged; do not reflect sales charges, commissions or expenses; and cannot be invested in directly. (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 10/31/08
Average annual without sales charge
| | | | | | | | | | | | |
| | | Share class | | Class inception date | | 1-yr | | 5-yr | | 10-yr | | |
| | | A | | 9/07/93 | | (34.51)% | | 4.79% | | 4.00% | | |
| | | B | | 12/29/86 | | (34.99)% | | 4.02% | | 3.22% | | |
| | | C | | 1/03/94 | | (34.99)% | | 4.02% | | 3.22% | | |
| | | I | | 1/02/97 | | (34.34)% | | 5.06% | | 4.25% | | |
| | | J | | 7/09/99 | | (34.98)% | | 4.07% | | 3.29% | | |
| | | R1 | | 4/01/05 | | (35.04)% | | 3.94% | | 3.18% | | |
| | | R2
(formerly R3) | | 10/31/03 | | (34.70)% | | 4.38% | | 3.40% | | |
| | | R3
(formerly R4) | | 4/01/05 | | (34.56)% | | 4.70% | | 3.96% | | |
| | | R4
(formerly R5) | | 4/01/05 | | (34.40)% | | 4.91% | | 4.06% | | |
Comparative Benchmark
| | | | | | | | | | |
| | | MSCI World Index (f) | | (41.51)% | | 2.24% | | 1.21% | | |
Average annual with sales charge
| | | | | | | | | | | | |
| | | A With Initial Sales Charge (5.75%) | | (38.28)% | | 3.56% | | 3.39% | | |
| | | B With CDSC (Declining over six years from 4% to 0%) (x) | | (37.31)% | | 3.70% | | 3.22% | | |
| | | C With CDSC (1% for 12 months) (x) | | (35.57)% | | 4.02% | | 3.22% | | |
| | | J With Initial Sales Charge (3.00%) | | (36.93)% | | 3.44% | | 2.97% | | |
Class I, R1, R2, R3, and R4 shares do not have a sales charge.
CDSC – Contingent Deferred Sales Charge.
| (f) | Source: FactSet Research Systems Inc. |
| (x) | Assuming redemption at the end of the applicable period. |
Benchmark Definition
Morgan Stanley Capital International (MSCI) World Index – a market capitalization index that is designed to measure global developed market equity performance.
It is not possible to invest directly in an index.
Notes to Performance Summary
Performance for Class R3 and Class R4 shares includes the performance of the fund’s Class A shares prior to their offering. Performance for Class J, Class R1
7
Performance Summary – continued
and Class R2 shares includes the performance of the fund’s Class B shares prior to their offering. This blended class performance has been adjusted to take into account differences in sales loads, if any, applicable to these share classes, but has not been adjusted to take into account differences in class specific operating expenses (such as Rule 12b-1 fees). Compared to performance these share classes would have experienced had they been offered for the entire period, the use of blended performance generally results in higher performance for share classes with higher operating expenses than the share class to which it is blended, and lower performance for share classes with lower operating expenses than the share class to which it is blended.
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.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
8
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
May 1, 2008 through October 31, 2008
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 May 1, 2008 through October 31, 2008.
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
5/01/08 | | Ending Account Value 10/31/08 | | Expenses Paid During Period (p) 5/01/08-10/31/08 |
| A | | Actual | | 1.41% | | $1,000.00 | | $692.22 | | $6.00 |
| | Hypothetical (h) | | 1.41% | | $1,000.00 | | $1,018.05 | | $7.15 |
| B | | Actual | | 2.16% | | $1,000.00 | | $689.45 | | $9.17 |
| | Hypothetical (h) | | 2.16% | | $1,000.00 | | $1,014.28 | | $10.94 |
| C | | Actual | | 2.16% | | $1,000.00 | | $689.53 | | $9.17 |
| | Hypothetical (h) | | 2.16% | | $1,000.00 | | $1,014.28 | | $10.94 |
| I | | Actual | | 1.16% | | $1,000.00 | | $693.04 | | $4.94 |
| | Hypothetical (h) | | 1.16% | | $1,000.00 | | $1,019.30 | | $5.89 |
| J | | Actual | | 2.11% | | $1,000.00 | | $689.63 | | $8.96 |
| | Hypothetical (h) | | 2.11% | | $1,000.00 | | $1,014.53 | | $10.68 |
| R1 | | Actual | | 2.16% | | $1,000.00 | | $689.35 | | $9.17 |
| | Hypothetical (h) | | 2.16% | | $1,000.00 | | $1,014.28 | | $10.94 |
R2
(formerly R3) | | Actual | | 1.66% | | $1,000.00 | | $691.16 | | $7.06 |
| | Hypothetical (h) | | 1.66% | | $1,000.00 | | $1,016.79 | | $8.42 |
R3
(formerly R4) | | Actual | | 1.41% | | $1,000.00 | | $691.85 | | $6.00 |
| | Hypothetical (h) | | 1.41% | | $1,000.00 | | $1,018.05 | | $7.15 |
R4
(formerly R5) | | Actual | | 1.19% | | $1,000.00 | | $692.80 | | $5.06 |
| | Hypothetical (h) | | 1.19% | | $1,000.00 | | $1,019.15 | | $6.04 |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid is equal to each class‘ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
10
PORTFOLIO OF INVESTMENTS
10/31/08
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | |
| Common Stocks - 99.0% | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Alcoholic Beverages - 5.9% | | | | | |
| Diageo PLC | | 619,267 | | $ | 9,477,831 |
| Grupo Modelo S.A. de C.V., "C" | | 424,700 | | | 1,309,664 |
| Heineken N.V. | | 294,370 | | | 9,933,363 |
| Pernod Ricard S.A. | | 54,132 | | | 3,526,678 |
| | | | | |
| | | | | $ | 24,247,536 |
| Apparel Manufacturers - 5.7% | | | | | |
| Burberry Group PLC | | 477,340 | | $ | 2,112,564 |
| Compagnie Financiere Richemont S.A. | | 203,885 | | | 4,335,076 |
| LVMH Moet Hennessy Louis Vuitton S.A. | | 119,920 | | | 8,001,067 |
| NIKE, Inc., "B" | | 155,220 | | | 8,945,329 |
| | | | | |
| | | | | $ | 23,394,036 |
| Automotive - 1.1% | | | | | |
| Bridgestone Corp. | | 127,900 | | $ | 2,216,646 |
| Harley-Davidson, Inc. | | 91,170 | | | 2,231,842 |
| | | | | |
| | | | | $ | 4,448,488 |
| Biotechnology - 0.3% | | | | | |
| Actelion Ltd. (a) | | 25,246 | | $ | 1,334,810 |
| | |
| Broadcasting - 5.2% | | | | | |
| Omnicom Group, Inc. | | 190,120 | | $ | 5,616,145 |
| Viacom, Inc., "B" (a) | | 72,095 | | | 1,457,761 |
| Vivendi S.A. | | 115,650 | | | 3,024,933 |
| Walt Disney Co. | | 291,100 | | | 7,539,490 |
| WPP Group PLC (a) | | 611,990 | | | 3,693,398 |
| | | | | |
| | | | | $ | 21,331,727 |
| Brokerage & Asset Managers - 1.6% | | | | | |
| Deutsche Boerse AG | | 20,910 | | $ | 1,669,651 |
| Goldman Sachs Group, Inc. | | 28,180 | | | 2,606,650 |
| Julius Baer Holding Ltd. | | 62,032 | | | 2,441,844 |
| | | | | |
| | | | | $ | 6,718,145 |
11
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Business Services - 1.8% | | | | | |
| Accenture Ltd., “A” | | 166,330 | | $ | 5,497,207 |
| DST Systems, Inc. (a)(l) | | 42,880 | | | 1,740,070 |
| | | | | |
| | | | | $ | 7,237,277 |
| Chemicals - 3.8% | | | | | |
| 3M Co. | | 154,290 | | $ | 9,920,847 |
| Givaudan S.A. | | 8,420 | | | 5,770,065 |
| | | | | |
| | | | | $ | 15,690,912 |
| Computer Software - 2.0% | | | | | |
| Oracle Corp. (a) | | 444,380 | | $ | 8,127,710 |
| | |
| Conglomerates - 0.8% | | | | | |
| Smiths Group PLC | | 246,396 | | $ | 3,166,351 |
| | |
| Consumer Goods & Services - 7.0% | | | | | |
| Alberto-Culver Co. | | 33,740 | | $ | 868,130 |
| Henkel KGaA, IPS | | 52,330 | | | 1,514,561 |
| International Flavors & Fragrances, Inc. | | 71,600 | | | 2,282,608 |
| Kao Corp. | | 300,000 | | | 8,672,329 |
| Procter & Gamble Co. | | 103,764 | | | 6,696,929 |
| Reckitt Benckiser Group PLC | | 209,430 | | | 8,796,905 |
| | | | | |
| | | | | $ | 28,831,462 |
| Electrical Equipment - 3.2% | | | | | |
| Legrand S.A. | | 218,970 | | $ | 3,649,226 |
| OMRON Corp. | | 99,000 | | | 1,404,232 |
| Rockwell Automation, Inc. | | 98,860 | | | 2,735,456 |
| Schneider Electric S.A. | | 85,866 | | | 5,165,180 |
| | | | | |
| | | | | $ | 12,954,094 |
| Electronics - 6.0% | | | | | |
| ASML Holding N.V. | | 132,332 | | $ | 2,309,400 |
| Canon, Inc. | | 234,600 | | | 8,072,944 |
| Hirose Electric Co. Ltd. | | 16,700 | | | 1,459,929 |
| Hoya Corp. | | 190,000 | | | 3,521,907 |
| Intel Corp. | | 249,790 | | | 3,996,640 |
| Ricoh Co. Ltd. | | 109,000 | | | 1,159,430 |
| Samsung Electronics Co. Ltd. | | 9,988 | | | 4,173,804 |
| | | | | |
| | | | | $ | 24,694,054 |
| Energy - Independent - 0.7% | | | | | |
| INPEX Holdings, Inc. | | 504 | | $ | 2,930,826 |
12
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Energy - Integrated - 5.8% | | | | | |
| Chevron Corp. | | 63,770 | | $ | 4,757,242 |
| Exxon Mobil Corp. | | 82,760 | | | 6,134,171 |
| Royal Dutch Shell PLC | | 205,480 | | | 5,662,160 |
| TOTAL S.A. | | 131,870 | | | 7,242,931 |
| | | | | |
| | | | | $ | 23,796,504 |
| Food & Beverages - 7.3% | | | | | |
| General Mills, Inc. | | 62,140 | | $ | 4,209,364 |
| J.M. Smucker Co. | | 22,060 | | | 982,994 |
| Nestle S.A. | | 411,183 | | | 16,027,691 |
| PepsiCo, Inc. | | 149,250 | | | 8,508,743 |
| | | | | |
| | | | | $ | 29,728,792 |
| Food & Drug Stores - 1.9% | | | | | |
| Tesco PLC | | 396,466 | | $ | 2,165,550 |
| Walgreen Co. | | 217,780 | | | 5,544,679 |
| | | | | |
| | | | | $ | 7,710,229 |
| Gaming & Lodging - 0.9% | | | | | |
| Ladbrokes PLC | | 802,110 | | $ | 2,046,239 |
| William Hill PLC | | 528,570 | | | 1,632,220 |
| | | | | |
| | | | | $ | 3,678,459 |
| Insurance - 2.2% | | | | | |
| AXA | | 271,480 | | $ | 5,231,509 |
| QBE Insurance Group Ltd. | | 44,200 | | | 762,070 |
| Swiss Reinsurance Co. | | 76,608 | | | 3,191,679 |
| | | | | |
| | | | | $ | 9,185,258 |
| Machinery & Tools - 0.4% | | | | | |
| Fanuc Ltd. | | 26,600 | | $ | 1,805,385 |
| | |
| Major Banks - 4.9% | | | | | |
| Bank of New York Mellon Corp. | | 223,003 | | $ | 7,269,898 |
| Erste Bank der oesterreichischen Sparkassen AG | | 103,566 | | | 2,803,279 |
| Intesa Sanpaolo S.p.A | | 474,111 | | | 1,734,401 |
| Standard Chartered PLC | | 148,200 | | | 2,460,483 |
| State Street Corp. | | 132,140 | | | 5,728,269 |
| | | | | |
| | | | | $ | 19,996,330 |
| Medical Equipment - 5.7% | | | | | |
| Medtronic, Inc. | | 151,040 | | $ | 6,091,443 |
| Synthes, Inc. | | 46,090 | | | 5,950,938 |
13
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Medical Equipment - continued | | | | | |
| Thermo Fisher Scientific, Inc. (a) | | 99,120 | | $ | 4,024,272 |
| Waters Corp. (a) | | 43,400 | | | 1,900,920 |
| Zimmer Holdings, Inc. (a) | | 119,030 | | | 5,526,563 |
| | | | | |
| | | | | $ | 23,494,136 |
| Natural Gas - Distribution - 1.7% | | | | | |
| GDF Suez (a) | | 159,992 | | $ | 7,124,097 |
| | |
| Other Banks & Diversified Financials - 2.9% | | | | | |
| Aeon Credit Service Co. Ltd. | | 121,700 | | $ | 1,322,145 |
| American Express Co. | | 124,240 | | | 3,416,600 |
| Bangkok Bank Public Co. Ltd. | | 426,200 | | | 867,465 |
| Komercni Banka A.S. | | 9,499 | | | 1,424,556 |
| UBS AG (a) | | 288,140 | | | 4,916,592 |
| | | | | |
| | | | | $ | 11,947,358 |
| Pharmaceuticals - 9.2% | | | | | |
| Bayer AG | | 86,620 | | $ | 4,764,930 |
| GlaxoSmithKline PLC | | 175,550 | | | 3,381,781 |
| Johnson & Johnson | | 165,960 | | | 10,179,986 |
| Merck KGaA | | 72,600 | | | 6,438,400 |
| Roche Holding AG | | 84,380 | | | 12,915,690 |
| | | | | |
| | | | | $ | 37,680,787 |
| Printing & Publishing - 0.9% | | | | | |
| Wolters Kluwer N.V. | | 198,050 | | $ | 3,508,620 |
| | |
| Railroad & Shipping - 0.6% | | | | | |
| Canadian National Railway Co. | | 60,906 | | $ | 2,634,794 |
| | |
| Specialty Chemicals - 5.1% | | | | | |
| L’Air Liquide S.A. | | 37,309 | | $ | 3,215,699 |
| Linde AG | | 103,220 | | | 8,546,348 |
| Praxair, Inc. | | 54,440 | | | 3,546,766 |
| Shin-Etsu Chemical Co. Ltd. | | 109,100 | | | 5,709,490 |
| | | | | |
| | | | | $ | 21,018,303 |
| Specialty Stores - 0.2% | | | | | |
| Sally Beauty Holdings, Inc. (a) | | 127,590 | | $ | 648,157 |
| | |
| Telephone Services - 0.7% | | | | | |
| Singapore Telecommunications Ltd. | | 1,783,975 | | $ | 3,001,624 |
14
Portfolio of Investments – continued
| | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | | |
| Common Stocks - continued | | | | | | |
| Trucking - 2.7% | | | | | | |
| TNT N.V. | | | 239,100 | | $ | 5,005,864 |
| United Parcel Service, Inc., "B" | | | 111,680 | | | 5,894,470 |
| | | | | | |
| | | | | | $ | 10,900,334 |
| Utilities - Electric Power - 0.8% | | | | | | |
| E.ON AG | | | 85,750 | | $ | 3,272,795 |
| Total Common Stocks (Identified Cost, $465,317,698) | | | | | $ | 406,239,390 |
| | |
| Collateral for Securities Loaned - 0.3% | | | | | | |
| Citigroup Global Markets, Inc. Repurchase Agreement, 0.20%, dated 10/31/08, due 11/03/08, total to be received $1,273,079 (secured by U.S. Treasury and Federal Agency obligations and Mortgage Backed securities in an individually traded account), at Cost | | $ | 1,273,058 | | $ | 1,273,058 |
| | |
| Money Market Funds (v) - 0.5% | | | | | | |
MFS Institutional Money Market Portfolio, 0.93%,
at Cost and Net Asset Value | | | 2,072,364 | | $ | 2,072,364 |
| Total Investments (Identified Cost, $468,663,120) (k) | | | | | $ | 409,584,812 |
| | |
| Other Assets, Less Liabilities - 0.2% | | | | | | 818,313 |
| Net Assets - 100.0% | | | | | $ | 410,403,125 |
| (a) | Non-income producing security. |
| (k) | As of October 31, 2008, the fund had 45 securities that were fair valued, aggregating $192,248,079 and 46.94% of market value, in accordance with the policies adopted by the Board of Trustees. |
| (l) | All or a portion of this security is on loan. |
| (v) | Underlying fund that is available only to investment companies managed by MFS. The rate quoted is the annualized seven-day yield of the fund at period end. |
The following abbreviations are used in this report and are defined:
| IPS | | International Preference Stock |
See Notes to Financial Statements
15
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/08
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | | |
| Assets | | | | | |
Investments- | | | | | |
Non-affiliated issuers, at value (identified cost, $466,590,756) | | $407,512,448 | | | |
Underlying funds, at cost and value | | 2,072,364 | | | |
Total investments, at value, including $1,252,380 of securities
on loan (identified cost, $468,663,120) | | | | | $409,584,812 |
Receivable for investments sold | | 1,569,706 | | | |
Receivable for fund shares sold | | 301,126 | | | |
Interest and dividends receivable | | 1,403,296 | | | |
Total assets | | | | | $412,858,940 |
| Liabilities | | | | | |
Payable for investments purchased | | $185,355 | | | |
Payable for fund shares reacquired | | 623,780 | | | |
Collateral for securities loaned, at value | | 1,273,058 | | | |
Payable to affiliates | | | | | |
Management fee | | 19,589 | | | |
Shareholder servicing costs | | 176,473 | | | |
Distribution and service fees | | 7,942 | | | |
Administrative services fee | | 414 | | | |
Payable for independent trustees’ compensation | | 49,891 | | | |
Accrued expenses and other liabilities | | 119,313 | | | |
Total liabilities | | | | | $2,455,815 |
Net assets | | | | | $410,403,125 |
| Net assets consist of | | | | | |
Paid-in capital | | $441,850,913 | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | (59,089,913 | ) | | |
Accumulated net realized gain (loss) on investments and foreign currency transactions | | 22,193,830 | | | |
Undistributed net investment income | | 5,448,295 | | | |
Net assets | | | | | $410,403,125 |
Shares of beneficial interest outstanding | | | | | 22,484,099 |
16
Statement of Assets and Liabilities – continued
| | | | |
Class A shares | | | | |
Net assets | | $260,535,443 | | |
Shares outstanding | | 14,076,656 | | |
Net asset value per share | | | | $18.51 |
Offering price per share (100/94.25 × net asset value per share) | | | | $19.64 |
Class B shares | | | | |
Net assets | | $38,110,902 | | |
Shares outstanding | | 2,209,651 | | |
Net asset value and offering price per share | | | | $17.25 |
Class C shares | | | | |
Net assets | | $26,139,074 | | |
Shares outstanding | | 1,557,243 | | |
Net asset value and offering price per share | | | | $16.79 |
Class I shares | | | | |
Net assets | | $49,021,607 | | |
Shares outstanding | | 2,591,249 | | |
Net asset value, offering price, and redemption price per share | | | | $18.92 |
Class J shares: | | | | |
Net assets | | $6,504,233 | | |
Shares outstanding | | 382,201 | | |
Net asset value and redemption price per share | | | | $17.02 |
Offering price per share (100/97.00 × net asset value per share) | | | | $17.55 |
Class R1 shares | | | | |
Net assets | | $3,303,663 | | |
Shares outstanding | | 194,072 | | |
Net asset value, offering price, and redemption price per share | | | | $17.02 |
Class R2 shares (formerly Class R3 shares) | | | | |
Net assets | | $17,297,643 | | |
Shares outstanding | | 957,855 | | |
Net asset value, offering price, and redemption price per share | | | | $18.06 |
Class R3 shares (formerly Class R4 shares) | | | | |
Net assets | | $8,938,782 | | |
Shares outstanding | | 485,444 | | |
Net asset value, offering price, and redemption price per share | | | | $18.41 |
17
Statement of Assets and Liabilities – continued
| | | | |
Class R4 shares (formerly Class R5 shares) | | | | |
Net assets | | $551,778 | | |
Shares outstanding | | 29,728 | | |
Net asset value, offering price, and redemption price per share | | | | $18.56 |
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
See Notes to Financial Statements
18
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/08
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | | | |
| Net investment income | | | | | | |
Income | | | | | | |
Dividends | | $15,270,959 | | | | |
Interest | | 1,228,953 | | | | |
Dividends from underlying funds | | 149,002 | | | | |
Foreign taxes withheld | | (1,276,303 | ) | | | |
Total investment income | | | | | $15,372,611 | |
Expenses | | | | | | |
Management fee | | $5,574,202 | | | | |
Distribution and service fees | | 2,340,427 | | | | |
Shareholder servicing costs | | 1,209,347 | | | | |
Administrative services fee | | 92,645 | | | | |
Retirement plan administration and services fees | | 16,421 | | | | |
Independent trustees' compensation | | 13,396 | | | | |
Custodian fee | | 167,062 | | | | |
Shareholder communications | | 26,548 | | | | |
Auditing fees | | 53,899 | | | | |
Legal fees | | 50,511 | | | | |
Miscellaneous | | 174,277 | | | | |
Total expenses | | | | | $9,718,735 | |
Fees paid indirectly | | (2,148 | ) | | | |
Reduction of expenses by investment adviser | | (3,285 | ) | | | |
Net expenses | | | | | $9,713,302 | |
Net investment income | | | | | $5,659,309 | |
| Realized and unrealized gain (loss) on investments and foreign currency transactions | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | |
Investment transactions: | | | | | | |
Non-affiliated issuers (net of 19,396 country tax) | | $31,256,467 | | | | |
Foreign currency transactions | | (97,143 | ) | | | |
Net realized gain (loss) on investments
and foreign currency transactions | | | | | $31,159,324 | |
Change in unrealized appreciation (depreciation) | | | | | | |
Investments (net of $31,669 decrease in deferred
country tax) | | $(271,839,296 | ) | | | |
Translation of assets and liabilities in foreign currencies | | (48,205 | ) | | | |
Net unrealized gain (loss) on investments
and foreign currency translation | | | | | $(271,887,501 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | | | $(240,728,177 | ) |
Change in net assets from operations | | | | | $(235,068,868 | ) |
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.
| | | | | | |
| | | Years ended 10/31 | |
| Change in net assets | | 2008 | | | 2007 | |
| From operations | | | | | | |
Net investment income | | $5,659,309 | | | $7,275,691 | |
Net realized gain (loss) on investments and
foreign currency transactions | | 31,159,324 | | | 94,783,262 | |
Net unrealized gain (loss) on investments and
foreign currency translation | | (271,887,501 | ) | | 21,379,060 | |
Change in net assets from operations | | $(235,068,868 | ) | | $123,438,013 | |
| Distributions declared to shareholders | | | | | | |
From net investment income | | | | | | |
Class A | | $(2,818,327 | ) | | $(9,448,780 | ) |
Class B | | — | | | (1,851,723 | ) |
Class C | | (43,366 | ) | | (633,188 | ) |
Class I | | (616,920 | ) | | (1,459,047 | ) |
Class J | | — | | | (257,963 | ) |
Class R (b) | | — | | | (252,787 | ) |
Class R1 | | (25,251 | ) | | (23,168 | ) |
Former Class R2 (b) | | (4,110 | ) | | (12,087 | ) |
Class R2 (formerly Class R3) | | (120,877 | ) | | (117,690 | ) |
Class R3 (formerly Class R4) | | (82,742 | ) | | (181,581 | ) |
Class R4 (formerly Class R5) | | (40,356 | ) | | (1,407 | ) |
From net realized gain on investments | | | | | | |
Class A | | (47,448,511 | ) | | (49,984,260 | ) |
Class B | | (9,708,653 | ) | | (15,617,271 | ) |
Class C | | (5,397,030 | ) | | (4,798,630 | ) |
Class I | | (7,640,525 | ) | | (6,908,588 | ) |
Class J | | (1,481,047 | ) | | (2,165,492 | ) |
Class R (b) | | (471,843 | ) | | (1,519,317 | ) |
Class R1 | | (569,906 | ) | | (163,635 | ) |
Former Class R2 (b) | | (102,375 | ) | | (74,843 | ) |
Class R2 (formerly Class R3) | | (2,356,874 | ) | | (719,759 | ) |
Class R3 (formerly Class R4) | | (1,524,560 | ) | | (939,438 | ) |
Class R4 (formerly Class R5) | | (509,901 | ) | | (6,949 | ) |
Total distributions declared to shareholders | | $(80,963,174 | ) | | $(97,137,603 | ) |
Change in net assets from fund share transactions | | $(45,733,031 | ) | | $(16,178,426 | ) |
Total change in net assets | | $(361,765,073 | ) | | $10,121,984 | |
| Net assets | | | | | | |
At beginning of period | | 772,168,198 | | | 762,046,214 | |
At end of period (including undistributed net investment
income of $5,448,295 and $3,657,474, respectively) | | $410,403,125 | | | $772,168,198 | |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
See Notes to Financial Statements
20
Financial Statements
FINANCIAL HIGHLIGHTS
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | |
| Class A | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | 2004 | |
Net asset value, beginning of period | | $31.71 | | | $30.78 | | | $25.79 | | | $22.92 | | $19.57 | |
Income (loss) from investment
operations | | | | | | | | | | | | | | |
Net investment income (d) | | $0.27 | | | $0.33 | | | $0.48 | | | $0.06 | | $0.07 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (10.09 | ) | | 4.54 | | | 5.68 | | | 2.81 | | 3.28 | |
Total from investment operations | | $(9.82 | ) | | $4.87 | | | $6.16 | | | $2.87 | | $3.35 | |
Less distributions declared to
shareholders | | | | | | | | | | | | | | |
From net investment income | | $(0.19 | ) | | $(0.63 | ) | | $— | | | $— | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | | — | |
Total distributions declared to shareholders | | $(3.38 | ) | | $(3.94 | ) | | $(1.17 | ) | | $— | | $— | |
Net asset value, end of period | | $18.51 | | | $31.71 | | | $30.78 | | | $25.79 | | $22.92 | |
Total return (%) (r)(s)(t) | | (34.51 | ) | | 17.41 | | | 24.73 | | | 12.52 | | 17.12 | (b) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.44 | | | 1.46 | | | 1.45 | | | 1.55 | | 1.52 | |
Expenses after expense reductions (f) | | 1.44 | | | 1.46 | | | 1.45 | | | 1.55 | | 1.52 | |
Net investment income | | 1.05 | | | 1.10 | | | 1.72 | | | 0.22 | | 0.30 | |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | | 41 | |
Net assets at end of period (000 Omitted) | | $260,535 | | | $474,901 | | | $465,394 | | | $402,985 | | $368,514 | |
See Notes to Financial Statements
21
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class B | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $29.79 | | | $29.12 | | | $24.64 | | | $22.06 | | | $18.97 | |
Income (loss) from investment
operations | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | $0.06 | | | $0.12 | | | $0.27 | | | $(0.13 | ) | | $(0.10 | ) |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (9.41 | ) | | 4.25 | | | 5.38 | | | 2.71 | | | 3.19 | |
Total from investment operations | | $(9.35 | ) | | $4.37 | | | $5.65 | | | $2.58 | | | $3.09 | |
Less distributions declared to
shareholders | | | | | | | | | | | | | | | |
From net investment income | | $— | | | $(0.39 | ) | | $— | | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | | | — | |
Total distributions declared to shareholders | | $(3.19 | ) | | $(3.70 | ) | | $(1.17 | ) | | $— | | | $— | |
Net asset value, end of period | | $17.25 | | | $29.79 | | | $29.12 | | | $24.64 | | | $22.06 | |
Total return (%) (r)(s)(t) | | (34.99 | ) | | 16.51 | | | 23.77 | | | 11.70 | | | 16.29 | (b) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.19 | | | 2.21 | | | 2.20 | | | 2.30 | | | 2.27 | |
Expenses after expense reductions (f) | | 2.19 | | | 2.21 | | | 2.20 | | | 2.30 | | | 2.27 | |
Net investment income (loss) | | 0.25 | | | 0.41 | | | 1.02 | | | (0.53 | ) | | (0.45 | ) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | | | 41 | |
Net assets at end of period (000 Omitted) | | $38,111 | | | $102,296 | | | $139,656 | | | $148,434 | | | $170,783 | |
See Notes to Financial Statements
22
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class C | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $29.11 | | | $28.58 | | | $24.19 | | | $21.66 | | | $18.63 | |
Income (loss) from investment
operations | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | $0.07 | | | $0.08 | | | $0.25 | | | $(0.12 | ) | | $(0.09 | ) |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (9.17 | ) | | 4.20 | | | 5.31 | | | 2.65 | | | 3.12 | |
Total from investment operations | | $(9.10 | ) | | $4.28 | | | $5.56 | | | $2.53 | | | $3.03 | |
Less distributions declared to
shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.03 | ) | | $(0.44 | ) | | $— | | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | | | — | |
Total distributions declared to shareholders | | $(3.22 | ) | | $(3.75 | ) | | $(1.17 | ) | | $— | | | $— | |
Net asset value, end of period | | $16.79 | | | $29.11 | | | $28.58 | | | $24.19 | | | $21.66 | |
Total return (%) (r)(s)(t) | | (34.99 | ) | | 16.51 | | | 23.84 | | | 11.68 | | | 16.26 | (b) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.19 | | | 2.21 | | | 2.20 | | | 2.30 | | | 2.27 | |
Expenses after expense reductions (f) | | 2.19 | | | 2.21 | | | 2.20 | | | 2.30 | | | 2.27 | |
Net investment income (loss) | | 0.30 | | | 0.29 | | | 0.96 | | | (0.53 | ) | | (0.45 | ) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | | | 41 | |
Net assets at end of period (000 Omitted) | | $26,139 | | | $50,903 | | | $41,351 | | | $33,975 | | | $32,785 | |
See Notes to Financial Statements
23
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class I | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $32.33 | | | $31.32 | | | $26.15 | | | $23.23 | | | $19.78 | |
Income (loss) from investment
operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.34 | | | $0.40 | | | $0.56 | | | $0.12 | | | $0.12 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (10.30 | ) | | 4.62 | | | 5.78 | | | 2.85 | | | 3.33 | |
Total from investment operations | | $(9.96 | ) | | $5.02 | | | $6.34 | | | $2.97 | | | $3.45 | |
Less distributions declared to
shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.26 | ) | | $(0.70 | ) | | $— | | | $(0.05 | ) | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | | | — | |
Total distributions declared to shareholders | | $(3.45 | ) | | $(4.01 | ) | | $(1.17 | ) | | $(0.05 | ) | | $— | |
Net asset value, end of period | | $18.92 | | | $32.33 | | | $31.32 | | | $26.15 | | | $23.23 | |
Total return (%) (r)(s) | | (34.34 | ) | | 17.66 | | | 25.09 | | | 12.79 | | | 17.44 | (b) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.19 | | | 1.21 | | | 1.20 | | | 1.30 | | | 1.26 | |
Expenses after expense reductions (f) | | 1.19 | | | 1.21 | | | 1.20 | | | 1.30 | | | 1.26 | |
Net investment income | | 1.32 | | | 1.31 | | | 1.95 | | | 0.47 | | | 0.53 | |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | | | 41 | |
Net assets at end of period (000 Omitted) | | $49,022 | | | $77,689 | | | $63,714 | | | $41,493 | | | $37,781 | |
See Notes to Financial Statements
24
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class J | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $29.43 | | | $28.80 | | | $24.36 | | | $21.80 | | | $18.74 | |
Income (loss) from investment
operations | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | $0.07 | | | $0.15 | | | $0.24 | | | $(0.11 | ) | | $(0.08 | ) |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (9.29 | ) | | 4.18 | | | 5.37 | | | 2.67 | | | 3.14 | |
Total from investment operations | | $(9.22 | ) | | $4.33 | | | $5.61 | | | $2.56 | | | $3.06 | |
Less distributions declared to
shareholders | | | | | | | | | | | | | | | |
From net investment income | | $— | | | $(0.39 | ) | | $— | | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | | | — | |
Total distributions declared to shareholders | | $(3.19 | ) | | $(3.70 | ) | | $(1.17 | ) | | $— | | | $— | |
Net asset value, end of period | | $17.02 | | | $29.43 | | | $28.80 | | | $24.36 | | | $21.80 | |
Total return (%) (r)(s)(t) | | (34.98 | ) | | 16.57 | | | 23.88 | | | 11.74 | | | 16.33 | (b) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.14 | | | 2.16 | | | 2.15 | | | 2.25 | | | 2.22 | |
Expenses after expense reductions (f) | | 2.14 | | | 2.16 | | | 2.15 | | | 2.25 | | | 2.22 | |
Net investment income (loss) | | 0.30 | | | 0.53 | | | 0.93 | | | (0.47 | ) | | (0.39 | ) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | | | 41 | |
Net assets at end of period (000 Omitted) | | $6,504 | | | $13,864 | | | $20,832 | | | $19,136 | | | $23,188 | |
See Notes to Financial Statements
25
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R1 | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $29.60 | | | $29.06 | | | $24.61 | | | $23.89 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (loss) (d) | | $0.06 | | | $0.03 | | | $0.21 | | | $(0.15 | ) |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (9.31 | ) | | 4.29 | | | 5.41 | | | 0.87 | (g) |
Total from investment operations | | $(9.25 | ) | | $4.32 | | | $5.62 | | | $0.72 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.14 | ) | | $(0.47 | ) | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | |
Total distributions declared to shareholders | | $(3.33 | ) | | $(3.78 | ) | | $(1.17 | ) | | $— | |
Net asset value, end of period | | $17.02 | | | $29.60 | | | $29.06 | | | $24.61 | |
Total return (%) (r)(s) | | (35.04 | ) | | 16.38 | | | 23.68 | | | 3.01 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.23 | | | 2.33 | | | 2.40 | | | 2.50 | (a) |
Expenses after expense reductions (f) | | 2.23 | | | 2.30 | | | 2.30 | | | 2.47 | (a) |
Net investment income (loss) | | 0.26 | | | 0.12 | | | 0.78 | | | (1.06 | )(a) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | |
Net assets at end of period (000 Omitted) | | $3,304 | | | $4,208 | | | $1,348 | | | $672 | |
See Notes to Financial Statements
26
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class R2 (formerly Class R3) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $31.08 | | | $30.27 | | | $25.48 | | | $22.76 | | | $19.51 | |
Income (loss) from investment
operations | | | | | | | | | | | | | | | |
Net investment income (loss) (d) | | $0.21 | | | $0.14 | | | $0.39 | | | $(0.06 | ) | | $(0.03 | ) |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (9.88 | ) | | 4.52 | | | 5.57 | | | 2.78 | | | 3.28 | |
Total from investment operations | | $(9.67 | ) | | $4.66 | | | $5.96 | | | $2.72 | | | $3.25 | |
Less distributions declared to
shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.16 | ) | | $(0.54 | ) | | $— | | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | | | — | |
Total distributions declared to shareholders | | $(3.35 | ) | | $(3.85 | ) | | $(1.17 | ) | | $— | | | $— | |
Net asset value, end of period | | $18.06 | | | $31.08 | | | $30.27 | | | $25.48 | | | $22.76 | |
Total return (%) (r)(s) | | (34.70 | ) | | 16.94 | | | 24.22 | | | 11.95 | | | 16.66 | (b) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.71 | | | 1.88 | | | 1.94 | | | 2.06 | | | 2.00 | |
Expenses after expense reductions (f) | | 1.71 | | | 1.85 | | | 1.84 | | | 2.05 | | | 2.00 | |
Net investment income (loss) | | 0.83 | | | 0.48 | | | 1.42 | | | (0.25 | ) | | (0.15 | ) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | | | 41 | |
Net assets at end of period (000 Omitted) | | $17,298 | | | $21,364 | | | $6,501 | | | $3,032 | | | $530 | |
See Notes to Financial Statements
27
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R3 (formerly Class R4) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $31.56 | | | $30.71 | | | $25.77 | | | $24.90 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.26 | | | $0.24 | | | $0.04 | | | $0.02 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (10.05 | ) | | 4.56 | | | 6.07 | | | 0.85 | (g) |
Total from investment operations | | $(9.79 | ) | | $4.80 | | | $6.11 | | | $0.87 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.17 | ) | | $(0.64 | ) | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | |
Total distributions declared to shareholders | | $(3.36 | ) | | $(3.95 | ) | | $(1.17 | ) | | $— | |
Net asset value, end of period | | $18.41 | | | $31.56 | | | $30.71 | | | $25.77 | |
Total return (%) (r)(s) | | (34.56 | ) | | 17.22 | | | 24.54 | | | 3.49 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.47 | | | 1.61 | | | 1.63 | | | 1.73 | (a) |
Expenses after expense reductions (f) | | 1.47 | | | 1.61 | | | 1.63 | | | 1.73 | (a) |
Net investment income | | 1.04 | | | 0.81 | | | 0.14 | | | 0.13 | (a) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | |
Net assets at end of period (000 Omitted) | | $8,939 | | | $14,293 | | | $8,703 | | | $84 | |
See Notes to Financial Statements
28
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R4 (formerly Class R5) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $31.80 | | | $30.86 | | | $25.81 | | | $24.90 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.37 | | | $0.05 | | | $0.53 | | | $0.08 | |
Net realized and unrealized gain (loss) on
investments and foreign currency | | (10.17 | ) | | 4.87 | | | 5.69 | | | 0.83 | (g) |
Total from investment operations | | $(9.80 | ) | | $4.92 | | | $6.22 | | | $0.91 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.25 | ) | | $(0.67 | ) | | $— | | | $— | |
From net realized gain on investments | | (3.19 | ) | | (3.31 | ) | | (1.17 | ) | | — | |
Total distributions declared to shareholders | | $(3.44 | ) | | $(3.98 | ) | | $(1.17 | ) | | $— | |
Net asset value, end of period | | $18.56 | | | $31.80 | | | $30.86 | | | $25.81 | |
Total return (%) (r)(s) | | (34.40 | ) | | 17.58 | | | 24.95 | | | 3.65 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.23 | | | 1.31 | | | 1.29 | | | 1.44 | (a) |
Expenses after expense reductions (f) | | 1.23 | | | 1.31 | | | 1.29 | | | 1.44 | (a) |
Net investment income | | 1.39 | | | 0.23 | | | 1.88 | | | 0.54 | (a) |
Portfolio turnover | | 23 | | | 27 | | | 39 | | | 39 | |
Net assets at end of period (000 Omitted) | | $552 | | | $5,297 | | | $65 | | | $52 | |
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less than $0.01.
| (b) | The fund’s net asset value and total return calculation include a non-recurring accrual recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The non-recurring accrual did not have a material impact on the net asset value per share based on shares outstanding on the day the accrual was recorded. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (i) | For the period from the class’ inception, April 1, 2005, through the stated period end. |
| (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. |
See Notes to Financial Statements
29
NOTES TO FINANCIAL STATEMENTS
| (1) | | Business and Organization |
MFS Global Equity Fund (the fund) is a series of MFS Series Trust VI (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The fund can invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, and FASB Staff Position (FSP) 133-1, effective for fiscal years and interim periods ending after November 15, 2008 (the “Standards”) were recently issued. These Standards provide enhanced disclosures about the fund’s use of and accounting for derivative instruments and the effect of derivative instruments on the fund’s results of operations and financial position. Management is evaluating the application of the Standards to the fund, and has not at this time determined the impact resulting from the adoption of these Standards on the fund’s financial statements.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as reported by a third party pricing service on the market or exchange on which they are primarily traded. For securities for which there were no sales reported that day, equity securities are generally valued at the last quoted daily bid quotation as reported by a third party pricing service on the market or exchange on which they are primarily traded. For securities held short for which there were no sales reported for the day, the position is generally valued at the last quoted daily ask quotation as reported by a third party pricing
30
Notes to Financial Statements – continued
service on the market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less 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. Values obtained from pricing services can utilize both dealer-supplied valuations and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 reported by a third party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material affect 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 may rely 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
31
Notes to Financial Statements – continued
determine value. When fair valuation is used, the value of investments used to determine the fund’s net asset value may differ from quoted or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the “Statement”) was issued, and is effective for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. This Statement provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value measurements. Management is evaluating the application of the Statement to the fund, and believes the impact will be limited to expanded disclosures resulting from the adoption of this Statement in the fund’s financial statements.
Repurchase Agreements – The fund may enter into 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.
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 – JPMorgan Chase and Co. (“Chase”), as lending agent, may loan the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. 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. Security lending activity through Chase is further collateralized by an irrevocable standby letter of credit. Chase provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in short-term securities. 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
32
Notes to Financial Statements – continued
between the fund and the lending agent. Income from securities lending is included in interest income on 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. 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the year ended October 31, 2008, is shown as a reduction of total expenses on 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 taxes is required. The fund adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“the Interpretation”) on the first day of the fund’s fiscal year. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There was no impact resulting from the adoption of this Interpretation on the fund’s financial statements. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to
33
Notes to Financial Statements – continued
examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals, treating a portion of the proceeds from redemptions as a distribution for tax purposes, and foreign taxes.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| | | | |
| | | 10/31/08 | | 10/31/07 |
| Ordinary income (including any short-term capital gains) | | $6,806,080 | | $24,331,408 |
| Long-term capital gain | | 74,157,094 | | 72,806,195 |
| Total distributions | | $80,963,174 | | $97,137,603 |
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | |
| As of 10/31/08 | | | |
| Cost of investments | | $470,722,098 | |
| Gross appreciation | | 45,211,241 | |
| Gross depreciation | | (106,348,527 | ) |
| Net unrealized appreciation (depreciation) | | $(61,137,286 | ) |
| Undistributed ordinary income | | 6,847,809 | |
| Undistributed long-term capital gain | | 23,141,778 | |
| Other temporary differences | | (300,089 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution, service, and retirement plan administration and services 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
34
Notes to Financial Statements – continued
shares approximately eight years after purchase. At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following this conversion, Class R3, Class R4, and Class R5 shares were renamed Class R2, Class R3, and Class R4 shares, respectively. The Board of Trustees which oversees the fund approved the termination of Class J shares of the fund, effective February 27, 2009, or as soon thereafter as practicable.
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with Massachusetts Financial Services Company (MFS) to provide overall investment management and related administrative services and facilities to the fund.
The management fee is computed daily and paid monthly at the following annual rates:
| | | |
| First $1 billion of average daily net assets | | 0.90 | % |
| Next $1 billion of average daily net assets | | 0.75 | % |
| Average daily net assets in excess of $2 billion | | 0.65 | % |
The management fee incurred for the year ended October 31, 2008 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $27,262 for the year ended October 31, 2008, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | |
| | | Distribution
Fee Rate | | Service
Fee Rate | | Total
Distribution
Plan (d) | | Annual
Effective
Rate (e) | | Distribution
and Service
Fee |
| Class A | | 0.10% | | 0.25% | | 0.35% | | 0.25% | | $965,581 |
| Class B | | 0.75% | | 0.25% | | 1.00% | | 1.00% | | 676,418 |
| Class C | | 0.75% | | 0.25% | | 1.00% | | 1.00% | | 404,291 |
| Class J (f) | | 0.70% | | 0.25% | | 0.95% | | 0.95% | | 95,093 |
| Class R (b) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 8,100 |
| Class R1 | | 0.75% | | 0.25% | | 1.00% | | 0.91% | | 42,326 |
| Former Class R2 (b) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 2,197 |
| Class R2 (formerly Class R3) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 113,168 |
| Class R3 (formerly Class R4) | | — | | 0.25% | | 0.25% | | 0.25% | | 33,253 |
| Total Distribution and Service Fees | | | | | | $2,340,427 |
35
Notes to Financial Statements – continued
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to these annual percentage rates of each class’ average daily net assets. |
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended October 31, 2008 based on each class’ average daily net assets. Payment of the 0.10% annual Class A distribution fee is not yet in effect and will be implemented on such date as the fund’s Board of Trustees may determine. Effective March 1, 2008, the distribution fee rate for Class R1 shares increased from 0.50% to 0.75%. |
| (f) | Includes fees that MFD pays to financial intermediaries and for services rendered as the fund’s agent company in Japan. |
Certain Class A shares purchased prior to September 1, 2008 are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 12 months of purchase. Certain Class A shares purchased on or subsequent to September 1, 2008 are subject to a CDSC in the event of a shareholder redemption within 24 months of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD and during the year ended October 31, 2008, were as follows:
| | |
| | | Amount |
| Class A | | $1,485 |
| Class B | | 65,769 |
| Class C | | 8,405 |
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 October 31, 2008, the fee was $388,172, which equated to 0.0627% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the year ended October 31, 2008, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $821,175.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged a fixed amount plus a fee based on average daily net assets. The fund’s annual fixed amount is $17,500. The administrative services fee incurred for the year ended October 31, 2008 was equivalent to an annual effective rate of 0.0150% of the fund’s average daily net assets.
36
Notes to Financial Statements – continued
In addition to the administrative services provided by MFS to the fund as described above, prior to March 1, 2008, MFS was responsible for providing certain retirement plan administration and services with respect to certain shares. These services included various administrative, recordkeeping, and communication/educational services with respect to the retirement plans which invest in these shares, and may have been provided directly by MFS or by a third party. MFS generally paid all, or a portion, of the retirement plan administration and services fee to affiliated or unaffiliated third parties. For the year ended October 31, 2008, the fund paid MFS an annual retirement plan administration and services fee up to the following annual percentage rates of each class’ average daily net assets:
| | | | | | | | | | |
| | | Beginning
of period
through
12/31/07 | | Effective
1/01/08 | | Effective
3/01/08 | | Annual
Effective
Rate (g) | | Total
Amount |
Class R1 | | 0.35% | | 0.35% | | — | | 0.13% | | $5,820 |
Former Class R2 (b) | | 0.25% | | — | | — | | 0.09% | | 386 |
Class R2 (formerly Class R3) | | 0.15% | | — | | — | | 0.03% | | 5,698 |
Class R3 (formerly Class R4) | | 0.15% | | — | | — | | 0.03% | | 3,688 |
Class R4 (formerly Class R5) | | 0.10% | | — | | — | | 0.02% | | 829 |
| Total Retirement Plan Administration and Services Fees | | $16,421 |
| (b) | At the close of business on April 18, 2008, Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
| (g) | Effective January 1, 2008, the annual retirement plan administration and services fee was eliminated for all R share classes, other than Class R1 shares. Effective March 1, 2008, the annual retirement plan administration and services fee was eliminated for Class R1 shares. |
Trustees’ and Officers’ Compensation – The fund pays compensation to independent trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and trustees of the fund are officers or directors of MFS, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired independent trustees which resulted in a pension expense of $2,563. The fund also has an unfunded retirement benefit deferral plan for certain independent trustees which resulted in a net decrease in expense of $9,353. Both amounts are included in independent trustees’ compensation for the year ended October 31, 2008. The liability for deferred retirement benefits payable to certain independent trustees under both plans amounted to $47,523 at October 31, 2008, and is included in payable for independent trustees’ compensation.
Other – This fund and certain other MFS funds (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by
37
Notes to Financial Statements – continued
the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the year ended October 31, 2008, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $4,977 and are included in miscellaneous expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $3,285, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund may invest in a money market fund managed by MFS which seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $145,252,695 and $260,016,456, 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
10/31/08 | | Year ended
10/31/07 |
| | | Shares | | | Amount | | Shares | | Amount |
| Shares sold | | | | | | | | | |
Class A | | 3,506,592 | | | $95,399,638 | | 5,900,973 | | $176,183,231 |
Class B | | 194,481 | | | 4,693,530 | | 677,507 | | 18,985,639 |
Class C | | 219,281 | | | 5,312,965 | | 515,901 | | 14,204,128 |
Class I | | 898,905 | | | 23,842,778 | | 2,910,442 | | 89,489,888 |
Class J | | 0 | (1) | | 101 | | 103,103 | | 2,737,728 |
Class R (b) | | 103,206 | | | 3,103,883 | | 107,418 | | 3,155,031 |
Class R1 | | 97,315 | | | 2,523,558 | | 169,658 | | 4,723,308 |
Former Class R2 (b) | | 11,265 | | | 290,282 | | 49,169 | | 1,372,161 |
Class R2 (formerly Class R3) | | 519,532 | | | 13,638,414 | | 829,854 | | 24,183,937 |
Class R3 (formerly Class R4) | | 163,648 | | | 4,385,440 | | 632,877 | | 18,608,644 |
Class R4 (formerly Class R5) | | 36,818 | | | 959,139 | | 165,209 | | 4,969,637 |
| | 5,751,043 | | | $154,149,728 | | 12,062,111 | | $358,613,332 |
38
Notes to Financial Statements – continued
| | | | | | | | | | | | |
| | | Year ended
10/31/08 | | | Year ended
10/31/07 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | |
Class A | | 1,691,798 | | | $46,930,408 | | | 1,989,079 | | | $56,092,016 | |
Class B | | 339,588 | | | 8,839,547 | | | 602,942 | | | 16,080,479 | |
Class C | | 191,843 | | | 4,859,367 | | | 186,638 | | | 4,863,794 | |
Class I | | 291,885 | | | 8,257,445 | | | 291,576 | | | 8,365,321 | |
Class J | | 320 | | | 8,220 | | | 318 | | | 8,366 | |
Class R (b) | | 14,427 | | | 397,452 | | | 61,699 | | | 1,722,626 | |
Class R1 | | 23,168 | | | 595,157 | | | 7,044 | | | 186,803 | |
Former Class R2 (b) | | 4,106 | | | 106,485 | | | 3,263 | | | 86,930 | |
Class R2 (formerly Class R3) | | 91,329 | | | 2,477,751 | | | 30,200 | | | 837,442 | |
Class R3 (formerly Class R4) | | 58,215 | | | 1,607,302 | | | 39,817 | | | 1,118,849 | |
Class R4 (formerly Class R5) | | 19,816 | | | 550,257 | | | 296 | | | 8,356 | |
| | 2,726,495 | | | $74,629,391 | | | 3,212,872 | | | $89,370,982 | |
| Shares reacquired | | | | | | | | | | | | |
Class A | | (6,098,268 | ) | | $(159,848,690 | ) | | (8,031,087 | ) | | $(240,337,804 | ) |
Class B | | (1,757,804 | ) | | (43,292,551 | ) | | (2,642,389 | ) | | (74,013,843 | ) |
Class C | | (602,595 | ) | | (13,968,493 | ) | | (400,816 | ) | | (10,974,899 | ) |
Class I | | (1,002,335 | ) | | (25,479,010 | ) | | (2,833,772 | ) | | (87,042,982 | ) |
Class J | | (89,229 | ) | | (2,074,392 | ) | | (355,680 | ) | | (9,976,628 | ) |
Class R (b) | | (324,950 | ) | | (9,283,684 | ) | | (418,476 | ) | | (12,450,507 | ) |
Class R1 | | (68,569 | ) | | (1,626,339 | ) | | (80,932 | ) | | (2,225,760 | ) |
Former Class R2 (b) | | (44,102 | ) | | (1,104,978 | ) | | (43,371 | ) | | (1,199,260 | ) |
Class R2 (formerly Class R3) | | (340,460 | ) | | (8,412,921 | ) | | (387,342 | ) | | (11,126,514 | ) |
Class R3 (formerly Class R4) | | (189,298 | ) | | (4,692,381 | ) | | (503,165 | ) | | (14,783,712 | ) |
Class R4 (formerly Class R5) | | (193,516 | ) | | (4,728,711 | ) | | (993 | ) | | (30,831 | ) |
| | (10,711,126 | ) | | $(274,512,150 | ) | | (15,698,023 | ) | | $(464,162,740 | ) |
| Net change | | | | | | | | | | | | |
Class A | | (899,878 | ) | | $(17,518,644 | ) | | (141,035 | ) | | $(8,062,557 | ) |
Class B | | (1,223,735 | ) | | (29,759,474 | ) | | (1,361,940 | ) | | (38,947,725 | ) |
Class C | | (191,471 | ) | | (3,796,161 | ) | | 301,723 | | | 8,093,023 | |
Class I | | 188,455 | | | 6,621,213 | | | 368,246 | | | 10,812,227 | |
Class J | | (88,909 | ) | | (2,066,071 | ) | | (252,259 | ) | | (7,230,534 | ) |
Class R (b) | | (207,317 | ) | | (5,782,349 | ) | | (249,359 | ) | | (7,572,850 | ) |
Class R1 | | 51,914 | | | 1,492,376 | | | 95,770 | | | 2,684,351 | |
Former Class R2 (b) | | (28,731 | ) | | (708,211 | ) | | 9,061 | | | 259,831 | |
Class R2 (formerly Class R3) | | 270,401 | | | 7,703,244 | | | 472,712 | | | 13,894,865 | |
Class R3 (formerly Class R4) | | 32,565 | | | 1,300,361 | | | 169,529 | | | 4,943,781 | |
Class R4 (formerly Class R5) | | (136,882 | ) | | (3,219,315 | ) | | 164,512 | | | 4,947,162 | |
| | (2,233,588 | ) | | $(45,733,031 | ) | | (423,040 | ) | | $(16,178,426 | ) |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
39
Notes to Financial Statements – continued
The fund and other funds managed by MFS participate in a $1 billion unsecured committed line of credit provided by a syndication of banks under a credit agreement. In addition, the fund and other funds managed by MFS have established uncommitted borrowing arrangements with certain banks. 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 Federal Reserve funds rate plus 0.30%. In addition, a commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. For the year ended October 31, 2008, the fund’s commitment fee and interest expense were $2,850 and 0, respectively, and are included in miscellaneous expense on the Statement of Operations.
| (7) | | Transactions in Underlying Funds-Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:
| | | | | | | | |
| Underlying Funds | | Beginning
Shares/Par
Amount | | Acquisitions
Shares/Par
Amount | | Dispositions
Shares/Par
Amount | | Ending
Shares/Par
Amount |
| MFS Institutional Money | | | | | | | | |
| Market Portfolio | | 11,536,277 | | 113,531,256 | | 122,995,169 | | 2,072,364 |
| | | | |
| Underlying Funds | | Realized
Gain (Loss) | | Capital Gain
Distributions | | Dividend
Income | | Ending
Value |
| MFS Institutional Money | | | | | | | | |
| Market Portfolio | | $— | | $— | | $149,002 | | $2,072,364 |
40
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust VI and Shareholders of
MFS Global Equity Fund:
We have audited the accompanying statement of assets and liabilities of MFS Global Equity Fund (the Fund), (one of the portfolios comprising MFS Series Trust VI), including the portfolio of investments, as of October 31, 2008, 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, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the Fund’s custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MFS Global Equity Fund at October 31, 2008, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
December 17, 2008
41
TRUSTEES AND OFFICERS —
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2008, 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 500 Boylston Street, Boston, Massachusetts 02116.
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
| INTERESTED TRUSTEES | | | | |
Robert J. Manning (k)
(born 10/20/63) | | Trustee | | February 2004 | | Massachusetts Financial Services Company, Chief Executive Officer, President, Chief Investment Officer and Director |
Robert C. Pozen (k)
(born 8/08/46) | | Trustee | | February 2004 | | Massachusetts Financial Services Company, Chairman (since February 2004); Harvard Business School (education), Senior Lecturer (since 2008); Bell Canada Enterprises (telecommunications), Director (since March 2002); The Bank of New York, Director (finance), (March 2004 to May 2005); The Commonwealth of Massachusetts, Secretary of Economic Affairs (January 2002 to December 2002); Fidelity Investments, (investment advisor), Vice Chairman (until December 2001); Fidelity Management & Research Company (investment adviser), President (until July 2001); Telesat (satellite communications), Director (until November 2007) |
| INDEPENDENT TRUSTEES | | | | |
J. Atwood Ives
(born 5/01/36) | | Trustee and Chair of Trustees | | February 1992 | | Private investor; KeySpan Corporation (energy related services), Director until 2004; Woodstock Corporation (investment advisory firm), Director until 2003 |
Robert E. Butler (n)
(born 11/29/41) | | Trustee | | January 2006 | | Consultant – regulatory and compliance matters (since July 2002); PricewaterhouseCoopers LLP (professional services firm), Partner (until 2002) |
42
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Lawrence H. Cohn, M.D.
(born 3/11/37) | | Trustee | | August 1993 | | Brigham and Women’s Hospital, Senior Cardiac Surgeon (since 2005); Harvard Medical School, Professor of Cardiac Surgery; Partners HealthCare, Physician Director of Medical Device Technology (since 2006); Brigham and Women’s Hospital, Chief of Cardiac Surgery (until 2005) |
David H. Gunning
(born 5/30/42) | | Trustee | | January 2004 | | Retired; Cleveland-Cliffs Inc. (mining products and service provider), Vice Chairman/Director (until May 2007); Lincoln Electric Holdings, Inc. (welding equipment manufacturer), Director; Development Alternatives, Inc. (consulting), Director/Non Executive Chairman; Portman Limited (mining), Director (since 2005); Southwest Gas Corp. (natural gas distribution), Director (until May 2004) |
William R. Gutow
(born 9/27/41) | | Trustee | | December 1993 | | Private investor and real estate consultant; Capital Entertainment Management Company (video franchise), Vice Chairman; Texas Donuts (donut franchise), Vice Chairman (since 2007); Atlantic Coast Tan (tanning salons), Vice Chairman (until 2007) |
Michael Hegarty
(born 12/21/44) | | Trustee | | December 2004 | | Retired; AXA Financial (financial services and insurance), Vice Chairman and Chief Operating Officer (until 2001); The Equitable Life Assurance Society (insurance), President and Chief Operating Officer (until 2001) |
Lawrence T. Perera
(born 6/23/35) | | Trustee | | July 1981 | | Hemenway & Barnes (attorneys), Counsel |
J. Dale Sherratt
(born 9/23/38) | | Trustee | | August 1993 | | Insight Resources, Inc. (acquisition planning specialists), President; Wellfleet Investments (investor in health care companies), Managing General Partner |
43
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Laurie J. Thomsen
(born 8/05/57) | | Trustee | | March 2005 | | New Profit, Inc. (venture philanthropy), Partner (since 2006); Private investor; Prism Venture Partners (venture capital), Co-founder and General Partner (until June 2004); The Travelers Companies (commercial property liability insurance), Director |
Robert W. Uek
(born 5/18/41) | | Trustee | | January 2006 | | Consultant to investment company industry; PricewaterhouseCoopers LLP (professional services firm), Partner (until 1999); TT International Funds (mutual fund complex), Trustee (until 2005); Hillview Investment Trust II Funds (mutual fund complex), Trustee (until 2005) |
| OFFICERS | | | | | | |
Maria F. Dwyer (k)
(born 12/01/58) | | President | | November 2005 | | Massachusetts Financial Services Company, Executive Vice President and Chief Regulatory Officer (since March 2004) Chief Compliance Officer (since December 2006); Fidelity Management & Research Company, Vice President (prior to March 2004); Fidelity Group of Funds, President and Treasurer (until March 2004) |
Christopher R. Bohane (k)
(born 1/18/74) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
John M. Corcoran (k)
(born 4/13/65) | | Treasurer | | October 2008 | | Massachusetts Financial Services Company, Senior Vice President (since October 2008); State Street Bank and Trust (financial services provider), Senior Vice President, (until September 2008) |
Ethan D. Corey (k)
(born 11/21/63) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since 2004); Dechert LLP (law firm), Counsel (prior to December 2004) |
44
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
David L. DiLorenzo (k)
(born 8/10/68) | | Assistant Treasurer | | July 2005 | | Massachusetts Financial Services Company, Vice President (since June 2005); JP Morgan Investor Services, Vice President (until June 2005) |
Timothy M. Fagan (k)
(born 7/10/68) | | Assistant Secretary and Assistant Clerk | | September 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since September 2005); John Hancock Advisers, LLC, Vice President, Senior Attorney and Chief Compliance Officer (until August 2005) |
Mark D. Fischer (k)
(born 10/27/70) | | Assistant Treasurer | | July 2005 | | Massachusetts Financial Services Company, Vice President (since May 2005); JP Morgan Investment Management Company, Vice President (until May 2005) |
Robyn L. Griffin
(born 7/04/75) | | Assistant Independent Chief Compliance Officer | | August 1, 2008 | | Griffin Compliance LLC (provider of compliance services), Principal (since August 2008); State Street Corporation (financial services provider), Mutual Fund Administration Assistant Director (October 2006 – July 2008); Liberty Mutual Group (insurance), Personal Market Assistant Controller (April 2006 – October 2006); Deloitte & Touche LLP (professional services firm), Senior Manager (prior to April 2006) |
Brian E. Langenfeld (k) (born 3/07/73) | | Assistant Secretary and Assistant Clerk | | June 2006 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since May 2006); John Hancock Advisers, LLC, Assistant Vice President and Counsel (until April 2006) |
Ellen Moynihan (k)
(born 11/13/57) | | Assistant Treasurer | | April 1997 | | Massachusetts Financial Services Company, Senior Vice President |
Susan S. Newton (k) (born 3/07/50) | | Assistant Secretary and Assistant Clerk | | May 2005 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since April 2005); John Hancock Advisers, LLC, Senior Vice President, Secretary and Chief Legal Officer (until April 2005) |
45
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Susan A. Pereira (k)
(born 11/05/70) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since June 2004); Bingham McCutchen LLP (law firm), Associate (until June 2004) |
Mark N. Polebaum (k)
(born 5/01/52) | | Secretary and Clerk | | January 2006 | | Massachusetts Financial Services Company, Executive Vice President, General Counsel and Secretary (since January 2006); Wilmer Cutler Pickering Hale and Dorr LLP (law firm), Partner (until January 2006) |
Frank L. Tarantino
(born 3/07/44) | | Independent Chief Compliance Officer | | June 2004 | | Tarantino LLC (provider of compliance services), Principal (since June 2004); CRA Business Strategies Group (consulting services), Executive Vice President (until June 2004) |
Richard S. Weiztel (k)
(born 7/16/70) | | Assistant Secretary and Assistant Clerk | | October 2007 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel (since 2004); Massachusetts Department of Business and Technology, General Counsel (until April 2004) |
James O. Yost (k)
(born 6/12/60) | | Assistant Treasurer | | September 1990 | | 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, Messrs. Pozen and Manning served as Advisory Trustees. For the period March 2008 until October 2008, Ms. Dwyer served as Treasurer of the Funds. |
| (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 position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. |
| (n) | In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The terms of that settlement required that compensation and expenses related to the independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29. |
46
Trustees and Officers – continued
Each Trustee (except Mr. Butler and Mr. Uek) has been elected by shareholders and each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. The Trust held a shareholders’ meeting in 2005 to elect Trustees, and will hold a shareholders’ meeting at least once every five years thereafter, to elect Trustees. Messrs. Butler, Sherratt, Gutow, Uek and Ms. Thomsen are members of the Trust’s Audit Committee.
Each of the Fund’s Trustees and officers holds comparable positions with certain other funds of which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain affiliates of MFS. As of January 1, 2008, the Trustees served as board members of 100 funds within the MFS Family of Funds.
The Statement of Additional Information for the Fund and further information about the Trustees are available without charge upon request by calling 1-800-225-2606.
| | |
| Investment Adviser | | Custodian |
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741 | | JPMorgan Chase Bank One Chase Manhattan Plaza New York, NY 10081 |
| Distributor | | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116-3741 | | Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116 |
| Portfolio Managers | | |
David Mannheim | | |
Simon Todd | | |
47
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, 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 over the course of three months beginning in May and ending in July, 2008 (“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 the MFS Funds’ Independent Chief Compliance Officer, a full-time senior officer appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the 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 Lipper Inc., an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2007 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Lipper performance universe”), (ii) information provided by Lipper Inc. on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Lipper, Inc. (the “Lipper expense group”), (iii) information provided by MFS on the advisory fees of comparable 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,
48
Board Review of Investment Advisory Agreement – continued
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, (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 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 Lipper Inc. 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 Lipper Inc. and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the performance of peer groups of funds 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 Lipper performance universe over the three-year period ended December 31, 2007, 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 2nd quintile relative to the other funds in the universe for this three-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 each of the one- and five-year periods ended December 31, 2007 relative to the Lipper 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.
49
Board Review of Investment Advisory Agreement – continued
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 peer groups of funds based on information provided by Lipper Inc. The Trustees considered that, according to the Lipper data, the Fund’s effective advisory fee rate was higher than the Lipper expense group median, and the Fund’s total expense ratio was approximately at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional accounts. 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 in comparison to institutional accounts, 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, and the impact on MFS and expenses associated with the more extensive regulatory regime to which the Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund. They noted that the Fund’s advisory fee rate schedule is currently subject to breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2 billion. The Trustees concluded that the existing breakpoints were sufficient to allow the Fund to benefit from economies of scale as its 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.
50
Board Review of Investment Advisory Agreement – continued
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 entry into the industry 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.
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 Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund’s portfolio brokerage commissions, if applicable, to pay for investment research (excluding third-party research, for which MFS pays directly) and various other factors. Additionally, the Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including a majority of 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, 2008.
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products and Performance” section of the MFS Web site (mfs.com).
51
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2008 income tax forms in January 2009. 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 for the 15% tax rate.
For corporate shareholders, 75.60% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
The fund designates $82,727,193 as capital gain dividends paid during the fiscal year.
Income derived from foreign sources was $5,634,632. The fund intends to pass through foreign tax credits of $434,792 for the fiscal year.
52
MFS® PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management® and the MFS funds, we take this concern very seriously. We want you to understand our policies about the investment products and services that we offer, and how we protect the nonpublic personal information of investors who have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information. We maintain information and records about you, your investments, and the services you use. Examples of the nonpublic personal information we maintain include
| | Ÿ | | data from investment applications and other forms |
| | Ÿ | | share balances and transactional history with us, our affiliates, or others |
| | Ÿ | | facts from a consumer reporting agency |
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We may share nonpublic personal information with third parties or certain of our affiliates in connection with servicing your account or processing your transactions. We may share information with companies or financial institutions that perform marketing services on our behalf or with other financial institutions with which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to appropriate personnel who provide products, services, or information to you. We maintain physical, electronic, and procedural safeguards to help protect the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call 1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.
53
CONTACT US
| | |
| Web site | | Mailing address |
| mfs.com | | MFS Service Center, Inc. |
| | P.O. Box 55824 |
| MFS TALK | | Boston, MA 02205-5824 |
| 1-800-637-8255 | | |
| 24 hours a day | | Overnight mail |
| | MFS Service Center, Inc. |
| Account service and literature | | c/o Boston Financial Data Services |
| | 30 Dan Road |
| Shareholders | | Canton, MA 02021-2809 |
| 1-800-225-2606 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
| |
| Investment professionals | | |
| 1-800-343-2829 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
| |
| Retirement plan services | | |
| 1-800-637-1255 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
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, and eDelivery may not be available to you.
MFS® Global Total Return Fund
SIPC Contact Information:
You may obtain information about the Securities Investor Protection Corporation (“SIPC”), including the SIPC Brochure, by contacting SIPC either by telephone (202-371-8300) or by accessing SIPC’s website address (www.sipc.org).
Note to Shareholders: At the close of business on April 18, 2008, Class R shares and Class R2 shares converted into Class R3 shares. Following this conversion, Class R3, Class R4, and Class R5 shares were renamed Class R2, Class R3, and Class R4 shares, respectively.
The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ
NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
10/31/08
MWT-ANN
LETTER FROM THE CEO
Dear Shareholders:
The global economy is not a very welcoming place these days. Headlines tell the story of slowing growth, accelerating inflation, and credit collapse. We have watched the rampant selling that has typified equity and credit markets since the strains in the financial system first became apparent last year.
The volatility in commodity and currency markets has further complicated investment choices. There are so many parts moving in so many directions; it has become very easy to get overwhelmed.
At MFS® we remind investors to keep their eye on the long term and not become panicked by the uncertainty of the day to day.
Remember that what goes down could very easily come back up. And that is where we as money managers like to turn our focus.
Investment opportunities may arise in declining markets. When markets experience substantial selloffs, assets often become undervalued. At MFS, we have a team of global sector analysts located in Boston, London, Mexico City, Singapore, Sydney, and Tokyo working together to do the kind of bottom-up research that will root out these investment opportunities.
In times like these, we encourage our investors to check in with their advisors to ensure they have an investment plan in place that will pay heed to the present, but that is firmly tailored to the future.
Respectfully,
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management®
December 15, 2008
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | |
| Top ten holdings (i) | | |
| TOTAL S.A. | | 2.0% |
| Nestle S.A. | | 1.8% |
| U.S. Treasury Notes, 4.75%, 2012 | | 1.7% |
| Kingdom of Spain, 5%, 2012 | | 1.6% |
| Roche Holding AG | | 1.5% |
| Vodafone Group PLC | | 1.5% |
| Dutch Government, 3.75%, 2014 | | 1.5% |
| Kingdom of Belgium, 5.5%, 2017 | | 1.5% |
| Lockheed Martin Corp. | | 1.4% |
| Philip Morris International, Inc. | | 1.3% |
| |
| Equity sectors | | |
| Financial Services | | 11.1% |
| Consumer Staples | | 7.9% |
| Energy | | 7.7% |
| Health Care | | 6.9% |
| Utilities & Communications | | 6.7% |
| Technology | | 5.3% |
| Industrial Goods & Services | | 4.8% |
| Leisure | | 3.0% |
| Basic Materials | | 2.0% |
| Autos & Housing | | 1.9% |
| Transportation | | 1.5% |
| Special Products & Services | | 1.3% |
| Retailing | | 1.2% |
| | |
| Fixed income sectors (i) | | |
| Non-U.S. Government Bonds | | 25.7% |
| U.S. Treasury Securities | | 5.2% |
| Mortgage-Backed Securities | | 1.3% |
| U.S. Government Agencies | | 0.8% |
| Commercial Mortgage-Backed Securities | | 0.7% |
| Municipal Bonds | | 0.4% |
| |
| Country weightings (i) | | |
| United States | | 39.5% |
| Japan | | 16.2% |
| United Kingdom | | 9.7% |
| Germany | | 6.9% |
| France | | 5.4% |
| Switzerland | | 4.9% |
| Netherlands | | 3.9% |
| Spain | | 2.4% |
| Italy | | 1.8% |
| Other Countries | | 9.3% |
| (i) | For purposes of this presentation, the bond component includes accrued interest amounts and may be positively or negatively impacted by the equivalent exposure from any derivative holdings, if applicable. |
Percentages are based on net assets as of 10/31/08, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
2
MANAGEMENT REVIEW
Summary of Results
For the twelve months ended October 31, 2008, Class A shares of the MFS Global Total Return Fund provided a total return of –19.92%, at net asset value. This compares with a return of –41.51% for the fund’s benchmark, the MSCI World Index. The fund’s other benchmark, a blended benchmark comprised of 60% of the MSCI World Index and 40% of the JPMorgan Global Government Bond Index (Unhedged), which closely resembles the equity and fixed income allocations of the fund, generated a total return of –25.82%. Over the same period, the JPMorgan Global Government Bond Index (Unhedged) generated a return of 3.10%.
Market Environment
The U.S. economy and financial markets experienced significant deterioration and extraordinary volatility over the reporting period. U.S. economic growth slowed significantly, despite the short-term bounce from the second quarter fiscal stimulus. Strong domestic headwinds included accelerated deterioration in the housing market, anemic corporate investment, a markedly weaker job market, and a much tighter credit environment. During the second half of the period, a seemingly continuous series of tumultuous financial events hammered markets, including: the distressed sale of failing Bear Stearns to JPMorgan, the conservatorship of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, the bankruptcy of investment bank Lehman Brothers, the Federal Reserve Bank’s complex intervention of insurance company American International Group (AIG), the nationalization of several large European banks, the failure of Washington Mutual, and the distressed sale of Wachovia. As a result of this barrage of turbulent news, global equity markets pushed significantly lower and credit markets witnessed the worst dislocation since the beginning of the credit crisis.
While reasonably resilient during the first half of the period, the global economy and financial system increasingly experienced considerable negative spillovers from the U.S. slowdown. Not only did Europe and Japan show obvious signs of economic softening, the more powerful engine of global growth – emerging markets – also began to display weakening dynamics.
During the reporting period, the U.S. Federal Reserve Board cut interest rates aggressively and introduced a multitude of new lending facilities to alleviate ever-tightening credit markets, while the U.S. federal government moved quickly to design and implement a modest fiscal stimulus package. Although several other global central banks also cut rates, the dilemma of rising energy and food prices heightened concerns among central bankers that inflationary expectations might become unhinged despite weaker growth. Only late in the
3
Management Review – continued
reporting period did slowing global growth result in a precipitous decline in commodity prices, which began to ease inflation and inflationary expectations. As inflationary concerns diminished in the face of global deleveraging, and equity and credit markets deteriorated more sharply, a coordinated rate cut marked the beginning of much more aggressive easing by the major global central banks.
Contributors to Performance
Within the equity portion of the fund, an overweighted position in the consumer staples sector positively affected the portfolio’s performance relative to the MSCI World Index. Food company Nestle (Switzerland) and household products manufacturer Kao Corp. (Japan) were among the fund’s top contributors. Shares of Nestle gained on continued strong sales and the company benefited from its improved ability to manage costs. The stock was also helped by speculation about a potential alliance or an investment stake in the world’s second-largest chocolate maker, Hershey’s.
Security selection and, to a lesser extent, our underweighted position in the basic materials sector also boosted relative results. No individual holdings within this sector were among the fund’s top contributors for the reporting period.
Stock selection in the energy sector benefited relative returns. The fund’s holdings of integrated oil company TOTAL bolstered relative performance as the stock outpaced the return of the benchmark. Shares of TOTAL moved higher when management announced increases in quarterly profit margins due to rising prices in crude oil, natural gas, and to increasing demand for liquid natural gas during the reporting period.
Stock selection within the industrial goods and services sector, due largely to the fund’s position in defense contractor Lockheed Martin, contributed to relative results during the reporting period. Shares of Lockheed Martin outperformed in recent months as investors reacted positively to news of several contract wins, including a $2.2 billion contract for F-35 jets for the Air Force and a new global positioning satellite contract worth potentially $3.6 billion.
Elsewhere, the fund’s holdings of pharmaceutical companies, Hisamitsu Pharmaceutical (Japan), Roche Holding (Switzerland), GlaxoSmithKline (U.K.), and Novartis (Switzerland), helped relative returns. Enterprise software products maker Oracle was also a top relative contributor. Not owning weak-performing insurance firm American International Group was another positive factor.
Within the fixed income portion of the fund, currency positioning in the Euro and British Pound contributed to performance relative to the JPMorgan Global Government Bond Index (Unhedged). The fund’s greater relative exposure to United Kingdom and Australian bonds, and lesser relative exposure to Italian bonds, also benefited relative performance.
4
Management Review – continued
Detractors from Performance
Within the equity portion of the fund, several holdings in the financial services sector were among the fund’s top relative detractors. These included financial services firm ING Groep (the Netherlands), investment banking firm Goldman Sachs, and banking operators, Credit Agricole (France), Unicredito Italiano (Italy), and Royal Bank of Scotland (g) (U.K.). Shares of Royal Bank of Scotland struggled as the bank reported significant writedowns due to slumping credit markets, the company’s exposure to U.K. real estate, leveraged loans, and the U.S. sub-prime markets. Not owning relative outperformer Wells Fargo also hurt results.
Elsewhere, not owning strong-performing German car maker Volkswagen hurt relative performance. Luxury automaker BMW (Germany) and imaging products manufacturer Konica Minolta Holdings also held back relative returns.
Within the fixed income portion of the fund, exposure to the financial sector held back results as holdings of finance companies suffered amid the global credit crisis. The fund’s greater relative exposure to the Norwegian Krone detracted from relative results. Positioning in Japanese bonds also hurt.
Respectfully,
| | | | |
| Nevin Chitkara | | Steven Gorham | | Matthew Ryan |
| Portfolio Manager | | Portfolio Manager | | Portfolio Manager |
| | |
| Erik Weisman | | Barnaby Wiener | | |
| Portfolio Manager | | Portfolio Manager | | |
| (g) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio managers 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 10/31/08
The following chart illustrates a representative class of the fund’s historical performance in comparison to its benchmark. 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. Benchmark comparisons are unmanaged; do not reflect sales charges, commissions or expenses; and cannot be invested in directly. (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 10/31/08
Average annual without sales charge
| | | | | | | | | | | | |
| | | Share class | | Class inception date | | 1-yr | | 5-yr | | 10-yr | | |
| | | A | | 9/04/90 | | (19.92)% | | 5.95% | | 4.97% | | |
| | | B | | 9/07/93 | | (20.39)% | | 5.26% | | 4.29% | | |
| | | C | | 1/03/94 | | (20.39)% | | 5.26% | | 4.29% | | |
| | | I | | 1/02/97 | | (19.51)% | | 6.35% | | 5.36% | | |
| | | R1 | | 4/01/05 | | (20.42)% | | 5.20% | | 4.25% | | |
| | | R2
(formerly Class R3) | | 10/31/03 | | (19.98)% | | 5.64% | | 4.47% | | |
| | | R3
(formerly Class R4) | | 4/01/05 | | (19.80)% | | 5.95% | | 4.97% | | |
| | | R4 (formerly Class R5) | | 4/01/05 | | (19.53)% | | 6.18% | | 5.08% | | |
Comparative benchmarks
| | | | | | | | | | | | |
| | �� | MSCI World Index (f) | | (41.51)% | | 2.24% | | 1.21% | | |
| | | 60% MSCI World/40% JPMorgan Global
Government Bond Index (unhedged) (f) | | (25.82)% | | 3.69% | | 3.03% | | |
| | | JPMorgan Global Government Bond
Index (unhedged) (f) | | 3.10% | | 5.13% | | 4.91% | | |
Average annual with sales charge
| | | | | | | | | | | | |
| | | A With Initial Sales Charge (5.75%) | | (24.53)% | | 4.70% | | 4.35% | | |
| | | B With CDSC (Declining over six years
from 4% to 0%) (x) | | (23.27)% | | 4.97% | | 4.29% | | |
| | | C With CDSC (1% for 12 months) (x) | | (21.11)% | | 5.26% | | 4.29% | | |
Class I, R1, R2, R3 and R4 shares do not have a sales charge.
CDSC – Contingent Deferred Sales Charge.
| (f) | Source: FactSet Research Systems Inc. |
| (x) | Assuming redemption at the end of the applicable period. |
Benchmark Definitions
JPMorgan Global Government Bond Index (unhedged) – measures developed government bond markets around the world.
Morgan Stanley Capital International (MSCI) World Index – a market capitalization-weighted index that is designed to measure equity market performance in the global developed markets.
It is not possible to invest directly in an index.
7
Performance Summary – continued
Notes to Performance Summary
Performance for Class R3 and Class R4 shares includes the performance of the fund’s Class A shares for periods prior to their offering. Performance for Class R1 and Class R2 shares includes the performance of the fund’s Class B shares for periods prior to their offering. This blended class performance has been adjusted to take into account differences in sales loads, if any, applicable to these share classes, but has not been adjusted to take into account differences in class specific operating expenses (such as Rule 12b-1 fees). Compared to performance these share classes would have experienced had they been offered for the entire period, the use of blended performance generally results in higher performance for share classes with higher operating expenses than the share class to which it is blended, and lower performance for share classes with lower operating expenses than the share class to which it is blended.
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.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
8
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
May 1, 2008 through October 31, 2008
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 May 1, 2008 through October 31, 2008.
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
5/01/08 | | Ending
Account Value
10/31/08 | | Expenses
Paid During
Period (p)
5/01/08-10/31/08 |
| A | | Actual | | 1.30% | | $1,000.00 | | $806.58 | | $5.90 |
| | Hypothetical (h) | | 1.30% | | $1,000.00 | | $1,018.60 | | $6.60 |
| B | | Actual | | 1.95% | | $1,000.00 | | $804.56 | | $8.85 |
| | Hypothetical (h) | | 1.95% | | $1,000.00 | | $1,015.33 | | $9.88 |
| C | | Actual | | 1.95% | | $1,000.00 | | $804.45 | | $8.84 |
| | Hypothetical (h) | | 1.95% | | $1,000.00 | | $1,015.33 | | $9.88 |
| I | | Actual | | 0.95% | | $1,000.00 | | $809.38 | | $4.32 |
| | Hypothetical (h) | | 0.95% | | $1,000.00 | | $1,020.36 | | $4.82 |
| R1 | | Actual | | 1.95% | | $1,000.00 | | $804.74 | | $8.85 |
| | Hypothetical (h) | | 1.95% | | $1,000.00 | | $1,015.33 | | $9.88 |
R2
(formerly R3) | | Actual | | 1.45% | | $1,000.00 | | $806.93 | | $6.59 |
| | Hypothetical (h) | | 1.45% | | $1,000.00 | | $1,017.85 | | $7.35 |
R3
(formerly R4) | | Actual | | 1.20% | | $1,000.00 | | $807.30 | | $5.45 |
| | Hypothetical (h) | | 1.20% | | $1,000.00 | | $1,019.10 | | $6.09 |
R4
(formerly R5) | | Actual | | 0.95% | | $1,000.00 | | $808.74 | | $4.32 |
| | Hypothetical (h) | | 0.95% | | $1,000.00 | | $1,020.36 | | $4.82 |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid is equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
10
PORTFOLIO OF INVESTMENTS
10/31/08
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | |
| Common Stocks - 61.3% | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Aerospace - 2.8% | | | | | |
| Lockheed Martin Corp. | | 92,450 | | $ | 7,862,872 |
| Northrop Grumman Corp. | | 83,850 | | | 3,931,727 |
| United Technologies Corp. | | 76,780 | | | 4,219,829 |
| | | | | |
| | | | | $ | 16,014,428 |
| Alcoholic Beverages - 0.7% | | | | | |
| Heineken N.V. | | 125,030 | | $ | 4,219,073 |
| | |
| Apparel Manufacturers - 0.4% | | | | | |
| NIKE, Inc., “B” | | 42,170 | | $ | 2,430,257 |
| | |
| Automotive - 0.4% | | | | | |
| Bayerische Motoren Werke AG | | 58,980 | | $ | 1,526,716 |
| Johnson Controls, Inc. | | 41,210 | | | 730,653 |
| | | | | |
| | | | | $ | 2,257,369 |
| Broadcasting - 2.3% | | | | | |
| Fuji Television Network, Inc. | | 1,767 | | $ | 2,118,424 |
| Nippon Television Network Corp. | | 12,640 | | | 1,211,884 |
| Omnicom Group, Inc. | | 82,220 | | | 2,428,779 |
| Vivendi S.A. | | 114,950 | | | 3,006,624 |
| Walt Disney Co. | | 102,270 | | | 2,648,793 |
| WPP Group PLC (a) | | 275,140 | | | 1,660,487 |
| | | | | |
| | | | | $ | 13,074,991 |
| Brokerage & Asset Managers - 1.7% | | | | | |
| Daiwa Securities Group, Inc. | | 250,000 | | $ | 1,388,588 |
| Franklin Resources, Inc. | | 26,010 | | | 1,768,680 |
| Goldman Sachs Group, Inc. | | 36,570 | | | 3,382,725 |
| Merrill Lynch & Co., Inc. | | 188,580 | | | 3,505,702 |
| | | | | |
| | | | | $ | 10,045,695 |
| Business Services - 1.3% | | | | | |
| Accenture Ltd., “A” | | 114,030 | | $ | 3,768,691 |
| Bunzl PLC | | 159,930 | | | 1,603,498 |
| USS Co. Ltd. | | 35,760 | | | 2,193,212 |
| | | | | |
| | | | | $ | 7,565,401 |
11
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Chemicals - 1.0% | | | | | |
| 3M Co. | | 27,180 | | $ | 1,747,674 |
| PPG Industries, Inc. | | 80,410 | | | 3,986,728 |
| | | | | |
| | | | | $ | 5,734,402 |
| Computer Software - 1.2% | | | | | |
| Oracle Corp. (a) | | 377,220 | | $ | 6,899,354 |
| | |
| Computer Software - Systems - 1.0% | | | | | |
| Fujitsu Ltd. | | 558,000 | | $ | 2,220,575 |
| International Business Machines Corp. | | 39,930 | | | 3,712,292 |
| | | | | |
| | | | | $ | 5,932,867 |
| Construction - 1.5% | | | | | |
| CRH PLC | | 120,700 | | $ | 2,691,573 |
| Geberit AG | | 21,668 | | | 2,253,343 |
| Sekisui Chemical Co. Ltd. | | 358,000 | | | 2,078,939 |
| Sherwin-Williams Co. | | 27,710 | | | 1,576,976 |
| | | | | |
| | | | | $ | 8,600,831 |
| Consumer Goods & Services - 2.6% | | | | | |
| Henkel KGaA, IPS | | 109,100 | | $ | 3,157,627 |
| Kao Corp. | | 198,000 | | | 5,723,737 |
| Kose Corp. | | 88,300 | | | 2,304,832 |
| Procter & Gamble Co. | | 55,120 | | | 3,557,445 |
| | | | | |
| | | | | $ | 14,743,641 |
| Containers - 0.7% | | | | | |
| Brambles Ltd. | | 812,830 | | $ | 4,304,600 |
| | |
| Electrical Equipment - 1.5% | | | | | |
| Legrand S.A. | | 169,460 | | $ | 2,824,122 |
| OMRON Corp. | | 126,900 | | | 1,799,970 |
| Spectris PLC | | 248,000 | | | 1,998,486 |
| W.W. Grainger, Inc. | | 23,110 | | | 1,815,753 |
| | | | | |
| | | | | $ | 8,438,331 |
| Electronics - 2.5% | | | | | |
| Intel Corp. | | 216,420 | | $ | 3,462,720 |
| Konica Minolta Holdings, Inc. | | 302,000 | | | 1,965,929 |
| Ricoh Co. Ltd. | | 127,000 | | | 1,350,895 |
| Samsung Electronics Co. Ltd. (a) | | 9,722 | | | 4,062,647 |
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | | 405,641 | | | 3,350,603 |
| | | | | |
| | | | | $ | 14,192,794 |
12
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Energy - Independent - 1.4% | | | | | |
| Apache Corp. | | 33,080 | | $ | 2,723,476 |
| Devon Energy Corp. | | 42,010 | | | 3,396,929 |
| EOG Resources, Inc. | | 26,890 | | | 2,175,939 |
| | | | | |
| | | | | $ | 8,296,344 |
| Energy - Integrated - 6.0% | | | | | |
| Chevron Corp. | | 78,180 | | $ | 5,832,228 |
| Exxon Mobil Corp. | | 63,010 | | | 4,670,301 |
| Hess Corp. | | 38,770 | | | 2,334,342 |
| Royal Dutch Shell PLC, “A” | | 282,900 | | | 7,726,188 |
| StatoilHydro ASA | | 146,500 | | | 2,930,113 |
| TOTAL S.A. | | 179,550 | | | 9,861,744 |
| TOTAL S.A., ADR | | 27,530 | | | 1,526,263 |
| | | | | |
| | | | | $ | 34,881,179 |
| Food & Beverages - 2.9% | | | | | |
| J.M. Smucker Co. | | 7,700 | | $ | 343,112 |
| Kellogg Co. | | 34,200 | | | 1,724,364 |
| Nestle S.A. | | 272,955 | | | 10,639,639 |
| Nong Shim Co. Ltd. | | 7,455 | | | 1,201,162 |
| PepsiCo, Inc. | | 49,860 | | | 2,842,519 |
| | | | | |
| | | | | $ | 16,750,796 |
| Food & Drug Stores - 0.7% | | | | | |
| CVS Caremark Corp. | | 122,310 | | $ | 3,748,801 |
| | |
| Forest & Paper Products - 0.3% | | | | | |
| UPM-Kymmene Corp. | | 130,430 | | $ | 1,847,808 |
| | |
| Gaming & Lodging - 0.2% | | | | | |
| Royal Caribbean Cruises Ltd. | | 81,060 | | $ | 1,099,174 |
| | |
| Insurance - 3.6% | | | | | |
| Allstate Corp. | | 147,250 | | $ | 3,885,927 |
| Aviva PLC | | 304,860 | | | 1,828,090 |
| Benfield Group PLC | | 323,090 | | | 1,758,781 |
| Jardine Lloyd Thompson Group PLC | | 384,130 | | | 2,720,078 |
| MetLife, Inc. | | 194,210 | | | 6,451,656 |
| Muenchener Ruckversicherungs-Gesellschaft AG | | 22,630 | | | 2,967,952 |
| Prudential Financial, Inc. | | 30,530 | | | 915,900 |
| | | | | |
| | | | | $ | 20,528,384 |
13
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Leisure & Toys - 0.2% | | | | | |
| NAMCO BANDAI Holdings, Inc. | | 109,100 | | $ | 1,138,733 |
| | |
| Machinery & Tools - 0.5% | | | | | |
| Assa Abloy AB, “B” | | 270,810 | | $ | 3,031,211 |
| | |
| Major Banks - 4.0% | | | | | |
| Bank of New York Mellon Corp. | | 167,538 | | $ | 5,461,739 |
| Credit Agricole S.A. | | 239,775 | | | 3,495,899 |
| JPMorgan Chase & Co. | | 62,340 | | | 2,571,525 |
| PNC Financial Services Group, Inc. | | 33,430 | | | 2,228,778 |
| State Street Corp. | | 59,740 | | | 2,589,729 |
| Sumitomo Mitsui Financial Group, Inc. | | 702 | | | 2,850,044 |
| SunTrust Banks, Inc. | | 19,310 | | | 775,103 |
| Unibanco - Uniao de Bancos Brasileiros S.A., ADR | | 22,480 | | | 1,418,038 |
| UniCredito Italiano S.p.A. | | 744,182 | | | 1,818,147 |
| | | | | |
| | | | | $ | 23,209,002 |
| Network & Telecom - 0.6% | | | | | |
| Nokia Oyj | | 220,330 | | $ | 3,360,704 |
| | |
| Oil Services - 0.3% | | | | | |
| Fugro N.V. | | 29,500 | | $ | 1,067,290 |
| National Oilwell Varco, Inc. (a) | | 23,850 | | | 712,877 |
| | | | | |
| | | | | $ | 1,780,167 |
| Other Banks & Diversified Financials - 1.8% | | | | | |
| Bangkok Bank Public Co. Ltd. | | 446,500 | | $ | 908,782 |
| DNB Holding A.S.A. | | 316,600 | | | 1,827,690 |
| Hachijuni Bank Ltd. | | 235,000 | | | 1,149,260 |
| ING Groep N.V. | | 254,220 | | | 2,344,256 |
| Sapporo Hokuyo Holdings, Inc. | | 214 | | | 938,013 |
| Shinhan Financial Group Co. Ltd. | | 56,940 | | | 1,431,456 |
| Unione di Banche Italiane Scpa | | 89,662 | | | 1,509,854 |
| | | | | |
| | | | | $ | 10,109,311 |
| Pharmaceuticals - 6.9% | | | | | |
| Astellas Pharma, Inc. | | 100,900 | | $ | 4,124,970 |
| GlaxoSmithKline PLC | | 277,740 | | | 5,350,361 |
| Hisamitsu Pharmaceutical Co., Inc. | | 43,800 | | | 1,831,073 |
| Johnson & Johnson | | 57,880 | | | 3,550,359 |
| Merck & Co., Inc. | | 125,960 | | | 3,898,462 |
| Merck KGaA | | 20,240 | | | 1,794,948 |
| Novartis AG | | 122,930 | | | 6,218,862 |
14
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Pharmaceuticals - continued | | | | | |
| Pfizer, Inc. | | 50,050 | | $ | 886,386 |
| Roche Holding AG | | 57,810 | | | 8,848,733 |
| Wyeth | | 109,620 | | | 3,527,572 |
| | | | | |
| | | | | $ | 40,031,726 |
| Printing & Publishing - 0.3% | | | | | |
| Reed Elsevier PLC, ADR | | 220,723 | | $ | 1,935,952 |
| | |
| Railroad & Shipping - 0.1% | | | | | |
| Burlington Northern Santa Fe Corp. | | 8,440 | | $ | 751,666 |
| | |
| Specialty Stores - 0.1% | | | | | |
| Praktiker Bau-und Heimwerkermaerkte Holding AG | | 60,030 | | $ | 478,138 |
| | |
| Telecommunications - Wireless - 2.9% | | | | | |
| America Movil S.A.B. de C.V., “L”, ADR | | 40,940 | | $ | 1,266,684 |
| KDDI Corp. | | 836 | | | 4,994,569 |
| Rogers Communications, Inc., “B” | | 60,930 | | | 1,768,805 |
| Vodafone Group PLC | | 4,464,035 | | | 8,598,475 |
| | | | | |
| | | | | $ | 16,628,533 |
| Telephone Services - 2.4% | | | | | |
| AT&T, Inc. | | 226,960 | | $ | 6,075,719 |
| Royal KPN N.V. | | 201,090 | | | 2,829,496 |
| Telefonica S.A. | | 252,740 | | | 4,674,979 |
| | | | | |
| | | | | $ | 13,580,194 |
| Tobacco - 1.7% | | | | | |
| Lorillard, Inc. | | 29,380 | | $ | 1,934,967 |
| Philip Morris International, Inc. | | 178,510 | | | 7,759,830 |
| | | | | |
| | | | | $ | 9,694,797 |
| Trucking - 1.4% | | | | | |
| TNT N.V. | | 171,050 | | $ | 3,581,150 |
| Yamato Holdings Co. Ltd. | | 403,000 | | | 4,432,358 |
| | | | | |
| | | | | $ | 8,013,508 |
| Utilities - Electric Power - 1.4% | | | | | |
| Dominion Resources, Inc. | | 75,644 | | $ | 2,744,364 |
| E.ON AG | | 97,422 | | | 3,718,277 |
| FPL Group, Inc. | | 37,640 | | | 1,778,114 |
| | | | | |
| | | | | $ | 8,240,755 |
| Total Common Stocks (Identified Cost, $433,698,213) | | | | $ | 353,590,917 |
15
Portfolio of Investments – continued
| | | | | | |
| Bonds - 28.9% | | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | | |
| Asset Backed & Securitized - 0.7% | | | | | | |
| Bayview Commercial Asset Trust, FRN, 3.06%, 2023 (n) | | CAD | 560,000 | | $ | 339,396 |
| Commercial Mortgage Asset Trust, FRN, 0.859%, 2032 (i) | | | 14,424,654 | | | 368,083 |
Commercial Mortgage Pass-Through Certificates, FRN,
4.75%, 2017 (n) | | | 1,400,000 | | | 1,308,953 |
Commercial Mortgage Pass-Through Certificates, FRN,
4.76%, 2017 (n) | | | 1,819,581 | | | 1,651,431 |
| First Union National Bank Commercial Mortgage Trust, FRN, 0.896%, 2043 (i) | | | 23,258,405 | | | 387,176 |
| | | | | | |
| | | | | | $ | 4,055,039 |
| International Market Quasi-Sovereign - 0.3% | | | | | | |
| Canada Housing Trust, 4.6%, 2011 | | CAD | 1,785,000 | | $ | 1,544,611 |
| | |
| International Market Sovereign - 20.3% | | | | | | |
| Dutch Government, 3.75%, 2014 | | EUR | 6,647,000 | | $ | 8,453,041 |
| Federal Republic of Germany, 5.25%, 2010 | | EUR | 3,117,000 | | | 4,136,371 |
| Federal Republic of Germany, 3.75%, 2013 | | EUR | 2,592,000 | | | 3,383,185 |
| Federal Republic of Germany, 3.75%, 2015 | | EUR | 5,096,000 | | | 6,582,206 |
| Federal Republic of Germany, 4.25%, 2018 | | EUR | 3,940,000 | | | 5,153,246 |
| Federal Republic of Germany, 6.25%, 2030 | | EUR | 4,011,000 | | | 6,179,396 |
| Government of Australia, 6%, 2017 | | AUD | 3,906,000 | | | 2,760,873 |
| Government of Canada, 4.5%, 2015 | | CAD | 2,864,000 | | | 2,546,235 |
| Government of Canada, 5.75%, 2033 | | CAD | 425,000 | | | 425,314 |
| Government of Japan, 1.5%, 2012 | | JPY | 576,000,000 | | | 6,004,661 |
| Government of Japan, 1.3%, 2014 | | JPY | 100,000,000 | | | 1,032,401 |
| Government of Japan, 2.1%, 2024 | | JPY | 629,000,000 | | | 6,485,864 |
| Government of Japan, 2.2%, 2027 | | JPY | 494,700,000 | | | 5,114,382 |
| Government of Japan, 2.4%, 2037 | | JPY | 127,350,000 | | | 1,331,935 |
| Kingdom of Belgium, 5.5%, 2017 | | EUR | 6,184,000 | | | 8,432,047 |
| Kingdom of Denmark, 4%, 2015 | | DKK | 6,407,000 | | | 1,064,834 |
| Kingdom of Spain, 5%, 2012 | | EUR | 6,773,000 | | | 9,045,335 |
| Kingdom of Sweden, 4.5%, 2015 | | SEK | 8,940,000 | | | 1,234,895 |
| Republic of France, 6%, 2025 | | EUR | 5,264,000 | | | 7,706,089 |
| Republic of France, 4.75%, 2035 | | EUR | 1,820,000 | | | 2,331,836 |
| Republic of Italy, 4.75%, 2013 | | EUR | 5,524,000 | | | 7,195,437 |
| United Kingdom Treasury, 9%, 2011 | | GBP | 3,168,000 | | | 5,830,911 |
| United Kingdom Treasury, 8%, 2015 | | GBP | 3,722,000 | | | 7,272,041 |
| United Kingdom Treasury, 8%, 2021 | | GBP | 1,776,000 | | | 3,743,964 |
| United Kingdom Treasury, 4.25%, 2036 | | GBP | 2,310,000 | | | 3,484,133 |
| | | | | | |
| | | | | | $ | 116,930,632 |
16
Portfolio of Investments – continued
| | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | | |
| Bonds - continued | | | | | | |
| Mortgage Backed - 1.3% | | | | | | |
| Fannie Mae, 4.518%, 2013 | | $ | 81,594 | | $ | 79,223 |
| Fannie Mae, 5.369%, 2013 | | | 268,973 | | | 272,945 |
| Fannie Mae, 4.78%, 2015 | | | 357,590 | | | 339,914 |
| Fannie Mae, 4.79%, 2015 | | | 373,367 | | | 355,388 |
| Fannie Mae, 4.856%, 2015 | | | 282,518 | | | 267,355 |
| Fannie Mae, 5.09%, 2016 | | | 362,000 | | | 344,677 |
| Fannie Mae, 5.423%, 2016 | | | 340,496 | | | 334,034 |
| Fannie Mae, 4.996%, 2017 | | | 260,272 | | | 250,590 |
| Fannie Mae, 5.05%, 2017 | | | 330,000 | | | 313,195 |
| Fannie Mae, 5.32%, 2017 | | | 279,285 | | | 268,447 |
| Fannie Mae, 5.5%, 2024 | | | 350,336 | | | 353,127 |
| Fannie Mae, 5%, 2025 | | | 696,754 | | | 700,414 |
| Freddie Mac, 4.5%, 2021 | | | 53,042 | | | 53,029 |
| Freddie Mac, 5%, 2022 - 2027 | | | 2,806,955 | | | 2,823,771 |
| Freddie Mac, 4%, 2024 | | | 370,604 | | | 370,599 |
| Freddie Mac, 5.5%, 2026 | | | 363,326 | | | 367,648 |
| | | | | | |
| | | | | | $ | 7,494,356 |
| Municipals - 0.4% | | | | | | |
| Minnesota Public Facilities Authority, Water Pollution Control Rev., “B”, 5%, 2018 | | $ | 1,440,000 | | $ | 1,508,774 |
| New York, Dormitory Authority Rev. (New York University), BHAC, 5.5%, 2031 | | | 1,050,000 | | | 1,066,307 |
| | | | | | |
| | | | | | $ | 2,575,081 |
| U.S. Government Agencies - 0.8% | | | | | | |
| Aid-Egypt, 4.45%, 2015 | | $ | 1,113,000 | | $ | 1,106,444 |
| Small Business Administration, 5.09%, 2025 | | | 186,366 | | | 179,921 |
| Small Business Administration, 5.21%, 2026 | | | 2,281,964 | | | 2,216,899 |
| Small Business Administration, 5.31%, 2027 | | | 1,228,939 | | | 1,205,040 |
| | | | | | |
| | | | | | $ | 4,708,304 |
| U.S. Treasury Obligations - 5.1% | | | | | | |
| U.S. Treasury Bonds, 2.375%, 2010 | | $ | 3,121,000 | | $ | 3,169,766 |
| U.S. Treasury Bonds, 4.75%, 2017 | | | 1,569,000 | | | 1,660,689 |
| U.S. Treasury Bonds, 8%, 2021 | | | 2,771,000 | | | 3,603,165 |
| U.S. Treasury Bonds, 5.375%, 2031 | | | 783,000 | | | 856,712 |
| U.S. Treasury Notes, 4.75%, 2012 (f) | | | 8,973,000 | | | 9,767,954 |
| U.S. Treasury Notes, 4.125%, 2015 | | | 5,478,000 | | | 5,708,246 |
| U.S. Treasury Notes, TIPS, 2%, 2016 | | | 5,222,929 | | | 4,608,828 |
| | | | | | |
| | | | | | $ | 29,375,360 |
| Total Bonds (Identified Cost, $180,986,340) | | | | | $ | 166,683,383 |
17
Portfolio of Investments – continued
| | | | | |
| Money Market Funds (v) - 7.0% | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
MFS Institutional Money Market Portfolio, 0.93%,
at Cost and Net Asset Value | | 40,216,892 | | $ | 40,216,892 |
| Issuer/Expiration Date/Strike Price | | Amount
or Number
of Contracts | | |
| Call Options Purchased - 0.0% | | | | | |
USD Currency - November 2008 @ GBP 1.705
(Premiums Paid, $15,443) | | 2,071,575 | | $ | 120,517 |
| Total Investments (Identified Cost, $654,916,888) (k) | | | | $ | 560,611,709 |
| | |
| Other Assets, Less Liabilities - 2.8% | | | | | 16,168,147 |
| Net Assets - 100.0% | | | | $ | 576,779,856 |
| (a) | Non-income producing security. |
| (f) | All or a portion of the security has been segregated as collateral for open futures contracts. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (k) | As of October 31, 2008, the fund held securities fair valued in accordance with the policies adopted by the Board of Trustees, aggregating $327,050,736 and 58.34% of market value. An independent pricing service provided an evaluated bid for 29.60% of the market value. |
| (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 $3,299,780, representing 0.6% of net assets. |
| (v) | Underlying fund that is available only to investment companies managed by MFS. The rate quoted 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 Depository Receipt |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| IPS | | International Preference Stock |
| TIPS | | Treasury Inflation Protected Security |
| | |
| Insurers | | |
| BHAC | | Berkshire Hathaway Assurance Corp. |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
18
Portfolio of Investments – continued
Derivative Contracts at 10/31/08
Forward Foreign Currency Exchange Contracts at 10/31/08
Appreciation and Depreciation in the table below are reported by currency.
| | | | | | | | | | | | | |
| Type | | Currency | | Contracts to
Deliver/Receive | | Settlement
Date Range | | In Exchange
for | | Contracts
at Value | | Net
Unrealized
Appreciation
(Depreciation) | |
| Appreciation | | | | | | | | | | | |
BUY | | AUD | | 1,094,022 | | 11/10/08 - 11/12/08 | | $679,167 | | $726,525 | | $47,358 | |
SELL | | AUD | | 8,748,193 | | 11/10/08 - 11/12/08 | | 7,369,299 | | 5,809,539 | | 1,559,760 | |
BUY | | CAD | | 1,296,739 | | 12/22/08 | | 1,038,092 | | 1,075,775 | | 37,683 | |
SELL | | CAD | | 1,618,175 | | 12/22/08 | | 1,365,027 | | 1,342,438 | | 22,589 | |
SELL | | CHF | | 142,436 | | 11/18/08 | | 123,251 | | 122,841 | | 410 | |
BUY | | DKK | | 2,013,548 | | 11/12/08 | | 343,176 | | 344,447 | | 1,271 | |
SELL | | DKK | | 620,862 | | 11/12/08 | | 114,910 | | 106,208 | | 8,702 | |
BUY | | EUR | | 5,587,943 | | 12/22/08 | | 7,078,211 | | 7,112,613 | | 34,402 | |
SELL | | EUR | | 24,436,882 | | 11/20/08 - 12/22/08 | | 32,524,221 | | 31,104,579 | | 1,419,642 | |
BUY | | GBP | | 3,150,938 | | 12/17/08 | | 4,965,842 | | 5,058,096 | | 92,254 | |
SELL | | GBP | | 7,706,142 | | 11/20/08 - 12/17/08 | | 13,091,950 | | 12,370,645 | | 721,305 | |
BUY | | JPY | | 802,750,611 | | 12/17/08 - 12/18/08 | | 8,065,890 | | 8,165,032 | | 99,142 | |
SELL | | JPY | | 1,571,234,381 | | 12/17/08 - 12/18/08 | | 16,245,000 | | 15,981,480 | | 263,520 | |
SELL | | NOK | | 9,387,638 | | 11/17/08 | | 1,475,000 | | 1,392,347 | | 82,653 | |
SELL | | PEN | | 2,534,400 | | 11/07/08 | | 841,854 | | 823,819 | | 18,035 | |
BUY | | SEK | | 2,974,489 | | 11/28/08 | | 378,868 | | 383,022 | | 4,154 | |
SELL | | SEK | | 1,211,065 | | 11/28/08 | | 175,449 | | 155,948 | | 19,501 | |
BUY | | ZAR | | 4,233,781 | | 11/24/08 | | 425,454 | | 430,721 | | 5,267 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | $4,437,648 | |
| | | | | | | | | | | | | |
| | | | | | |
| Depreciation | | | | | | | | | | | | | |
BUY | | AUD | | 4,602,395 | | 11/10/08 - 11/12/08 | | $3,634,928 | | $3,056,588 | | $(578,340 | ) |
SELL | | AUD | | 330,328 | | 11/12/08 | | 207,800 | | 219,343 | | (11,543 | ) |
BUY | | CAD | | 114,200 | | 12/22/08 | | 95,000 | | 94,740 | | (260 | ) |
SELL | | CAD | | 1,562,359 | | 12/22/08 | | 1,235,709 | | 1,296,133 | | (60,424 | ) |
BUY | | CHF | | 693,366 | | 11/18/08 | | 619,370 | | 597,980 | | (21,390 | ) |
BUY | | DKK | | 1,552,748 | | 11/12/08 | | 317,483 | | 265,621 | | (51,862 | ) |
SELL | | DKK | | 2,054,002 | | 11/12/08 | | 348,000 | | 351,368 | | (3,368 | ) |
BUY | | EUR | | 28,763,253 | | 12/22/08 | | 38,275,391 | | 36,611,306 | | (1,664,085 | ) |
SELL | | EUR | | 10,167,000 | | 12/22/08 | | 12,888,396 | | 12,941,066 | | (52,670 | ) |
BUY | | GBP | | 190,000 | | 12/22/08 | | 305,863 | | 304,922 | | (941 | ) |
SELL | | GBP | | 1,233,918 | | 12/17/08 | | 1,955,776 | | 1,980,767 | | (24,991 | ) |
BUY | | HUF | | 82,637,978 | | 11/24/08 | | 417,088 | | 404,559 | | (12,529 | ) |
SELL | | HUF | | 82,637,978 | | 11/24/08 | | 376,740 | | 404,559 | | (27,819 | ) |
19
Portfolio of Investments – continued
| | | | | | | | | | | | | |
| Type | | Currency | | Contracts to
Deliver/Receive | | Settlement
Date Range | | In Exchange
for | | Contracts
at Value | | Net
Unrealized
Appreciation
(Depreciation) | |
| Depreciation (continued) | | | | | | | | | |
BUY | | JPY | | 6,459,203,545 | | 12/17/08 - 12/18/08 | | 66,489,375 | | 65,695,407 | | (793,968 | ) |
SELL | | JPY | | 301,774,858 | | 12/18/08 | | 3,021,361 | | 3,069,464 | | (48,103 | ) |
BUY | | NOK | | 9,237,569 | | 11/17/08 | | 1,606,214 | | 1,370,089 | | (236,125 | ) |
BUY | | PEN | | 2,534,400 | | 11/07/08 | | 826,076 | | 823,819 | | (2,257 | ) |
SELL | | SEK | | 2,508,478 | | 11/28/08 | | 317,000 | | 323,014 | | (6,014 | ) |
BUY | | TRY | | 630,259 | | 11/24/08 | | 411,665 | | 405,266 | | (6,399 | ) |
SELL | | TRY | | 630,259 | | 11/24/08 | | 375,668 | | 405,266 | | (29,598 | ) |
SELL | | ZAR | | 4,233,781 | | 11/24/08 | | 375,668 | | 430,721 | | (55,053 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | $(3,687,739 | ) |
| | | | | | | | | | | | | |
Futures contracts outstanding at 10/31/08
| | | | | | | | |
| Description | | Contracts | | Value | | Expiration
Date | | Unrealized
Appreciation
(Depreciation) |
| Japan Government Bond 10yr (Long) | | 20 | | $28,013,400 | | Dec-08 | | $149,073 |
At October 31, 2008, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts.
See Notes to Financial Statements
20
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/08
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | | |
| Assets | | | | | |
Investments - | | | | | |
Non-affiliated issuers, at value (identified cost, $614,699,996) | | $520,394,817 | | | |
Underlying funds, at cost and value | | 40,216,892 | | | |
Total investments, at value (identified cost, $654,916,888) | | | | | $560,611,709 |
Cash | | $371,347 | | | |
Foreign currency, at value (identified cost, $1,275,486) | | 1,170,808 | | | |
Receivable for forward foreign currency exchange contracts | | 4,437,648 | | | |
Receivable for daily variation margin on open futures contracts | | 14,212 | | | |
Receivable for investments sold | | 15,960,296 | | | |
Receivable for fund shares sold | | 15,787,242 | | | |
Interest and dividends receivable | | 3,315,145 | | | |
Receivable from investment adviser | | 44,790 | | | |
Total assets | | | | | $601,713,197 |
| Liabilities | | | | | |
Payable for forward foreign currency exchange contracts | | $3,687,739 | | | |
Payable for investments purchased | | 19,913,469 | | | |
Payable for fund shares reacquired | | 930,057 | | | |
Payable to affiliates | | | | | |
Management fee | | 25,513 | | | |
Shareholder servicing costs | | 147,895 | | | |
Distribution and service fees | | 17,017 | | | |
Administrative services fee | | 564 | | | |
Payable for independent trustees’ compensation | | 58,965 | | | |
Accrued expenses and other liabilities | | 152,122 | | | |
Total liabilities | | | | | $24,933,341 |
Net assets | | | | | $576,779,856 |
| Net assets consist of | | | | | |
Paid-in capital | | $660,169,773 | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | (93,669,625 | ) | | |
Accumulated distributions in excess of net realized gain on investments and foreign currency transactions | | (81,539 | ) | | |
Undistributed net investment income | | 10,361,247 | | | |
Net assets | | | | | $576,779,856 |
Shares of beneficial interest outstanding | | | | | 51,124,105 |
21
Statement of Assets and Liabilities – continued
| | | | |
Class A shares | | | | |
Net assets | | $368,116,829 | | |
Shares outstanding | | 32,766,599 | | |
Net asset value per share | | | | $11.23 |
Offering price per share (100/94.25 × net asset value per share) | | | | $11.92 |
Class B shares | | | | |
Net assets | | $59,238,810 | | |
Shares outstanding | | 5,168,200 | | |
Net asset value and offering price per share | | | | $11.46 |
Class C shares | | | | |
Net assets | | $123,754,474 | | |
Shares outstanding | | 10,901,031 | | |
Net asset value and offering price per share | | | | $11.35 |
Class I shares | | | | |
Net assets | | $3,066,226 | | |
Shares outstanding | | 274,854 | | |
Net asset value, offering price, and redemption price per share | | | | $11.16 |
Class R1 shares | | | | |
Net assets | | $1,161,327 | | |
Shares outstanding | | 102,587 | | |
Net asset value, offering price, and redemption price per share | | | | $11.32 |
Class R2 shares (formerly Class R3 shares) | | | | |
Net assets | | $3,201,706 | | |
Shares outstanding | | 286,640 | | |
Net asset value, offering price, and redemption price per share | | | | $11.17 |
Class R3 shares (formerly Class R4 shares) | | | | |
Net assets | | $3,431,068 | | |
Shares outstanding | | 306,059 | | |
Net asset value, offering price, and redemption price per share | | | | $11.21 |
Class R4 shares (formerly Class R5 shares) | | | | |
Net assets | | $14,809,416 | | |
Shares outstanding | | 1,318,135 | | |
Net asset value, offering price, and redemption price per share | | | | $11.24 |
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
See Notes to Financial Statements
22
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/08
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | | | |
| Net investment income | | | | | | |
Income | | | | | | |
Dividends | | $12,289,870 | | | | |
Interest | | 8,727,622 | | | | |
Dividends from underlying funds | | 1,645,113 | | | | |
Foreign taxes withheld | | (746,218 | ) | | | |
Total investment income | | | | | $21,916,387 | |
Expenses | | | | | | |
Management fee | | $5,639,022 | | | | |
Distribution and service fees | | 3,775,983 | | | | |
Shareholder servicing costs | | 911,148 | | | | |
Administrative services fee | | 99,783 | | | | |
Retirement plan administration and services fees | | 3,338 | | | | |
Independent trustees’ compensation | | 13,937 | | | | |
Custodian fee | | 221,980 | | | | |
Shareholder communications | | 46,978 | | | | |
Auditing fees | | 66,731 | | | | |
Legal fees | | 15,038 | | | | |
Miscellaneous | | 177,261 | | | | |
Total expenses | | | | | $10,971,199 | |
Fees paid indirectly | | (2,701 | ) | | | |
Reduction of expenses by investment adviser | | (821,795 | ) | | | |
Net expenses | | | | | $10,146,703 | |
Net investment income | | | | | $11,769,684 | |
Realized and unrealized gain (loss) on investments
and foreign currency transactions | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | |
Investment transactions (net of $17,142 country tax) | | $18,759,143 | | | | |
Futures contracts | | 376,908 | | | | |
Foreign currency transactions | | 9,322,893 | | | | |
Net realized gain (loss) on investments
and foreign currency transactions | | | | | $28,458,944 | |
Change in unrealized appreciation (depreciation) | | | | | | |
Investments (net of $24,398 decrease in deferred country tax) | | $(184,904,168 | ) | | | |
Futures contracts | | 80,832 | | | | |
Translation of assets and liabilities in foreign currencies | | (272,532 | ) | | | |
Net unrealized gain (loss) on investments
and foreign currency translation | | | | | $(185,095,868 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | | | $(156,636,924 | ) |
Change in net assets from operations | | | | | $(144,867,240 | ) |
See Notes to Financial Statements
23
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.
| | | | | | |
| | | Years ended 10/31 | |
| | | 2008 | | | 2007 | |
| Change in net assets | | | | | | |
| From operations | | | | | | |
Net investment income | | $11,769,684 | | | $11,617,343 | |
Net realized gain (loss) on investments and
foreign currency transactions | | 28,458,944 | | | 60,114,273 | |
Net unrealized gain (loss) on investments and
foreign currency translation | | (185,095,868 | ) | | 12,903,458 | |
Change in net assets from operations | | $(144,867,240 | ) | | $84,635,074 | |
| Distributions declared to shareholders | | | | | | |
From net investment income | | | | | | |
Class A | | $(17,575,586 | ) | | $(8,643,261 | ) |
Class B | | (2,647,458 | ) | | (1,337,012 | ) |
Class C | | (4,572,849 | ) | | (1,627,882 | ) |
Class I | | (159,733 | ) | | (93,542 | ) |
Class R (b) | | (21,938 | ) | | (25,056 | ) |
Class R1 | | (46,194 | ) | | (11,267 | ) |
Former Class R2 (b) | | (2,968 | ) | | (1,853 | ) |
Class R2 (formerly Class R3) | | (115,951 | ) | | (27,433 | ) |
Class R3 (formerly Class R4) | | (156,312 | ) | | (58,933 | ) |
Class R4 (formerly Class R5) | | (21,792 | ) | | (6,598 | ) |
From net realized gain on investments | | | | | | |
Class A | | (30,160,577 | ) | | (28,109,668 | ) |
Class B | | (6,024,949 | ) | | (7,838,388 | ) |
Class C | | (8,844,105 | ) | | (7,029,814 | ) |
Class I | | (247,954 | ) | | (294,017 | ) |
Class R (b) | | (79,848 | ) | | (130,716 | ) |
Class R1 | | (90,896 | ) | | (56,034 | ) |
Former Class R2 (b) | | (9,207 | ) | | (6,592 | ) |
Class R2 (formerly Class R3) | | (161,893 | ) | | (80,623 | ) |
Class R3 (formerly Class R4) | | (261,637 | ) | | (107,918 | ) |
Class R4 (formerly Class R5) | | (33,729 | ) | | (48,474 | ) |
Total distributions declared to shareholders | | $(71,235,576 | ) | | $(55,535,081 | ) |
Change in net assets from fund share transactions | | $101,770,721 | | | $33,706,278 | |
Total change in net assets | | $(114,332,095 | ) | | $62,806,271 | |
| Net assets | | | | | | |
At beginning of period | | 691,111,951 | | | 628,305,680 | |
At end of period (including undistributed net investment
income of $10,361,247 and $5,525,965, respectively) | | $576,779,856 | | | $691,111,951 | |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
See Notes to Financial Statements
24
Financial Statements
FINANCIAL HIGHLIGHTS
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | |
| Class A | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $15.66 | | | $15.05 | | | $14.30 | | | $14.73 | | | $12.98 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.27 | | | $0.29 | | | $0.28 | | | $0.24 | | | $0.19 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.10 | ) | | 1.67 | | | 1.80 | | | 0.94 | | | 1.97 | |
Total from investment operations | | $(2.83 | ) | | $1.96 | | | $2.08 | | | $1.18 | | | $2.16 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.56 | ) | | $(0.30 | ) | | $(0.22 | ) | | $(0.56 | ) | | $(0.41 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | (1.05 | ) | | — | |
Total distributions declared to shareholders | | $(1.60 | ) | | $(1.35 | ) | | $(1.33 | ) | | $(1.61 | ) | | $(0.41 | ) |
Net asset value, end of period | | $11.23 | | | $15.66 | | | $15.05 | | | $14.30 | | | $14.73 | |
Total return (%) (r)(s)(t) | | (19.92 | ) | | 13.89 | | | 15.62 | | | 8.26 | | | 16.94 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.42 | | | 1.46 | | | 1.52 | | | 1.52 | | | 1.54 | |
Expenses after expense reductions (f) | | 1.30 | | | 1.30 | | | 1.30 | | | 1.48 | | | 1.54 | |
Net investment income | | 1.97 | | | 1.97 | | | 1.95 | | | 1.64 | | | 1.37 | |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | | | 76 | |
Net assets at end of period (000 Omitted) | | $368,117 | | | $450,366 | | | $403,848 | | | $353,745 | | | $298,826 | |
See Notes to Financial Statements
25
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class B | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $15.93 | | | $15.28 | | | $14.47 | | | $14.82 | | | $13.03 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.18 | | | $0.20 | | | $0.19 | | | $0.14 | | | $0.10 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.15 | ) | | 1.70 | | | 1.82 | | | 0.95 | | | 1.99 | |
Total from investment operations | | $(2.97 | ) | | $1.90 | | | $2.01 | | | $1.09 | | | $2.09 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.46 | ) | | $(0.20 | ) | | $(0.09 | ) | | $(0.39 | ) | | $(0.30 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | (1.05 | ) | | — | |
Total distributions declared to shareholders | | $(1.50 | ) | | $(1.25 | ) | | $(1.20 | ) | | $(1.44 | ) | | $(0.30 | ) |
Net asset value, end of period | | $11.46 | | | $15.93 | | | $15.28 | | | $14.47 | | | $14.82 | |
Total return (%) (r)(s)(t) | | (20.39 | ) | | 13.16 | | | 14.84 | | | 7.56 | | | 16.14 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.07 | | | 2.11 | | | 2.17 | | | 2.17 | | | 2.20 | |
Expenses after expense reductions (f) | | 1.95 | | | 1.95 | | | 1.95 | | | 2.13 | | | 2.20 | |
Net investment income | | 1.32 | | | 1.32 | | | 1.29 | | | 0.98 | | | 0.72 | |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | | | 76 | |
Net assets at end of period (000 Omitted) | | $59,239 | | | $95,689 | | | $115,336 | | | $124,013 | | | $129,141 | |
See Notes to Financial Statements
26
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class C | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $15.80 | | | $15.18 | | | $14.39 | | | $14.76 | | | $12.99 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.18 | | | $0.20 | | | $0.19 | | | $0.15 | | | $0.10 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.12 | ) | | 1.68 | | | 1.81 | | | 0.94 | | | 1.97 | |
Total from investment operations | | $(2.94 | ) | | $1.88 | | | $2.00 | | | $1.09 | | | $2.07 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.47 | ) | | $(0.21 | ) | | $(0.10 | ) | | $(0.41 | ) | | $(0.30 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | (1.05 | ) | | — | |
Total distributions declared to shareholders | | $(1.51 | ) | | $(1.26 | ) | | $(1.21 | ) | | $(1.46 | ) | | $(0.30 | ) |
Net asset value, end of period | | $11.35 | | | $15.80 | | | $15.18 | | | $14.39 | | | $14.76 | |
Total return (%) (r)(s)(t) | | (20.39 | ) | | 13.12 | | | 14.87 | | | 7.59 | | | 16.12 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.07 | | | 2.11 | | | 2.17 | | | 2.16 | | | 2.20 | |
Expenses after expense reductions (f) | | 1.95 | | | 1.95 | | | 1.95 | | | 2.12 | | | 2.20 | |
Net investment income | | 1.32 | | | 1.32 | | | 1.29 | | | 1.00 | | | 0.72 | |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | | | 76 | |
Net assets at end of period (000 Omitted) | | $123,754 | | | $132,343 | | | $99,019 | | | $75,974 | | | $57,119 | |
See Notes to Financial Statements
27
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class I | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $15.55 | | | $14.95 | | | $14.23 | | | $14.69 | | | $12.96 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.31 | | | $0.35 | | | $0.32 | | | $0.29 | | | $0.24 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.05 | ) | | 1.66 | | | 1.79 | | | 0.93 | | | 1.96 | |
Total from investment operations | | $(2.74 | ) | | $2.01 | | | $2.11 | | | $1.22 | | | $2.20 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.61 | ) | | $(0.36 | ) | | $(0.28 | ) | | $(0.63 | ) | | $(0.47 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | (1.05 | ) | | — | |
Total distributions declared to shareholders | | $(1.65 | ) | | $(1.41 | ) | | $(1.39 | ) | | $(1.68 | ) | | $(0.47 | ) |
Net asset value, end of period | | $11.16 | | | $15.55 | | | $14.95 | | | $14.23 | | | $14.69 | |
Total return (%) (r)(s) | | (19.51 | ) | | 14.31 | | | 16.00 | | | 8.65 | | | 17.31 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.07 | | | 1.11 | | | 1.12 | | | 1.16 | | | 1.16 | |
Expenses after expense reductions (f) | | 0.95 | | | 0.95 | | | 0.95 | | | 1.12 | | | 1.16 | |
Net investment income | | 2.31 | | | 2.34 | | | 2.28 | | | 1.99 | | | 1.59 | |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | | | 76 | |
Net assets at end of period (000 Omitted) | | $3,066 | | | $3,691 | | | $4,133 | | | $3,170 | | | $2,286 | |
See Notes to Financial Statements
28
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R1 | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $15.77 | | | $15.17 | | | $14.40 | | | $14.42 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.17 | | | $0.17 | | | $0.18 | | | $0.08 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.11 | ) | | 1.69 | | | 1.81 | | | 0.06 | (g) |
Total from investment operations | | $(2.94 | ) | | $1.86 | | | $1.99 | | | $0.14 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.47 | ) | | $(0.21 | ) | | $(0.11 | ) | | $(0.16 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | — | |
Total distributions declared to shareholders | | $(1.51 | ) | | $(1.26 | ) | | $(1.22 | ) | | $(0.16 | ) |
Net asset value, end of period | | $11.32 | | | $15.77 | | | $15.17 | | | $14.40 | |
Total return (%) (r)(s) | | (20.42 | ) | | 13.00 | | | 14.78 | | | 0.99 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 2.11 | | | 2.24 | | | 2.39 | | | 2.34 | (a) |
Expenses after expense reductions (f) | | 1.98 | | | 2.05 | | | 2.05 | | | 2.28 | (a) |
Net investment income | | 1.26 | | | 1.11 | | | 1.23 | | | 0.91 | (a) |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | |
Net assets at end of period (000 Omitted) | | $1,161 | | | $1,044 | | | $363 | | | $52 | |
See Notes to Financial Statements
29
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class R2 (formerly Class R3) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $15.57 | | | $14.97 | | | $14.24 | | | $14.67 | | | $12.97 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.24 | | | $0.23 | | | $0.25 | | | $0.18 | | | $0.12 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.06 | ) | | 1.68 | | | 1.77 | | | 0.94 | | | 1.99 | |
Total from investment operations | | $(2.82 | ) | | $1.91 | | | $2.02 | | | $1.12 | | | $2.11 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.54 | ) | | $(0.26 | ) | | $(0.18 | ) | | $(0.50 | ) | | $(0.41 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | (1.05 | ) | | — | |
Total distributions declared to shareholders | | $(1.58 | ) | | $(1.31 | ) | | $(1.29 | ) | | $(1.55 | ) | | $(0.41 | ) |
Net asset value, end of period | | $11.17 | | | $15.57 | | | $14.97 | | | $14.24 | | | $14.67 | |
Total return (%) (r)(s) | | (19.98 | ) | | 13.57 | | | 15.19 | | | 7.87 | | | 16.52 | |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.59 | | | 1.80 | | | 1.94 | | | 1.92 | | | 1.95 | |
Expenses after expense reductions (f) | | 1.47 | | | 1.60 | | | 1.60 | | | 1.87 | | | 1.95 | |
Net investment income | | 1.81 | | | 1.58 | | | 1.76 | | | 1.24 | | | 0.91 | |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | | | 76 | |
Net assets at end of period (000 Omitted) | | $3,202 | | | $2,306 | | | $1,185 | | | $159 | | | $133 | |
See Notes to Financial Statements
30
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R3 (formerly Class R4) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $15.62 | | | $15.02 | | | $14.28 | | | $14.26 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.28 | | | $0.29 | | | $0.31 | | | $0.14 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.08 | ) | | 1.66 | | | 1.75 | | | 0.07 | (g) |
Total from investment operations | | $(2.80 | ) | | $1.95 | | | $2.06 | | | $0.21 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.57 | ) | | $(0.30 | ) | | $(0.21 | ) | | $(0.19 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | — | |
Total distributions declared to shareholders | | $(1.61 | ) | | $(1.35 | ) | | $(1.32 | ) | | $(0.19 | ) |
Net asset value, end of period | | $11.21 | | | $15.62 | | | $15.02 | | | $14.28 | |
Total return (%) (r)(s) | | (19.80 | ) | | 13.84 | | | 15.53 | | | 1.48 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.35 | | | 1.50 | | | 1.57 | | | 1.54 | (a) |
Expenses after expense reductions (f) | | 1.23 | | | 1.35 | | | 1.35 | | | 1.50 | (a) |
Net investment income | | 2.02 | | | 1.94 | | | 2.10 | | | 1.70 | (a) |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | |
Net assets at end of period (000 Omitted) | | $3,431 | | | $3,951 | | | $1,303 | | | $51 | |
See Notes to Financial Statements
31
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R4 (formerly Class R5) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $15.65 | | | $15.03 | | | $14.29 | | | $14.26 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.29 | | | $0.28 | | | $0.25 | | | $0.17 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (3.05 | ) | | 1.71 | | | 1.87 | | | 0.06 | (g) |
Total from investment operations | | $(2.76 | ) | | $1.99 | | | $2.12 | | | $0.23 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.61 | ) | | $(0.32 | ) | | $(0.27 | ) | | $(0.20 | ) |
From net realized gain on investments | | (1.04 | ) | | (1.05 | ) | | (1.11 | ) | | — | |
Total distributions declared to shareholders | | $(1.65 | ) | | $(1.37 | ) | | $(1.38 | ) | | $(0.20 | ) |
Net asset value, end of period | | $11.24 | | | $15.65 | | | $15.03 | | | $14.29 | |
Total return (%) (r)(s) | | (19.53 | ) | | 14.13 | | | 15.95 | | | 1.62 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.05 | | | 1.21 | | | 1.30 | | | 1.24 | (a) |
Expenses after expense reductions (f) | | 0.95 | | | 1.05 | | | 1.05 | | | 1.20 | (a) |
Net investment income | | 2.15 | | | 2.00 | | | 1.77 | | | 2.00 | (a) |
Portfolio turnover | | 96 | | | 66 | | | 82 | | | 82 | |
Net assets at end of period (000 Omitted) | | $14,809 | | | $428 | | | $661 | | | $51 | |
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less than $0.01.
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (g) | The per share amount varies from the net realized and unrealized gain/loss for the period because of the timing of sales of fund shares and the per share amount of realized and unrealized gains and losses at such time. |
| (i) | For the period from the class’ inception, April 1, 2005 (Classes R1, R3, and R4) through the stated period end. |
| (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. |
See Notes to Financial Statements
32
NOTES TO FINANCIAL STATEMENTS
| (1) | | Business and Organization |
MFS Global Total Return Fund (the fund) is a series of MFS Series Trust VI (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The fund can invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as reported by a third party pricing service on the market or exchange on which they are primarily traded. For securities for which there were no sales reported that day, equity securities are generally valued at the last quoted daily bid quotation as reported by a third party pricing service on the market or exchange on which they are primarily traded. For securities held short for which there were no sales reported for the day, the position is generally valued at the last quoted daily ask quotation as reported by a third party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as reported by a third party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Exchange-traded options are generally valued at the last sale or official closing price as reported by a third party pricing service on the exchange on which such options are primarily traded. Exchange-traded options for which there were no sales reported that day are generally valued at the last daily bid quotation as
33
Notes to Financial Statements – continued
reported by a third party pricing service on the exchange on which such options are primarily traded. Options not traded on an exchange are generally valued at a broker-dealer bid quotation. Foreign currency options are generally valued using an external pricing model that uses market data from a third party source. Futures contracts are generally valued at last posted settlement price as reported by a third party pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation as reported by a third party pricing service on the market on which such futures contracts are primarily traded. Forward foreign currency contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates reported by a third party pricing service for proximate time periods. Securities and other assets generally valued on the basis of information from a third party pricing service may also be valued at a broker-dealer bid quotation. Values obtained from pricing services can utilize both dealer-supplied valuations and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 reported by a third party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s
34
Notes to Financial Statements – continued
net asset value may be deemed to have a material affect 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 may rely 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 investments used to determine the fund’s net asset value may differ from quoted or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the “Statement”) was issued, and is effective for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. This Statement provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value measurements. Management is evaluating the application of the Statement to the fund, and believes the impact will be limited to expanded disclosures resulting from the adoption of this Statement in the fund’s financial statements.
Inflation-Adjusted Debt Securities – The fund invests in inflation-adjusted debt securities issued by the U.S. Treasury. The fund may also invest in inflation-adjusted debt securities issued by U.S. Government agencies and instrumentalities other than the U.S. Treasury and by other entities such as U.S. and foreign corporations and foreign governments. The principal value of these debt securities is adjusted through income according to changes in the Consumer Price Index or another general price or wage index. These debt securities typically pay a fixed rate of interest, but this fixed rate is applied to the inflation-adjusted principal amount. The principal paid at maturity of the debt security is typically equal to the inflation-adjusted principal amount, or the security’s original par value, whichever is greater. Other types of inflation-adjusted securities may use other methods to adjust for other measures of inflation.
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
35
Notes to Financial Statements – continued
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.
Derivative Risk – The fund may invest in derivatives for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to gain market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost. Cash that has been segregated on behalf of certain derivative contracts will be reported separately on the Statement of Assets and Liabilities as restricted cash. On some over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk by entering into an ISDA Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty, to close out all transactions traded under such agreement and to net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty, the ISDA Master Agreement does not result in an offset of reported balance sheet assets and liabilities across transactions between the fund and the applicable counterparty. Derivative instruments include purchased options, futures contracts, and forward foreign currency exchange contracts.
FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, and FASB Staff Position (FSP) 133-1, effective for fiscal years and interim periods ending after November 15, 2008 (the “Standards”) were recently issued. These Standards provide enhanced disclosures about the fund’s use of and accounting for derivative instruments and the effect of derivative instruments on the fund’s results of operations and financial position. Management is evaluating the application of the Standard to the fund, and has not at this time determined the impact, resulting from the adoption of these Standards on the fund’s financial statements.
Purchased Options – The fund may purchase call or put options for a premium. Purchasing call options may be a hedge against an anticipated increase in the dollar cost of securities to be acquired or to increase the fund’s exposure to the underlying instrument. Purchasing put options may hedge
36
Notes to Financial Statements – continued
against a decline in the value of portfolio securities. The premium paid is included as an investment in the Statement of Assets and Liabilities and is subsequently adjusted to the current value of the option. Premiums paid for purchased options which have expired are treated as realized losses on investments in the Statement of Operations. Premiums paid for purchased options which are exercised or closed are added to the amount paid or offset against the proceeds on the underlying security or financial instrument to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.
Futures Contracts – The fund may enter into futures contracts for the delayed delivery of securities or currency, or contracts based on financial indices at a fixed price on a future date. In entering such contracts, the fund is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses by the fund. Upon entering into such contracts, the fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts – The fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of the contract. The fund may enter into forward foreign currency exchange contracts for hedging purposes as well as for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. The fund may also use contracts in a manner intended to protect foreign currency denominated securities from declines in value due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated changes. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. On contract settlement date, the gains or losses are recorded as realized gains or losses on foreign currency transactions.
Security Loans – JPMorgan Chase and Co. (“Chase”), as lending agent, may loan the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. The loans are collateralized by cash and/or
37
Notes to Financial Statements – continued
U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. Security lending activity through Chase is further collateralized by an irrevocable standby letter of credit. Chase provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in short-term securities. 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 included in interest income on 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 October 31, 2008 there were no securities on loan.
Indemnifications – Under the fund’s organizational documents, its officers and trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the year ended October 31, 2008, is shown as a reduction of total expenses on the Statement of Operations.
38
Notes to Financial Statements – continued
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 adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“the Interpretation”) on the first day of the fund’s fiscal year. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There was no impact resulting from the adoption of this Interpretation on the fund’s financial statements. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt securities, wash sale loss deferrals, straddle loss deferrals, foreign currency transactions, derivative transactions, 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:
| | | | |
| | | 10/31/08 | | 10/31/07 |
Ordinary income (including any
short-term capital gains) | | $29,539,881 | | $15,510,355 |
| Long-term capital gain | | 41,695,695 | | 40,024,726 |
| Total distributions | | $71,235,576 | | $55,535,081 |
39
Notes to Financial Statements – continued
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | |
| As of 10/31/08 | | | |
| Cost of investments | | $659,140,527 | |
| Gross appreciation | | 8,639,673 | |
| Gross depreciation | | (107,168,491 | ) |
| Net unrealized appreciation (depreciation) | | $(98,528,818 | ) |
| Undistributed ordinary income | | 13,899,929 | |
| Undistributed long-term capital gain | | 2,816,748 | |
| Other temporary differences | | (1,577,776 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution, service, and retirement plan administration and services 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. At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following this conversion, Class R3, Class R4, and Class R5 shares were renamed Class R2, Class R3, and Class R4 shares, respectively.
| (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 an annual rate of 0.84% of the fund’s average daily net assets. The investment adviser has agreed in writing to reduce its management fee to 0.75% of average daily net assets in excess of $500 million and 0.70% of average daily net assets in excess of $1.0 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until February 28, 2010. This management fee reduction amounted to $154,117, which is shown as a reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended October 31, 2008 was equivalent to an annual effective rate of 0.82% of the fund’s average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund’s operating expenses, exclusive of interest, taxes, extraordinary expenses and expenses associated with the fund’s investing activities, such that total annual
40
Notes to Financial Statements – continued
fund operating expenses of each designated class does not exceed the following rates annually of the fund’s average daily net assets.
| | | | | | | | | | | | | | |
| Class A | | Class B | | Class C | | Class I | | Class R1 | | Class R2
(formerly R3) | | Class R3
(formerly R4) | | Class R4
(formerly R5) |
| 1.30% | | 1.95% | | 1.95% | | 0.95% | | 1.95%(a) | | 1.45%(b) | | 1.20%(b) | | 0.95%(b) |
| (a) | Prior to March 1, 2008, the investment adviser had agreed in writing to pay a portion of the fund’s operating expenses such that total annual fund operating expenses did not exceed 2.05% annually of the fund’s average daily net assets with respect to Class R1 shares. |
| (b) | Prior to January 1, 2008, the investment adviser had agreed in writing to pay a portion of the fund’s operating expenses such that total annual fund operating expenses did not exceed 1.60%, 1.35%, and 1.05% annually of the fund’s average daily net assets with respect to Class R2, Class R3, and Class R4 shares, respectively. |
This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until February 28, 2009. For the year ended October 31, 2008, this reduction amounted to $664,145 and is reflected as a reduction of total expenses in the Statement of Operations.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $127,355 for the year ended October 31, 2008, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | |
| | | Distribution
Fee Rate | | Service
Fee Rate | | Total
Distribution
Plan (d) | | Annual
Effective
Rate (e) | | Distribution
and Service
Fee |
| Class A | | 0.10% | | 0.25% | | 0.35% | | 0.35% | | $1,532,346 |
| Class B | | 0.75% | | 0.25% | | 1.00% | | 1.00% | | 810,185 |
| Class C | | 0.75% | | 0.25% | | 1.00% | | 1.00% | | 1,392,445 |
| Class R (b) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 1,834 |
| Class R1 | | 0.75% | | 0.25% | | 1.00% | | 0.92% | | 12,530 |
| Former Class R2 (b) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 328 |
| Class R2 (formerly Class R3) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 16,160 |
| Class R3 (formerly Class R4) | | — | | 0.25% | | 0.25% | | 0.25% | | 10,155 |
| Total Distribution and Service Fees | | | | | | | | $3,775,983 |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to these annual percentage rates of each class’ average daily net assets. |
41
Notes to Financial Statements – continued
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended October 31, 2008 based on each class’ average daily net assets. Effective March 1, 2008, the distribution fee rate for Class R1 shares increased from 0.50% to 0.75%. |
Certain Class A shares purchased prior to September 1, 2008 are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 12 months of purchase. Certain Class A shares purchased on or subsequent to September 1, 2008 are subject to a CDSC in the event of a shareholder redemption within 24 months of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD and during the year ended October 31, 2008, were as follows:
| | |
| | | Amount |
| Class A | | $102 |
| Class B | | 101,305 |
| Class C | | 22,102 |
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 October 31, 2008, the fee was $369,143, which equated to 0.0551% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the year ended October 31, 2008, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $542,005.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged a fixed amount plus a fee based on average daily net assets. The fund’s annual fixed amount is $17,500.
The administrative services fee incurred for the year ended October 31, 2008 was equivalent to an annual effective rate of 0.0149% of the fund’s average daily net assets.
In addition to the administrative services provided by MFS to the fund as described above, prior to March 1, 2008, MFS was responsible for providing certain retirement plan administration and services with respect to certain shares. These services included various administrative, recordkeeping, and communication/educational services with respect to the retirement plans
42
Notes to Financial Statements – continued
which invest in these shares, and may have been provided directly by MFS or by a third party. MFS generally paid all, or a portion, of the retirement plan administration and services fee to affiliated or unaffiliated third parties. For the year ended October 31, 2008, the fund paid MFS an annual retirement plan administration and services fee up to the following annual percentage rates of each class’ average daily net assets:
| | | | | | | | | | |
| | | Beginning
of period
through
12/31/07 | | Effective
1/01/08 | | Effective
3/01/08 | | Annual
Effective
Rate (g) | | Total
Amount |
Class R1 | | 0.35% | | 0.35% | | — | | 0.11% | | $1,537 |
Former Class R2 (b) | | 0.25% | | — | | — | | 0.09% | | 57 |
Class R2 (formerly Class R3) | | 0.15% | | — | | — | | 0.02% | | 638 |
Class R3 (formerly Class R4) | | 0.15% | | — | | — | | 0.03% | | 1,030 |
Class R4 (formerly Class R5) | | 0.10% | | — | | — | | 0.01% | | 76 |
| Total Retirement Plan Administration and Services Fees | | $3,338 |
| (b) | At the close of business on April 18, 2008, Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
| (g) | Effective January 1, 2008, the annual retirement plan administration and services fee was eliminated for all R share classes, other than Class R1 shares. Effective March 1, 2008, the annual retirement plan administration and services fee was eliminated for Class R1 shares. |
Trustees’ and Officers’ Compensation – The fund pays compensation to independent trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and trustees of the fund are officers or directors of MFS, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired independent trustees which resulted in a pension expense of $1,467. The fund also has an unfunded retirement benefit deferral plan for certain independent trustees which resulted in a net decrease in expense of $7,811. Both amounts are included in independent trustees’ compensation for the year ended October 31, 2008. The liability for deferred retirement benefits payable to certain independent trustees under both plans amounted to $56,658 at October 31, 2008, and is included in payable for independent trustees’ compensation.
Other – This fund and certain other MFS funds (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with
43
Notes to Financial Statements – continued
Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the year ended October 31, 2008, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $5,238 and are included in miscellaneous expense on the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $3,533, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund may invest in a money market fund managed by MFS which seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than purchased option transactions and short-term obligations, were as follows:
| | | | |
| | | Purchases | | Sales |
| U.S. Government securities | | $333,228,808 | | $322,963,541 |
| Investments (non-U.S. Government securities) | | $316,708,201 | | $269,849,441 |
| (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
10/31/08 | | Year ended
10/31/07 |
| | | Shares | | Amount | | Shares | | Amount |
| Shares sold | | | | | | | | |
Class A | | 11,176,995 | | $153,049,097 | | 7,833,479 | | $116,390,803 |
Class B | | 1,364,519 | | 19,159,016 | | 1,336,786 | | 20,150,396 |
Class C | | 4,727,130 | | 65,466,697 | | 2,654,308 | | 39,762,705 |
Class I | | 110,815 | | 1,497,348 | | 321,952 | | 4,877,548 |
Class R (b) | | 27,480 | | 400,930 | | 36,928 | | 546,766 |
Class R1 | | 80,239 | | 1,135,488 | | 119,858 | | 1,813,872 |
Former Class R2 (b) | | 843 | | 11,865 | | 7,534 | | 113,293 |
Class R2 (formerly Class R3) | | 213,390 | | 2,914,128 | | 246,702 | | 3,620,755 |
Class R3 (formerly Class R4) | | 140,476 | | 1,946,615 | | 267,941 | | 3,948,580 |
Class R4 (formerly Class R5) | | 1,294,569 | | 14,568,837 | | 30,198 | | 455,670 |
| | 19,136,456 | | $260,150,021 | | 12,855,686 | | $191,680,388 |
44
Notes to Financial Statements – continued
| | | | | | | | | | | | |
| | | Year ended
10/31/08 | | | Year ended
10/31/07 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
| Shares issued to shareholders in reinvestment of distributions | | | | | | | | | | | | |
Class A | | 2,990,121 | | | $42,048,073 | | | 2,275,290 | | | $33,079,888 | |
Class B | | 498,123 | | | 7,177,502 | | | 520,145 | | | 7,680,235 | |
Class C | | 660,380 | | | 9,400,331 | | | 426,901 | | | 6,265,596 | |
Class I | | 29,261 | | | 407,687 | | | 25,301 | | | 365,027 | |
Class R (b) | | 4,281 | | | 60,852 | | | 9,759 | | | 140,857 | |
Class R1 | | 9,658 | | | 137,090 | | | 4,598 | | | 67,301 | |
Former Class R2 (b) | | 845 | | | 12,175 | | | 575 | | | 8,445 | |
Class R2 (formerly Class R3) | | 19,292 | | | 268,864 | | | 7,458 | | | 108,056 | |
Class R3 (formerly Class R4) | | 29,829 | | | 417,949 | | | 11,441 | | | 166,851 | |
Class R4 (formerly Class R5) | | 3,957 | | | 55,521 | | | 581 | | | 8,480 | |
| | 4,245,747 | | | $59,986,044 | | | 3,282,049 | | | $47,890,736 | |
| Shares reacquired | | | | | | | | | | | | |
Class A | | (10,165,821 | ) | | $(136,030,985 | ) | | (8,184,011 | ) | | $(121,934,495 | ) |
Class B | | (2,700,350 | ) | | (37,416,930 | ) | | (3,397,406 | ) | | (51,289,100 | ) |
Class C | | (2,860,066 | ) | | (38,245,481 | ) | | (1,230,583 | ) | | (18,506,129 | ) |
Class I | | (102,585 | ) | | (1,350,323 | ) | | (386,324 | ) | | (5,842,710 | ) |
Class R (b) | | (105,799 | ) | | (1,507,780 | ) | | (130,402 | ) | | (1,925,073 | ) |
Class R1 | | (53,509 | ) | | (718,916 | ) | | (82,187 | ) | | (1,230,661 | ) |
Former Class R2 (b) | | (10,455 | ) | | (149,814 | ) | | (5,519 | ) | | (81,880 | ) |
Class R2 (formerly Class R3) | | (94,126 | ) | | (1,230,919 | ) | | (185,200 | ) | | (2,713,525 | ) |
Class R3 (formerly Class R4) | | (117,161 | ) | | (1,611,928 | ) | | (113,228 | ) | | (1,655,778 | ) |
Class R4 (formerly Class R5) | | (7,727 | ) | | (102,268 | ) | | (47,392 | ) | | (685,495 | ) |
| | (16,217,599 | ) | | $(218,365,344 | ) | | (13,762,252 | ) | | $(205,864,846 | ) |
| Net change | | | | | | | | | | | | |
Class A | | 4,001,295 | | | $59,066,185 | | | 1,924,758 | | | $27,536,196 | |
Class B | | (837,708 | ) | | (11,080,412 | ) | | (1,540,475 | ) | | (23,458,469 | ) |
Class C | | 2,527,444 | | | 36,621,547 | | | 1,850,626 | | | 27,522,172 | |
Class I | | 37,491 | | | 554,712 | | | (39,071 | ) | | (600,135 | ) |
Class R (b) | | (74,038 | ) | | (1,045,998 | ) | | (83,715 | ) | | (1,237,450 | ) |
Class R1 | | 36,388 | | | 553,662 | | | 42,269 | | | 650,512 | |
Former Class R2 (b) | | (8,767 | ) | | (125,774 | ) | | 2,590 | | | 39,858 | |
Class R2 (formerly Class R3) | | 138,556 | | | 1,952,073 | | | 68,960 | | | 1,015,286 | |
Class R3 (formerly Class R4) | | 53,144 | | | 752,636 | | | 166,154 | | | 2,459,653 | |
Class R4 (formerly Class R5) | | 1,290,799 | | | 14,522,090 | | | (16,613 | ) | | (221,345 | ) |
| | 7,164,604 | | | $101,770,721 | | | 2,375,483 | | | $33,706,278 | |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
The fund and other funds managed by MFS participate in a $1 billion unsecured committed line of credit provided by a syndication of banks under a
45
Notes to Financial Statements – continued
credit agreement. In addition, the fund and other funds managed by MFS have established uncommitted borrowing arrangements with certain banks. 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 Federal Reserve funds rate plus 0.30%. In addition, a commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. For the year ended October 31, 2008, the fund’s commitment fee and interest expense were $3,112 and $83, respectively, and are included in miscellaneous expense on the Statement of Operations.
| (7) | | Transactions in Underlying Funds-Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:
| | | | | | | | | |
| Underlying Funds | | Beginning
Shares/Par
Amount | | Acquisitions
Shares/Par
Amount | | Dispositions
Shares/Par
Amount | | | Ending
Shares/Par
Amount |
| MFS Institutional Money | | | | | | | | | |
| Market Portfolio | | — | | 324,303,393 | | (284,086,501 | ) | | 40,216,892 |
| | | | |
| Underlying Funds | | Realized
Gain (Loss) | | Capital Gain
Distributions | | Dividend
Income | | | Ending
Value |
| MFS Institutional Money | | | | | | | | | |
| Market Portfolio | | $— | | $— | | $1,645,113 | | | $40,216,892 |
46
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust VI and Shareholders of MFS Global Total Return Fund:
We have audited the accompanying statement of assets and liabilities of MFS Global Total Return Fund (the Fund), (one of the portfolios comprising MFS Series Trust VI), including the portfolio of investments, as of October 31, 2008, 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, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the Fund’s custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MFS Global Total Return Fund at October 31, 2008, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
December 17, 2008
47
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2008, 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 500 Boylston Street, Boston, Massachusetts 02116.
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
| INTERESTED TRUSTEES | | | | |
Robert J. Manning (k)
(born 10/20/63) | | Trustee | | February 2004 | | Massachusetts Financial Services Company, Chief Executive Officer, President, Chief Investment Officer and Director |
Robert C. Pozen (k)
(born 8/08/46) | | Trustee | | February 2004 | | Massachusetts Financial Services Company, Chairman (since February 2004); Harvard Business School (education), Senior Lecturer (since 2008); Bell Canada Enterprises (telecommunications), Director (since March 2002); The Bank of New York, Director (finance), (March 2004 to May 2005); The Commonwealth of Massachusetts, Secretary of Economic Affairs (January 2002 to December 2002); Fidelity Investments, (investment advisor), Vice Chairman (until December 2001); Fidelity Management & Research Company (investment adviser), President (until July 2001); Telesat (satellite communications), Director (until November 2007) |
| INDEPENDENT TRUSTEES | | | | |
J. Atwood Ives
(born 5/01/36) | | Trustee and Chair of Trustees | | February 1992 | | Private investor; KeySpan Corporation (energy related services), Director until 2004; Woodstock Corporation (investment advisory firm), Director until 2003 |
Robert E. Butler (n)
(born 11/29/41) | | Trustee | | January 2006 | | Consultant – regulatory and compliance matters (since July 2002); PricewaterhouseCoopers LLP (professional services firm), Partner (until 2002) |
48
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Lawrence H. Cohn, M.D.
(born 3/11/37) | | Trustee | | August 1993 | | Brigham and Women’s Hospital, Senior Cardiac Surgeon (since 2005); Harvard Medical School, Professor of Cardiac Surgery; Partners HealthCare, Physician Director of Medical Device Technology (since 2006); Brigham and Women’s Hospital, Chief of Cardiac Surgery (until 2005) |
David H. Gunning
(born 5/30/42) | | Trustee | | January 2004 | | Retired; Cleveland-Cliffs Inc. (mining products and service provider), Vice Chairman/Director (until May 2007); Lincoln Electric Holdings, Inc. (welding equipment manufacturer), Director; Development Alternatives, Inc. (consulting), Director/Non Executive Chairman; Portman Limited (mining), Director (since 2005); Southwest Gas Corp. (natural gas distribution), Director (until May 2004) |
William R. Gutow
(born 9/27/41) | | Trustee | | December 1993 | | Private investor and real estate consultant; Capital Entertainment Management Company (video franchise), Vice Chairman; Texas Donuts (donut franchise), Vice Chairman (since 2007); Atlantic Coast Tan (tanning salons), Vice Chairman (until 2007) |
Michael Hegarty
(born 12/21/44) | | Trustee | | December 2004 | | Retired; AXA Financial (financial services and insurance), Vice Chairman and Chief Operating Officer (until 2001); The Equitable Life Assurance Society (insurance), President and Chief Operating Officer (until 2001) |
Lawrence T. Perera
(born 6/23/35) | | Trustee | | July 1981 | | Hemenway & Barnes (attorneys), Counsel |
J. Dale Sherratt
(born 9/23/38) | | Trustee | | August 1993 | | Insight Resources, Inc. (acquisition planning specialists), President; Wellfleet Investments (investor in health care companies), Managing General Partner |
49
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Laurie J. Thomsen
(born 8/05/57) | | Trustee | | March 2005 | | New Profit, Inc. (venture philanthropy), Partner (since 2006); Private investor; Prism Venture Partners (venture capital), Co-founder and General Partner (until June 2004); The Travelers Companies (commercial property liability insurance), Director |
Robert W. Uek
(born 5/18/41) | | Trustee | | January 2006 | | Consultant to investment company industry; PricewaterhouseCoopers LLP (professional services firm), Partner (until 1999); TT International Funds (mutual fund complex), Trustee (until 2005); Hillview Investment Trust II Funds (mutual fund complex), Trustee (until 2005) |
| OFFICERS | | | | | | |
Maria F. Dwyer (k)
(born 12/01/58) | | President | | November 2005 | | Massachusetts Financial Services Company, Executive Vice President and Chief Regulatory Officer (since March 2004) Chief Compliance Officer (since December 2006); Fidelity Management & Research Company, Vice President (prior to March 2004); Fidelity Group of Funds, President and Treasurer (until March 2004) |
Christopher R. Bohane (k)
(born 1/18/74) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
John M. Corcoran (k) (born 4/13/65) | | Treasurer | | October 2008 | | Massachusetts Financial Services Company, Senior Vice President (since October 2008); State Street Bank and Trust (financial services provider), Senior Vice President, (until September 2008) |
Ethan D. Corey (k)
(born 11/21/63) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since 2004); Dechert LLP (law firm), Counsel (prior to December 2004) |
50
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
David L. DiLorenzo (k)
(born 8/10/68) | | Assistant Treasurer | | July 2005 | | Massachusetts Financial Services Company, Vice President (since June 2005); JP Morgan Investor Services, Vice President (until June 2005) |
Timothy M. Fagan (k)
(born 7/10/68) | | Assistant Secretary and Assistant Clerk | | September 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since September 2005); John Hancock Advisers, LLC, Vice President, Senior Attorney and Chief Compliance Officer (until August 2005) |
Mark D. Fischer (k)
(born 10/27/70) | | Assistant Treasurer | | July 2005 | | Massachusetts Financial Services Company, Vice President (since May 2005); JP Morgan Investment Management Company, Vice President (until May 2005) |
Robyn L. Griffin
(born 7/04/75) | | Assistant Independent Chief Compliance Officer | | August 1, 2008 | | Griffin Compliance LLC (provider of compliance services), Principal (since August 2008); State Street Corporation (financial services provider), Mutual Fund Administration Assistant Director (October 2006 – July 2008); Liberty Mutual Group (insurance), Personal Market Assistant Controller (April 2006 – October 2006); Deloitte & Touche LLP (professional services firm), Senior Manager (prior to April 2006) |
Brian E. Langenfeld (k)
(born 3/07/73) | | Assistant Secretary and Assistant Clerk | | June 2006 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since May 2006); John Hancock Advisers, LLC, Assistant Vice President and Counsel (until April 2006) |
Ellen Moynihan (k)
(born 11/13/57) | | Assistant Treasurer | | April 1997 | | Massachusetts Financial Services Company, Senior Vice President |
Susan S. Newton (k)
(born 3/07/50) | | Assistant Secretary and Assistant Clerk | | May 2005 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since April 2005); John Hancock Advisers, LLC, Senior Vice President, Secretary and Chief Legal Officer (until April 2005) |
51
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Susan A. Pereira (k)
(born 11/05/70) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since June 2004); Bingham McCutchen LLP (law firm), Associate (until June 2004) |
Mark N. Polebaum (k)
(born 5/01/52) | | Secretary and Clerk | | January 2006 | | Massachusetts Financial Services Company, Executive Vice President, General Counsel and Secretary (since January 2006); Wilmer Cutler Pickering Hale and Dorr LLP (law firm), Partner (until January 2006) |
Frank L. Tarantino
(born 3/07/44) | | Independent Chief Compliance Officer | | June 2004 | | Tarantino LLC (provider of compliance services), Principal (since June 2004); CRA Business Strategies Group (consulting services), Executive Vice President (until June 2004) |
Richard S. Weiztel (k)
(born 7/16/70) | | Assistant Secretary and Assistant Clerk | | October 2007 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel (since 2004); Massachusetts Department of Business and Technology, General Counsel (until April 2004) |
James O. Yost (k)
(born 6/12/60) | | Assistant Treasurer | | September 1990 | | 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, Messrs. Pozen and Manning served as Advisory Trustees. For the period March 2008 until October 2008, Ms. Dwyer served as Treasurer of the Funds. |
| (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 position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. |
| (n) | In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The terms of that settlement required that compensation and expenses related to the independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29. |
Each Trustee (except Mr. Butler and Mr. Uek) has been elected by shareholders and each Trustee and officer holds office until his or her successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. The Trust held a shareholders’ meeting in 2005 to elect Trustees, and
52
Trustees and Officers – continued
will hold a shareholders’ meeting at least once every five years thereafter, to elect Trustees. Messrs. Butler, Sherratt, Gutow, Uek and Ms. Thomsen are members of the Trust’s Audit Committee.
Each of the Fund’s Trustees and officers holds comparable positions with certain other funds of which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain affiliates of MFS. As of January 1, 2008, the Trustees served as board members of 100 funds within the MFS Family of Funds.
The Statement of Additional Information for the Fund and further information about the Trustees are available without charge upon request by calling 1-800-225-2606.
| | |
| Investment Adviser | | Custodian |
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741 | | JPMorgan Chase Bank
One Chase Manhattan Plaza, New York, NY 10081 |
| Distributor | | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116-3741 | | Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116 |
| Portfolio Managers | | |
Nevin Chitkara Steven Gorham Matthew Ryan Erik Weisman Barnaby Wiener | | |
53
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, 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 over the course of three months beginning in May and ending in July, 2008 (“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 the MFS Funds’ Independent Chief Compliance Officer, a full-time senior officer appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the 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 Lipper Inc., an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2007 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Lipper performance universe”), (ii) information provided by Lipper Inc. on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Lipper Inc. (the “Lipper expense group”), (iii) information provided by MFS on the advisory fees of comparable 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,
54
Board Review of Investment Advisory Agreement – continued
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, (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 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 Lipper Inc. 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 Lipper Inc., the Trustees reviewed the Fund’s total return investment performance as well as the performance of peer groups of funds 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 Lipper performance universe over the three-year period ended December 31, 2007, 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 three-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 1st quintile for each of the one- and five-year periods ended December 31, 2007 relative to the Lipper 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.
55
Board Review of Investment Advisory Agreement – continued
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 peer groups of funds based on information provided by Lipper Inc. The Trustees considered that MFS has agreed in writing to waive a portion of its advisory fee on average daily net assets over $500 million and $1 billion, which may not be changed without the Trustees’ approval, and that MFS currently observes an expense limitation for the Fund. The Trustees also considered that, according to the Lipper data (which takes into account the breakpoint described above and the expense limitation), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional accounts. 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 in comparison to institutional accounts, 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, and the impact on MFS and expenses associated with the more extensive regulatory regime to which the Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund. They noted that the Fund’s advisory fee rate schedule is currently subject to the breakpoints described above. The Trustees concluded that the existing breakpoints were sufficient to allow the Fund to benefit from economies of scale as its 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.
56
Board Review of Investment Advisory Agreement – continued
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 entry into the industry 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.
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. (“MFD”), 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 Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund’s portfolio brokerage commissions, if applicable, to pay for investment research (excluding third-party research, for which MFS pays directly) and various other factors. Additionally, the Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including a majority of 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, 2008.
Note: MFD has agreed to the Trustees’ recommendation to eliminate the distribution fee component of the 12b-1 fee paid by the Fund’s Class A shares, effective March 1, 2009.
57
Board Review of Investment Advisory Agreement – continued
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products and Performance” section of the MFS Web site (mfs.com).
58
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2008 income tax forms in January 2009. 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 for the 15% tax rate.
The fund designates $48,395,820 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 16.31% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
59
MFS® PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management® and the MFS funds, we take this concern very seriously. We want you to understand our policies about the investment products and services that we offer, and how we protect the nonpublic personal information of investors who have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information. We maintain information and records about you, your investments, and the services you use. Examples of the nonpublic personal information we maintain include
| | Ÿ | | data from investment applications and other forms |
| | Ÿ | | share balances and transactional history with us, our affiliates, or others |
| | Ÿ | | facts from a consumer reporting agency |
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We may share nonpublic personal information with third parties or certain of our affiliates in connection with servicing your account or processing your transactions. We may share information with companies or financial institutions that perform marketing services on our behalf or with other financial institutions with which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to appropriate personnel who provide products, services, or information to you. We maintain physical, electronic, and procedural safeguards to help protect the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call 1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.
60
CONTACT US
| | |
| Web site | | Mailing address |
| mfs.com | | MFS Service Center, Inc. |
| | P.O. Box 55824 |
| MFS TALK | | Boston, MA 02205-5824 |
| 1-800-637-8255 | | |
| 24 hours a day | | Overnight mail |
| | MFS Service Center, Inc. |
| Account service and literature | | c/o Boston Financial Data Services |
| | 30 Dan Road |
| Shareholders | | Canton, MA 02021-2809 |
| 1-800-225-2606 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
| |
| Investment professionals | | |
| 1-800-343-2829 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
| |
| Retirement plan services | | |
| 1-800-637-1255 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
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, and eDelivery may not be available to you.
MFS® Utilities Fund
SIPC Contact Information:
You may obtain information about the Securities Investor Protection Corporation (“SIPC”), including the SIPC Brochure, by contacting SIPC either by telephone (202-371-8300) or by accessing SIPC’s website address (www.sipc.org).
Note to Shareholders: At the close of business on April 18, 2008, Class R shares and Class R2 shares converted into Class R3 shares. Following this conversion, Class R3, Class R4, and Class R5 shares were renamed Class R2, Class R3, and Class R4 shares, respectively.
The report is prepared for the general information of shareholders. It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.
NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ
NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
10/31/08
MMU-ANN
LETTER FROM THE CEO
Dear Shareholders:
The global economy is not a very welcoming place these days. Headlines tell the story of slowing growth, accelerating inflation, and credit collapse. We have watched the rampant selling that has typified equity and credit markets since the strains in the financial system first became apparent last year.
The volatility in commodity and currency markets has further complicated investment choices. There are so many parts moving in so many directions; it has become very easy to get overwhelmed.
At MFS® we remind investors to keep their eye on the long term and not become panicked by the uncertainty of the day to day.
Remember that what goes down could very easily come back up. And that is where we as money managers like to turn our focus.
Investment opportunities may arise in declining markets. When markets experience substantial selloffs, assets often become undervalued. At MFS, we have a team of global sector analysts located in Boston, London, Mexico City, Singapore, Sydney, and Tokyo working together to do the kind of bottom-up research that will root out these investment opportunities.
In times like these, we encourage our investors to check in with their advisors to ensure they have an investment plan in place that will pay heed to the present, but that is firmly tailored to the future.
Respectfully,
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management®
December 15, 2008
The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.
1
PORTFOLIO COMPOSITION
Portfolio structure (i)
| | |
| Top ten holdings (i) | | |
| Equitable Resources, Inc. | | 4.2% |
| NRG Energy, Inc. | | 4.0% |
| Rogers Communications, Inc., “B” | | 3.3% |
| Williams Cos., Inc. | | 3.2% |
| E.ON AG | | 3.2% |
| Edison International | | 2.8% |
| American Electric Power Co., Inc. | | 2.6% |
| CMS Energy Corp. | | 2.6% |
| Sempra Energy | | 2.5% |
| Telefonica S.A. | | 2.5% |
| | |
| Top five industries (i) | | |
| Utilities – Electric Power | | 45.5% |
| Telecommunications – Wireless | | 14.6% |
| Telephone Services | | 10.1% |
| Natural Gas – Distribution | | 9.7% |
| Natural Gas – Pipeline | | 7.4% |
| |
| Country weightings (i) | | |
| United States | | 66.8% |
| Spain | | 5.4% |
| Canada | | 4.6% |
| Germany | | 4.3% |
| Mexico | | 3.6% |
| United Kingdom | | 3.3% |
| Brazil | | 3.2% |
| Israel | | 2.3% |
| Russia | | 1.3% |
| Other Countries | | 5.2% |
| (i) | For purposes of this presentation, the bond component includes accrued interest amounts and may be positively or negatively impacted by the equivalent exposure from any derivative holdings, if applicable. |
Percentages are based on net assets as of 10/31/08.
The portfolio is actively managed and current holdings may be different.
2
MANAGEMENT REVIEW
Summary of Results
For the twelve months ended October 31, 2008, Class A shares of the MFS Utilities Fund provided a total return of –37.21%, at net asset value. This compares with a return of –36.10% for the fund’s benchmark, the Standard & Poor’s 500 Stock Index, and a return of –29.02% for the fund’s other benchmark, the Standard & Poor’s 500 Utilities Index (S&P Utilities Index).
Market Environment
The U.S. economy and financial markets experienced significant deterioration and extraordinary volatility over the reporting period. U.S. economic growth slowed significantly, despite the short-term bounce from the second quarter fiscal stimulus. Strong domestic headwinds included accelerated deterioration in the housing market, anemic corporate investment, a markedly weaker job market, and a much tighter credit environment. During the second half of the period, a seemingly continuous series of tumultuous financial events hammered markets, including: the distressed sale of failing Bear Stearns to JPMorgan, the conservatorship of Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, the bankruptcy of investment bank Lehman Brothers, the Federal Reserve Bank’s complex intervention of insurance company American International Group (AIG), the nationalization of several large European banks, the failure of Washington Mutual, and the distressed sale of Wachovia. As a result of this barrage of turbulent news, global equity markets pushed significantly lower and credit markets witnessed the worst dislocation since the beginning of the credit crisis.
While reasonably resilient during the first half of the period, the global economy and financial system increasingly experienced considerable negative spillovers from the U.S. slowdown. Not only did Europe and Japan show obvious signs of economic softening, the more powerful engine of global growth – emerging markets – also began to display weakening dynamics.
During the reporting period, the U.S. Federal Reserve Board cut interest rates aggressively and introduced a multitude of new lending facilities to alleviate ever-tightening credit markets, while the U.S. federal government moved quickly to design and implement a modest fiscal stimulus package. Although several other global central banks also cut rates, the dilemma of rising energy and food prices heightened concerns among central bankers that inflationary expectations might become unhinged despite weaker growth. Only late in the reporting period did slowing global growth result in a precipitous decline in commodity prices, which began to ease inflation and inflationary expectations. As inflationary concerns diminished in the face of global deleveraging, and equity and credit markets deteriorated more sharply, a coordinated rate cut
3
Management Review – continued
marked the beginning of much more aggressive easing by the major global central banks.
Detractors from Performance
During the reporting period, stock selection in the electric power industry detracted from the fund’s performance relative to the Standard & Poor’s 500 Utilities Index. Power generation companies Reliant Energy (aa), International Power (aa), E.ON AG (aa) (Germany), and NRG Energy were among the fund’s top detractors. NRG’s stock price suffered as investors sold off independent power producing companies. The fund’s underweighted position in electricity distributor Consolidated Edison (g) also hindered relative returns. Not owning power distributors Southern Power and Duke Energy, both of which outperformed the benchmark, dampened results.
The fund’s holdings in the telephone services industry, which is not represented in the S&P Utilities Index, detracted from relative performance. Telecommunications company Telefonica (aa) (Spain) was a principal detractor within this industry. Shares of Telefonica struggled over the reporting period on fears of a recession in Spain.
Holdings in the wireless communications industry, which is not represented in the S&P Utilities Index, also had a negative impact on relative results. Wireless communications company America Movil (aa) (Mexico) held back relative performance. The company’s shares declined after from disappointing quarterly results in the latter part of the reporting period.
Elsewhere, the fund’s holdings in gas pipeline company El Paso (aa) hurt relative returns.
During the reporting period, currency exposure was a detractor from the fund’s relative performance. All of MFS’ investment decisions are driven by the fundamentals of each individual opportunity and, as such, it is common for our funds to have different currency exposure than the S&P Utilities Index.
Contributors to Performance
A combination of security selection and an overweighted position in the natural gas distribution industry contributed to performance relative to the S&P Utilities Index. Integrated natural gas company Equitable Resources (aa) was a top relative contributor in this industry. Shares of Equitable Resources gained on increases in commodity prices during the reporting period.
The fund’s holdings in the internet and engineering-construction industries, which are not represented in the S&P Utilities Index, also aided relative performance. No individual holdings within these industries were among the fund’s top contributors.
4
Management Review – continued
Although the fund’s investments in the electric power industry underperformed the S&P Utilities Index, several individual securities within this industry benefited results. These included electric utility companies, Constellation Energy Group, Public Service Enterprise Group, and Edison International, and independent power producer AES Corp. The fund’s positioning in electric utility and gas companies, Exelon Corp (g), Entergy (g), and Ameren Corp (g) also helped.
Elsewhere, wireless communications company Cellcom Israel (aa) boosted relative performance. Cellcom Israel’s shares rose as the company reported strong earnings and dividend payouts that exceeded investors’ expectations.
The fund’s cash position was also a contributor to performance relative to the S&P Utilities Index. The fund holds cash to buy new holdings and to provide liquidity. In a period when equity markets declined, as measured by this benchmark, holding cash helped performance versus this benchmark, which has no cash position.
Respectfully,
| | |
| Robert Persons | | Maura Shaughnessy |
| Portfolio Manager | | Portfolio Manager |
| (aa) | Security is not a constituent of the Standard & Poor’s 500 Utilities Index. |
| (g) | Security was not held in the portfolio at period end. |
The views expressed in this report are those of the portfolio managers 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 10/31/08
The following chart illustrates a representative class of the fund's historical performance in comparison to its benchmarks. 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. Benchmark comparisons are unmanaged; do not reflect sales charges, commissions or expenses; and cannot be invested in directly. (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 10/31/08
Average annual without sales charge
| | | | | | | | | | | | |
| | | Share class | | Class inception date | | 1-yr | | 5-yr | | 10-yr | | |
| | | A | | 2/14/92 | | (37.21)% | | 11.98% | | 6.49% | | |
| | | B | | 9/07/93 | | (37.68)% | | 11.15% | | 5.70% | | |
| | | C | | 1/03/94 | | (37.64)% | | 11.18% | | 5.70% | | |
| | | I | | 1/02/97 | | (36.99)% | | 12.29% | | 6.76% | | |
| | | R1 | | 4/01/05 | | (37.69)% | | 11.08% | | 5.67% | | |
| | | R2
(formerly R3) | | 10/31/03 | | (37.35)% | | 11.52% | | 5.87% | | |
| | | R3
(formerly R4) | | 4/01/05 | | (37.21)% | | 11.88% | | 6.44% | | |
| | | R4
(formerly R5) | | 4/01/05 | | (37.01)% | | 12.14% | | 6.56% | | |
Comparative benchmarks
| | | | | | | | | | | | |
| | | Standard & Poor’s 500 Stock Index (f) | | (36.10)% | | 0.26% | | 0.40% | | |
| | | Standard & Poor’s 500 Utilities Index (f) | | (29.02)% | | 9.54% | | 3.09% | | |
Average annual with sales charge
| | | | | | | | | | | | |
| | | A With Initial Sales Charge (5.75%) | | (40.82)% | | 10.66% | | 5.86% | | |
| | | B With CDSC (Declining over six years from 4% to 0%) (x) | | (40.00)% | | 10.89% | | 5.70% | | |
| | | C With CDSC (1% for 12 months) (x) | | (38.22)% | | 11.18% | | 5.70% | | |
Class I, R1, R2, R3, and R4 shares do not have a sales charge.
CDSC – Contingent Deferred Sales Charge.
| (f) | Source: FactSet Research Systems Inc. |
| (x) | Assuming redemption at the end of the applicable period. |
7
Performance Summary – continued
Benchmark Definitions
Standard & Poor’s 500 Stock Index – a market capitalization-weighted index of 500 widely held equity securities, designed to measure broad U.S. equity performance.
Standard & Poor’s 500 Utilities Index – a market capitalization-weighted index designed to measure the utilities sector, including those companies considered electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power.
It is not possible to invest directly in an index.
Notes to Performance Summary
Performance for Class R3 and Class R4 shares includes the performance of the fund’s Class A shares for periods prior to their offering. Performance for Class R1 and Class R2 shares includes the performance of the fund’s Class B shares for periods prior to their offering. This blended class performance has been adjusted to take into account differences in sales loads, if any, applicable to these share classes, but has not been adjusted to take into account differences in class specific operating expenses (such as Rule 12b-1 fees). Compared to performance these share classes would have experienced had they been offered for the entire period, the use of blended performance generally results in higher performance for share classes with higher operating expenses than the share class to which it is blended, and lower performance for share classes with lower operating expenses than the share class to which it is blended.
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.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
8
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
May 1, 2008 through October 31, 2008
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 May 1, 2008 through October 31, 2008.
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
5/01/08 | | Ending
Account Value
10/31/08 | | Expenses
Paid During
Period (p) 5/01/08-10/31/08 |
| A | | Actual | | 1.09% | | $1,000.00 | | $650.94 | | $4.52 |
| | Hypothetical (h) | | 1.09% | | $1,000.00 | | $1,019.66 | | $5.53 |
| B | | Actual | | 1.84% | | $1,000.00 | | $648.64 | | $7.63 |
| | Hypothetical (h) | | 1.84% | | $1,000.00 | | $1,015.89 | | $9.32 |
| C | | Actual | | 1.84% | | $1,000.00 | | $648.57 | | $7.62 |
| | Hypothetical (h) | | 1.84% | | $1,000.00 | | $1,015.89 | | $9.32 |
| I | | Actual | | 0.84% | | $1,000.00 | | $652.00 | | $3.49 |
| | Hypothetical (h) | | 0.84% | | $1,000.00 | | $1,020.91 | | $4.27 |
| R1 | | Actual | | 1.85% | | $1,000.00 | | $648.57 | | $7.67 |
| | Hypothetical (h) | | 1.85% | | $1,000.00 | | $1,015.84 | | $9.37 |
R2 (formerly R3) | | Actual | | 1.34% | | $1,000.00 | | $650.09 | | $5.56 |
| | Hypothetical (h) | | 1.34% | | $1,000.00 | | $1,018.40 | | $6.80 |
R3 (formerly R4) | | Actual | | 1.09% | | $1,000.00 | | $650.76 | | $4.52 |
| | Hypothetical (h) | | 1.09% | | $1,000.00 | | $1,019.66 | | $5.53 |
R4 (formerly R5) | | Actual | | 0.86% | | $1,000.00 | | $651.97 | | $3.57 |
| | Hypothetical (h) | | 0.86% | | $1,000.00 | | $1,020.81 | | $4.37 |
| (h) | 5% class return per year before expenses. |
| (p) | Expenses paid is equal to each class’ annualized expense ratio, as shown above, multiplied by the average account value over the period, multiplied by the number of days in the period, divided by the number of days in the year. Expenses paid do not include any applicable sales charges (loads). If these transaction costs had been included, your costs would have been higher. |
10
PORTFOLIO OF INVESTMENTS
10/31/08
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| | | | | |
| Common Stocks - 94.6% | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Broadcasting - 1.0% | | | | | |
| Grupo Televisa S.A., ADR | | 1,252,220 | | $ | 22,114,204 |
| | |
| Cable TV - 4.3% | | | | | |
| Comcast Corp., “Special A” | | 706,000 | | $ | 10,886,520 |
| DIRECTV Group, Inc. (a) | | 1,129,300 | | | 24,720,376 |
| Megacable Holdings S.A.B. de C.V. | | 6,803,080 | | | 10,203,958 |
| Time Warner Cable, Inc., “A” (a) | | 2,438,110 | | | 47,738,193 |
| | | | | |
| | | | | $ | 93,549,047 |
| Energy - Independent - 2.7% | | | | | |
| Devon Energy Corp. | | 111,000 | | $ | 8,975,460 |
| EOG Resources, Inc. | | 175,600 | | | 14,209,552 |
| Ultra Petroleum Corp. (a) | | 271,400 | | | 12,633,670 |
| XTO Energy, Inc. | | 631,665 | | | 22,708,357 |
| | | | | |
| | | | | $ | 58,527,039 |
| Natural Gas - Distribution - 9.7% | | | | | |
| Energen Corp. | | 679,700 | | $ | 22,817,529 |
| Equitable Resources, Inc. | | 2,673,230 | | | 92,787,813 |
| Questar Corp. | | 1,220,966 | | | 42,074,488 |
| Sempra Energy | | 1,311,090 | | | 55,839,323 |
| | | | | |
| | | | | $ | 213,519,153 |
| Natural Gas - Pipeline - 6.7% | | | | | |
| El Paso Corp. | | 5,358,150 | | $ | 51,974,055 |
| Enagas S.A. | | 1,190,775 | | | 23,238,245 |
| Williams Cos., Inc. | | 3,403,660 | | | 71,374,750 |
| | | | | |
| | | | | $ | 146,587,050 |
| Oil Services - 1.5% | | | | | |
| Halliburton Co. | | 875,370 | | $ | 17,323,572 |
| Noble Corp. | | 454,110 | | | 14,626,883 |
| | | | | |
| | | | | $ | 31,950,455 |
| Telecommunications - Wireless - 14.5% | | | | | |
| America Movil S.A.B. de C.V., “L”, ADR | | 1,487,670 | | $ | 46,028,510 |
| Cellcom Israel Ltd. | | 1,745,652 | | | 51,426,908 |
| Hutchison Telecommunications International Ltd. | | 14,911,000 | | | 16,123,016 |
| Mobile TeleSystems OJSC, ADR | | 723,910 | | | 28,341,077 |
| MTN Group Ltd. | | 1,408,890 | | | 15,899,443 |
11
Portfolio of Investments – continued
| | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | |
| Common Stocks - continued | | | | | |
| Telecommunications - Wireless - continued | | | | | |
| NII Holdings, Inc. “B” | | 1,176,640 | | $ | 30,310,246 |
| Rogers Communications, Inc., “B” | | 2,529,210 | | | 73,423,262 |
| Tim Participacoes S.A., ADR | | 925,800 | | | 13,387,068 |
| Vodafone Group PLC | | 23,174,440 | | | 44,637,833 |
| | | | | |
| | | | | $ | 319,577,363 |
| Telephone Services - 10.1% | | | | | |
| American Tower Corp., “A” (a) | | 14,300 | | $ | 462,033 |
| AT&T, Inc. | | 1,890,480 | | | 50,608,150 |
| CenturyTel, Inc. | | 220,200 | | | 5,529,222 |
| Embarq Corp. | | 502,210 | | | 15,066,300 |
| Royal KPN N.V. | | 1,980,170 | | | 27,862,569 |
| Telecom Argentina S.A., ADR | | 124,186 | | | 722,763 |
| Telefonica S.A. | | 2,980,790 | | | 55,136,235 |
| TELUS Corp. | | 856,160 | | | 27,915,945 |
| Verizon Communications, Inc. | | 916,410 | | | 27,189,885 |
| Windstream Corp. | | 1,613,195 | | | 12,115,094 |
| | | | | |
| | | | | $ | 222,608,196 |
| Utilities - Electric Power - 44.1% | | | | | |
| AES Corp. | | 3,972,060 | | $ | 31,657,318 |
| AES Tiete S.A., IPS | | 2,683,218 | | | 16,608,333 |
| Allegheny Energy, Inc. | | 1,733,300 | | | 52,258,995 |
| American Electric Power Co., Inc. | | 1,766,180 | | | 57,630,453 |
| CEZ AS | | 633,130 | | | 27,449,260 |
| CMS Energy Corp. | | 5,510,690 | | | 56,484,573 |
| Constellation Energy Group, Inc. | | 807,993 | | | 19,561,511 |
| Dominion Resources, Inc. | | 842,480 | | | 30,565,174 |
| DPL, Inc. | | 1,196,233 | | | 27,286,075 |
| Dynegy, Inc., “A” (a) | | 7,009,620 | | | 25,515,017 |
| E.ON AG | | 1,856,198 | | | 70,844,963 |
| Edison International | | 1,728,950 | | | 61,533,331 |
| EDP Renovaveis S.A. | | 911,965 | | | 4,763,530 |
| Eletropaulo Metropolitana S.A., IPS | | 3,156,060 | | | 39,696,577 |
| FirstEnergy Corp. | | 855,700 | | | 44,633,312 |
| Fortum Oyj | | 248,000 | | | 6,104,647 |
| FPL Group, Inc. | | 109,780 | | | 5,186,007 |
| Iberdrola Renovables S.A. | | 2,089,700 | | | 6,361,716 |
| International Power PLC | | 6,690,791 | | | 23,949,429 |
| Northeast Utilities | | 1,842,260 | | | 41,561,386 |
| NRG Energy, Inc. (a) | | 3,825,620 | | | 88,945,665 |
| Oesterreichische Elektrizitaetswirtschafts AG (Verbund), “A” | | 311,593 | | | 14,780,349 |
| PG&E Corp. | | 283,560 | | | 10,398,145 |
12
Portfolio of Investments – continued
| | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | | |
| Common Stocks - continued | | | | | | |
| Utilities - Electric Power - continued | | | | | | |
| PPL Corp. | | | 1,214,500 | | $ | 39,859,890 |
| Public Service Enterprise Group, Inc. (a) | | | 1,847,352 | | | 52,002,959 |
| Red Electrica de Espana | | | 792,034 | | | 34,711,494 |
| Reliant Energy, Inc. (a) | | | 1,708,654 | | | 8,970,434 |
| RWE AG | | | 284,100 | | | 23,619,780 |
| Scottish & Southern Energy PLC | | | 258,480 | | | 5,066,822 |
| Wisconsin Energy Corp. | | | 53,600 | | | 2,331,600 |
| Xcel Energy, Inc. | | | 2,268,890 | | | 39,524,064 |
| | | | | | |
| | | | | | $ | 969,862,809 |
| Total Common Stocks (Identified Cost, $2,791,377,663) | | | | | $ | 2,078,295,316 |
| | |
| Bonds - 0.0% | | | | | | |
| Asset Backed & Securitized - 0.0% | | | | | | |
| Falcon Franchise Loan LLC, FRN, 2.97%, 2021 (i)(n) | | $ | 2,997,070 | | $ | 166,637 |
| | |
| Utilities - Electric Power - 0.0% | | | | | | |
| TXU Eastern Funding Co., 6.75%, 2009 (d) | | $ | 793,000 | | $ | 49,563 |
| Total Bonds (Identified Cost, $869,613) | | | | | $ | 216,200 |
| | |
| Convertible Bonds - 0.3% | | | | | | |
| Energy - Independent - 0.3% | | | | | | |
| Peabody Energy Corp., 4.75%, 2041 (Identified Cost, $11,536,385) | | $ | 10,660,000 | | $ | 7,719,514 |
| | |
| Convertible Preferred Stocks - 2.1% | | | | | | |
| Natural Gas - Pipeline - 0.7% | | | | | | |
| El Paso Corp., 4.99% | | | 20,200 | | $ | 16,008,500 |
| | |
| Utilities - Electric Power - 1.4% | | | | | | |
| NRG Energy, Inc., 5.75% | | | 141,700 | | $ | 30,213,274 |
Total Convertible Preferred Stocks
(Identified Cost, $61,367,259) | | | | | $ | 46,221,774 |
| | |
| Preferred Stocks - 0.0% | | | | | | |
| Telecommunications - Wireless - 0.0% | | | | | | |
| Vivo Participacoes S.A., ADR (Identified Cost, $1,363,804) | | | 84,975 | | $ | 929,627 |
| | |
| Money Market Funds (v) - 2.1% | | | | | | |
MFS Institutional Money Market Portfolio, 0.93%,
at Cost and Net Asset Value | | | 45,394,299 | | $ | 45,394,299 |
13
Portfolio of Investments – continued
| | | | | | |
| Collateral for Securities Loaned - 0.0% | | | | | | |
| Issuer | | Shares/Par | | Value ($) |
| | | | | | |
Citigroup Global Markets Repurchase Agreement, 0.20%, dated 10/31/08, due 11/03/08, total to be received $185,133 (secured by U.S. Treasury and Federal Agency obligations and Mortgage Backed securities in an individually traded account),
at Cost and Net Asset Value | | $ | 185,130 | | $ | 185,130 |
| Total Investments (Identified Cost, $2,912,094,153) (k) | | | | | $ | 2,178,961,860 |
| | |
| Other Assets, Less Liabilities - 0.9% | | | | | | 19,047,766 |
| Net Assets - 100.0% | | | | | $ | 2,198,009,626 |
| (a) | Non-income producing security. |
| (d) | Non-income producing security – in default. |
| (i) | Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security. |
| (k) | As of October 31, 2008, the fund had 17 securities that were fair valued, aggregating $400,601,452 and 18.38% of market value, in accordance with the policies adopted by the Board of Trustees. |
| (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 $166,637, representing 0.0% of net assets. |
| (v) | Underlying fund that is available only to investment companies managed by MFS. The rate quoted 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 Depository Receipt |
| FRN | | Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end. |
| IPS | | International Preference Stock |
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
14
Portfolio of Investments – continued
Derivative Contracts at 10/31/08
Forward Foreign Currency Exchange Contracts at 10/31/08
| | | | | | | | | | | | | |
| Type | | Currency | | Contracts to
Deliver/Receive | | Settlement
Date Range | | In Exchange
for | | Contracts
at Value | | Net
Unrealized
Appreciation
(Depreciation) | |
| Appreciation | | | | | | | | | | | |
SELL | | EUR | | 155,866,118 | | 12/22/08 | | $208,876,888 | | $198,394,189 | | $10,482,699 | |
SELL | | GBP | | 35,407,796 | | 12/17/08 | | 60,431,906 | | 56,838,954 | | 3,592,952 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | $14,075,651 | |
| | | | | | | | | | | | | |
| | | | | | |
| Depreciation | | | | | | | | | | | | | |
BUY | | EUR | | 15,965,504 | | 11/20/08-12/22/08 | | $21,450,121 | | $20,322,169 | | $(1,127,952 | ) |
SELL | | EUR | | 4,664,259 | | 12/22/08 | | 5,914,310 | | 5,936,902 | | (22,592 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | $(1,150,544 | ) |
| | | | | | | | | | | | | |
At October 31, 2008, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts.
See Notes to Financial Statements
15
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/08
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| | | | | |
| Assets | | | | | |
Investments- | | | | | |
Non-affiliated issuers, at value (identified cost, $2,866,699,854) | | $2,133,567,561 | | | |
Underlying funds, at cost and value | | 45,394,299 | | | |
Total investments, at value (identified cost, $2,912,094,153) | | | | | $2,178,961,860 |
Cash | | 3,809,581 | | | |
Receivable for forward foreign currency exchange contracts | | 14,075,651 | | | |
Receivable for investments sold | | 33,589,709 | | | |
Receivable for fund shares sold | | 6,082,538 | | | |
Interest and dividends receivable | | 2,082,950 | | | |
Total assets | | | | | $2,238,602,289 |
| Liabilities | | | | | |
Distributions payable | | $798,722 | | | |
Payable for forward foreign currency exchange contracts | | 1,150,544 | | | |
Payable for investments purchased | | 31,898,367 | | | |
Payable for fund shares reacquired | | 4,861,757 | | | |
Collateral for securities loaned, at value | | 185,130 | | | |
Payable to affiliates | | | | | |
Management fee | | 69,947 | | | |
Shareholder servicing costs | | 1,212,744 | | | |
Distribution and service fees | | 49,811 | | | |
Administrative services fee | | 1,997 | | | |
Payable for independent trustees’ compensation | | 69,912 | | | |
Accrued expenses and other liabilities | | 293,732 | | | |
Total liabilities | | | | | $40,592,663 |
Net assets | | | | | $2,198,009,626 |
| Net assets consist of | | | | | |
Paid-in capital | | $2,997,672,233 | | | |
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | | (720,190,028 | ) | | |
Accumulated net realized loss on investments and foreign currency transactions | | (73,024,687 | ) | | |
Accumulated distributions in excess of net investment income | | (6,447,892 | ) | | |
Net assets | | | | | $2,198,009,626 |
Shares of beneficial interest outstanding | | | | | 182,667,045 |
16
Statement of Assets and Liabilities – continued
| | | | |
Class A shares | | | | |
Net assets | | $1,593,003,180 | | |
Shares outstanding | | 132,288,108 | | |
Net asset value per share | | | | $12.04 |
Offering price per share (100/94.25 × net asset value per share) | | | | $12.77 |
Class B shares | | | | |
Net assets | | $239,127,058 | | |
Shares outstanding | | 19,924,585 | | |
Net asset value and offering price per share | | | | $12.00 |
Class C shares | | | | |
Net assets | | $262,113,468 | | |
Shares outstanding | | 21,827,684 | | |
Net asset value and offering price per share | | | | $12.01 |
Class I shares | | | | |
Net assets | | $10,140,937 | | |
Shares outstanding | | 840,513 | | |
Net asset value, offering price, and redemption price per share | | | | $12.07 |
Class R1 shares | | | | |
Net assets | | $7,688,975 | | |
Shares outstanding | | 641,221 | | |
Net asset value, offering price, and redemption price per share | | | | $11.99 |
Class R2 shares (formerly Class R3 shares) | | | | |
Net assets | | $49,039,104 | | |
Shares outstanding | | 4,079,240 | | |
Net asset value, offering price, and redemption price per share | | | | $12.02 |
Class R3 shares (formerly Class R4 shares) | | | | |
Net assets | | $31,359,643 | | |
Shares outstanding | | 2,606,128 | | |
Net asset value, offering price, and redemption price per share | | | | $12.03 |
Class R4 shares (formerly Class R5 shares) | | | | |
Net assets | | $5,537,261 | | |
Shares outstanding | | 459,566 | | |
Net asset value, offering price, and redemption price per share | | | | $12.05 |
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
See Notes to Financial Statements
17
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/08
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| | | | | | |
| Net investment income | | | | | | |
Income | | | | | | |
Dividends | | $100,267,392 | | | | |
Interest | | 4,139,596 | | | | |
Dividends from underlying funds | | 2,515,391 | | | | |
Foreign taxes withheld | | (4,851,857 | ) | | | |
Total investment income | | | | | $102,070,522 | |
Expenses | | | | | | |
Management fee | | $20,535,263 | | | | |
Distribution and service fees | | 15,086,559 | | | | |
Shareholder servicing costs | | 4,666,886 | | | | |
Administrative services fee | | 452,117 | | | | |
Retirement plan administration and services fees | | 38,535 | | | | |
Independent trustees’ compensation | | 45,826 | | | | |
Custodian fee | | 653,690 | | | | |
Shareholder communications | | 279,930 | | | | |
Auditing fees | | 50,062 | | | | |
Legal fees | | 81,155 | | | | |
Miscellaneous | | 387,421 | | | | |
Total expenses | | | | | $42,277,444 | |
Fees paid indirectly | | (19,303 | ) | | | |
Reduction of expenses by investment adviser | | (266,641 | ) | | | |
Net expenses | | | | | $41,991,500 | |
Net investment income | | | | | $60,079,022 | |
Realized and unrealized gain (loss) on investments
and foreign currency transactions | | | | | | |
Realized gain (loss) (identified cost basis) | | | | | | |
Investment transactions: | | | | | | |
Non-affiliated issuers | | $(56,907,701 | ) | | | |
Foreign currency transactions | | 9,186,096 | | | | |
Net realized gain (loss) on investments
and foreign currency transactions | | | | | $(47,721,605 | ) |
Change in unrealized appreciation (depreciation) | | | | | | |
Investments (net of $9,474 decrease in deferred country tax) | | $(1,456,592,551 | ) | | | |
Translation of assets and liabilities in foreign currencies | | 25,531,839 | | | | |
Net unrealized gain (loss) on investments
and foreign currency translation | | | | | $(1,431,060,712 | ) |
Net realized and unrealized gain (loss) on investments
and foreign currency | | | | | $(1,478,782,317 | ) |
Change in net assets from operations | | | | | $(1,418,703,295 | ) |
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.
| | | | | | |
| | | Years ended 10/31 | |
| | | 2008 | | | 2007 | |
| Change in net assets | | | | | | |
| From operations | | | | | | |
Net investment income | | $60,079,022 | | | $48,581,771 | |
Net realized gain (loss) on investments and
foreign currency transactions | | (47,721,605 | ) | | 483,253,976 | |
Net unrealized gain (loss) on investments and
foreign currency translation | | (1,431,060,712 | ) | | 373,589,443 | |
Change in net assets from operations | | $(1,418,703,295 | ) | | $905,425,190 | |
| Distributions declared to shareholders | | | | | | |
From net investment income | | | | | | |
Class A | | $(55,622,260 | ) | | $(37,353,097 | ) |
Class B | | (6,641,612 | ) | | (7,186,297 | ) |
Class C | | (6,031,052 | ) | | (4,012,906 | ) |
Class I | | (402,877 | ) | | (326,166 | ) |
Class R (b) | | (41,823 | ) | | (162,587 | ) |
Class R1 | | (159,278 | ) | | (51,802 | ) |
Former Class R2 (b) | | (45,925 | ) | | (40,796 | ) |
Class R2 (formerly Class R3) | | (1,310,190 | ) | | (477,911 | ) |
Class R3 (formerly Class R4) | | (993,911 | ) | | (458,258 | ) |
Class R4 (formerly Class R5) | | (112,239 | ) | | (34,380 | ) |
From net realized gain on investments | | | | | | |
Class A | | (132,385,878 | ) | | — | |
Class B | | (29,706,426 | ) | | — | |
Class C | | (21,256,788 | ) | | — | |
Class I | | (993,475 | ) | | — | |
Class R (b) | | (313,426 | ) | | — | |
Class R1 | | (511,858 | ) | | — | |
Former Class R2 (b) | | (293,802 | ) | | — | |
Class R2 (formerly Class R3) | | (2,850,220 | ) | | — | |
Class R3 (formerly Class R4) | | (2,238,338 | ) | | — | |
Class R4 (formerly Class R5) | | (146,224 | ) | | — | |
Total distributions declared to shareholders | | $(262,057,602 | ) | | $(50,104,200 | ) |
Change in net assets from fund share transactions | | $269,000,130 | | | $527,686,643 | |
Total change in net assets | | $(1,411,760,767 | ) | | $1,383,007,633 | |
| Net assets | | | | | | |
At beginning of period | | 3,609,770,393 | | | 2,226,762,760 | |
At end of period (including accumulated distributions in excess of net investment income of $6,447,892 and undistributed net investment income of $6,396,198, respectively) | | $2,198,009,626 | | | $3,609,770,393 | |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
See Notes to Financial Statements
19
Financial Statements
FINANCIAL HIGHLIGHTS
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 by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| | | | | | | | | | | | | | | |
| Class A | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $20.71 | | | $15.33 | | | $12.33 | | | $9.98 | | | $7.89 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.34 | | | $0.35 | | | $0.30 | | | $0.18 | | | $0.16 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.53 | ) | | 5.38 | | | 2.94 | | | 2.34 | | | 2.08 | |
Total from investment operations | | $(7.19 | ) | | $5.73 | | | $3.24 | | | $2.52 | | | $2.24 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | |
From net investment income | | $(0.41 | ) | | $(0.35 | ) | | $(0.24 | ) | | $(0.17 | ) | | $(0.15 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.48 | ) | | $(0.35 | ) | | $(0.24 | ) | | $(0.17 | ) | | $(0.15 | ) |
Net asset value, end of period | | $12.04 | | | $20.71 | | | $15.33 | | | $12.33 | | | $9.98 | |
Total return (%) (r)(s)(t) | | (37.21 | ) | | 37.77 | | | 26.48 | | | 25.33 | | | 28.41 | (b)(z) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.05 | | | 1.05 | | | 1.11 | | | 1.13 | | | 1.15 | |
Expenses after expense reductions (f) | | 1.04 | | | 1.05 | | | 1.11 | | | 1.13 | | | 1.15 | |
Net investment income | | 1.95 | | | 1.92 | | | 2.24 | | | 1.60 | | | 1.83 | |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | | | 97 | |
Net assets at end of period (000 Omitted) | | $1,593,003 | | | $2,479,305 | | | $1,319,703 | | | $933,535 | | | $586,730 | |
See Notes to Financial Statements
20
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class B | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $20.64 | | | $15.28 | | | $12.29 | | | $9.95 | | | $7.87 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.21 | | | $0.20 | | | $0.20 | | | $0.10 | | | $0.10 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.51 | ) | | 5.38 | | | 2.93 | | | 2.32 | | | 2.05 | |
Total from investment operations | | $(7.30 | ) | | $5.58 | | | $3.13 | | | $2.42 | | | $2.15 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.27 | ) | | $(0.22 | ) | | $(0.14 | ) | | $(0.08 | ) | | $(0.07 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.34 | ) | | $(0.22 | ) | | $(0.14 | ) | | $(0.08 | ) | | $(0.07 | ) |
Net asset value, end of period | | $12.00 | | | $20.64 | | | $15.28 | | | $12.29 | | | $9.95 | |
Total return (%) (r)(s)(t) | | (37.68 | ) | | 36.73 | | | 25.55 | | | 24.39 | | | 27.50 | (b)(z) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.79 | | | 1.80 | | | 1.86 | | | 1.89 | | | 1.91 | |
Expenses after expense reductions (f) | | 1.78 | | | 1.80 | | | 1.86 | | | 1.89 | | | 1.91 | |
Net investment income | | 1.20 | | | 1.13 | | | 1.51 | | | 0.88 | | | 1.10 | |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | | | 97 | |
Net assets at end of period (000 Omitted) | | $239,127 | | | $593,215 | | | $597,964 | | | $617,687 | | | $575,642 | |
| |
| Class C | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $20.65 | | | $15.30 | | | $12.30 | | | $9.96 | | | $7.87 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.21 | | | $0.21 | | | $0.20 | | | $0.10 | | | $0.10 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.51 | ) | | 5.36 | | | 2.94 | | | 2.32 | | | 2.06 | |
Total from investment operations | | $(7.30 | ) | | $5.57 | | | $3.14 | | | $2.42 | | | $2.16 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.27 | ) | | $(0.22 | ) | | $(0.14 | ) | | $(0.08 | ) | | $(0.07 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.34 | ) | | $(0.22 | ) | | $(0.14 | ) | | $(0.08 | ) | | $(0.07 | ) |
Net asset value, end of period | | $12.01 | | | $20.65 | | | $15.30 | | | $12.30 | | | $9.96 | |
Total return (%) (r)(s)(t) | | (37.64 | ) | | 36.64 | | | 25.61 | | | 24.37 | | | 27.63 | (b)(z) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.80 | | | 1.80 | | | 1.86 | | | 1.88 | | | 1.90 | |
Expenses after expense reductions (f) | | 1.79 | | | 1.80 | | | 1.86 | | | 1.88 | | | 1.90 | |
Net investment income | | 1.20 | | | 1.15 | | | 1.51 | | | 0.87 | | | 1.10 | |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | | | 97 | |
Net assets at end of period (000 Omitted) | | $262,113 | | | $402,178 | | | $260,120 | | | $218,335 | | | $177,875 | |
See Notes to Financial Statements
21
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class I | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $20.74 | | | $15.36 | | | $12.35 | | | $10.00 | | | $7.91 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.39 | | | $0.40 | | | $0.33 | | | $0.21 | | | $0.18 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.54 | ) | | 5.38 | | | 2.95 | | | 2.34 | | | 2.08 | |
Total from investment operations | | $(7.15 | ) | | $5.78 | | | $3.28 | | | $2.55 | | | $2.26 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.45 | ) | | $(0.40 | ) | | $(0.27 | ) | | $(0.20 | ) | | $(0.17 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.52 | ) | | $(0.40 | ) | | $(0.27 | ) | | $(0.20 | ) | | $(0.17 | ) |
Net asset value, end of period | | $12.07 | | | $20.74 | | | $15.36 | | | $12.35 | | | $10.00 | |
Total return (%) (r)(s) | | (36.99 | ) | | 38.03 | | | 26.83 | | | 25.59 | | | 28.84 | (b)(z) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 0.79 | | | 0.80 | | | 0.86 | | | 0.88 | | | 0.90 | |
Expenses after expense reductions (f) | | 0.78 | | | 0.80 | | | 0.86 | | | 0.88 | | | 0.90 | |
Net investment income | | 2.17 | | | 2.17 | | | 2.45 | | | 1.81 | | | 2.07 | |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | | | 97 | |
Net assets at end of period (000 Omitted) | | $10,141 | | | $19,230 | | | $9,830 | | | $6,630 | | | $2,823 | |
| | | | | | | | | | | | |
| Class R1 | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $20.63 | | | $15.28 | | | $12.29 | | | $11.04 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.20 | | | $0.17 | | | $0.19 | | | $0.01 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.50 | ) | | 5.39 | | | 2.92 | | | 1.29 | |
Total from investment operations | | $(7.30 | ) | | $5.56 | | | $3.11 | | | $1.30 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.27 | ) | | $(0.21 | ) | | $(0.12 | ) | | $(0.05 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.34 | ) | | $(0.21 | ) | | $(0.12 | ) | | $(0.05 | ) |
Net asset value, end of period | | $11.99 | | | $20.63 | | | $15.28 | | | $12.29 | |
Total return (%) (r)(s) | | (37.69 | ) | | 36.62 | | | 25.42 | | | 11.77 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.83 | | | 1.92 | | | 2.06 | | | 2.08 | (a) |
Expenses after expense reductions (f) | | 1.83 | | | 1.90 | | | 1.96 | | | 2.05 | (a) |
Net investment income | | 1.15 | | | 0.92 | | | 1.40 | | | 0.12 | (a) |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | |
Net assets at end of period (000 Omitted) | | $7,689 | | | $9,017 | | | $1,902 | | | $879 | |
See Notes to Financial Statements
22
Financial Highlights – continued
| | | | | | | | | | | | | | | |
| Class R2 (formerly Class R3) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 | | | 2004 | |
Net asset value, beginning of period | | $20.67 | | | $15.31 | | | $12.31 | | | $9.97 | | | $7.89 | |
| Income (loss) from investment operations | | | | | | | | | | | | | | | |
Net investment income (d) | | $0.29 | | | $0.27 | | | $0.24 | | | $0.11 | | | $0.14 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.51 | ) | | 5.38 | | | 2.94 | | | 2.34 | | | 2.04 | |
Total from investment operations | | $(7.22 | ) | | $5.65 | | | $3.18 | | | $2.45 | | | $2.18 | |
| Less distributions declared to shareholders | | | | | | | | | | | | | | | |
From net investment income | | $(0.36 | ) | | $(0.29 | ) | | $(0.18 | ) | | $(0.11 | ) | | $(0.10 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.43 | ) | | $(0.29 | ) | | $(0.18 | ) | | $(0.11 | ) | | $(0.10 | ) |
Net asset value, end of period | | $12.02 | | | $20.67 | | | $15.31 | | | $12.31 | | | $9.97 | |
Total return (%) (r)(s) | | (37.35 | ) | | 37.17 | | | 26.02 | | | 24.66 | | | 27.77 | (b)(z) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.33 | | | 1.47 | | | 1.62 | | | 1.62 | | | 1.65 | |
Expenses after expense reductions (f) | | 1.32 | | | 1.44 | | | 1.52 | | | 1.60 | | | 1.65 | |
Net investment income | | 1.69 | | | 1.49 | | | 1.73 | | | 0.97 | | | 1.42 | |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | | | 97 | |
Net assets at end of period (000 Omitted) | | $49,039 | | | $50,205 | | | $14,413 | | | $2,426 | | | $122 | |
| | | | | | | | | | | | |
| Class R3 (formerly Class R4) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $20.69 | | | $15.32 | | | $12.33 | | | $11.08 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.34 | | | $0.33 | | | $0.26 | | | $0.10 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.53 | ) | | 5.37 | | | 2.95 | | | 1.25 | |
Total from investment operations | | $(7.19 | ) | | $5.70 | | | $3.21 | | | $1.35 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.40 | ) | | $(0.33 | ) | | $(0.22 | ) | | $(0.10 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.47 | ) | | $(0.33 | ) | | $(0.22 | ) | | $(0.10 | ) |
Net asset value, end of period | | $12.03 | | | $20.69 | | | $15.32 | | | $12.33 | |
Total return (%) (r)(s) | | (37.21 | ) | | 37.55 | | | 26.21 | | | 12.22 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 1.07 | | | 1.20 | | | 1.28 | | | 1.26 | (a) |
Expenses after expense reductions (f) | | 1.07 | | | 1.20 | | | 1.28 | | | 1.26 | (a) |
Net investment income | | 1.91 | | | 1.77 | | | 1.93 | | | 1.50 | (a) |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | |
Net assets at end of period (000 Omitted) | | $31,360 | | | $41,574 | | | $10,786 | | | $62 | |
See Notes to Financial Statements
23
Financial Highlights – continued
| | | | | | | | | | | | |
| Class R4 (formerly Class R5) | | Years ended 10/31 | |
| | | 2008 | | | 2007 | | | 2006 | | | 2005 (i) | |
Net asset value, beginning of period | | $20.71 | | | $15.34 | | | $12.33 | | | $11.08 | |
| Income (loss) from investment operations | | | | | | | | | | | | |
Net investment income (d) | | $0.36 | | | $0.40 | | | $0.28 | | | $0.13 | |
Net realized and unrealized gain (loss)
on investments and foreign currency | | (7.50 | ) | | 5.35 | | | 2.99 | | | 1.24 | |
Total from investment operations | | $(7.14 | ) | | $5.75 | | | $3.27 | | | $1.37 | |
| Less distributions declared to shareholders | | | | | | | | | | | | |
From net investment income | | $(0.45 | ) | | $(0.38 | ) | | $(0.26 | ) | | $(0.12 | ) |
From net realized gain on investments | | (1.07 | ) | | — | | | — | | | — | |
Total distributions declared to shareholders | | $(1.52 | ) | | $(0.38 | ) | | $(0.26 | ) | | $(0.12 | ) |
Net asset value, end of period | | $12.05 | | | $20.71 | | | $15.34 | | | $12.33 | |
Total return (%) (r)(s) | | (37.01 | ) | | 37.89 | | | 26.75 | | | 12.41 | (n) |
Ratios (%) (to average net assets)
and Supplemental data: | | | | | | | | | | | | |
Expenses before expense reductions (f) | | 0.83 | | | 0.90 | | | 0.96 | | | 0.96 | (a) |
Expenses after expense reductions (f) | | 0.82 | | | 0.90 | | | 0.96 | | | 0.96 | (a) |
Net investment income | | 2.12 | | | 2.12 | | | 1.98 | | | 1.83 | (a) |
Portfolio turnover | | 73 | | | 86 | | | 100 | | | 101 | |
Net assets at end of period (000 Omitted) | | $5,537 | | | $2,727 | | | $637 | | | $56 | |
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less than $0.01.
| (b) | The fund’s net asset value and total return calculation include a non-recurring accrual recorded as a result of an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales. The non-recurring did not have a material impact on the net asset value per share based on the shares outstanding on the day the proceeds were recorded. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (i) | For the period from the class’ inception, April 1, 2005 (Classes R1, R3, and R4) through the stated period end. |
| (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. |
| (z) | The fund’s total return calculation includes a net increase from gains realized on the disposal of investments in violation of investment restrictions. The gains resulted in an increase in net asset value of $0.0007 per share based on shares outstanding on the day the gains were realized. Excluding the effect of these gains from the fund’s ending net asset value per share, the total return for the year ended October 31, 2004 would have been approximately 28.40%, 27.49%, 27.62%, 28.83%, and 27.76% for Class A, Class B, Class C, Class I, and Class R2, respectively. |
See Notes to Financial Statements
24
NOTES TO FINANCIAL STATEMENTS
| (1) | | Business and Organization |
MFS Utilities Fund (the fund) is a series of MFS Series Trust VI (the trust). The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.
| (2) | | Significant Accounting Policies |
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The fund invests primarily in securities of issuers in the utility industry. Issuers in a single industry can react similarly to market, economic, political and regulatory conditions and developments. The fund can invest in foreign securities, including securities of emerging market issuers. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The markets of emerging markets countries are generally more volatile than the markets of developed countries with more mature economies. All of the risks of investing in foreign securities previously described are heightened when investing in emerging markets countries.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as reported by a third party pricing service on the market or exchange on which they are primarily traded. For securities for which there were no sales reported that day, equity securities are generally valued at the last quoted daily bid quotation as reported by a third party pricing service on the market or exchange on which they are primarily traded. For securities held short for which there were no sales reported for the day, the position is generally valued at the last quoted daily ask quotation as reported by a third party pricing service on the market or exchange on which such securities are primarily traded. Debt instruments and floating rate loans (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as reported 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. Forward foreign currency contracts are generally valued at the mean of bid and asked prices for
25
Notes to Financial Statements – continued
the time period interpolated from rates reported by a third party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third party pricing service may also be valued at a broker-dealer bid quotation. Values obtained from pricing services can utilize both dealer-supplied valuations and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. 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 reported by a third party pricing service.
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material affect 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 may rely 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
26
Notes to Financial Statements – continued
determine value. When fair valuation is used, the value of investments used to determine the fund’s net asset value may differ from quoted or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the “Statement”) was issued, and is effective for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. This Statement provides a single definition of fair value, a hierarchy for measuring fair value and expanded disclosures about fair value measurements. Management is evaluating the application of the Statement to the fund, and believes the impact will be limited to expanded disclosures resulting from the adoption of this Statement in the fund’s financial statements.
Repurchase Agreements – The fund may enter into 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.
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.
Derivative Risk – The fund may invest in derivatives for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to gain market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost. Cash that has been segregated on behalf of certain derivative contracts will be reported separately on the Statement of Assets and Liabilities as restricted cash. On some over-the-counter derivatives, the fund attempts to reduce its exposure to counterparty credit risk by entering into an ISDA Master Agreement on a bilateral basis with each of the counterparties with whom it undertakes a significant volume of transactions. The ISDA Master Agreement gives the fund the right, upon an event of default by the applicable counterparty, to close out all transactions traded under such agreement and to
27
Notes to Financial Statements – continued
net amounts owed under each transaction to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any. However, absent an event of default by the counterparty, the ISDA Master Agreement does not result in an offset of reported balance sheet assets and liabilities across transactions between the fund and the applicable counterparty. Derivative instruments include forward foreign currency exchange contracts.
FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, and FASB Staff Position (FSP) 133-1, effective for fiscal years and interim periods ending after November 15, 2008 (the “Standards”) were recently issued. These Standards provide enhanced disclosures about the fund’s use of and accounting for derivative instruments and the effect of derivative instruments on the fund’s results of operations and financial position. Management is evaluating the application of these Standards to the fund, and has not at this time determined the impact, resulting from the adoption of these Standards on the fund’s financial statements.
Forward Foreign Currency Exchange Contracts – The fund may enter into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of the contract. The fund may enter into forward foreign currency exchange contracts for hedging purposes as well as for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. The fund may also use contracts in a manner intended to protect foreign currency denominated securities from declines in value due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated changes. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. On contract settlement date, the gains or losses are recorded as realized gains or losses on foreign currency transactions.
Security Loans – JPMorgan Chase and Co. (“Chase”), as lending agent, may loan the securities of the fund to certain qualified institutions (the “Borrowers”)
28
Notes to Financial Statements – continued
approved by the fund. 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. Security lending activity through Chase is further collateralized by an irrevocable standby letter of credit. Chase provides the fund with indemnification against Borrower default. The fund bears the risk of loss with respect to the investment of cash collateral. On loans collateralized by cash, the cash collateral is invested in short-term securities. 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 included in interest income on 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. 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. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the year ended October 31, 2008, is shown as a reduction of total expenses on the Statement of Operations.
29
Notes to Financial Statements – continued
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 taxes is required. The fund adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“the Interpretation”) on the first day of the fund’s fiscal year. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. There was no impact resulting from the adoption of this Interpretation on the fund’s financial statements. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.
Book/tax differences primarily relate to wash sale loss deferrals, foreign currency transactions, 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:
| | | | |
| | | 10/31/08 | | 10/31/07 |
| Ordinary income (including any short-term capital gains) | | $ 71,124,263 | | $50,104,200 |
| Long-term capital gain | | 190,933,339 | | — |
| Total distributions | | $262,057,602 | | $50,104,200 |
30
Notes to Financial Statements – continued
The federal tax cost and the tax basis components of distributable earnings were as follows:
| | | |
| As of 10/31/08 | | | |
| Cost of investments | | $2,984,258,079 | |
| Gross appreciation | | 23,623,253 | |
| Gross depreciation | | (828,919,472 | ) |
| Net unrealized appreciation (depreciation) | | $(805,296,219 | ) |
| Undistributed long-term capital gain | | 13,182,439 | |
Other temporary differences | | (7,548,827 | ) |
Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution, service, and retirement plan administration and services 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. At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following this conversion, Class R3, Class R4, and Class R5 shares were renamed Class R2, Class R3, and Class R4 shares, respectively.
| (3) | | Transactions with Affiliates |
Investment Adviser – The fund has an investment advisory agreement with Massachusetts Financial Services Company (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 an annual rate of 0.60% of the fund’s average daily net assets. The investment adviser had agreed in writing to reduce its management fee to 0.55% of average daily net assets in excess of $3.0 billion until October 31, 2008. Effective October 1, 2007, the investment adviser has agreed in writing to further reduce its management fee to 0.50% of average daily net assets in excess of $5.0 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until September 30, 2012. These management fee reductions amounted to $248,383, which is shown as a reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended October 31, 2008 was equivalent to an annual effective rate of 0.59% of the fund’s average daily net assets.
Effective November 1, 2008, the investment advisory agreement has been amended such that the management fee is computed daily and paid monthly at an annual rate of 0.60% of average daily net assets up to $3.0 billion and 0.55% of average daily net assets in excess of $3.0 billion. The investment adviser has
31
Notes to Financial Statements – continued
agreed in writing to further reduce its management fee effective October 1, 2007, to 0.50% of average daily net assets in excess of $5.0 billion. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until September 30, 2012.
Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $983,637 for the year ended October 31, 2008, as its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund’s distribution plan provides that the fund will pay MFD for services provided by MFD and financial intermediaries in connection with the distribution and servicing of certain share classes. One component of the plan is a distribution fee paid to MFD and another component of the plan is a service fee paid to MFD. MFD may subsequently pay all, or a portion, of the distribution and/or service fees to financial intermediaries.
Distribution Plan Fee Table:
| | | | | | | | | | |
| | | Distribution
Fee Rate | | Service
Fee Rate | | Total
Distribution
Plan (d) | | Annual
Effective
Rate (e) | | Distribution
and Service
Fee |
| Class A | | 0.10% | | 0.25% | | 0.35% | | 0.25% | | $6,089,005 |
| Class B | | 0.75% | | 0.25% | | 1.00% | | 1.00% | | 4,540,818 |
| Class C | | 0.75% | | 0.25% | | 1.00% | | 1.00% | | 3,909,659 |
| Class R (b) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 13,384 |
| Class R1 | | 0.75% | | 0.25% | | 1.00% | | 0.92% | | 95,333 |
| Former Class R2 (b) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 15,594 |
| Class R2 (formerly Class R3) | | 0.25% | | 0.25% | | 0.50% | | 0.50% | | 313,548 |
| Class R3 (formerly Class R4) | | — | | 0.25% | | 0.25% | | 0.25% | | 109,218 |
| Total Distribution and Service Fees | | | | | | | | $15,086,559 |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
| (d) | In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up to these annual percentage rates of each class’ average daily net assets. |
| (e) | The annual effective rates represent actual fees incurred under the distribution plan for the year ended October 31, 2008 based on each class’ average daily net assets. Payment of the 0.10% annual Class A distribution fee is not yet in effect and will be implemented on such date as the fund’s Board of Trustees may determine. Effective March 1, 2008, the distribution fee rate for Class R1 shares increased from 0.50% to 0.75%. |
Certain Class A shares purchased prior to September 1, 2008 are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 12 months of purchase. Certain Class A shares purchased on or subsequent to September 1, 2008 are subject to a CDSC in the event of a shareholder redemption within 24 months of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months
32
Notes to Financial Statements – continued
of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD and during the year ended October 31, 2008, were as follows:
| | |
| | | Amount |
| Class A | | $60,854 |
| Class B | | 349,372 |
| Class C | | 145,801 |
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 October 31, 2008, the fee was $1,361,997, which equated to 0.0398% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the year ended October 31, 2008, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $3,304,889.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged a fixed amount plus a fee based on average daily net assets. The fund’s annual fixed amount is $17,500. The administrative services fee incurred for the year ended October 31, 2008 was equivalent to an annual effective rate of 0.0132% of the fund’s average daily net assets.
In addition to the administrative services provided by MFS to the fund as described above, prior to March 1, 2008, MFS was responsible for providing certain retirement plan administration and services with respect to certain shares. These services included various administrative, recordkeeping, and communication/educational services with respect to the retirement plans which invest in these shares, and may have been provided directly by MFS or by a third party. MFS generally paid all, or a portion, of the retirement plan administration and services fee to affiliated or unaffiliated third parties. For the year ended October 31, 2008, the fund paid MFS an annual retirement plan
33
Notes to Financial Statements – continued
administration and services fee up to the following annual percentage rates of each class’ average daily net assets:
| | | | | | | | | | |
| | | Beginning
of period
through
12/31/07 | | Effective
1/01/08 | | Effective
3/01/08 | | Annual
Effective
Rate (g) | | Total
Amount |
Class R1 | | 0.35% | | 0.35% | | — | | 0.11% | | $11,490 |
Former Class R2 (b) | | 0.25% | | — | | — | | 0.08% | | 2,341 |
Class R2 (formerly Class R3) | | 0.15% | | — | | — | | 0.02% | | 13,571 |
Class R3 (formerly Class R4) | | 0.15% | | — | | — | | 0.02% | | 10,674 |
Class R4 (formerly Class R5) | | 0.10% | | — | | — | | 0.01% | | 459 |
| Total Retirement Plan Administration and Services Fees | | $38,535 |
| (b) | At the close of business on April 18, 2008, Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
| (g) | Effective January 1, 2008, the annual retirement plan administration and services fee was eliminated for all R classes, other than Class R1 shares. Effective March 1, 2008, the annual retirement plan administration and services fee was eliminated for Class R1 shares. |
Trustees’ and Officers’ Compensation – The fund pays compensation to independent trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and trustees of the fund are officers or directors of MFS, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired independent trustees which resulted in a pension expense of $1,667. The fund also has an unfunded retirement benefit deferral plan for certain independent trustees which resulted in a net decrease in expense of $16,405. Both amounts are included in independent trustees’ compensation for the year ended October 31, 2008. The liability for deferred retirement benefits payable to certain independent trustees under both plans amounted to $62,923 at October 31, 2008, and is included in payable for independent trustees’ compensation.
Other – This fund and certain other MFS funds (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the year ended October 31, 2008, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $27,011 and are included in miscellaneous expense on the Statement of Operations. MFS has
34
Notes to Financial Statements – continued
agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $18,258, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO and Assistant ICCO.
The fund may invest in a money market fund managed by MFS which seeks a high level of current income consistent with preservation of capital and liquidity. Income earned on this investment is included in dividends from underlying funds on the Statement of Operations. This money market fund does not pay a management fee to MFS.
Purchases and sales of investments, other than U.S. Government securities, purchased option transactions, and short-term obligations, aggregated $2,561,993,792 and $2,448,540,043, 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
10/31/08 | | Year ended
10/31/07 |
| | | Shares | | Amount | | Shares | | Amount |
| Shares sold | | | | | | | | |
Class A | | 56,236,591 | | $1,015,228,438 | | 61,356,275 | | $1,113,434,834 |
Class B | | 3,998,900 | | 70,270,001 | | 4,279,040 | | 76,645,233 |
Class C | | 6,922,816 | | 124,449,850 | | 6,018,205 | | 110,043,000 |
Class I | | 317,220 | | 5,713,767 | | 1,458,843 | | 28,472,297 |
Class R (b) | | 179,034 | | 3,394,811 | | 380,262 | | 6,888,822 |
Class R1 | | 350,149 | | 6,342,410 | | 503,719 | | 9,247,234 |
Former Class R2 (b) | | 209,306 | | 3,906,716 | | 277,082 | | 5,045,047 |
Class R2 (formerly Class R3) | | 2,852,777 | | 51,689,815 | | 2,350,890 | | 42,409,832 |
Class R3 (formerly Class R4) | | 1,424,204 | | 24,912,622 | | 2,340,247 | | 41,638,662 |
Class R4 (formerly Class R5) | | 427,961 | | 6,713,150 | | 140,526 | | 2,611,245 |
| | 72,918,958 | | $1,312,621,580 | | 79,105,089 | | $1,436,436,206 |
35
Notes to Financial Statements – continued
| | | | | | | | | | | | |
| | | Year ended
10/31/08 | | | Year ended
10/31/07 | |
| | | Shares | | | Amount | | | Shares | | | Amount | |
Shares issued to shareholders
in reinvestment of distributions | | | | | | | | | | | | |
Class A | | 8,965,810 | | | $167,763,980 | | | 1,588,457 | | | $28,414,841 | |
Class B | | 1,640,480 | | | 31,038,125 | | | 312,574 | | | 5,434,921 | |
Class C | | 1,098,555 | | | 20,634,291 | | | 141,710 | | | 2,499,661 | |
Class I | | 72,644 | | | 1,363,876 | | | 15,729 | | | 282,504 | |
Class R (b) | | 7,776 | | | 150,132 | | | 6,604 | | | 114,146 | |
Class R1 | | 35,962 | | | 671,126 | | | 2,224 | | | 40,092 | |
Former Class R2 (b) | | 17,697 | | | 339,727 | | | 1,822 | | | 33,018 | |
Class R2 (formerly Class R3) | | 221,075 | | | 4,102,653 | | | 21,903 | | | 394,812 | |
Class R3 (formerly Class R4) | | 173,683 | | | 3,232,249 | | | 21,118 | | | 383,251 | |
Class R4 (formerly Class R5) | | 6,678 | | | 122,015 | | | 600 | | | 11,259 | |
| | 12,240,360 | | | $229,418,174 | | | 2,112,741 | | | $37,608,505 | |
| Shares reacquired | | | | | | | | | | | | |
Class A | | (52,652,995 | ) | | $(859,714,560 | ) | | (29,273,164 | ) | | $(535,900,376 | ) |
Class B | | (14,460,850 | ) | | (250,419,118 | ) | | (14,974,359 | ) | | (267,003,938 | ) |
Class C | | (5,667,599 | ) | | (91,242,202 | ) | | (3,690,833 | ) | | (66,850,090 | ) |
Class I | | (476,354 | ) | | (8,181,195 | ) | | (1,187,635 | ) | | (23,599,741 | ) |
Class R (b) | | (532,998 | ) | | (10,099,348 | ) | | (701,558 | ) | | (12,751,972 | ) |
Class R1 | | (181,997 | ) | | (3,029,072 | ) | | (193,262 | ) | | (3,368,399 | ) |
Former Class R2 (b) | | (477,118 | ) | | (8,879,029 | ) | | (112,910 | ) | | (1,961,129 | ) |
Class R2 (formerly Class R3) | | (1,423,170 | ) | | (23,610,418 | ) | | (885,461 | ) | | (15,563,043 | ) |
Class R3 (formerly Class R4) | | (1,000,949 | ) | | (16,181,386 | ) | | (1,056,034 | ) | | (18,395,041 | ) |
Class R4 (formerly Class R5) | | (106,748 | ) | | (1,683,296 | ) | | (50,970 | ) | | (964,339 | ) |
| | (76,980,778 | ) | | $(1,273,039,624 | ) | | (52,126,186 | ) | | $(946,358,068 | ) |
| Net change | | | | | | | | | | | | |
Class A | | 12,549,406 | | | $323,277,858 | | | 33,671,568 | | | $605,949,299 | |
Class B | | (8,821,470 | ) | | (149,110,992 | ) | | (10,382,745 | ) | | (184,923,784 | ) |
Class C | | 2,353,772 | | | 53,841,939 | | | 2,469,082 | | | 45,692,571 | |
Class I | | (86,490 | ) | | (1,103,552 | ) | | 286,937 | | | 5,155,060 | |
Class R (b) | | (346,188 | ) | | (6,554,405 | ) | | (314,692 | ) | | (5,749,004 | ) |
Class R1 | | 204,114 | | | 3,984,464 | | | 312,681 | | | 5,918,927 | |
Former Class R2 (b) | | (250,115 | ) | | (4,632,586 | ) | | 165,994 | | | 3,116,936 | |
Class R2 (formerly Class R3) | | 1,650,682 | | | 32,182,050 | | | 1,487,332 | | | 27,241,601 | |
Class R3 (formerly Class R4) | | 596,938 | | | 11,963,485 | | | 1,305,331 | | | 23,626,872 | |
Class R4 (formerly Class R5) | | 327,891 | | | 5,151,869 | | | 90,156 | | | 1,658,165 | |
| | 8,178,540 | | | $269,000,130 | | | 29,091,644 | | | $527,686,643 | |
| (b) | At the close of business on April 18, 2008, Class R and Class R2 shares converted into Class R3 shares. Following the conversion, Class R3 shares were renamed Class R2 shares. |
36
Notes to Financial Statements – continued
The fund and other funds managed by MFS participate in a $1 billion unsecured committed line of credit provided by a syndication of banks under a credit agreement. In addition, the fund and other funds managed by MFS have established uncommitted borrowing arrangements with certain banks. 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 Federal Reserve funds rate plus 0.30%. In addition, a commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds at the end of each calendar quarter. For the year ended October 31, 2008, the fund’s commitment fee and interest expense were $16,924 and $222, respectively, and are included in miscellaneous expense on the Statement of Operations.
| (7) | | Transactions in Underlying Funds-Affiliated Issuers |
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:
| | | | | | | | |
| Underlying Funds | | Beginning
Shares/Par
Amount | | Acquisitions
Shares/Par
Amount | | Dispositions
Shares/Par
Amount | | Ending
Shares/Par
Amount |
| MFS Institutional Money Market Portfolio | | 79,824,380 | | 964,929,034 | | 999,359,115 | | 45,394,299 |
| | | | |
| Underlying Funds | | Realized
Gain (Loss) | | Capital Gain
Distributions | | Dividend
Income | | Ending
Value |
| MFS Institutional Money Market Portfolio | | $— | | $— | | $2,515,391 | | $45,394,299 |
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust VI and Shareholders of MFS Utilities Fund:
We have audited the accompanying statement of assets and liabilities of MFS Utilities Fund (the Fund), (one of the portfolios comprising MFS Series Trust VI), including the portfolio of investments, as of October 31, 2008, 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, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of October 31, 2008, by correspondence with the Fund’s custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MFS Utilities Fund at October 31, 2008, 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 periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
December 17, 2008
38
TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2008, 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 500 Boylston Street, Boston, Massachusetts 02116.
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
| INTERESTED TRUSTEES | | | | | | |
Robert J. Manning (k)
(born 10/20/63) | | Trustee | | February 2004 | | Massachusetts Financial Services Company, Chief Executive Officer, President, Chief Investment Officer and Director |
Robert C. Pozen (k)
(born 8/08/46) | | Trustee | | February 2004 | | Massachusetts Financial Services Company, Chairman (since February 2004); Harvard Business School (education), Senior Lecturer (since 2008); Bell Canada Enterprises (telecommunications), Director (since March 2002); The Bank of New York, Director (finance), (March 2004 to May 2005); The Commonwealth of Massachusetts, Secretary of Economic Affairs (January 2002 to December 2002); Fidelity Investments, (investment advisor), Vice Chairman (until December 2001); Fidelity Management & Research Company (investment adviser), President (until July 2001); Telesat (satellite communications), Director (until November 2007) |
| INDEPENDENT TRUSTEES | | | | |
J. Atwood Ives
(born 5/01/36) | | Trustee and Chair of Trustees | | February 1992 | | Private investor; KeySpan Corporation (energy related services), Director until 2004; Woodstock Corporation (investment advisory firm), Director until 2003 |
Robert E. Butler (n)
(born 11/29/41) | | Trustee | | January 2006 | | Consultant – regulatory and compliance matters (since July 2002); PricewaterhouseCoopers LLP (professional services firm), Partner (until 2002) |
39
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Lawrence H. Cohn, M.D.
(born 3/11/37) | | Trustee | | August 1993 | | Brigham and Women’s Hospital, Senior Cardiac Surgeon (since 2005); Harvard Medical School, Professor of Cardiac Surgery; Partners HealthCare, Physician Director of Medical Device Technology (since 2006); Brigham and Women’s Hospital, Chief of Cardiac Surgery (until 2005) |
David H. Gunning
(born 5/30/42) | | Trustee | | January 2004 | | Retired; Cleveland-Cliffs Inc. (mining products and service provider), Vice Chairman/Director (until May 2007); Lincoln Electric Holdings, Inc. (welding equipment manufacturer), Director; Development Alternatives, Inc. (consulting), Director/Non Executive Chairman; Portman Limited (mining), Director (since 2005); Southwest Gas Corp. (natural gas distribution), Director (until May 2004) |
William R. Gutow
(born 9/27/41) | | Trustee | | December 1993 | | Private investor and real estate consultant; Capital Entertainment Management Company (video franchise), Vice Chairman; Texas Donuts (donut franchise), Vice Chairman (since 2007); Atlantic Coast Tan (tanning salons), Vice Chairman (until 2007) |
Michael Hegarty
(born 12/21/44) | | Trustee | | December 2004 | | Retired; AXA Financial (financial services and insurance), Vice Chairman and Chief Operating Officer (until 2001); The Equitable Life Assurance Society (insurance), President and Chief Operating Officer (until 2001) |
Lawrence T. Perera
(born 6/23/35) | | Trustee | | July 1981 | | Hemenway & Barnes (attorneys), Counsel |
J. Dale Sherratt
(born 9/23/38) | | Trustee | | August 1993 | | Insight Resources, Inc. (acquisition planning specialists), President; Wellfleet Investments (investor in health care companies), Managing General Partner |
40
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Laurie J. Thomsen
(born 8/05/57) | | Trustee | | March 2005 | | New Profit, Inc. (venture philanthropy), Partner (since 2006); Private investor; Prism Venture Partners (venture capital), Co-founder and General Partner (until June 2004); The Travelers Companies (commercial property liability insurance), Director |
Robert W. Uek
(born 5/18/41) | | Trustee | | January 2006 | | Consultant to investment company industry; PricewaterhouseCoopers LLP (professional services firm), Partner (until 1999); TT International Funds (mutual fund complex), Trustee (until 2005); Hillview Investment Trust II Funds (mutual fund complex), Trustee (until 2005) |
| OFFICERS | | | | | | |
Maria F. Dwyer (k)
(born 12/01/58) | | President | | November 2005 | | Massachusetts Financial Services Company, Executive Vice President and Chief Regulatory Officer (since March 2004) Chief Compliance Officer (since December 2006); Fidelity Management & Research Company, Vice President (prior to March 2004); Fidelity Group of Funds, President and Treasurer (until March 2004) |
Christopher R. Bohane (k)
(born 1/18/74) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel |
John M. Corcoran (k)
(born 04/13/65) | | Treasurer | | October 2008 | | Massachusetts Financial Services Company, Senior Vice President (since October 2008); State Street Bank and Trust (financial services provider), Senior Vice President, (until September 2008) |
Ethan D. Corey (k)
(born 11/21/63) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since 2004); Dechert LLP (law firm), Counsel (prior to December 2004) |
41
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
David L. DiLorenzo (k)
(born 8/10/68) | | Assistant Treasurer | | July 2005 | | Massachusetts Financial Services Company, Vice President (since June 2005); JP Morgan Investor Services, Vice President (until June 2005) |
Timothy M. Fagan (k)
(born 7/10/68) | | Assistant Secretary and Assistant Clerk | | September 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since September 2005); John Hancock Advisers, LLC, Vice President, Senior Attorney and Chief Compliance Officer (until August 2005) |
Mark D. Fischer (k)
(born 10/27/70) | | Assistant Treasurer | | July 2005 | | Massachusetts Financial Services Company, Vice President (since May 2005); JP Morgan Investment Management Company, Vice President (until May 2005) |
Robyn L. Griffin
(born 7/04/75) | | Assistant Independent Chief Compliance Officer | | August 1, 2008 | | Griffin Compliance LLC (provider of compliance services), Principal (since August 2008); State Street Corporation (financial services provider), Mutual Fund Administration Assistant Director (October 2006 – July 2008); Liberty Mutual Group (insurance), Personal Market Assistant Controller (April 2006 – October 2006); Deloitte & Touche LLP (professional services firm), Senior Manager (prior to April 2006) |
Brian E. Langenfeld (k)
(born 3/07/73) | | Assistant Secretary and Assistant Clerk | | June 2006 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since May 2006); John Hancock Advisers, LLC, Assistant Vice President and Counsel (until April 2006) |
Ellen Moynihan (k)
(born 11/13/57) | | Assistant Treasurer | | April 1997 | | Massachusetts Financial Services Company, Senior Vice President |
Susan S. Newton (k) (born 3/07/50) | | Assistant Secretary and Assistant Clerk | | May 2005 | | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since April 2005); John Hancock Advisers, LLC, Senior Vice President, Secretary and Chief Legal Officer (until April 2005) |
42
Trustees and Officers – continued
| | | | | | |
Name, Date of Birth | | Position(s) Held
with Fund | | Trustee/Officer
Since (h) | | Principal Occupations During
the Past Five Years & Other
Directorships (j) |
Susan A. Pereira (k)
(born 11/05/70) | | Assistant Secretary and Assistant Clerk | | July 2005 | | Massachusetts Financial Services Company, Vice President and Senior Counsel (since June 2004); Bingham McCutchen LLP (law firm), Associate (until June 2004) |
Mark N. Polebaum (k)
(born 5/01/52) | | Secretary and Clerk | | January 2006 | | Massachusetts Financial Services Company, Executive Vice President, General Counsel and Secretary (since January 2006); Wilmer Cutler Pickering Hale and Dorr LLP (law firm), Partner (until January 2006) |
Frank L. Tarantino
(born 3/07/44) | | Independent Chief Compliance Officer | | June 2004 | | Tarantino LLC (provider of compliance services), Principal (since June 2004); CRA Business Strategies Group (consulting services), Executive Vice President (until June 2004) |
Richard S. Weiztel (k)
(born 7/16/70) | | Assistant Secretary and Assistant Clerk | | October 2007 | | Massachusetts Financial Services Company, Vice President and Assistant General Counsel (since 2004); Massachusetts Department of Business and Technology, General Counsel (until April 2004) |
James O. Yost (k)
(born 6/12/60) | | Assistant Treasurer | | September 1990 | | 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, Messrs. Pozen and Manning served as Advisory Trustees. For the period March 2008 until October 2008, Ms. Dwyer served as Treasurer of the Funds. |
| (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 position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. |
| (n) | In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The terms of that settlement required that compensation and expenses related to the independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29. |
Each Trustee (except Mr. Butler and Mr. Uek) 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
43
Trustees and Officers – continued
removal. The Trust held a shareholders’ meeting in 2005 to elect Trustees, and will hold a shareholders’ meeting at least once every five years thereafter, to elect Trustees. Messrs. Butler, Sherratt, Gutow, Uek and Ms. Thomsen are members of the Trust’s Audit Committee.
Each of the Fund’s Trustees and officers holds comparable positions with certain other funds of which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain affiliates of MFS. As of January 1, 2008, the Trustees served as board members of 100 funds within the MFS Family of Funds.
The Statement of Additional Information for the Fund and further information about the Trustees are available without charge upon request by calling 1-800-225-2606.
| | |
| Investment Adviser | | Custodian |
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741 | | JPMorgan Chase Bank
One Chase Manhattan Plaza, New York, NY 10081 |
| Distributor | | Independent Registered Public Accounting Firm |
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116-3741 | | Ernst & Young LLP
200 Clarendon Street, Boston, MA 02116 |
| Portfolio Managers | | |
| Robert Persons | | |
| Maura Shaughnessy | | |
44
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of Trustees and a majority of the non-interested (“independent”) Trustees, voting separately, 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 over the course of three months beginning in May and ending in July, 2008 (“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 the MFS Funds’ Independent Chief Compliance Officer, a full-time senior officer appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the 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 Lipper Inc., an independent third party, on the investment performance of the Fund for various time periods ended December 31, 2007 and the investment performance of a group of funds with substantially similar investment classifications/objectives (the “Lipper performance universe”), (ii) information provided by Lipper Inc. on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Lipper Inc. (the “Lipper expense group”), (iii) information provided by MFS on the advisory fees of comparable 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
45
Board Review of Investment Advisory Agreement – continued
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, (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 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 Lipper Inc. 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 Lipper Inc. and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the performance of peer groups of funds 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 Lipper performance universe over the three-year period ended December 31, 2007, 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 three-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 1st quintile for each of the one- and five-year periods ended December 31, 2007 relative to the Lipper 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.
46
Board Review of Investment Advisory Agreement – continued
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 peer groups of funds based on information provided by Lipper, Inc. The Trustees considered that MFS has agreed in writing to waive a portion of its advisory fee on average daily net assets over $3.0 billion and on average daily net assets over $5.0 billion, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the Lipper data (which takes into account the advisory fee waiver), the Fund’s effective advisory fee rate was higher than the Lipper expense group median and its total expense ratio was lower than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional accounts. 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 in comparison to institutional accounts, 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, and the impact on MFS and expenses associated with the more extensive regulatory regime to which the Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any economies of scale in the management of the Fund in the event of growth in assets of the Fund. They noted that the Fund’s advisory fee rate schedule is currently subject to the breakpoints described above and that MFS has agreed to amend the Fund’s investment advisory agreement to reflect the breakpoint on average daily net assets over $3.0 billion effective November 1, 2008. The Trustees concluded that the existing breakpoint was sufficient to allow the Fund to benefit from economies of scale as its 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.
47
Board Review of Investment Advisory Agreement – continued
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 entry into the industry 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.
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 Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund’s portfolio brokerage commissions, if applicable, to pay for investment research (excluding third-party research, for which MFS pays directly), and various other factors. Additionally, the Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including a majority of 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, 2008.
A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products and Performance” section of the MFS Web site (mfs.com).
48
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling
1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q may be reviewed and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2008 income tax forms in January 2009. 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 for the 15% tax rate.
The fund designates $228,515,587 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 85.64% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
49
MFS® PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management® and the MFS funds, we take this concern very seriously. We want you to understand our policies about the investment products and services that we offer, and how we protect the nonpublic personal information of investors who have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information. We maintain information and records about you, your investments, and the services you use. Examples of the nonpublic personal information we maintain include
| | Ÿ | | data from investment applications and other forms |
| | Ÿ | | share balances and transactional history with us, our affiliates, or others |
| | Ÿ | | facts from a consumer reporting agency |
We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We may share nonpublic personal information with third parties or certain of our affiliates in connection with servicing your account or processing your transactions. We may share information with companies or financial institutions that perform marketing services on our behalf or with other financial institutions with which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to appropriate personnel who provide products, services, or information to you. We maintain physical, electronic, and procedural safeguards to help protect the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call 1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.
50
CONTACT US
| | |
| Web site | | Mailing address |
| mfs.com | | MFS Service Center, Inc. |
| | P.O. Box 55824 |
| MFS TALK | | Boston, MA 02205-5824 |
| 1-800-637-8255 | | |
| 24 hours a day | | Overnight mail |
| | MFS Service Center, Inc. |
| Account service and literature | | c/o Boston Financial Data Services |
| | 30 Dan Road |
| Shareholders | | Canton, MA 02021-2809 |
| 1-800-225-2606 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
| |
| Investment professionals | | |
| 1-800-343-2829 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
| |
| Retirement plan services | | |
| 1-800-637-1255 | | |
| 8 a.m. to 8 p.m. Eastern time | | |
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, and eDelivery may not be available to you.
The Registrant has adopted a Code of Ethics 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. The Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR.
A copy of the Code of Ethics is filed as an exhibit to this Form N-CSR.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Messrs. Robert E. Butler and Robert W. Uek and Ms. Laurie J. Thomsen, 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. Butler and Uek and Ms. Thomsen 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 Ernst & Young LLP (“E&Y”) to serve as independent accountants to the series of the Registrant (the series referred to collectively as the “Funds” and singularly as a “Fund”). The tables below set forth the audit fees billed to the Funds as well as fees for non-audit services provided to the Funds and/or to the 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 Fund (“MFS Related Entities”).
For the fiscal years ended October 31, 2008 and 2007, audit fees billed to the Funds by E&Y were as follows:
| | | | |
| | | Audit Fees |
| | | 2008 | | 2007 |
Fees billed by E&Y: | | | | |
MFS Global Equity Fund | | 42,052 | | 42,140 |
MFS Global Total Return Fund | | 47,993 | | 47,880 |
MFS Utilities Fund | | 38,435 | | 38,645 |
Total | | 128,480 | | 128,665 |
For the fiscal years ended October 31, 2008 and 2007, fees billed by E&Y for audit-related, tax and other services provided to the Funds 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 Fees4 |
| | | 2008 | | 2007 | | 2008 | | 2007 | | 2008 | | 2007 |
Fees billed by E&Y: | | | | | | | | | | | | |
To MFS Global Equity Fund | | 0 | | 0 | | 8,781 | | 7,518 | | 0 | | 0 |
To MFS Global Total Return Fund | | 0 | | 0 | | 9,926 | | 8,624 | | 0 | | 0 |
To MFS Utilities Fund | | 0 | | 0 | | 8,131 | | 6,890 | | 0 | | 0 |
Total fees billed by E&Y To above Funds | | 0 | | 0 | | 26,838 | | 23,032 | | 0 | | 0 |
To MFS and MFS Related Entities of MFS Global Equity Fund* | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 |
To MFS and MFS Related Entities of MFS Global Total Return Fund* | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 |
To MFS and MFS Related Entities of MFS Utilities Fund* | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 |
| | | | |
| | | 2008 | | 2007 |
Aggregate fees for non-audit services: | | | | |
To MFS Global Equity Fund, MFS and MFS Related Entities# | | 220,034 | | 208,534 |
To MFS Global Total Fund, MFS and MFS Related Entities# | | 221,179 | | 209,640 |
To MFS Utilities Fund, MFS and MFS Related Entities# | | 219,384 | | 207,906 |
| * | 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 Fund (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 E&Y for non-audit services rendered to the Fund 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 E&Y other than those reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees,” including fees for the subscription to tax treatise and for services related to analysis of fund administrative expenses, compliance program and records management projects. |
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 Funds 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.
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 second fiscal quarter of the period covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| (a) | File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated. |
| | (1) | Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Code of Ethics attached hereto. |
| | (2) | A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2): Attached hereto. |
| (b) | If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto. |
Notice
A copy of the Amended and Restated Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST VI
| | |
| By (Signature and Title)* | | MARIA F. DWYER |
| | Maria F. Dwyer, President |
Date: December 17, 2008
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)* | | MARIA F. DWYER |
| | Maria F. Dwyer, President (Principal Executive Officer) |
Date: December 17, 2008
| | |
| By (Signature and Title)* | | JOHN M. CORCORAN |
| | John M. Corcoran, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: December 17, 2008
| * | Print name and title of each signing officer under his or her signature. |
