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 811-5262
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MFS SERIES TRUST VIII
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
James R. Bordewick, Jr.
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31, 2003
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Date of reporting period: April 30, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
SEMIANNUAL REPORT 4/30/04
MFS(R) TAX MANAGED
EQUITY FUND
------------------------------
[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) TAX MANAGED EQUITY FUND
Seeks capital appreciation while attempting to lessen the impact of federal
taxes.
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service 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
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o 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 information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about 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.
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TABLE OF CONTENTS
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MFS PRIVACY POLICY
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PERFORMANCE SUMMARY 1
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PORTFOLIO OF INVESTMENTS 3
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FINANCIAL STATEMENTS 8
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NOTES TO FINANCIAL STATEMENTS 12
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TRUSTEES AND OFFICERS 17
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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PERFORMANCE SUMMARY THROUGH 4/30/04
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Currently, the fund offers only Class A shares, which are available for
purchase at net asset value only by residents of the Commonwealth of
Massachusetts who are employees (or certain relatives of employees) of MFS and
its affiliates or members of the governing boards of the various funds
sponsored by MFS.
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results include the deduction of the
maximum sales charge and reflect the percentage change in the net asset value,
including the reinvestment of any dividends and capital gains distributions.
(See Notes to Performance Summary.)
CALL 1-800-343-2829 EXT. 35941 FOR THE MOST RECENT MONTH-END PERFORMANCE
RESULTS. MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND
CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
MFS TAX MANAGED EQUITY FUND
TOTAL RETURNS
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Average annual
without sales charge
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Share Class
class inception date 6-mo 1-yr Life*
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A 12/28/2001 -- 26.32% -1.58%
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Average Annual
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Comparative benchmarks
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Average large-cap
core fund+ 4.52% 19.51% -2.24%
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Standard and Poor's 500
Stock Index# 6.27% 22.87% 0.15%
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Periods less than one year are actual, not annualized.
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Average annual
with sales charge
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A -- 19.06% -4.05%
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Cumulative without
sales charge
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A 9.57% 26.32% -3.66%
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Periods less than one year are actual, not annualized.
* For the period from the commencement of the fund's investment operations,
December 28, 2001, through April 30, 2004. Index information is from
January 2, 2002.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
STANDARD & POOR'S 500 STOCK INDEX (THE S&P 500) - a commonly used measure of
the broad U.S. stock market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflect the deduction of the maximum
5.75% sales charge.
Performance results reflect any applicable subsidies and waivers in effect
during the periods shown. Without such subsidies and waivers, the fund's
performance would be less favorable. Please see the prospectus and financial
statements for complete details.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
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PORTFOLIO OF INVESTMENTS (unaudited) - 4/30/04 MFS(R) TAX MANAGED EQUITY FUND
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The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 99.6%
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ISSUER SHARES $ VALUE
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U.S. Stocks - 97.1%
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Aerospace - 1.9%
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General Dynamics Corp. 42 $3,932
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Lockheed Martin Corp. 154 7,346
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$11,278
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Alcoholic Beverages - 0.5%
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Anheuser-Busch Cos., Inc. 52 $2,664
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Automotive - 0.8%
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Delphi Corp. 172 $1,754
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SPX Corp. 74 3,282
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$5,036
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Banks & Credit Companies - 13.6%
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Bank of America Corp. 232 $18,674
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BANK ONE CORP. 137 6,764
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Charter One Financial, Inc. 156 5,206
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Citigroup, Inc. 412 19,813
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Fannie Mae 119 8,178
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Freddie Mac 134 7,826
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J.P. Morgan Chase & Co. 147 5,527
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MBNA Corp. 99 2,414
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National City Corp. 90 3,120
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Washington Mutual, Inc. 65 2,560
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$80,082
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Biotechnology - 1.5%
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Genentech, Inc.* 46 $5,649
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Genzyme Corp.* 78 3,398
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$9,047
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Broadcast & Cable TV - 1.5%
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Hearst-Argyle Television, Inc. 129 $3,386
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Time Warner, Inc.* 322 5,416
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$8,802
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Brokerage & Asset Managers - 1.8%
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Lehman Brothers Holdings, Inc. 87 $6,386
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Merrill Lynch & Co., Inc. 78 4,230
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$10,616
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Business Services - 1.5%
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Alliance Data Systems Corp.* 88 $3,060
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DST Systems, Inc.* 62 2,737
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First Data Corp. 62 2,814
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$8,611
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Chemicals - 1.7%
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3M Co. 119 $10,291
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Computer Software - 3.4%
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Autodesk, Inc. 79 $2,646
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Microsoft Corp. 499 12,959
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Oracle Corp.* 415 4,656
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$20,261
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Computer Software - Systems - 2.1%
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Hewlett-Packard Co. 233 $4,590
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International Business Machines Corp. 87 7,671
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$12,261
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Consumer Goods & Services - 3.9%
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Apollo Group, Inc.* 29 $2,635
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Career Education Corp.* 97 6,208
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Gillette Co. 81 3,315
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Procter & Gamble Co. 104 10,998
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$23,156
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Containers - 0.3%
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Owens-Illinois, Inc.* 131 $1,829
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Electrical Equipment - 3.6%
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General Electric Co. 449 $13,448
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Tyco International Ltd. 275 7,549
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$20,997
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Electronics - 3.2%
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Intel Corp. 454 $11,681
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National Semiconductor Corp.* 134 5,466
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Vishay Intertechnology, Inc.* 112 1,949
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$19,096
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Energy - Independent - 1.2%
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Ashland, Inc. 106 $5,077
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Valero Energy Corp. 36 2,295
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$7,372
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Energy - Integrated - 4.1%
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ConocoPhillips 98 $6,987
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Exxon Mobil Corp. 409 17,403
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$24,390
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Food & Non-Alcoholic Beverages - 3.7%
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Coca-Cola Co. 36 $1,821
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Kellogg Co. 136 5,834
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Smithfield Foods, Inc.* 237 6,304
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Tyson Foods, Inc., "A" 433 8,114
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$22,073
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Forest & Paper Products - 1.0%
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Boise Cascade Corp. 80 $2,698
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International Paper Co. 74 2,984
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$5,682
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Gaming & Lodging - 1.9%
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Carnival Corp. 168 $7,169
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Starwood Hotels & Resorts Worldwide, Inc. 99 3,939
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$11,108
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General Merchandise - 3.9%
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Sears, Roebuck & Co. 144 $5,767
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Target Corp. 121 5,248
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Wal-Mart Stores, Inc. 208 11,856
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$22,871
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Health Maintenance Organizations - 1.1%
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CIGNA Corp. 100 $6,451
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Insurance - 3.5%
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Allstate Corp. 129 $5,921
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American International Group, Inc. 74 5,302
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MetLife, Inc. 215 7,418
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St. Paul Travelers Cos., Inc. 51 2,074
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$20,715
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Internet - 0.5%
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InterActiveCorp* 91 $2,900
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Machinery & Tools - 0.8%
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Cummins, Inc. 75 $4,486
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Medical & Health Technology & Services - 0.7%
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Apria Healthcare Group, Inc.* 68 $1,961
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DaVita, Inc.* 39 1,993
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$3,954
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Medical Equipment - 3.5%
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Apogent Technologies, Inc.* 211 $6,841
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Baxter International, Inc. 235 7,438
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Guidant Corp. 63 3,970
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Waters Corp.* 53 2,287
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$20,536
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Metals & Mining - 0.6%
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Alcoa, Inc. 123 $3,782
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Oil Services - 1.0%
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Halliburton Co. 199 $5,930
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Personal Computers & Peripherals - 1.2%
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Dell, Inc.* 96 $3,332
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Lexmark International, Inc.* 45 4,071
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$7,403
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Pharmaceuticals - 7.6%
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Eli Lilly & Co. 126 $9,300
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Johnson & Johnson 263 14,210
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Merck & Co., Inc. 160 7,520
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Pfizer, Inc. 387 13,839
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$44,869
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Pollution Control - 0.9%
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Waste Management, Inc. 193 $5,481
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Printing & Publishing - 0.4%
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Tribune Co. 55 $2,633
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Railroads - 1.1%
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Union Pacific Corp. 111 $6,541
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Restaurants - 1.3%
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McDonald's Corp. 285 $7,761
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Specialty Stores - 3.1%
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Best Buy Co., Inc. 61 $3,309
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Home Depot, Inc. 102 3,589
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Lowe's Cos., Inc. 95 4,946
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PETsMART, Inc. 231 6,399
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$18,243
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Telecommunications - Wireline - 3.5%
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Cisco Systems, Inc.* 333 $6,950
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Motorola, Inc. 480 8,760
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QUALCOMM, Inc. 30 1,874
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Scientific-Atlanta, Inc. 96 3,109
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$20,693
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Telephone Services - 3.2%
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BellSouth Corp. 215 $5,549
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Sprint FON Group 357 6,387
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Verizon Communications, Inc. 178 6,718
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$18,654
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Tobacco - 2.1%
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Altria Group, Inc. 222 $12,294
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Trucking - 0.3%
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FedEx Corp. 28 $2,013
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Utilities - Electric Power - 3.6%
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Dominion Resources, Inc. 64 $4,084
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PG&E Corp.* 144 3,963
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Pinnacle West Capital Corp. 54 2,109
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PPL Corp. 49 2,100
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TXU Corp. 264 9,013
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$21,269
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Total U.S. Stocks $574,131
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Foreign Stocks - 2.5%
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Cayman Islands - 1.3%
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Ace Ltd. (Insurance) 177 $7,760
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United Kingdom - 1.2%
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Amdocs Ltd. (Computer Software)* 259 $6,876
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Total Foreign Stocks $14,636
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Total Stocks (Identified Cost, $551,677) $588,767
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Short-Term Obligations - 0.2%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
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Student Loan Marketing Discount Note, due 5/03/04, at Amortized Cost $1 $1,000
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Total Investments (Identified Cost, $552,677) $589,767
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Other Assets, Less Liabilities - 0.2% 1,088
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Net Assets - 100.0% $590,855
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* Non-income producing security
SEE NOTES TO FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
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This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $552,677) $589,767
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Cash 558
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Dividends receivable 549
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Total assets $590,874
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LIABILITIES
Payable to affiliate for management fee $12
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Accrued expenses and other liabilities 7
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Total liabilities $19
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Net assets $590,855
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NET ASSETS CONSIST OF
Paid-in capital $614,591
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Unrealized appreciation on investments 37,090
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Accumulated net realized loss on investments (61,225)
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Accumulated undistributed net investment income 399
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Net assets $590,855
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Shares of beneficial interest outstanding 61,982
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Class A shares
Net assets $590,855
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Shares outstanding 61,982
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Net asset value per share $9.53
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SEE NOTES TO FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
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This statement describes how much your fund received in investment income and paid in expenses.
It also describes any gains and/or losses generated by fund operations.
SIX MONTHS ENDED 4/30/04
NET INVESTMENT INCOME
Income
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Dividends $4,139
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Interest 29
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Total investment income $4,168
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Expenses
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Management fee $1,921
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Shareholder servicing costs 285
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Distribution and service fee 896
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Administrative fee 28
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Custodian fee 1,105
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Printing 3,261
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Auditing fees 12,420
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Legal fees 926
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Miscellaneous 4,122
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Total expenses $24,964
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Fees paid indirectly (2)
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Reduction of expenses by investment adviser and distributor (22,016)
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Net expenses $2,946
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Net investment income $1,222
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REALIZED AND UNREALIZED GAIN ON INVESTMENTS
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Realized gain (identified cost basis) $10,742
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Change in unrealized appreciation $29,390
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Net realized and unrealized gain on investments $40,132
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Increase in net assets from operations $41,354
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SEE NOTES TO FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
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This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS
ENDED YEAR ENDED
4/30/04 10/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
OPERATIONS
Net investment income $1,222 $2,467
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Net realized gain (loss) on investments 10,742 (21,437)
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Net unrealized gain on investments 29,390 88,896
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Increase in net assets from operations $41,354 $69,926
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Distributions declared to shareholders from net investment income $(2,720) $(1,798)
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Net increase in net assets from fund share transactions $112,724 $1,667
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Total increase in net assets $151,358 $69,795
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NET ASSETS
At beginning of period $439,497 $369,702
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At end of period (including accumulated undistributed net investment
income of $399 and $1,897, respectively $590,855 $439,497
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SEE NOTES TO FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
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The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or, if shorter, the period of the fund's operation). 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 (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS A 4/30/04 10/31/03 10/31/02*
(UNAUDITED)
Net asset value, beginning of period $8.75 $7.39 $10.00
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INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.02 $0.05 $0.02
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Net realized and unrealized gain (loss) on investments 0.81 1.35 (2.63)
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Total from investment operations $0.83 $1.40 $(2.61)
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.05) $(0.04) $--
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Net asset value, end of period $9.53 $8.75 $7.39
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Total return (%)(+) 9.57++ 18.97 (26.10)++
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RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses## 1.15+ 1.15 1.15+
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Net investment income 0.48+ 0.63 0.34+
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Portfolio turnover 15 23 36
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Net assets at end of period (000 Omitted) $591 $439 $370
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(S) MFS has contractually agreed, subject to reimbursement, to bear a portion of the fund's "Other Expenses", which are
defined as the fund's operating expenses, exclusive of management, distribution and service fees, such that Other Expenses
do not exceed 0.40% annually. This arrangement is effected by MFS bearing all of the fund's Other Expenses during the
fund's fiscal year and the fund paying MFS an expense reimbursement fee not greater than 0.40% of average daily net
assets. To the extent that the expense reimbursement fee exceeds the fund's actual expenses, the excess will be applied to
unreimbursed amounts paid by MFS under the current agreement. This agreement will terminate on the earlier of January 1,
2005 or such date as all expenses previously borne by MFS under the current agreement have been paid by the fund. In
addition, the investment adviser and the distributor contractually waived their fees for certain of the periods indicated.
To the extent actual expenses were over this limitation, and the waivers had not been in place, the net investment loss
per share and the ratios would have been:
Net investment loss $(0.38) $(0.75) $(0.77)
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RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 9.79+ 11.36 12.18+
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Net investment loss (8.16)+ (9.58) (10.68)+
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* For the period from the commencement of the fund's investment operations,
December 28, 2001, through October 31, 2002.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total return does not include the applicable sales charge. If the charge had been included, the results would have been
lower.
SEE NOTES TO FINANCIAL STATEMENTS
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NOTES TO FINANCIAL STATEMENTS (unaudited)
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(1) BUSINESS AND ORGANIZATION
MFS Tax Managed Equity Fund (the fund) is a diversified series of MFS Series
Trust VIII (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 accounting
principles generally accepted in the United States of America 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. 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.
INVESTMENT VALUATIONS - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Equity
securities in the fund's portfolio for which market quotations are available
are valued at the last sale or official closing price as reported by an
independent pricing service on the primary market or exchange on which they are
primarily traded, or at the last quoted bid price for securities in which there
were no sales during the day. Equity securities traded over the counter are
valued at the last sales price traded each day as reported by an independent
pricing service, or to the extent there are no sales reported, such securities
are valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market quotations are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases where
closing market quotations are not readily available or are deemed not
reflective of readily available market quotations. For example, significant
events (such as movement in the U.S. securities market, or other regional and
local developments) may occur between the time that foreign markets close
(where the security is principally traded) and the time that the fund
calculates its net asset value (generally, the close of the NYSE) that may
impact the value of securities traded in these foreign markets. In these cases,
the fund may utilize information from an external vendor or other sources to
adjust closing market quotations of foreign equity securities to reflect what
it believes to be the fair value of the securities as of the fund's valuation
time. Because the frequency of significant events is not predictable, fair
valuation of foreign equity securities may occur on a frequent basis.
Short-term obligations with a remaining maturity in excess of 60 days will be
valued upon dealer-supplied valuations. All other short-term obligations in the
fund's portfolio are valued at amortized cost, which constitutes market value
as determined by the Board of Trustees. Investment valuations, other assets,
and liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United States
of America. Dividends received in cash are recorded on the ex-dividend date.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended April 30, 2004, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions and real estate investment trusts.
The tax character of distributions declared for the years ended October 31,
2003 and October 31, 2002 was as follows:
10/31/03 10/31/02
Distributions declared from:
-----------------------------------------------------------------
Ordinary income $1,798 $--
-----------------------------------------------------------------
As of October 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $1,897
-----------------------------------------------------------------
Capital loss carryforward (71,967)
-----------------------------------------------------------------
Unrealized appreciation 7,700
-----------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on October 31, 2010, ($50,530) and
October 31, 2011, ($21,437).
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with MFS to
provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at an
annual rate of 0.75% of the fund's average daily net assets.
MFS has contractually agreed, subject to reimbursement, to bear a portion of
the fund's "Other Expenses", which are defined as the fund's operating
expenses, exclusive of management, distribution and service fees, such that
Other Expenses do not exceed 0.40% annually. This arrangement is effected by
MFS bearing all of the fund's Other Expenses during the fund's fiscal year and
the fund paying MFS an expense reimbursement fee not greater than 0.40% of
average daily net assets for Class A. To the extent that the expense
reimbursement fee exceeds the fund's actual expenses, the excess will be
applied to unreimbursed amounts paid by MFS under the current agreement. This
agreement will terminate on the earlier of January 1, 2005 or such date as all
expenses previously borne by MFS under the current agreement have been paid by
the fund. At April 30, 2004, aggregate unreimbursed expenses amounted to
$99,427.
The fund pays compensation to its Independent Trustees ("Trustees") in the form
of both a retainer, attendance fees, and additional compensation to Board and
Committee chairpersons, and pays no compensation directly to its Trustees who
are officers of the investment adviser, or to officers of the fund, all of whom
receive remuneration for their services to the fund from MFS. Certain officers
and Trustees of the fund are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates of the fund's average daily net assets:
First $2 billion 0.0175%
----------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------
Effective April 1, 2004 the maximum amount is based on the following annual
percentages of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------
For the six months ended April 30, 2004, the fund paid MFS $28, equivalent to
0.0110% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD up to 0.35% of
its average daily net assets attributable to Class A shares in order that MFD
may pay expenses on behalf of the fund related to the distribution and
servicing of its shares. These expenses include service fees paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25%
per annum of the funds daily assets attributable to Class A shares which are
attributable to that securities dealer and a distribution fee to MFD up to
0.10% per annum of the fund's average daily net assets attributable to Class A
shares. Distribution and service fees under the Class A distribution plan are
currently being waived.
Certain Class A shares are subject to a contingent deferred sales charge in the
event of a shareholder redemption within, for Class A shares, 12 months
following the purchase. There were no contingent deferred sales charges imposed
during the six months ended April 30, 2004.
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as shareholder
servicing agent. The fee, which is calculated as a percentage of the fund's
average daily net assets is set periodically under the supervision of the
fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of the fund's
average daily net assets. Effective April 1, 2004, the fee is set at 0.10% of
the fund's average net assets. For the six months ended April 30, 2004, the
fund paid MFSC a fee of $277 for shareholder services which amounted to 0.109%
of the fund's average net assets. Also included in shareholder servicing costs
are other expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $185,955
and $75,055, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $552,677
----------------------------------------------
Gross unrealized appreciation $68,337
----------------------------------------------
Gross unrealized depreciation (31,247)
----------------------------------------------
Net unrealized appreciation $37,090
----------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED 4/30/04 YEAR ENDED 10/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 11,436 $110,004 2 $20
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 304 2,720 240 1,798
- -------------------------------------------------------------------------------------------------------------
Shares reacquired -- -- (20) (151)
- -------------------------------------------------------------------------------------------------------------
Net increase 11,740 $112,724 222 $1,667
- -------------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate plus 0.50%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the six months ended April 30, 2004, was $1. The fund
had no significant borrowings during the period.
(7) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- --------------------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The business address of each Trustee and officer is 500 Boylston Street,
Boston, Massachusetts 02116.
POSITION(s) HELD TRUSTEE/OFFICER PRINCIPAL OCCUPATIONS & OTHER DIRECTORSHIPS(2)
NAME, DATE OF BIRTH WITH FUND SINCE(1) DURING THE PAST FIVE YEARS
- ------------------- ---------------- --------------- ----------------------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services Company,
(born 12/14/59) February 2004 President, Chief Investment Officer and Director
(until February 2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services Company, Chairman
(born 08/08/46) (since February 2004); Harvard Law School
(education), John Olin Visiting Professor (since
July 2002); Secretary of Economic Affairs, The
Commonwealth of Massachusetts (January 2002 to
December 2002); Fidelity Investments, Vice Chairman
(June 2000 to December 2001); Fidelity Management &
Research Company (investment adviser), President
(March 1997 to July 2001); The Bank of New York
(financial services), Director; Bell Canada
Enterprises (telecommunications), Director; Telesat
(satellite communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services Company, Chairman
(born 06/02/55) February 2004 (until February 2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation (energy
(born 05/01/36) related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of Cardiac
(born 03/11/37) Surgery; Harvard Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining products and service
(born 05/30/42) provider), Vice Chairman/Director (since April
2001); Encinitos Ventures (private investment
company), Principal (1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding equipment
manufacturer), Director; Southwest Gas Corporation
(natural gas distribution company), Director
William R. Gutow Trustee December 1993 Private investor and real estate consultant;
(born 09/27/41) Capitol Entertainment Management Company (video
franchise), Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc., Managing
(born 02/08/53) Director, Investment Banking Group (1997 to
February 2001); Borders Group, Inc. (book and music
retailer), Director; Federal Realty Investment
Trust (real estate investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University Graduate
(born 04/10/35) School of Business Administration, Class of 1961
Adjunct Professor in Entrepreneurship Emeritus; CBL
& Associates Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning
(born 09/23/38) specialists), President; Wellfleet Investments
(investor in health care companies), Managing
General Partner (since 1993); Cambridge
Nutraceuticals (professional nutritional products),
Chief Executive Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry consultant
(born 04/25/46)
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February
2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services Company, Senior
(born 03/06/59) and Assistant Clerk Vice President and Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 until Massachusetts Financial Services Company, Senior
(born 11/06/53) March 2004 Vice President, General Counsel and Secretary
(until March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services Company, Vice
(born 10/01/53) President (since April 2003); Brown Brothers
Harriman & Co., Senior Vice President (November
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President (prior
to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services Company, Vice
(born 09/18/63) President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services Company, Senior
(born 08/29/58) Vice President (since July 2002); The Bank of New
York, Senior Vice President (September 2000 to July
2002); Lexington Global Asset Managers, Inc.,
Executive Vice President and Chief Financial
Officer (prior to September 2000); Lexington Funds,
Chief Financial Officer (prior to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services Company, Vice
(born 11/13/57) President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services Company, Senior
(born 06/12/60) Vice President
- ----------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since appointment
unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(3) "Interested person" of MFS 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 series/the fund. The address of MFS is 500 Boylston
Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not elected for fixed
terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years thereafter to elect Trustees. 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.
Each of the Trust'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. Each Trustee serves as
a board member of 109 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available without charge upon
request by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGERS
Matthew Krummell
Deborah Miller
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 About MFS section of mfs.com or by visiting the SEC's website at http://www.sec.gov
MFS(R) TAX MANAGED EQUITY FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distriutors, Inc.
500 Boylston Street, Boston, MA 02116
INC1A-SEM-6/04
MFS(R) Mutual Funds
SEMIANNUAL REPORT 4/30/04
MFS(R) GLOBAL GROWTH FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service 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
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o 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 information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about 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.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) GLOBAL GROWTH FUND
The fund seeks to provide capital appreciation by investing
in securities of companies worldwide growing at rates expected to be well
above the growth rate of the overall U.S. economy.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
- ----------------------------------------------------
MANAGEMENT REVIEW 6
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 20
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 35
- ----------------------------------------------------
TRUSTEES AND OFFICERS 46
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 50
- ----------------------------------------------------
CONTACT INFORMATION 51
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging enveronment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 80 years MFS has been offering investors clear paths to pursuing specific
investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with insight
and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
The turnaround in global stock markets that began in the spring of 2003
continued for much of the six-month period that ended April 30, 2004. The
release of increasingly positive global economic growth numbers as the period
progressed, particularly with regard to business confidence and corporate
earnings, helped drive the equity rally. By late 2003, corporate capital
spending, which had been weak for several years, had also begun to accelerate.
Other drivers of the equity rally, in our view, were decisions made by most
central banks worldwide to leave interest rates at historic lows throughout the
period.
Toward the end of the period, however, a combination of several factors, in our
view, started to dampen stock returns, particularly in the United States. A
rate increase by the United States Federal Reserve Board began to seem more
imminent than investors had expected at the beginning of 2004. The March train
bombings in Spain brought geopolitical concerns back to the forefront of
investors' minds. Subsequent events, including the furor over U.S. prisoner
mistreatment in Iraq, made the world look less stable to investors. In
addition, oil prices that approached $40 per barrel in late April raised
concerns that high energy costs could become a significant drag on the global
recovery.
CONTRIBUTORS TO PERFORMANCE
Over the six-month period ended April 30, 2004, the portfolio modestly
outperformed the broad global market as measured by its primary benchmark, the
Morgan Stanley Capital International (MSCI) All Country World Growth Index (the
MSCI Index).
The fund underperformed relative to its former primary benchmark, the MSCI All
Country World Index. Against both indices, stock selection was the primary
contributor to relative performance. Allocation was also a contributor relative
to the Growth index, but was a significant detractor versus the new style
specific index, particularly in the technology and energy sectors.
- -----------------------------------------------
TOP 5 SECTOR WEIGHTINGS
AS OF 4/30/04
TECHNOLOGY 18.4%
- -----------------------------------------------
HEALTH CARE 15.5%
- -----------------------------------------------
FINANCIAL SERVICES 13.3%
- -----------------------------------------------
LEISURE 12.0%
- -----------------------------------------------
UTILITIES AND COMMUNICATIONS 7.9%
- -----------------------------------------------
The portfolio is actively managed, and current
weightings may be different.
Percentages based on assets on 4/30/04.
- -----------------------------------------------
The retailing, financial services and basic materials sectors made the
strongest contributions to relative performance for the period. Stock selection
in retailing helped results, as did an underweighting in the sector. Our
strongest relative performer in the sector was Nishimatsuya Chain, a Japanese
chain of outlets that specializes in children's clothing and baby goods.
British clothing retailer NEXT also helped performance. Significantly
underweighting U.S. retailing giant Wal-Mart also proved beneficial for results
as the firm's stock sank over the period; by period-end we had sold our
Wal-Mart position.
Stockpicking and a relative overweighting in the financial services sector
also helped performance as the sector outperformed the broad market over the
period. Irish-listed German lender DEPFA Bank delivered strong returns,
enjoying a significant increase in profits in the first quarter of 2004. DEPFA
continued to build its range of investment banking businesses over the period,
targeting the United States as one of its major growth markets.
Stock selection in the basic materials area also aided performance. While the
basic materials sector of the MSCI Index lost value over the period, the
fund's holdings in the sector, as a group, delivered positive returns.
Individual stocks in other sectors that contributed to relative results
included Japanese food and chemical firm Kibun Food Chemifa, U.K.-based
integrated oil company BP, South Korean electronics company Samsung
Electronics, and Turkish cellular operator Turkcell. We sold our Turkcell
position when the stock reached our target price. Underweighting U.S. software
giant Microsoft also aided relative returns as the firm's stock languished
over the period.
DETRACTORS FROM PERFORMANCE
Industrial goods and services was the fund's weakest sector over the period,
primarily as a result of stock selection. Stockpicking in the transportation
area also held back performance; U.S. low-priced carrier JetBlue Airways was
the fund's worst performer in the sector and was sold out of the portfolio.
Stocks in other sectors that detracted from performance included U.S.
semiconductor manufacturer Agere Systems Inc., Canadian network equipment firm
Nortel Networks, and French IT (information technology) firm
Cap Gemini. At period-end, Cap Gemini was no longer a holding in the fund.
The fund's cash position, although it averaged less than 2% of assets over the
period, was also a detractor from relative performance. In a period when
global equity markets performed well, any cash hurt performance against the
MSCI Index which, like most market indices, has no cash position.
Respectfully,
/s/ Barry P. Dargan /s/ Nicholas D. Smithie
Barry P. Dargan Nicholas D. Smithie
Portfolio Manager Portfolio Manager
Effective October 31, 2003, the fund experienced a change in portfolio
management, and the portfolio managers of the fund are now Barry P. Dargan and
Nicholas D. Smithie. Members of the team may change from time to time, and a
current list of team members is available on the MFS website at mfs.com.
Effective April 5, 2004, the MSCI All Country World Growth Index became the
primary benchmark of the fund, replacing the MSCI All Country World Free Index.
We believe the MSCI All Country World Growth Index more accurately reflects the
fund's investment style. The MSCI World Growth Index remains the secondary
benchmark of the fund.
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 and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for
the applicable time periods. Performance results reflect the percentage change
in net asset value, including the reinvestment of any dividends and capital
gains distributions. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST CURRENT PERFORMANCE RESULTS. MARKET VOLATILITY CAN
SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE RECENT RETURNS MAY BE
DIFFERENT FROM THOSE SHOWN.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
A 11/18/1993 -- 29.98% -2.06% 2.76% 7.62%
- ----------------------------------------------------------------------------
B 11/18/1993 -- 29.10% -2.79% 2.00% 6.81%
- ----------------------------------------------------------------------------
C 1/3/1994 -- 29.04% -2.79% 2.00% 6.82%
- ----------------------------------------------------------------------------
I 1/2/1997 -- 30.39% -1.80% 3.01% 7.83%
- ----------------------------------------------------------------------------
R1 12/31/2002 -- 29.79% -2.16% 2.70% 7.59%
- ----------------------------------------------------------------------------
R2 10/31/2003 -- 29.24% -2.75% 2.02% 6.82%
- ----------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks
- ----------------------------------------------------------------------------
Average global fund+ 7.90% 30.71% -1.18% 0.90% 7.52%
- ----------------------------------------------------------------------------
MSCI All Country World
Growth Index# 6.62% 25.86% -1.60% -3.83% --
- ----------------------------------------------------------------------------
MSCI World Growth Index# 6.64% 24.92% -2.12% -4.23% 6.08%
- ----------------------------------------------------------------------------
MSCI All Country World
Free Index# 8.70% 30.95% -0.58% -1.45% 6.89%
- ----------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share
class 6-mo 1-yr 3-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
A -- 22.50% -3.98% 1.55% 6.98%
- ----------------------------------------------------------------------------
B -- 25.10% -3.77% 1.71% 6.81%
- ----------------------------------------------------------------------------
C -- 28.04% -2.79% 2.00% 6.82%
- ----------------------------------------------------------------------------
I, R1 and R2 class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- --------------------
Cumulative without
sales charge
- --------------------
- ----------------------------------------------------------------------------
A 7.17% 29.98% -6.06% 14.60% 108.39%
- ----------------------------------------------------------------------------
B 6.75% 29.10% -8.13% 10.43% 93.19%
- ----------------------------------------------------------------------------
C 6.75% 29.04% -8.14% 10.39% 93.41%
- ----------------------------------------------------------------------------
I 7.32% 30.39% -5.31% 16.01% 112.48%
- ----------------------------------------------------------------------------
R1 7.06% 29.79% -6.34% 14.27% 107.78%
- ----------------------------------------------------------------------------
R2 6.87% 29.24% -8.03% 10.54% 93.40%
- ----------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITIONS
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY WORLD FREE INDEX -
measures the performance of developed and emerging market
stock markets.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) ALL COUNTRY WORLD GROWTH INDEX
- - a commonly used measure of global growth stocks.
THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD GROWTH INDEX - a
commonly used measure of global growth stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
A portion of the returns shown is attributable to the receipt of a non-
recurring payment in settlement of a class-action lawsuit. See Notes to
Financial Statements.
Class A results, including sales charge, reflect the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflect the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase, reflect the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors. Class R1 and R2 shares
have no sales charges and are available only to certain retirement plans.
Performance for R1 and I shares includes the performance of the fund's Class A
shares for periods prior to their offering. Performance for R2 shares includes
the performance of the fund's Class B shares for periods prior to their
offering.
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 initial share class to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial share class to which it is blended.
The fund will charge a 2% redemption fee on proceeds from Class A, Class C, and
Class I shares redeemed (either by redeeming or exchanging) within 30 days of
acquiring (either by purchasing or exchanging) fund shares. The redemption fee
is expected to apply to Class B shares approximately the end of the third
quarter of 2004. See the prospectus for complete details.
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.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
The portfolio may invest a substantial amount of its assets in issuers located
in a limited number of countries and therefore is susceptible to adverse
economic, political or regulatory developments affecting those countries.
Investing in small and/or emerging growth companies is riskier than investing
in more-established companies.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
- ----------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (unaudited) - 4/30/04
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 99.0%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Foreign Stocks - 62.9%
- ----------------------------------------------------------------------------------------------
Australia - 2.1%
- ----------------------------------------------------------------------------------------------
BHP Billiton Ltd. (Metals & Mining) 296,410 $2,436,025
- ----------------------------------------------------------------------------------------------
News Corp. Ltd. (Broadcast & Cable TV)^ 572,254 5,238,998
- ----------------------------------------------------------------------------------------------
QBE Insurance Group Ltd. (Insurance)^ 260,008 2,178,085
- ----------------------------------------------------------------------------------------------
$9,853,108
- ----------------------------------------------------------------------------------------------
Austria - 0.4%
- ----------------------------------------------------------------------------------------------
Erste Bank der Oesterreichischen Sparkassen AG (Banks &
Credit Companies)* 13,440 $2,006,813
- ----------------------------------------------------------------------------------------------
Bermuda - 0.3%
- ----------------------------------------------------------------------------------------------
Accenture Ltd., "A" (Business Services)* 62,850 $1,493,945
- ----------------------------------------------------------------------------------------------
Brazil - 0.4%
- ----------------------------------------------------------------------------------------------
Brasil Telecom Participacoes S.A., ADR (Telephone
Services) 54,910 $1,702,210
- ----------------------------------------------------------------------------------------------
Canada - 2.1%
- ----------------------------------------------------------------------------------------------
CoolBrands International, Inc. (Food & Non-Alcoholic
Beverages) 129,780 $2,134,602
- ----------------------------------------------------------------------------------------------
EnCana Corp. (Energy - Independent) 53,150 2,085,682
- ----------------------------------------------------------------------------------------------
Magna International, Inc. (Automotive) 22,830 1,801,287
- ----------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 523,260 1,956,992
- ----------------------------------------------------------------------------------------------
Talisman Energy, Inc. (Energy - Independent) 36,400 2,070,101
- ----------------------------------------------------------------------------------------------
$10,048,664
- ----------------------------------------------------------------------------------------------
Croatia - 0.4%
- ----------------------------------------------------------------------------------------------
PLIVA d.d. (Pharmaceuticals) 128,490 $2,075,114
- ----------------------------------------------------------------------------------------------
France - 2.2%
- ----------------------------------------------------------------------------------------------
AXA (Insurance)^ 144,960 $3,024,523
- ----------------------------------------------------------------------------------------------
L'Air Liquide S.A. (Specialty Chemicals)^ 22,780 3,972,335
- ----------------------------------------------------------------------------------------------
Sanofi-Synthelabo (Pharmaceuticals)^ 54,970 3,476,913
- ----------------------------------------------------------------------------------------------
$10,473,771
- ----------------------------------------------------------------------------------------------
Germany - 1.0%
- ----------------------------------------------------------------------------------------------
Bayerische Motoren Werke AG (Automotive)^ 50,650 $2,175,284
- ----------------------------------------------------------------------------------------------
Porsche AG (Automotive)^ 4,292 2,649,831
- ----------------------------------------------------------------------------------------------
$4,825,115
- ----------------------------------------------------------------------------------------------
Greece - 0.7%
- ----------------------------------------------------------------------------------------------
Coca-Cola HBC S.A. (Food & Non-Alcoholic Beverages) 126,700 $3,345,974
- ----------------------------------------------------------------------------------------------
Hong Kong - 0.5%
- ----------------------------------------------------------------------------------------------
CNOOC Ltd. (Energy - Independent) 6,173,000 $2,196,628
- ----------------------------------------------------------------------------------------------
India - 0.7%
- ----------------------------------------------------------------------------------------------
Reliance Industries Ltd. (Energy - Independent) 275,420 $3,260,200
- ----------------------------------------------------------------------------------------------
Indonesia - 0.5%
- ----------------------------------------------------------------------------------------------
PT Telekomunikasi Indonesia Tbk. (Telephone Services) 2,602,500 $2,373,056
- ----------------------------------------------------------------------------------------------
Ireland - 1.1%
- ----------------------------------------------------------------------------------------------
DEPFA Bank PLC (Banks & Credit Companies) 23,980 $3,578,549
- ----------------------------------------------------------------------------------------------
Elan Corp. PLC (Pharmaceuticals)^* 74,070 1,599,912
- ----------------------------------------------------------------------------------------------
$5,178,461
- ----------------------------------------------------------------------------------------------
Italy - 1.1%
- ----------------------------------------------------------------------------------------------
Italcementi S.p.A. (Construction) 304,100 $2,436,535
- ----------------------------------------------------------------------------------------------
Mediaset S.p.A. (Broadcast & Cable TV)^ 251,320 2,741,775
- ----------------------------------------------------------------------------------------------
$5,178,310
- ----------------------------------------------------------------------------------------------
Japan - 12.3%
- ----------------------------------------------------------------------------------------------
Brother Industries Ltd. (Electronics) 210,000 $2,059,496
- ----------------------------------------------------------------------------------------------
Canon, Inc. (Personal Computers & Peripherals) 81,000 4,219,189
- ----------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd. (Pharmaceuticals) 199,100 3,012,703
- ----------------------------------------------------------------------------------------------
Citizen Watch Co. Ltd. (Electronics)^ 430,000 4,318,286
- ----------------------------------------------------------------------------------------------
Funai Electric Co. Ltd. (Electronics) 15,400 2,276,964
- ----------------------------------------------------------------------------------------------
KDDI Corp. (Telephone Services) 534 3,185,475
- ----------------------------------------------------------------------------------------------
Kibun Food Chemifa Co. Ltd. (Food & Non-Alcoholic
Beverages)^ 166,000 3,414,307
- ----------------------------------------------------------------------------------------------
Murata Manufacturing Co. Ltd. (Electronics) 36,000 2,342,473
- ----------------------------------------------------------------------------------------------
Nishimatsuya Chain Co. Ltd. (Specialty Stores)^ 93,400 3,429,452
- ----------------------------------------------------------------------------------------------
Nissan Motor Co. (Automotive) 217,700 2,408,418
- ----------------------------------------------------------------------------------------------
Nitto Denko Corp. (Electrical Equipment)^ 37,700 2,076,720
- ----------------------------------------------------------------------------------------------
Seiko Epson Corp. (Electronics) 121,600 4,738,418
- ----------------------------------------------------------------------------------------------
Sekisui Chemical Co. Ltd. (Construction) 521,000 3,673,645
- ----------------------------------------------------------------------------------------------
SOFTBANK Corp. (Business Services)^ 59,800 2,678,589
- ----------------------------------------------------------------------------------------------
Stanley Electric Co. Ltd. (Electronics) 96,100 1,806,697
- ----------------------------------------------------------------------------------------------
Sumitomo Bakelite Co. Ltd. (Specialty Chemicals)^ 251,000 1,635,090
- ----------------------------------------------------------------------------------------------
Takefuji Corp. (Banks & Credit Companies)^ 31,750 2,004,229
- ----------------------------------------------------------------------------------------------
Tamron Co. Ltd. (Leisure & Toys)^ 39,000 1,971,570
- ----------------------------------------------------------------------------------------------
Tokyo Broadcasting System, Inc. (Broadcast & Cable TV) 128,400 2,541,424
- ----------------------------------------------------------------------------------------------
Tokyo Gas Co. Ltd. (Natural Gas - Distribution)^ 1,062,000 3,930,695
- ----------------------------------------------------------------------------------------------
$57,723,840
- ----------------------------------------------------------------------------------------------
Mexico - 1.8%
- ----------------------------------------------------------------------------------------------
CEMEX S.A. de C.V. (Construction)^ 164,290 $4,838,341
- ----------------------------------------------------------------------------------------------
TV Azteca S.A. de C.V., ADR (Broadcast & Cable TV)^ 370,540 3,390,441
- ----------------------------------------------------------------------------------------------
$8,228,782
- ----------------------------------------------------------------------------------------------
Netherlands - 1.7%
- ----------------------------------------------------------------------------------------------
Royal Philips Electronics N.V. (Electronics)^ 130,870 $3,529,382
- ----------------------------------------------------------------------------------------------
VNU N.V. (Printing & Publishing)^ 167,421 4,656,763
- ----------------------------------------------------------------------------------------------
$8,186,145
- ----------------------------------------------------------------------------------------------
South Africa - 0.9%
- ----------------------------------------------------------------------------------------------
Barloworld Ltd. (Conglomerates) 197,970 $1,993,955
- ----------------------------------------------------------------------------------------------
Sanlam Group (Insurance) 1,585,690 2,004,393
- ----------------------------------------------------------------------------------------------
$3,998,348
- ----------------------------------------------------------------------------------------------
South Korea - 3.8%
- ----------------------------------------------------------------------------------------------
Hyundai Motor Co. Ltd. (Automotive) 51,270 $1,941,564
- ----------------------------------------------------------------------------------------------
POSCO (Metals & Mining)^ 127,340 3,915,705
- ----------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd. (Electronics) 19,710 9,282,592
- ----------------------------------------------------------------------------------------------
Shinsegae Co. Ltd. (Specialty Stores) 11,200 2,518,534
- ----------------------------------------------------------------------------------------------
$17,658,395
- ----------------------------------------------------------------------------------------------
Spain - 2.2%
- ----------------------------------------------------------------------------------------------
Altadis S.A. (Tobacco)^ 97,300 $2,739,466
- ----------------------------------------------------------------------------------------------
Antena 3 Television S.A. (Broadcast & Cable TV)^* 28,138 1,428,859
- ----------------------------------------------------------------------------------------------
Telefonica S.A. (Telephone Services)^ 434,229 6,413,322
- ----------------------------------------------------------------------------------------------
$10,581,647
- ----------------------------------------------------------------------------------------------
Sweden - 2.5%
- ----------------------------------------------------------------------------------------------
Atlas Copco AB, "A" (Machinery & Tools)^ 52,910 $1,848,837
- ----------------------------------------------------------------------------------------------
Autoliv, Inc. (Automotive) 45,280 1,916,350
- ----------------------------------------------------------------------------------------------
Ericsson, Inc., "B" (Telecommunications - Wireline) 1,596,510 4,257,200
- ----------------------------------------------------------------------------------------------
H&M Hennes & Mauritz AB, "B" (Specialty Stores)^ 78,990 1,930,532
- ----------------------------------------------------------------------------------------------
Sandvik AB (Machinery & Tools) 61,630 1,997,885
- ----------------------------------------------------------------------------------------------
$11,950,804
- ----------------------------------------------------------------------------------------------
Switzerland - 7.7%
- ----------------------------------------------------------------------------------------------
Alcon, Inc. (Medical Equipment) 31,460 $2,335,905
- ----------------------------------------------------------------------------------------------
Credit Suisse Group (Banks & Credit Companies) 111,280 3,902,601
- ----------------------------------------------------------------------------------------------
Nestle S.A. (Food & Non-Alcoholic Beverages)^ 21,242 5,356,837
- ----------------------------------------------------------------------------------------------
Novartis AG (Pharmaceuticals) 131,350 5,822,759
- ----------------------------------------------------------------------------------------------
Roche Holding AG (Pharmaceuticals) 60,040 6,271,000
- ----------------------------------------------------------------------------------------------
Straumann Holding AG (Medical Equipment) 13,000 2,325,420
- ----------------------------------------------------------------------------------------------
Synthes-Stratec, Inc. (Medical Equipment) 3,703 4,009,536
- ----------------------------------------------------------------------------------------------
UBS AG (Banks & Credit Companies)^ 87,940 6,212,263
- ----------------------------------------------------------------------------------------------
$36,236,321
- ----------------------------------------------------------------------------------------------
Taiwan - 0.4%
- ----------------------------------------------------------------------------------------------
Nan Ya Plastics Corp. (Specialty Chemicals) 1,553,000 $2,072,528
- ----------------------------------------------------------------------------------------------
Turkey - 0.4%
- ----------------------------------------------------------------------------------------------
Akbank T.A.S. (Banks & Credit Companies) 361,167,460 $1,677,156
- ----------------------------------------------------------------------------------------------
United Kingdom - 15.7%
- ----------------------------------------------------------------------------------------------
Anglo American PLC (Metals & Mining) 263,940 $5,284,834
- ----------------------------------------------------------------------------------------------
AstraZeneca PLC (Pharmaceuticals) 138,170 6,445,851
- ----------------------------------------------------------------------------------------------
Aviva PLC (Insurance) 224,533 2,184,392
- ----------------------------------------------------------------------------------------------
BP PLC, ADR (Energy - Integrated) 147,864 7,822,006
- ----------------------------------------------------------------------------------------------
Cadbury Schweppes PLC (Food & Non-Alcoholic Beverages) 525,920 4,170,932
- ----------------------------------------------------------------------------------------------
easyJet Airline Co. Ltd. (Airlines) 311,750 1,625,794
- ----------------------------------------------------------------------------------------------
Johnston Press PLC (Printing & Publishing) 370,839 3,612,107
- ----------------------------------------------------------------------------------------------
Kingfisher PLC (Specialty Stores)* 858,669 4,291,794
- ----------------------------------------------------------------------------------------------
NEXT PLC (Specialty Stores) 160,753 3,957,702
- ----------------------------------------------------------------------------------------------
Reckitt Benckiser PLC (Consumer Goods & Services) 212,790 5,525,596
- ----------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Banks & Credit
Companies) 141,536 4,236,337
- ----------------------------------------------------------------------------------------------
Smith & Nephew PLC (Medical Equipment) 236,700 2,393,469
- ----------------------------------------------------------------------------------------------
United Utilities PLC, "A" (Utilities - Electric Power) 722,550 4,374,370
- ----------------------------------------------------------------------------------------------
Vodafone Group PLC (Wireless Communications)* 4,056,420 9,804,566
- ----------------------------------------------------------------------------------------------
William Hill Organization Ltd. (Gaming & Lodging) 508,900 4,820,935
- ----------------------------------------------------------------------------------------------
Yell Group PLC (Broadcast & Cable TV) 585,140 3,279,663
- ----------------------------------------------------------------------------------------------
$73,830,348
- ----------------------------------------------------------------------------------------------
Total Foreign Stocks $296,155,683
- ----------------------------------------------------------------------------------------------
U.S. Stocks - 36.1%
- ----------------------------------------------------------------------------------------------
Aerospace - 0.5%
- ----------------------------------------------------------------------------------------------
Lockheed Martin Corp. 52,440 $2,501,388
- ----------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.4%
- ----------------------------------------------------------------------------------------------
Reebok International Ltd. 57,620 $2,096,215
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 3.6%
- ----------------------------------------------------------------------------------------------
American Express Co. 98,130 $4,803,464
- ----------------------------------------------------------------------------------------------
BANK ONE CORP. 42,640 2,105,137
- ----------------------------------------------------------------------------------------------
Citigroup, Inc. 170,127 8,181,407
- ----------------------------------------------------------------------------------------------
MBNA Corp. 78,800 1,921,144
- ----------------------------------------------------------------------------------------------
$17,011,152
- ----------------------------------------------------------------------------------------------
Biotechnology - 1.7%
- ----------------------------------------------------------------------------------------------
Genentech, Inc.* 19,660 $2,414,248
- ----------------------------------------------------------------------------------------------
Genzyme Corp.* 99,300 4,325,508
- ----------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 20,160 1,226,333
- ----------------------------------------------------------------------------------------------
$7,966,089
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.4%
- ----------------------------------------------------------------------------------------------
Citadel Broadcasting Corp.* 79,220 $1,374,467
- ----------------------------------------------------------------------------------------------
Comcast Corp., "A"* 146,300 4,403,630
- ----------------------------------------------------------------------------------------------
EchoStar Communications Corp., "A"* 54,170 1,797,902
- ----------------------------------------------------------------------------------------------
Time Warner, Inc.* 230,500 3,877,010
- ----------------------------------------------------------------------------------------------
$11,453,009
- ----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.6%
- ----------------------------------------------------------------------------------------------
Chicago Merchantile Exchange^ 14,700 $1,724,310
- ----------------------------------------------------------------------------------------------
E*TRADE Financial Corp.* 172,900 1,964,144
- ----------------------------------------------------------------------------------------------
Franklin Resources, Inc. 80,300 4,402,849
- ----------------------------------------------------------------------------------------------
Janus Capital Group, Inc. 127,070 1,931,464
- ----------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 36,950 2,003,799
- ----------------------------------------------------------------------------------------------
$12,026,566
- ----------------------------------------------------------------------------------------------
Business Services - 1.7%
- ----------------------------------------------------------------------------------------------
Getty Images, Inc.^* 43,710 $2,386,566
- ----------------------------------------------------------------------------------------------
Manpower, Inc. 78,690 3,690,561
- ----------------------------------------------------------------------------------------------
Monster Worldwide, Inc.* 72,750 1,863,128
- ----------------------------------------------------------------------------------------------
$7,940,255
- ----------------------------------------------------------------------------------------------
Computer Software - 4.1%
- ----------------------------------------------------------------------------------------------
Akamai Technologies, Inc.* 141,820 $1,676,312
- ----------------------------------------------------------------------------------------------
Microsoft Corp. 473,500 12,296,795
- ----------------------------------------------------------------------------------------------
Network Associates, Inc.* 239,620 3,757,242
- ----------------------------------------------------------------------------------------------
VERITAS Software Corp.* 53,040 1,414,577
- ----------------------------------------------------------------------------------------------
$19,144,926
- ----------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.4%
- ----------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 35,310 $2,043,743
- ----------------------------------------------------------------------------------------------
Electronics - 2.9%
- ----------------------------------------------------------------------------------------------
Agere Systems, Inc., "B"* 1,142,250 $2,478,683
- ----------------------------------------------------------------------------------------------
Applied Films Corp.^* 51,400 1,223,320
- ----------------------------------------------------------------------------------------------
Intel Corp. 321,180 8,263,961
- ----------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 51,260 1,484,490
- ----------------------------------------------------------------------------------------------
$13,450,454
- ----------------------------------------------------------------------------------------------
Entertainment - 0.8%
- ----------------------------------------------------------------------------------------------
Clear Channel Communications, Inc. 45,150 $1,873,274
- ----------------------------------------------------------------------------------------------
Viacom, Inc., "B" 47,880 1,850,562
- ----------------------------------------------------------------------------------------------
$3,723,836
- ----------------------------------------------------------------------------------------------
Food & Drug Stores - 0.2%
- ----------------------------------------------------------------------------------------------
7-Eleven, Inc.^* 67,200 $1,081,920
- ----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.2%
- ----------------------------------------------------------------------------------------------
PepsiCo, Inc. 103,380 $5,633,176
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 0.5%
- ----------------------------------------------------------------------------------------------
Carnival Corp. 53,980 $2,303,327
- ----------------------------------------------------------------------------------------------
General Merchandise - 0.7%
- ----------------------------------------------------------------------------------------------
Target Corp. 76,080 $3,299,590
- ----------------------------------------------------------------------------------------------
Internet - 0.6%
- ----------------------------------------------------------------------------------------------
eBay, Inc.* 34,030 $2,716,275
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 0.4%
- ----------------------------------------------------------------------------------------------
Eaton Corp. 34,720 $2,061,674
- ----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.8%
- ----------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 39,990 $2,341,415
- ----------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 134,800 1,585,248
- ----------------------------------------------------------------------------------------------
$3,926,663
- ----------------------------------------------------------------------------------------------
Medical Equipment - 2.2%
- ----------------------------------------------------------------------------------------------
Baxter International, Inc. 75,310 $2,383,562
- ----------------------------------------------------------------------------------------------
CTI Molecular Imaging, Inc.^* 124,500 1,871,235
- ----------------------------------------------------------------------------------------------
Discovery Partners International, Inc.* 120 706
- ----------------------------------------------------------------------------------------------
Guidant Corp. 33,060 2,083,111
- ----------------------------------------------------------------------------------------------
Medtronic, Inc. 74,580 3,763,307
- ----------------------------------------------------------------------------------------------
$10,101,921
- ----------------------------------------------------------------------------------------------
Pharmaceuticals - 2.2%
- ----------------------------------------------------------------------------------------------
Johnson & Johnson 153,910 $8,315,757
- ----------------------------------------------------------------------------------------------
Medicis Pharmaceutical Corp.^ 47,010 2,017,669
- ----------------------------------------------------------------------------------------------
$10,333,426
- ----------------------------------------------------------------------------------------------
Printing & Publishing - 0.6%
- ----------------------------------------------------------------------------------------------
Meredith Corp. 51,860 $2,641,748
- ----------------------------------------------------------------------------------------------
Restaurants - 0.4%
- ----------------------------------------------------------------------------------------------
Outback Steakhouse, Inc. 42,920 $1,885,476
- ----------------------------------------------------------------------------------------------
Specialty Stores - 2.1%
- ----------------------------------------------------------------------------------------------
Circuit City Stores, Inc. 197,440 $2,306,099
- ----------------------------------------------------------------------------------------------
Home Depot, Inc. 100,330 3,530,613
- ----------------------------------------------------------------------------------------------
TJX Cos., Inc. 162,910 4,002,699
- ----------------------------------------------------------------------------------------------
$9,839,411
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.3%
- ----------------------------------------------------------------------------------------------
Andrew Corp.^* 91,800 $1,556,010
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.0%
- ----------------------------------------------------------------------------------------------
At Road, Inc.^* 108,500 $913,570
- ----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 408,040 8,515,795
- ----------------------------------------------------------------------------------------------
$9,429,365
- ----------------------------------------------------------------------------------------------
Telephone Services - 0.8%
- ----------------------------------------------------------------------------------------------
Sprint FON Group 201,090 $3,597,500
- ----------------------------------------------------------------------------------------------
Total U.S. Stocks $169,765,115
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $414,364,429) $465,920,798
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 17.1%
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Identified Cost 80,629,400 $80,629,400
- ----------------------------------------------------------------------------------------------
Repurchase Agreements - 1.9%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
Goldman Sachs & Co., dated 04/30/04, due 05/03/04, total
to be recieved $8,729,757 (secured by various U.S.
Treasury and Federal Agency Obligations in a jointly
traded account), at Cost $8,729 $8,729,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $503,722,829) $555,279,198
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (18.0)% (84,564,572)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $470,714,626
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
As of April 30, 2004, 61 securities representing $221,029,116 and 47% of net assets were fair
valued in accordance with the policies adopted by the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value, including $77,075,675 of
securities on loan (identified cost, $503,722,829) $555,279,198
- ---------------------------------------------------------------------------------------------------
Cash 576
- ---------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $432,160) 431,783
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 1,826,581
- ---------------------------------------------------------------------------------------------------
Receivable for fund shares sold 193,985
- ---------------------------------------------------------------------------------------------------
Interest and dividends receivable 1,326,627
- ---------------------------------------------------------------------------------------------------
Receivable from investment adviser 6,127
- ---------------------------------------------------------------------------------------------------
Other assets 10,244
- ---------------------------------------------------------------------------------------------------
Total assets $559,075,121
- ---------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased $5,347,994
- ---------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 2,015,369
- ---------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 80,629,400
- ---------------------------------------------------------------------------------------------------
Payable to affiliates
- ---------------------------------------------------------------------------------------------------
Management fee 11,774
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 36,309
- ---------------------------------------------------------------------------------------------------
Distribution and service fee 6,281
- ---------------------------------------------------------------------------------------------------
Administrative fee 135
- ---------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 313,233
- ---------------------------------------------------------------------------------------------------
Total liabilities $88,360,495
- ---------------------------------------------------------------------------------------------------
Net assets $470,714,626
- ---------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $629,650,241
- ---------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 51,544,701
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (209,190,610)
- ---------------------------------------------------------------------------------------------------
Accumulated net investment loss (1,289,706)
- ---------------------------------------------------------------------------------------------------
Net assets $470,714,626
- ---------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 28,030,808
- ---------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $316,347,919
- ---------------------------------------------------------------------------------------------------
Shares outstanding 18,561,444
- ---------------------------------------------------------------------------------------------------
Net asset value per share $17.04
- ---------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$17.04) $18.08
- ---------------------------------------------------------------------------------------------------
Class B shares
Net assets $122,855,450
- ---------------------------------------------------------------------------------------------------
Shares outstanding 7,547,784
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.28
- ---------------------------------------------------------------------------------------------------
Class C shares
Net assets $23,407,234
- ---------------------------------------------------------------------------------------------------
Shares outstanding 1,451,340
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per share $16.13
- ---------------------------------------------------------------------------------------------------
Class I shares
Net assets $6,727,029
- ---------------------------------------------------------------------------------------------------
Shares outstanding 389,165
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.29
- ---------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $1,247,430
- ---------------------------------------------------------------------------------------------------
Shares outstanding 73,435
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.99
- ---------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $129,564
- ---------------------------------------------------------------------------------------------------
Shares outstanding 7,640
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $16.96
- ---------------------------------------------------------------------------------------------------
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 Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- ---------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR THE SIX MONTHS ENDED 4/30/04
NET INVESTMENT LOSS
Income
- --------------------------------------------------------------------------------------------------
Dividends $3,897,039
- --------------------------------------------------------------------------------------------------
Interest 131,996
- --------------------------------------------------------------------------------------------------
Foreign taxes withheld (378,901)
- --------------------------------------------------------------------------------------------------
Total investment income $3,650,134
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $2,196,661
- --------------------------------------------------------------------------------------------------
Trustees' compensation 10,548
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 610,614
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 564,302
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 664,216
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 125,023
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 1,450
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 68
- --------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 34
- --------------------------------------------------------------------------------------------------
Administrative fee 26,359
- --------------------------------------------------------------------------------------------------
Custodian fee 251,819
- --------------------------------------------------------------------------------------------------
Printing 79,831
- --------------------------------------------------------------------------------------------------
Postage 27,701
- --------------------------------------------------------------------------------------------------
Auditing fees 22,100
- --------------------------------------------------------------------------------------------------
Legal fees 1,810
- --------------------------------------------------------------------------------------------------
Miscellaneous 287,553
- --------------------------------------------------------------------------------------------------
Total expenses $4,870,089
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (4,361)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by distributor (160,593)
- --------------------------------------------------------------------------------------------------
Net expenses $4,705,135
- --------------------------------------------------------------------------------------------------
Net investment loss $(1,055,001)
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions* $66,253,958
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (638,212)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $65,615,746
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $(31,975,652)
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 1,171
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments and foreign currency
translation $(31,974,481)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $33,641,265
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $32,586,264
- --------------------------------------------------------------------------------------------------
* Includes proceeds received from a non-recurring cash settlement in the amount of $235,375 from
a class-action lawsuit against Cendant Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from
operations, any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
4/30/04 10/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $(1,055,001) $161,414
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 65,615,746 (10,407,682)
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and
foreign currency translation (31,974,481) 104,864,278
- ------------------------------------------------------ ------------ -------------
Increase in net assets from operations $32,586,264 $94,618,010
- ------------------------------------------------------ ------------ -------------
Net decrease in net assets from fund share
transactions $(28,855,398) $(60,300,772)
- ------------------------------------------------------ ------------ -------------
Redemption fees $6,203 $--
- ------------------------------------------------------ ------------ -------------
Total increase in net assets $3,737,069 $34,317,238
- ------------------------------------------------------ ------------ -------------
NET ASSETS
At beginning of period $466,977,557 $432,660,319
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated net
investment loss of $1,289,706 and $234,705,
respectively) $470,714,626 $466,977,557
- --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and
the past 5 fiscal years (or, if shorter, the period of the fund's operations). 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 (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS A 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $15.91 $12.73 $14.60 $27.51 $23.20 $18.27
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income
(loss)(S) $(0.02) $0.04 $(0.01) $(0.03) $0.07 $(0.05)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.15 3.14 (1.86) (6.91) 6.14 6.59
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.13 $3.18 $(1.87) $(6.94) $6.21 $6.54
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $(5.67) $(1.90) $(1.61)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.30) -- --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(5.97) $(1.90) $(1.61)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital $--+++ $-- $-- $-- $-- $--
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $17.04 $15.91 $12.73 $14.60 $27.51 $23.20
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 7.17++^^^ 24.90^^ (12.81) (30.91) 27.22 38.13
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS A (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.70+ 1.59 1.57 1.52 1.45 1.48
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.19)+ 0.30 (0.08) (0.17) 0.26 (0.23)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 107 93 130 112 182 146
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $316,348 $306,333 $269,893 $268,548 $389,664 $244,777
- --------------------------------------------------------------------------------------------------------------------------------
(S) The distributor contractually waived a portion of its fee for the periods indicated. If this fee had been incurred by the
fund, the net investment income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.02) $0.03 $(0.03) $(0.05) $0.04 $(0.07)
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.80+ 1.69 1.67 1.62 1.55 1.58
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.29)+ 0.20 (0.18) (0.27) 0.16 (0.33)
- --------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 for the partial payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.07 per share based on shares outstanding the day the proceeds were received.
Excluding the effect of this payment from the fund's ending net asset value per share, total return for the year ended
October 31, 2003 would have been 24.43%.
^^^ The fund's total return calculation includes proceeds received on March 19, 2004 for the remaining payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.01 per share based on shares outstanding on the days the proceeds were received.
Excluding the effect of these payments from the fund's ending net asset value per share, total return for the six months
ended April 30, 2004 would have been 7.11%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS B 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $15.25 $12.29 $14.21 $26.87 $22.73 $18.06
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.08) $(0.06) $(0.13) $(0.16) $(0.14) $(0.20)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.11 3.02 (1.79) (6.74) 6.04 6.48
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.03 $2.96 $(1.92) $(6.90) $5.90 $6.28
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $(5.47) $(1.76) $(1.61)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.29) -- --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(5.76) $(1.76) $(1.61)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $16.28 $15.25 $12.29 $14.21 $26.87 $22.73
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 6.75++^^^ 24.08^^ (13.51) (31.39) 26.26 37.12
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS B (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.45+ 2.34 2.32 2.27 2.20 2.23
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.96)+ (0.47) (0.89) (0.92) (0.47) (0.99)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 107 93 130 112 182 146
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $122,855 $129,229 $133,525 $268,518 $442,368 $330,542
- --------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 for the partial payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.07 per share based on shares outstanding the day the proceeds were received.
Excluding the effect of this payment from the fund's ending net asset value per share, total return for the year ended
October 31, 2003 would have been 23.52%.
^^^ The fund's total return calculation includes proceeds received on March 19, 2004 for the remaining payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.01 per share based on shares outstanding on the days the proceeds were received.
Excluding the effect of these payments from the fund's ending net asset value per share, total return for the six months
ended April 30, 2004 would have been 6.69%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS C 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $15.11 $12.18 $14.08 $26.74 $22.64 $17.99
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment loss $(0.08) $(0.06) $(0.13) $(0.16) $(0.11) $(0.20)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.10 2.99 (1.77) (6.70) 5.99 6.46
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.02 $2.93 $(1.90) $(6.86) $5.88 $6.26
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $(5.51) $(1.78) $(1.61)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.29) -- --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(5.80) $(1.78) $(1.61)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to paid-in
capital $--+++ $-- $-- $-- $-- $--
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $16.13 $15.11 $12.18 $14.08 $26.74 $22.64
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 6.75++^^^ 24.06^^ (13.49) (31.45) 26.28 37.15
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS C (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 2.45+ 2.34 2.32 2.27 2.20 2.23
- --------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.96)+ (0.47) (0.91) (0.92) (0.39) (0.99)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 107 93 130 112 182 146
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $23,407 $24,777 $24,035 $44,241 $62,520 $26,120
- --------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 for the partial payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.07 per share based on shares outstanding the day the proceeds were received.
Excluding the effect of this payment from the fund's ending net asset value per share, total return for the year ended
October 31, 2003 would have been 23.48%.
^^^ The fund's total return calculation includes proceeds received on March 19, 2004 for the remaining payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.01 per share based on shares outstanding on the days the proceeds were received.
Excluding the effect of these payments from the fund's ending net asset value per share, total return for the six months
ended April 30, 2004 would have been 6.68%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS I 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $16.11 $12.86 $14.71 $27.71 $23.33 $18.32
- --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment income $0.01 $0.07 $0.02 $0.01 $0.15 $0.00+++
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 1.17 3.18 (1.87) (6.97) 6.19 6.62
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $1.18 $3.25 $(1.85) $(6.96) $6.34 $6.62
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $(5.74) $(1.96) $(1.61)
- --------------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain
on investments and foreign
currency transactions -- -- -- (0.30) -- --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(6.04) $(1.96) $(1.61)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $17.29 $16.11 $12.86 $14.71 $27.71 $23.33
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 7.32++^^^ 25.27^^ (12.64) (30.77) 27.56 38.55
- --------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS I (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.45+ 1.33 1.32 1.27 1.20 1.23
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.07+ 0.53 0.16 0.08 0.50 0.01
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 107 93 130 112 182 146
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $6,727 $6,249 $5,207 $6,085 $9,003 $7,272
- --------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 for the partial payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.07 per share based on shares outstanding the day the proceeds were received.
Excluding the effect of this payment from the fund's ending net asset value per share, total return for the year ended
October 31, 2003 would have been 24.73%.
^^^ The fund's total return calculation includes proceeds received on March 19, 2004 for the remaining payment of a non-recurring
litigation settlement from Cendant Corporation, recorded as a realized gain on investment transactions. The proceeds resulted
in an increase in the net asset value of $0.01 per share based on shares outstanding on the days the proceeds were received.
Excluding the effect of these payments from the fund's ending net asset value per share, total return for the six months
ended April 30, 2004 would have been 7.26%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS PERIOD
ENDED ENDED
CLASS R1** 4/30/04 10/31/03*
(UNAUDITED)
Net asset value, beginning of period $15.87 $12.68
- ------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss) $(0.01) $0.03
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency 1.13 3.16
- ------------------------------------------------------------------------ ------ ------
Total from investment operations $1.12 $3.19
- ------------------------------------------------------------------------ ------ ------
Net asset value, end of period $16.99 $15.87
- ------------------------------------------------------------------------ ------ ------
Total return (%) 7.06++^^^ 25.16++^^
- ------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 2.01+ 1.78+
- ------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.14)+ 0.21+
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover 107 93
- ------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,247 $385
- ------------------------------------------------------------------------------------------------------------
* For the period from the inception of Class R1 shares, December 31, 2002, through October 31, 2003.
** Effective November 3, 2003, Class R shares have been renamed R1 shares.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 26, 2003 for the partial payment
of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on
investment transactions. The proceeds resulted in an increase in the net asset value of $0.07 per share
based on shares outstanding the day the proceeds were received. Excluding the effect of this payment from
the fund's ending net asset value per share, total return for the year ended October 31, 2003 would have
been 24.61%.
^^^ The fund's total return calculation includes proceeds received on March 19, 2004 for the remaining
payment of a non-recurring litigation settlement from Cendant Corporation, recorded as a realized gain on
investment transactions. The proceeds resulted in an increase in the net asset value of $0.01 per share
based on shares outstanding on the days the proceeds were received. Excluding the effect of these
payments from the fund's ending net asset value per share, total return for the six months ended April
30, 2004 would have been 6.99%.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED
CLASS R2 4/30/04*
(UNAUDITED)
Net asset value, beginning of period $15.87
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss $(0.02)
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.11
- ---------------------------------------------------------------- ------
Total from investment operations $1.09
- ---------------------------------------------------------------- ------
Net asset value, end of period $16.96
- ---------------------------------------------------------------- ------
Total return (%) 6.87++^^
- -------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA:
Expenses## 2.79+
- -------------------------------------------------------------------------------
Net investment loss (0.29)+
- -------------------------------------------------------------------------------
Portfolio turnover 107
- -------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $130
- -------------------------------------------------------------------------------
* For the period from the inception of Class R2 shares, October 31, 2003,
through April 30, 2004.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^^ The fund's total return calculation includes proceeds received on March 19,
2004 for the remaining payment of a non-recurring litigation settlement from
Cendant Corporation, recorded as a realized gain on investment transactions.
The proceeds resulted in an increase in the net asset value of $0.01 per
share based on shares outstanding on the days the proceeds were received.
Excluding the effect of these payments from the fund's ending net asset
value per share, total return for the six months ended April 30, 2004 would
have been 6.81%.
SEE NOTES TO FINANCIAL STATEMENTS
Notes to Financial Statements (unaudited) - continued
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Global Growth Fund (the fund) is a diversified series of MFS Series Trust
VIII (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 accounting
principles generally accepted in the United States of America 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. 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.
INVESTMENT VALUATIONS - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Equity
securities in the fund's portfolio for which market quotations are available
are valued at the last sale or official closing price as reported by an
independent pricing service on the primary market or exchange on which they are
primarily traded, or at the last quoted bid price for securities in which there
were no sales during the day. Equity securities traded over the counter are
valued at the last sales price traded each day as reported by an independent
pricing service, or to the extent there are no sales reported, such securities
are valued on the basis of quotations obtained from brokers and dealers. Equity
securities for which it is determined that current market quotations are not
readily available will be fair valued under the direction of the Board of
Trustees. The fund may also fair value foreign equity securities in cases where
closing market quotations are not readily available or are deemed not
reflective of readily available market prices. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the fund calculates its net
asset value (generally, the close of the NYSE) that may impact the value of
securities traded in these foreign markets. In these cases, the fund may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the fund's valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis. Short-term obligations
with a remaining maturity in excess of 60 days will be valued upon
dealer-supplied valuations. All other short-term obligations in the fund's
portfolio are valued at amortized cost, which constitutes market value as
determined by the Board of Trustees. Money market mutual funds are valued at
net asset value. Investment valuations, other assets, and liabilities initially
expressed in foreign currencies are converted each business day into U.S.
dollars based upon current exchange rates.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a joint
trading account for the purpose of entering into one or more repurchase
agreements.
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. 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 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 - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street 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 a money
market fund or 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 securities, 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.
SHORT TERM FEES - The fund charges a 2% redemption fee (which is retained by
the fund) on proceeds from shares redeemed or exchanged within 30 calendar days
following their acquisition (either by purchase or exchange) of certain fund
shares. However, for purchases made on or after July 1, 2004, the fund will
charge a 2% redemption fee on proceeds from shares redeemed or exchanged within
5 business days following their acquisition. Due to systems limitations
associated with the transition from applying a 30 calendar day redemption fee
to a 5 business day redemption fee, the fund will not impose redemption fees
with respect to purchases made in June 2004 followed by redemptions made in
July 2004. The fund may determine to reinstitute the 30 calendar day redemption
fee period or otherwise change the redemption fee period in the future,
including in connection with pending Securities and Exchange Commission rules.
See the fund's prospectus for details. These fees are accounted for as an
addition to paid-in capital.
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 accounting principles generally accepted in the United States
of America. Dividends received in cash are recorded on 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 was a participant in a class-action lawsuit against Cendant
Corporation. On March 26, 2003, the fund received a partial cash settlement in
the amount of $2,270,891, recorded as a realized gain on investment
transactions. The proceeds from the non-recurring litigation settlement
resulted in an increase in net asset value of $0.07 per share based on the
shares outstanding on the day the proceeds were received. Excluding the effect
of this payment from the fund's ending net asset value per share, total return
for the year ended October 31, 2003 would have been lower by 0.47%, 0.56%,
0.58%, 0.54%, and 0.55% for Class A, B, C, I, and R1, respectively.
The fund was a participant in a class-action lawsuit against Cendant
Corporation. On March 19, 2004, the fund received the remaining cash settlement
in the amount of $235,375, recorded as a realized gain on investment
transactions. The proceeds from the non-recurring litigation settlement
resulted in an increase in net asset value of $0.01 per share based on the
shares outstanding on the day the proceeds were received. Excluding the effect
of this payment from the fund's ending net asset value per share, total return
for the six months ended April 30, 2004 would have been lower by 0.06%, 0.06%,
0.07%, 0.06%, 0.07%, and 0.06% for Class A, B, C, I, R1, and R2, respectively.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. During the six months ended April 30, 2004, the fund's custodian fees
were reduced by $3,292 under this arrangement. The fund has entered into a
commission recapture agreement, under which certain brokers will credit the
fund a portion of the commissions generated, to offset certain expenses of the
fund. For the six months ended April 30, 2004, the fund's miscellaneous
expenses were reduced by $1,069 under this agreement. These amounts are shown
as a reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, real estate investment trusts, and wash
sales.
The fund paid no distributions for the years ended October 31, 2003 and October
31, 2002.
As of October 31, 2003 the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(268,538,560)
----------------------------------------------------------
Unrealized appreciation 77,251,386
----------------------------------------------------------
Other temporary differences (234,705)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
October 31, 2009 $(159,427,826)
----------------------------------------------------------
October 31, 2010 (95,953,969)
----------------------------------------------------------
October 31, 2011 (13,156,765)
----------------------------------------------------------
Total $(268,538,560)
----------------------------------------------------------
Realized gain is reported net of any foreign capital gains tax in the Statement
of Operations.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with MFS to
provide overall investment advisory and administrative services, and general
office facilities.
The management fee is computed daily and paid monthly at the following annual
rates:
First $1 billion of average net assets 0.90%
----------------------------------------------------------
Next $1 billion of average net assets 0.75%
----------------------------------------------------------
Average net assets in excess of $2 billion 0.65%
----------------------------------------------------------
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and pays no compensation directly to
its Trustees who are officers of the investment adviser, or to officers of the
fund, all of whom receive remuneration for their services to the fund from MFS.
Certain officers and Trustees of the fund are officers or directors of MFS, MFS
Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). The fund
has an unfunded, defined benefit plan for retired Trustees and an unfunded
retirement benefit deferral plan for current Trustees. Included in Trustees'
compensation is a net decrease of $14,618 as a result of the change in the
fund's pension liability for current Trustees and a pension expense of $1,376
for retired Trustees for the six months ended April 30, 2004.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets.
Prior to April 1, 2004, the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.0175%
----------------------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
Effective April 1, 2004 the maximum amount is based on the following annual
percentages of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
For the six months ended April 30, 2004, the fund paid MFS $26,539, equivalent
to 0.0109% of average daily net assets, to partially reimburse MFS for the
costs of providing administrative services.
In addition to the administrative services provided by MFS to the fund as
described above, MFS is responsible for providing certain administrative
services with respect to Class R2 shares. These services include various
administrative, recordkeeping, and communication/educational services with
respect to the retirement plans which invest in Class R2 shares, and may be
provided directly by MFS or by a third party. The fund pays an annual 0.25%
administrative service fee solely from the assets of Class R2 shares to MFS for
the provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$12,473 for the six months ended April 30, 2004, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R1, and Class R2 shares pursuant to Rule 12b-1 of the Investment Company
Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share
classes in order that MFD may pay expenses on behalf of the fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD
based on the average daily net assets of accounts attributable to such dealers.
These fees are calculated based on each class' average daily net assets. The
maximum distribution and service fees for each class of shares are as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the six months ended
April 30, 2004, amounted to:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Service Fee Retained by MFD $9,995 $1,034 $841 $4 $--
- ----------------------------------------------------------------------------------------------------------------
The Class A distribution fee is currently being waived on a contractual basis.
Fees incurred under the distribution plan during the six months ended April 30, 2004 were as follows:
CLASS A CLASS B CLASS C CLASS R1 CLASS R2
Effective Annual Percentage
Rates 0.25% 1.00% 1.00% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------------
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for Class A shares, 12
months following the purchase, and, for Class C shares, the first year from
the end of the calendar month of purchase. A contingent deferred sales charge
is imposed on shareholder redemptions of Class B shares in the event of a
shareholder redemption within six years from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the six months ended April 30, 2004,
were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $4,626 $96,524 $1,385
- -----------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as
shareholder servicing agent. The fee, which is calculated as a percentage of
the fund's average daily net assets is set periodically under the supervision
of the funds' Trustees. Prior to April 1, 2004, the fee was set at 0.11% of
the fund's average daily net assets. Effective April 1, 2004, the fee is set
at 0.10% of the fund's average net assets. For the six months ended April 30,
2004, the fund paid MFSC a fee of $264,430 for shareholder services which
amounted to 0.109% of the fund's average net assets. Also included in
shareholder servicing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $56,292 for the six months ended April 30, 2004, as well as other
expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$509,827,730 and $534,322,800, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $510,151,844
------------------------------------------------------------
Gross unrealized appreciation $57,648,623
------------------------------------------------------------
Gross unrealized depreciation (12,521,269)
------------------------------------------------------------
Net unrealized appreciation $45,127,354
------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended Year ended
4/30/04 10/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 2,152,824 $36,958,156 7,377,913 $97,892,732
- --------------------------------------------------------------------------------------------------------
Shares reacquired (2,848,632) (48,607,705) (9,326,573) (124,254,583)
- --------------------------------------------------------------------------------------------------------
Net decrease (695,808) $(11,649,549) (1,948,660) $(26,361,851)
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 607,007 $9,927,270 1,220,548 $16,201,349
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,533,111) (25,129,745) (3,608,854) (46,110,137)
- --------------------------------------------------------------------------------------------------------
Net decrease (926,104) $(15,202,475) (2,388,306) $(29,908,788)
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 89,487 $1,454,301 251,742 $3,305,945
- --------------------------------------------------------------------------------------------------------
Shares reacquired (277,933) (4,475,325) (585,201) (7,462,333)
- --------------------------------------------------------------------------------------------------------
Net decrease (188,446) $(3,021,024) (333,459) $(4,156,388)
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 27,009 $470,969 62,959 $858,135
- --------------------------------------------------------------------------------------------------------
Shares reacquired (25,628) (442,114) (80,099) (1,063,016)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 1,381 $28,855 (17,140) $(204,881)
- --------------------------------------------------------------------------------------------------------
Six months ended Period ended
4/30/04 10/31/03*
SHARES AMOUNT SHARES AMOUNT
CLASS R1 SHARES
Shares sold 61,765 $1,078,803 43,131 $556,217
- --------------------------------------------------------------------------------------------------------
Shares reacquired (12,556) (215,879) (18,905) (230,101)
- --------------------------------------------------------------------------------------------------------
Net increase 49,209 $862,924 24,226 $326,116
- --------------------------------------------------------------------------------------------------------
Six months ended Period ended
4/30/04 10/31/03**
SHARES AMOUNT SHARES AMOUNT
CLASS R2 SHARES
Shares sold 7,445 $127,925 315 $5,020
- --------------------------------------------------------------------------------------------------------
Shares reacquired (120) (2,054) -- --
- --------------------------------------------------------------------------------------------------------
Net increase 7,325 $125,871 315 $5,020
- --------------------------------------------------------------------------------------------------------
* For the period from the commencement of Class R1 shares, December 31, 2002, through October 31, 2003.
** Class R2 shares, which commenced operations on October 31, 2003, had no operating activity.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate plus 0.50%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for six months ended April 30, 2004 was $2,406 and is
included in miscellaneous expense. The fund had no borrowings during the
period.
(7) LEGAL PROCEEDING
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments,
will not result in increased fund redemptions, reduced sales of fund shares,
or other adverse consequences to the funds.
- ---------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- -----------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- --------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "Interested person" of MFS 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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. 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.
Each of the Trust'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. Each Trustee serves as a board member of 109 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available without
charge upon request by calling 1-800-225-2606.
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGERS
Barry P. Dargan
Nicholas D. Smithie
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
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 About MFS section of mfs.com or by visiting the SEC's website at
http://www.sec. gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to MFS.COM for a clear view of market events, investor education, account
access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to mfs.com,
log in to your account via MFS Access, and select the eDelivery sign up
options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
WGF-SEM-6/04 71M
MFS(R) Mutual Funds
SEMIANNUAL REPORT 4/30/04
MFS(R) STRATEGIC INCOME FUND
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service 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
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o 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 information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about 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.
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- --------------------------------------------------------------------------------
MFS(R) STRATEGIC INCOME FUND
The fund seeks high current income by investing in fixed-income securities.
Its secondary objective seeks to provide significant capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CEO 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 5
- ----------------------------------------------------
MANAGEMENT REVIEW 6
- ----------------------------------------------------
PERFORMANCE SUMMARY 8
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 12
- ----------------------------------------------------
FINANCIAL STATEMENTS 28
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 41
- ----------------------------------------------------
TRUSTEES AND OFFICERS 55
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 59
- ----------------------------------------------------
CONTACT INFORMATION 60
- ----------------------------------------------------
ASSET ALLOCATION 61
- --------------------------------------------------------------------------------
LETTER FROM THE CEO
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our portfolios,
our goal is to achieve the same strong results across all asset classes. To
ensure that our portfolio teams are doing the best possible job for our firm's
clients and shareholders, I am focusing the vast majority of my time on the
three key elements that I believe truly differentiate MFS from its competitors:
people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of our
portfolios. To demonstrate our ongoing commitment in this area, we increased
the number of equity analysts at MFS from less than 40 at the end of 2000 to
over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from 2.6 years to
5.3 years, by recruiting more seasoned analysts to the firm. Moreover, our
international network of investment personnel now spans key regions of the
world with offices in London, Mexico City, Singapore, and Tokyo, as well as
Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that of
a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts by
calling on several of our most seasoned portfolio managers to supplement the
work of Director of Global Equity Research David A. Antonelli. These portfolio
managers will be taking a special interest in developing the careers of our
research analysts and strengthening our investment process. Kenneth J. Enright
of our value equity group will work with a team of domestic analysts; David E.
Sette-Ducati of our small- and mid-cap equity team will work with analysts
concentrating on small- and mid-cap companies; and Barnaby Wiener of our
international equity team in London heads the European equity research team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure that
all teams are sharing information, actively debating investment ideas, and
creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products and
provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to investment
performance by weighting rewards to those who have created the greatest
long-term benefit for our shareholders and who contribute most successfully to
the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS' high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging enveronment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
CEO, President, and Chief Investment Officer
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
- -------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- -------------------------------------------------------------------------------
THE MFS(R) DIFFERENCE
For 80 years MFS has been offering investors clear paths to pursuing specific
investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with insight
and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
MARKET ENVIRONMENT
The bond market during the early months of the period ended April 30, 2004 was
highlighted by a continuation of low interest rates, high bond prices, and
solid returns for bond investors. However, the market began to change rapidly
toward the end of the period, following a string of strong economic reports in
March and April that indicated a rapid improvement in the U.S. employment
market. Improving economic indicators and better employment numbers set the
stage for rising interest rates and declining prices for bonds. These
conditions were exacerbated by the expectation that the Fed would raise
interest rates sometime in the near future. Together, the improving economic
and employment outlook and the expectation of rising interest rates led to
declining bond prices and lower returns for bond investors late in the period.
CONTRIBUTORS TO PERFORMANCE
This is our most broadly diversified bond fund, and we actively manage the
portfolio's asset allocation across four broad fixed-income sectors: U.S.
government bonds, international bonds (including emerging market debt), high-
grade corporate bonds, and high-yield bonds. Much of the portfolio's
performance over the period was generated by a higher current yield than most
of its benchmark indices. In particular, we had a sizable amount of exposure to
the domestic high-yield market at a time when these issues were offering
attractive spreads. These lower-rated debt issues also tended to perform better
than higher-rated debt as the economy improved. In many instances, companies
with lower-rated debt were able to improve their credit quality and gain access
to the capital markets during the period, thereby improving the quality of
existing debt securities. Bond prices rose accordingly.
Among individual contributors to performance, we held the bonds of a number of
chemical firms that contributed significantly to the portfolio's return. Among
these firms were Huntsman and IMC Global. The industry benefited from improving
economic fundamentals and increased merger and acquisition activity. IMC
Global, for example, was acquired by a subsidiary of Cargill, a much
higher-rated company. That acquisition drove up the prices of its bonds.
Another leading individual contributor to portfolio performance was auto parts
firm Collins & Aikman. Essentially, this firm has benefited quite sharply from
the improving global economy and improving conditions in the auto industry.
DETRACTORS FROM PERFORMANCE
The portfolio had what we believed to be an underweighted position in higher-
quality issues such as agency debt and mortgages. These issues tended to do
better than Treasuries during the period, as the yield differential they
offered over Treasuries narrowed during the period. As a result, prices for
higher-rated bonds rose and they tended to outperform Treasuries.
A position in WorldCom was a primary individual detractor from portfolio
performance. The wireline segment of the telecommunications industry continued
to perform poorly during the period, and WorldCom suffered accordingly. Also,
the company did not emerge from bankruptcy as quickly as many investors had
anticipated. Another primary detractor from performance among individual
holdings was FiberMark. The specialty paper firm succumbed to continued
cyclical pressure in its industry. It opted to reorganize and to clear up its
balance sheet through bankruptcy proceedings and its bond prices reacted
negatively to this news.
Respectfully,
/s/ William Adams
William Adams
Portfolio Manager
The views expressed in this report are those of the portfolio manager 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 and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS Fund. References to specific securities are
not recommendations of such securities, and may not be representative of any
MFS Fund's current or future investments.
- -------------------------------------------------------------------------------
Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Perspective for our current view of
the world.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/04
- -------------------------------------------------------------------------------
Because mutual funds are designed for investors with long-term goals, we have
provided cumulative results as well as the average annual total returns for the
applicable time periods. Performance results reflect the percentage change in
net asset value, including the reinvestment of any dividends and capital gains
distributions. Past performance is no guarantee of future results. (See Notes
to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. MARKET
VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. 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.
TOTAL RETURNS
- ----------------------
Average annual
without sales charge
- ----------------------
Class
Share inception
class date 6-mo 1-yr 3-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
A 10/29/1987 -- 7.71% 7.45% 5.31% 6.98%
- ----------------------------------------------------------------------------
B 9/7/1993 -- 7.03% 6.79% 4.66% 6.27%
- ----------------------------------------------------------------------------
C 9/1/1994 -- 6.87% 6.75% 4.64% 6.29%
- ----------------------------------------------------------------------------
I 1/8/1997 -- 8.08% 7.82% 5.71% 7.24%
- ----------------------------------------------------------------------------
- ----------------------
Average annual
- ----------------------
Comparative benchmarks
6-mo 1-yr 3-yr 5-yr 10-yr
- ----------------------------------------------------------------------------
Average multisector
income fund+ 2.93% 8.17% 8.42% 5.36% 6.34%
- ----------------------------------------------------------------------------
Citigroup World Government
Bond Non-Dollar
Hedged Index## 1.84% 1.21% 4.52% 4.97% 7.92%
- ----------------------------------------------------------------------------
J.P. Morgan Emerging
Market Bond
Index Global# 1.88% 9.04% 11.44% 12.37% 13.40%
- ----------------------------------------------------------------------------
Lehman Brothers Aggregate
Bond Index# 1.25% 1.82% 6.65% 6.66% 7.34%
- ----------------------------------------------------------------------------
Lehman Brothers
Government/Credit Index#* 1.17% 1.80% 7.15% 6.84% 7.40%
- ----------------------------------------------------------------------------
Lehman Brothers
High Yield Index# 5.52% 15.00% 9.01% 4.79% 7.35%
- ----------------------------------------------------------------------------
- ----------------------
Average annual
with sales charge
- ----------------------
Share
class
- ----------------------------------------------------------------------------
A -- 2.59% 5.72% 4.29% 6.46%
- ----------------------------------------------------------------------------
B -- 3.03% 5.90% 4.36% 6.27%
- ----------------------------------------------------------------------------
C -- 5.87% 6.75% 4.64% 6.29%
- ----------------------------------------------------------------------------
- ----------------------
Cumulative without
sales charge
- ----------------------
- ----------------------------------------------------------------------------
A 3.30% 7.71% 24.04% 29.52% 96.39%
- ----------------------------------------------------------------------------
B 2.97% 7.03% 21.78% 25.57% 83.69%
- ----------------------------------------------------------------------------
C 2.97% 6.87% 21.65% 25.45% 84.05%
- ----------------------------------------------------------------------------
I 3.48% 8.08% 25.36% 31.98% 101.16%
- ----------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
* Effective June 9, 2003, Lehman Brothers Government/Credit Index has been
dropped as a benchmark for the fund.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg.
## Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITIONS
LEHMAN BROTHERS AGGREGATE BOND INDEX - a measure of the U.S. bond market.
LEHMAN BROTHERS GOVERNMENT/CREDIT INDEX - measures the performance of all debt
obligations of the U.S. Treasury and U.S. government agencies, and all
investment-grade domestic corporate debt.
LEHMAN BROTHERS HIGH YIELD INDEX - measures the performance of the high-yield
bond market.
CITIGROUP WORLD GOVERNMENT NON-DOLLAR HEDGED INDEX - measures the government
bond markets around the world, ex-U.S.
J.P. MORGAN EMERGING MARKETS BOND INDEX GLOBAL (EMBI GLOBAL) - tracks debt
instruments in the emerging markets (includes a broader array of countries than
the EMBI Plus).
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflect the deduction of the maximum
4.75% sales charge. Class B results, including sales charge, reflect the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales charge,
redeemed within one year from the end of the calendar month of purchase
reflects the deduction of the 1% CDSC. Class I shares have no sales charges and
are available only to certain investors.
Performance for I shares includes the performance of the fund's Class A shares
for periods prior to their offering. Performance for C shares includes the
performance of the fund's Class B shares for periods prior to their offering.
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 initial share class to which it is
blended, and lower performance for share classes with lower operating expenses
than the initial 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.
A portion of the fund's distributions may include a return of capital for
shareholders. Distributions that are treated for federal income tax purposes as
a return of capital will reduce a shareholder's tax basis in his or her shares
and, to the extent the distribution exceeds a shareholder's adjusted tax basis,
will be treated as a gain to the shareholder from a sale of shares.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks relating
to interest rates, currency exchange rates, economic, and political conditions.
Investments in high yield or lower-rated securities may provide greater returns
but are subject to greater-than-average risk.
Because the portfolio invests in a limited number of companies a change in one
security's value may have a more significant effect on the portfolio's value.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
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PORTFOLIO OF INVESTMENTS (unaudited) - 4/30/04
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 96.4%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
U.S. Bonds - 62.3%
- ----------------------------------------------------------------------------------------------
Advertising & Broadcasting - 3.2%
- ----------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $1,000 $1,020,000
- ----------------------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.75%, 2010## 1,975 1,935,500
- ----------------------------------------------------------------------------------------------
Lamar Media Corp., 7.25%, 2013 965 1,037,375
- ----------------------------------------------------------------------------------------------
Muzak LLC, 10%, 2009 305 312,625
- ----------------------------------------------------------------------------------------------
Paxson Communications Corp., 10.75%, 2008 900 949,500
- ----------------------------------------------------------------------------------------------
Paxson Communications Corp., 0% to 2006, 12.25% to 2009 1,645 1,427,038
- ----------------------------------------------------------------------------------------------
Radio One, Inc., 8.875%, 2011 1,000 1,107,500
- ----------------------------------------------------------------------------------------------
Spanish Broadcasting System, Inc., 9.625%, 2009 1,820 1,924,650
- ----------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc., 12%, 2010 715 826,719
- ----------------------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc., 0% to 2005, 14% to 2009 305 293,563
- ----------------------------------------------------------------------------------------------
Young Broadcasting, Inc., 8.5%, 2008 1,045 1,120,763
- ----------------------------------------------------------------------------------------------
$11,955,233
- ----------------------------------------------------------------------------------------------
Aerospace - 0.8%
- ----------------------------------------------------------------------------------------------
Hexcel Corp., 9.875%, 2008 $885 $975,713
- ----------------------------------------------------------------------------------------------
Hexcel Corp., 9.75%, 2009 600 630,000
- ----------------------------------------------------------------------------------------------
K&F Industries, Inc., 9.25%, 2007 784 811,440
- ----------------------------------------------------------------------------------------------
Transdigm, Inc., 8.375%, 2011 700 740,250
- ----------------------------------------------------------------------------------------------
$3,157,403
- ----------------------------------------------------------------------------------------------
Airlines - 0.3%
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.568%, 2006 $400 $336,518
- ----------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.566%, 2020 808 675,582
- ----------------------------------------------------------------------------------------------
$1,012,100
- ----------------------------------------------------------------------------------------------
Apparel Manufacturers - 0%
- ----------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 7.875%, 2005 $2,200 $71,500
- ----------------------------------------------------------------------------------------------
WestPoint Stevens, Inc., 7.875%, 2008** 360 11,700
- ----------------------------------------------------------------------------------------------
$83,200
- ----------------------------------------------------------------------------------------------
Asset Backed & Securitized - 7.1%
- ----------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., 6.6%, 2012 $3,640 $3,542,128
- ----------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.44%, 2013 2,000 1,770,802
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.78%, 2009 2,150 2,321,619
- ----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 0.9064%, 2005^^ 58,000 463,345
- ----------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 7.8613%, 2032 385 436,737
- ----------------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp., 8%, 2004+ 853 776,067
- ----------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,050 840,409
- ----------------------------------------------------------------------------------------------
Falcon Auto Dealership LLC, 4.1743%, 2023^^ 4,981 923,589
- ----------------------------------------------------------------------------------------------
Falcon Franchise Loan LLC, 3.385%, 2023##^^ 6,894 978,465
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Bank of America,
0.7503%, 2028^^ 56,753 1,369,739
- ----------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage Trust,
7%, 2014 600 622,494
- ----------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 1,758 1,581,566
- ----------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.7384%, 2010 4,000 4,206,678
- ----------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 7.214%, 2007 2,500 2,513,390
- ----------------------------------------------------------------------------------------------
Nationslink Funding Corp., 5%, 2009 3,000 2,711,345
- ----------------------------------------------------------------------------------------------
Residential Accredit Loans, Inc., 7.75%, 2027 1,615 1,613,328
- ----------------------------------------------------------------------------------------------
$26,671,701
- ----------------------------------------------------------------------------------------------
Automotive - 3.0%
- ----------------------------------------------------------------------------------------------
Collins & Aikman Products Co., 10.75%, 2011 $944 $977,040
- ----------------------------------------------------------------------------------------------
Dana Corp., 6.5%, 2009 1,400 1,470,000
- ----------------------------------------------------------------------------------------------
Dana Corp., 9%, 2011 EUR 340 480,497
- ----------------------------------------------------------------------------------------------
Eagle-Picher, Inc., 9.75%, 2013 $625 684,375
- ----------------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.875%, 2010 2,127 2,336,760
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 7%, 2012 1,431 1,505,921
- ----------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 8%, 2031 1,214 1,281,285
- ----------------------------------------------------------------------------------------------
Metaldyne Corp., 11%, 2012 410 348,500
- ----------------------------------------------------------------------------------------------
TRW Automotive Acquisition Corp., 9.375%, 2013 219 250,755
- ----------------------------------------------------------------------------------------------
TRW Automotive, Inc., 11%, 2013 361 429,590
- ----------------------------------------------------------------------------------------------
Tenneco Automotive, Inc., 10.25%, 2013 1,250 1,440,625
- ----------------------------------------------------------------------------------------------
$11,205,348
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 1.1%
- ----------------------------------------------------------------------------------------------
Credit Suisse First Boston Corp., 6.38%, 2035 $1,600 $1,743,870
- ----------------------------------------------------------------------------------------------
RBS Capital Trust II, 6.425%, 2049 576 568,655
- ----------------------------------------------------------------------------------------------
UniCredito Italiano Capital Trust II, 9.2% to 2010, 9.2%, 2049## 1,482 1,809,507
- ----------------------------------------------------------------------------------------------
$4,122,032
- ----------------------------------------------------------------------------------------------
Basic Industry - 0.2%
- ----------------------------------------------------------------------------------------------
Trimas Corp., 9.875%, 2012 $845 $912,600
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.1%
- ----------------------------------------------------------------------------------------------
CSC Holdings, Inc., 8.125%, 2009 $1,244 $1,327,970
- ----------------------------------------------------------------------------------------------
Charter Communications, Inc., 8.625%, 2009## 1,580 1,311,400
- ----------------------------------------------------------------------------------------------
Charter Communciations, Inc., 8.375%, 2014## 920 906,200
- ----------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.5%, 2013 1,628 1,832,421
- ----------------------------------------------------------------------------------------------
DIRECTV Holdings LLC, 8.375%, 2013 495 553,163
- ----------------------------------------------------------------------------------------------
Mediacom Broadband LLC, 11%, 2013 880 941,600
- ----------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 841 1,073,626
- ----------------------------------------------------------------------------------------------
$7,946,380
- ----------------------------------------------------------------------------------------------
Building - 0.9%
- ----------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $735 $804,825
- ----------------------------------------------------------------------------------------------
Atrium Cos., Inc., 10.5%, 2009 1,000 1,051,250
- ----------------------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625%, 2010 355 397,600
- ----------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 9.875%, 2007 1,000 995,000
- ----------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 10%, 2008 140 153,300
- ----------------------------------------------------------------------------------------------
$3,401,975
- ----------------------------------------------------------------------------------------------
Business Services - 1.2%
- ----------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $650 $695,500
- ----------------------------------------------------------------------------------------------
Iron Mountain, Inc., 7.75%, 2015 1,250 1,281,250
- ----------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 5.5%, 2008 1,400 1,330,000
- ----------------------------------------------------------------------------------------------
Xerox Corp., 7.625%, 2013 1,030 1,050,600
- ----------------------------------------------------------------------------------------------
$4,357,350
- ----------------------------------------------------------------------------------------------
Chemicals - 1.9%
- ----------------------------------------------------------------------------------------------
Equistar Chemicals LP, 10.625%, 2011 $835 $931,025
- ----------------------------------------------------------------------------------------------
Huntsman International LLC, 10.125%, 2009 720 754,200
- ----------------------------------------------------------------------------------------------
IMC Global, Inc., 10.875%, 2013 1,210 1,485,275
- ----------------------------------------------------------------------------------------------
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67%, 2013 1,000 760,000
- ----------------------------------------------------------------------------------------------
JohnsonDiversey, Inc., 9.625%, 2012 1,000 1,095,000
- ----------------------------------------------------------------------------------------------
Lyondell Chemical Co., 11.125%, 2012 1,340 1,487,400
- ----------------------------------------------------------------------------------------------
Nalco Co., 7.75%, 2011## 475 499,938
- ----------------------------------------------------------------------------------------------
$7,012,838
- ----------------------------------------------------------------------------------------------
Construction - 0.3%
- ----------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8%, 2009 $1,065 $1,176,825
- ----------------------------------------------------------------------------------------------
Consumer Cyclical - 0.2%
- ----------------------------------------------------------------------------------------------
Cendant Corp., 6.25%, 2008 $835 $901,845
- ----------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.7%
- ----------------------------------------------------------------------------------------------
Kindercare Learning Centers, Inc., 9.5%, 2009 $876 $889,867
- ----------------------------------------------------------------------------------------------
Remington Arms Co., Inc., 10.5%, 2011 1,100 1,094,500
- ----------------------------------------------------------------------------------------------
Samsonite Corp., 10.75%, 2008 660 686,400
- ----------------------------------------------------------------------------------------------
$2,670,767
- ----------------------------------------------------------------------------------------------
Containers - 0.8%
- ----------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.875%, 2009 $390 $423,638
- ----------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.25%, 2013 1,460 1,507,450
- ----------------------------------------------------------------------------------------------
Pliant Corp., 13%, 2010 1,030 932,150
- ----------------------------------------------------------------------------------------------
$2,863,238
- ----------------------------------------------------------------------------------------------
Defense Electronics - 0.3%
- ----------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc., 7.625%, 2012 $1,045 $1,125,988
- ----------------------------------------------------------------------------------------------
Energy - Independent - 0.3%
- ----------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 8.125%, 2011## $855 $936,225
- ----------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ----------------------------------------------------------------------------------------------
Amerada Hess Corp., 7.3%, 2031 $1,056 $1,076,005
- ----------------------------------------------------------------------------------------------
Entertainment - 1.5%
- ----------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $864 $902,880
- ----------------------------------------------------------------------------------------------
Regal Cinemas, Inc., 9.375%, 2012 1,735 2,055,975
- ----------------------------------------------------------------------------------------------
Six Flags, Inc., 9.75%, 2013 1,600 1,686,000
- ----------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 653 776,648
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$5,421,503
- ----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.3%
- ----------------------------------------------------------------------------------------------
Michael Foods, Inc., 8%, 2013## $880 $925,100
- ----------------------------------------------------------------------------------------------
Seminis Vegetable Seeds, Inc., 10.25%, 2013 245 271,950
- ----------------------------------------------------------------------------------------------
$1,197,050
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Forest & Paper Products - 1.8%
- ----------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8%, 2010 $370 $353,350
- ----------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.5%, 2013 1,145 1,219,425
- ----------------------------------------------------------------------------------------------
FiberMark, Inc., 10.75%, 2011** 800 424,000
- ----------------------------------------------------------------------------------------------
Georgia Pacific Corp., 9.375%, 2013 1,750 2,034,375
- ----------------------------------------------------------------------------------------------
Graphic Packaging International, Inc., 8.5%, 2011 400 442,000
- ----------------------------------------------------------------------------------------------
Graphic Packaging International, Inc., 9.5%, 2013 2,000 2,250,000
- ----------------------------------------------------------------------------------------------
$6,723,150
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 2.1%
- ----------------------------------------------------------------------------------------------
Aztar Corp., 8.875%, 2007 $1,150 $1,187,375
- ----------------------------------------------------------------------------------------------
Boyd Gaming Corp., 6.75%, 2014## 5 4,925
- ----------------------------------------------------------------------------------------------
GEO Group, Inc., 8.25%, 2013 775 806,000
- ----------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.375%, 2011 1,035 1,143,675
- ----------------------------------------------------------------------------------------------
Park Place Entertainment Corp., 8.875%, 2008 1,020 1,137,300
- ----------------------------------------------------------------------------------------------
Pinnacle Entertainment, Inc., 8.75%, 2013 700 707,000
- ----------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 8%, 2010 470 512,300
- ----------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 1,000 1,093,750
- ----------------------------------------------------------------------------------------------
Venetian Casino Resort LLC, 11%, 2010 1,040 1,216,800
- ----------------------------------------------------------------------------------------------
$7,809,125
- ----------------------------------------------------------------------------------------------
Industrial - 0.4%
- ----------------------------------------------------------------------------------------------
Blount, Inc., 7%, 2005 $620 $644,800
- ----------------------------------------------------------------------------------------------
MSW Energy Holdings II LLC, 7.375%, 2010## 785 812,475
- ----------------------------------------------------------------------------------------------
$1,457,275
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 2.5%
- ----------------------------------------------------------------------------------------------
AGCO Corp., 9.5%, 2008 $1,415 $1,549,425
- ----------------------------------------------------------------------------------------------
AMSTED Industries, Inc., 10.25%, 2011## 1,280 1,446,400
- ----------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011## 1,500 1,672,500
- ----------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.5%, 2012 865 986,100
- ----------------------------------------------------------------------------------------------
Terex Corp., 10.375%, 2011 795 904,313
- ----------------------------------------------------------------------------------------------
Terex Corp., 9.25%, 2011 995 1,109,425
- ----------------------------------------------------------------------------------------------
United Rentals, Inc., 6.5%, 2012## 1,700 1,640,500
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$9,308,663
- ----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.5%
- ----------------------------------------------------------------------------------------------
Alliance Imaging, Inc., 10.375%, 2011 $1,100 $1,100,000
- ----------------------------------------------------------------------------------------------
Fisher Scientific International, Inc., 8.125%, 2012 816 885,360
- ----------------------------------------------------------------------------------------------
$1,985,360
- ----------------------------------------------------------------------------------------------
Metals & Mining - 0.5%
- ----------------------------------------------------------------------------------------------
Arch Western Finance, 6.75%, 2013## $565 $581,950
- ----------------------------------------------------------------------------------------------
Peabody Energy Corp., 6.875%, 2013 245 254,800
- ----------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 344 414,870
- ----------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75%, 2010 627 710,078
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$1,961,698
- ----------------------------------------------------------------------------------------------
Mortgage Backed - 5.4%
- ----------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6%, 2037## $1,200 $941,391
- ----------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2031 1,064 1,107,308
- ----------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2034 3,063 2,970,166
- ----------------------------------------------------------------------------------------------
Fannie Mae TBA, 5.5%, 2034 15,020 15,143,380
- ----------------------------------------------------------------------------------------------
$20,162,245
- ----------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.7%
- ----------------------------------------------------------------------------------------------
AmeriGas Partners LP, 8.875%, 2011 $610 $669,475
- ----------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 1,679 1,893,491
- ----------------------------------------------------------------------------------------------
$2,562,966
- ----------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.6%
- ----------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875%, 2010 $300 $331,500
- ----------------------------------------------------------------------------------------------
El Paso Energy Corp., 7.625%, 2010 2,005 2,065,150
- ----------------------------------------------------------------------------------------------
El Paso Energy Corp., 7%, 2011 1,200 1,020,000
- ----------------------------------------------------------------------------------------------
Southern Natural Gas Co., Inc., 8.875%, 2010 1,050 1,160,250
- ----------------------------------------------------------------------------------------------
Williams Cos., Inc., 7.125%, 2011 1,500 1,567,500
- ----------------------------------------------------------------------------------------------
$6,144,400
- ----------------------------------------------------------------------------------------------
Oils - 0.4%
- ----------------------------------------------------------------------------------------------
Valero Energy Corp., 6.875%, 2012 $1,187 $1,312,573
- ----------------------------------------------------------------------------------------------
Pollution Control - 0.5%
- ----------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875%, 2013 $1,900 $2,042,500
- ----------------------------------------------------------------------------------------------
Printing & Publishing - 1.6%
- ----------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875%, 2009 $1,100 $1,233,375
- ----------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013## 1,010 1,105,950
- ----------------------------------------------------------------------------------------------
Hollinger International, Inc., 9%, 2010 825 915,750
- ----------------------------------------------------------------------------------------------
Mail-Well Corp., 9.625%, 2012 1,530 1,683,000
- ----------------------------------------------------------------------------------------------
MediaNews Group, Inc., 6.875%, 2013## 1,180 1,168,200
- ----------------------------------------------------------------------------------------------
$6,106,275
- ----------------------------------------------------------------------------------------------
Retailers - 1.1%
- ----------------------------------------------------------------------------------------------
Couche Tard U.S. LP, 7.5%, 2013 $1,355 $1,422,750
- ----------------------------------------------------------------------------------------------
J. Crew Operating Corp., 10.375%, 2007 500 500,625
- ----------------------------------------------------------------------------------------------
Rite Aid Corp., 9.5%, 2011 1,230 1,380,675
- ----------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25%, 2013 575 609,500
- ----------------------------------------------------------------------------------------------
$3,913,550
- ----------------------------------------------------------------------------------------------
Supermarkets - 0.3%
- ----------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875%, 2012 $1,125 $1,220,625
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.3%
- ----------------------------------------------------------------------------------------------
Citizens Communications Co., 9%, 2031 $1,212 $1,189,750
- ----------------------------------------------------------------------------------------------
MCI, Inc., 5.908%, 2007 118 116,673
- ----------------------------------------------------------------------------------------------
MCI, Inc., 6.688%, 2009 118 112,100
- ----------------------------------------------------------------------------------------------
MCI, Inc., 7.735%, 2014 101 93,678
- ----------------------------------------------------------------------------------------------
Qwest Corp., 13.5%, 2010## 1,750 2,030,000
- ----------------------------------------------------------------------------------------------
Sprint Capital Corp., 6.875%, 2028 1,229 1,206,560
- ----------------------------------------------------------------------------------------------
Time Warner Telecom Holdings, Inc., 10.125%, 2011 105 87,675
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$4,836,436
- ----------------------------------------------------------------------------------------------
U.S. Government Agencies - 1.2%
- ----------------------------------------------------------------------------------------------
Fannie Mae, 2.5%, 2006 $2,867 $2,857,864
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 493 476,515
- ----------------------------------------------------------------------------------------------
Small Business Administration, 4.77%, 2024 1,049 1,032,937
- ----------------------------------------------------------------------------------------------
$4,367,316
- ----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 6.2%
- ----------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2031 $1,654 $1,675,709
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 5.75%, 2005 4,139 4,371,173
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.25%, 2008### 10,622 10,556,441
- ----------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.875%, 2009 5,829 6,536,955
- ----------------------------------------------------------------------------------------------
$23,140,278
- ----------------------------------------------------------------------------------------------
Utilities - Electric Power - 5.4%
- ----------------------------------------------------------------------------------------------
AES Corp., 9%, 2015## $800 $872,000
- ----------------------------------------------------------------------------------------------
Allegheny Energy Supply Co. LLC, 8.25%, 2012## 1,200 1,203,000
- ----------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 1,705 1,941,871
- ----------------------------------------------------------------------------------------------
CMS Energy Corp., 8.5%, 2011 1,500 1,571,250
- ----------------------------------------------------------------------------------------------
Calpine Corp., 8.5%, 2011 1,250 875,000
- ----------------------------------------------------------------------------------------------
Calpine Corp., 8.75%, 2013## 800 708,000
- ----------------------------------------------------------------------------------------------
DPL, Inc., 6.875%, 2011 842 829,370
- ----------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 9.875%, 2010## 775 840,875
- ----------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 6.875%, 2011 1,100 940,500
- ----------------------------------------------------------------------------------------------
Midland Funding II, 13.25%, 2006 1,500 1,695,000
- ----------------------------------------------------------------------------------------------
NRG Energy, Inc., 8%, 2013## 1,260 1,269,450
- ----------------------------------------------------------------------------------------------
PG&E Corp., 6.875%, 2008## 280 298,200
- ----------------------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%, 2007 2,195 2,293,775
- ----------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25%, 2010 795 850,650
- ----------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5%, 2013 460 499,100
- ----------------------------------------------------------------------------------------------
System Energy Resources, Inc., 8.09%, 2017 556 609,555
- ----------------------------------------------------------------------------------------------
TXU Corp., 6.375%, 2006 2,740 2,912,620
- ----------------------------------------------------------------------------------------------
$20,210,216
- ----------------------------------------------------------------------------------------------
Utilities - Gas - 0.1%
- ----------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 $342 $362,870
- ----------------------------------------------------------------------------------------------
Wireless Communications - 2.2%
- ----------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 11%, 2010 $874 $948,290
- ----------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 8.5%, 2012## 265 256,388
- ----------------------------------------------------------------------------------------------
American Tower Escrow Corp., 0%, 2008 1,110 807,525
- ----------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 995 1,024,850
- ----------------------------------------------------------------------------------------------
Crown Castle International Corp., 7.5%, 2013 1,215 1,211,963
- ----------------------------------------------------------------------------------------------
Dobson Communications Corp., 8.875%, 2013 340 266,050
- ----------------------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375%, 2015 360 373,950
- ----------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75%, 2010 355 331,925
- ----------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.875%, 2010 815 837,413
- ----------------------------------------------------------------------------------------------
Triton PCS Holdings, Inc., 8.5%, 2013 795 826,800
- ----------------------------------------------------------------------------------------------
Western Wireless Corp., 9.25%, 2013 1,225 1,258,688
- ----------------------------------------------------------------------------------------------
$8,143,842
- ----------------------------------------------------------------------------------------------
Total U.S. Bonds $232,978,969
- ----------------------------------------------------------------------------------------------
Foreign Bonds - 34.1%
- ----------------------------------------------------------------------------------------------
Australia - 1.1%
- ----------------------------------------------------------------------------------------------
Burns Philp Capital Property Ltd., 9.75%, 2012 (Food &
Non-Alcoholic Beverages) $2,515 $2,653,325
- ----------------------------------------------------------------------------------------------
Government of Australia, 6.25%, 2015 (International
Market Sovereign) AUD 1,771 1,303,312
- ----------------------------------------------------------------------------------------------
$3,956,637
- ----------------------------------------------------------------------------------------------
Austria - 1.3%
- ----------------------------------------------------------------------------------------------
Republic of Austria, 5.5%, 2007 (International Market
Sovereign) EUR 2,843 $3,677,638
- ----------------------------------------------------------------------------------------------
Republic of Austria, 5%, 2012 (International Market
Sovereign) 763 972,731
- ----------------------------------------------------------------------------------------------
Republic of Austria, 4.65%, 2018 (International Market
Sovereign) 265 321,784
- ----------------------------------------------------------------------------------------------
$4,972,153
- ----------------------------------------------------------------------------------------------
Belgium - 0.7%
- ----------------------------------------------------------------------------------------------
Kingdom of Belgium, 3.75%, 2009 (International Market
Sovereign) EUR 1,332 $1,616,858
- ----------------------------------------------------------------------------------------------
Kingdom of Belgium, 5%, 2012 (International Market
Sovereign) 739 940,680
- ----------------------------------------------------------------------------------------------
$2,557,538
- ----------------------------------------------------------------------------------------------
Brazil - 2.4%
- ----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.125%, 2012 (Emerging Market
Sovereign) $1,727 $1,433,459
- ----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 (Emerging Market
Sovereign) 5,286 4,852,249
- ----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.0625%, 2024 (Emerging
Market Sovereign) 995 761,175
- ----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 11%, 2040 (Emerging Market
Sovereign) 2,109 1,961,370
- ----------------------------------------------------------------------------------------------
$9,008,253
- ----------------------------------------------------------------------------------------------
Bulgaria - 0.5%
- ----------------------------------------------------------------------------------------------
Republic of Bulgaria, 8.25%, 2015 (Emerging Market
Sovereign) $820 $938,900
- ----------------------------------------------------------------------------------------------
Republic of Bulgaria, 8.25%, 2015 (Emerging Market
Sovereign)## 673 770,585
- ----------------------------------------------------------------------------------------------
$1,709,485
- ----------------------------------------------------------------------------------------------
Canada - 1.9%
- ----------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc., 8.3%, 2005 (Forest & Paper
Products) $1,801 $1,880,707
- ----------------------------------------------------------------------------------------------
Acetex Corp., 10.875%, 2009 (Chemicals) 900 990,000
- ----------------------------------------------------------------------------------------------
Government of Canada, 5.5%, 2009 (International Market
Sovereign) CAD 2,981 2,332,203
- ----------------------------------------------------------------------------------------------
Government of Canada, 5.25%, 2012 (International Market
Sovereign) 1,403 1,074,354
- ----------------------------------------------------------------------------------------------
Government of Canada, 8%, 2023 (International Market
Sovereign) 713 697,944
- ----------------------------------------------------------------------------------------------
$6,975,208
- ----------------------------------------------------------------------------------------------
Cayman Islands - 0.2%
- ----------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 4.75%, 2014 (Banks & Credit
Companies)## EUR 755 $918,300
- ----------------------------------------------------------------------------------------------
Chile - 0.8%
- ----------------------------------------------------------------------------------------------
AES Gener S.A., 7.5%, 2014 (Utilities - Electric Power) $1,065 $1,019,738
- ----------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013
(Utilities - Electric Power) 697 747,853
- ----------------------------------------------------------------------------------------------
Enersis S.A., 7.375%, 2014 (Utilities - Electric Power)## 1,302 1,281,945
- ----------------------------------------------------------------------------------------------
$3,049,536
- ----------------------------------------------------------------------------------------------
Colombia - 0.4%
- ----------------------------------------------------------------------------------------------
Republic of Colombia, 10.75%, 2013 (Emerging Market
Sovereign) $1,484 $1,632,400
- ----------------------------------------------------------------------------------------------
Denmark - 1.2%
- ----------------------------------------------------------------------------------------------
Allianz AG, 5.5%, 2049 (Insurance - Property & Casualty) EUR 832 $1,013,251
- ----------------------------------------------------------------------------------------------
Kingdom of Denmark, 7%, 2007 (International Market
Sovereign) DKK 5,239 950,915
- ----------------------------------------------------------------------------------------------
Kingdom of Denmark, 6%, 2009 (International Market
Sovereign) 12,530 2,243,111
- ----------------------------------------------------------------------------------------------
Kingdom of Denmark, 5%, 2013 (International Market
Sovereign) 1,601 270,242
- ----------------------------------------------------------------------------------------------
$4,477,519
- ----------------------------------------------------------------------------------------------
Finland - 1.6%
- ----------------------------------------------------------------------------------------------
Republic of Finland, 2.75%, 2006 (International Market
Sovereign) EUR 1,657 $1,992,445
- ----------------------------------------------------------------------------------------------
Republic of Finland, 3%, 2008 (International Market
Sovereign) 2,659 3,156,682
- ----------------------------------------------------------------------------------------------
Republic of Finland, 5.375%, 2013 (International Market
Sovereign) 563 736,272
- ----------------------------------------------------------------------------------------------
$5,885,399
- ----------------------------------------------------------------------------------------------
France - 2.5%
- ----------------------------------------------------------------------------------------------
Crown European Holdings S.A., 9.5%, 2011 (Containers) $1,435 $1,608,994
- ----------------------------------------------------------------------------------------------
Republic of France, 4.75%, 2007 - 2012 (International
Market Sovereign) EUR 2,197 2,770,596
- ----------------------------------------------------------------------------------------------
Republic of France, 4%, 2009 (International Market
Sovereign) 1,624 1,988,745
- ----------------------------------------------------------------------------------------------
Rhodia S.A., 8.875%, 2011 (Chemicals)## $1,665 1,373,625
- ----------------------------------------------------------------------------------------------
Vivendi Universal S.A., 6.25%, 2008 (Advertising &
Broadcasting) 1,435 1,497,781
- ----------------------------------------------------------------------------------------------
$9,239,741
- ----------------------------------------------------------------------------------------------
Germany - 3.5%
- ----------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.75%, 2030
(Telecommunications - Wireline) $1,048 $1,301,704
- ----------------------------------------------------------------------------------------------
Federal Republic of Germany, 4%, 2007 (International
Market Sovereign) EUR 1,696 2,094,386
- ----------------------------------------------------------------------------------------------
Federal Republic of Germany, 4.5%, 2009 (International
Market Sovereign) 4,704 5,904,467
- ----------------------------------------------------------------------------------------------
Federal Republic of Germany, 5.25%, 2010 (International
Market Sovereign) EUR 1,658 $2,156,686
- ----------------------------------------------------------------------------------------------
Kreditanstalt fur Wiederaufbau, 3.25%, 2008
(International Market Agencies) 1,402 1,682,406
- ----------------------------------------------------------------------------------------------
Kronos International, Inc., 8.875%, 2009 (Chemicals) 70 89,704
- ----------------------------------------------------------------------------------------------
$13,229,353
- ----------------------------------------------------------------------------------------------
Ireland - 2.0%
- ----------------------------------------------------------------------------------------------
Eircom Funding PLC, 8.25%, 2013 (Telecommunications -
Wireline) $560 $604,800
- ----------------------------------------------------------------------------------------------
MDP Acquisitions PLC, 9.625%, 2012 (Forest & Paper
Products) 660 742,500
- ----------------------------------------------------------------------------------------------
Republic of Ireland, 4.25%, 2007 (International Market
Sovereign) EUR 2,741 3,412,899
- ----------------------------------------------------------------------------------------------
Republic of Ireland, 3.25%, 2009 (International Market
Sovereign) 1,838 2,180,451
- ----------------------------------------------------------------------------------------------
Republic of Ireland, 5%, 2013 (International Market
Sovereign) 316 402,780
- ----------------------------------------------------------------------------------------------
$7,343,430
- ----------------------------------------------------------------------------------------------
Italy - 0.5%
- ----------------------------------------------------------------------------------------------
Telecom Italia S.p.A, 5.625%, 2007 (Telecommunications -
Wireline)## EUR 817 $1,034,818
- ----------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.25%, 2013 (Telecommunications -
Wireline) $961 947,475
- ----------------------------------------------------------------------------------------------
$1,982,293
- ----------------------------------------------------------------------------------------------
Kazakhstan - 0.8%
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks &
Credit Companies)#+ $999 $1,069,089
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 (Banks &
Credit Companies)## 85 90,964
- ----------------------------------------------------------------------------------------------
Kazkommerts International B.V., 8.5%, 2013 (Banks &
Credit Companies)## 650 627,250
- ----------------------------------------------------------------------------------------------
Turanalem Finance B.V., 8%, 2014 (Banks & Credit
Companies)## 1,368 1,244,880
- ----------------------------------------------------------------------------------------------
$3,032,183
- ----------------------------------------------------------------------------------------------
Luxembourg - 0.5%
- ----------------------------------------------------------------------------------------------
Millicom International Cellular S.A., 10%, 2013 (Wireless
Communications)## $780 $799,500
- ----------------------------------------------------------------------------------------------
Tyco International Group S.A., 6.75%, 2011
(Conglomerates) 1,055 1,137,751
- ----------------------------------------------------------------------------------------------
$1,937,251
- ----------------------------------------------------------------------------------------------
Malaysia - 0.5%
- ----------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 7.75%, 2015 (Emerging Market
Agencies) $714 $821,800
- ----------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 7.875%, 2022 (Emerging Market
Agencies)## 1,020 1,143,220
- ----------------------------------------------------------------------------------------------
$1,965,020
- ----------------------------------------------------------------------------------------------
Mexico - 2.6%
- ----------------------------------------------------------------------------------------------
BBVA Bancomer Capital Trust I, 10.5%, 2011 (Banks &
Credit Companies)## $1,325 $1,477,375
- ----------------------------------------------------------------------------------------------
Banco Mercantil S.A., 5.875%, 2014 (Banks & Credit
Companies)## 1,060 1,033,500
- ----------------------------------------------------------------------------------------------
Grupo Televisa S.A., 8.5%, 2032 (Broadcast & Cable TV) 302 318,610
- ----------------------------------------------------------------------------------------------
Innova S. de R.L., 9.375%, 2013 (Wireless Communications) 445 483,381
- ----------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625%, 2022
(Emerging Market Agencies) 3,164 3,385,480
- ----------------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.5%, 2027 (Emerging Market
Agencies) 1,029 1,178,205
- ----------------------------------------------------------------------------------------------
United Mexican States, 8%, 2022 (Emerging Market
Sovereign) 285 300,675
- ----------------------------------------------------------------------------------------------
United Mexican States, 7.5%, 2033 (Emerging Market
Sovereign) 1,374 1,360,260
- ----------------------------------------------------------------------------------------------
$9,537,486
- ----------------------------------------------------------------------------------------------
Netherlands - 1.8%
- ----------------------------------------------------------------------------------------------
Kingdom of Netherlands, 5.75%, 2007 (International Market
Sovereign) EUR 1,017 $1,313,117
- ----------------------------------------------------------------------------------------------
Kingdom of Netherlands, 3.75%, 2009 (International Market
Sovereign) 2,571 3,119,528
- ----------------------------------------------------------------------------------------------
Kingdom of Netherlands, 5%, 2012 (International Market
Sovereign) 1,923 2,453,570
- ----------------------------------------------------------------------------------------------
$6,886,215
- ----------------------------------------------------------------------------------------------
New Zealand - 0.8%
- ----------------------------------------------------------------------------------------------
Government of New Zealand, 7%, 2009 (International Market
Sovereign) NZD 1,434 $933,131
- ----------------------------------------------------------------------------------------------
Government of New Zealand, 6.5%, 2013 (International
Market Sovereign) 2,997 1,908,611
- ----------------------------------------------------------------------------------------------
$2,841,742
- ----------------------------------------------------------------------------------------------
Panama - 0.4%
- ----------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2023 - 2029 (Emerging Market
Sovereign) $1,333 $1,459,370
- ----------------------------------------------------------------------------------------------
Poland - 0.2%
- ----------------------------------------------------------------------------------------------
PTC International Finance II S.A., 11.25%, 2009 (Wireless
Communications) $729 $783,675
- ----------------------------------------------------------------------------------------------
Portugal - 0.4%
- ----------------------------------------------------------------------------------------------
Republic of Portugal, 5.45%, 2013 (International Market
Sovereign) EUR 1,023 $1,340,102
- ----------------------------------------------------------------------------------------------
Qatar - 0.6%
- ----------------------------------------------------------------------------------------------
State of Qatar, 9.75%, 2030 (Emerging Market
Sovereign)*#+ $1,610 $2,181,550
- ----------------------------------------------------------------------------------------------
Russia - 2.3%
- ----------------------------------------------------------------------------------------------
Gaz Capital S.A., 8.625%, 2034 (Utilities - Gas) $950 $921,500
- ----------------------------------------------------------------------------------------------
Gazprom, 9.625%, 2013 (Utilities - Gas)## 30 30,975
- ----------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 (Utilities - Gas)## 660 681,450
- ----------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 8.375%, 2010 (Wireless
Communications)## 1,664 1,605,760
- ----------------------------------------------------------------------------------------------
Russian Federation, 3%, 2008 - 2011 (Emerging Market
Sovereign) 2,563 2,090,065
- ----------------------------------------------------------------------------------------------
Russian Federation, 11%, 2018 (Emerging Market Sovereign) 812 1,046,262
- ----------------------------------------------------------------------------------------------
Salomon Brothers (SIBNEFT), 10.75%, 2009 (Energy -
Integrated) 157 166,263
- ----------------------------------------------------------------------------------------------
Tyumen Oil Co., 11%, 2007 (Energy - Integrated) 855 961,875
- ----------------------------------------------------------------------------------------------
Vimpel-Communications, 10.45%, 2005 (Wireless
Communications)## 1,077 1,133,543
- ----------------------------------------------------------------------------------------------
$8,637,693
- ----------------------------------------------------------------------------------------------
Singapore - 0.2%
- ----------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 (Electronics) $790 $799,875
- ----------------------------------------------------------------------------------------------
South Africa - 0.2%
- ----------------------------------------------------------------------------------------------
Republic of South Africa, 8.5%, 2017 (Emerging Market
Sovereign) $793 $915,915
- ----------------------------------------------------------------------------------------------
South Korea - 0.3%
- ----------------------------------------------------------------------------------------------
Woori Bank, 5.75%, 2014 (Banks & Credit Companies)## $1,070 $1,075,350
- ----------------------------------------------------------------------------------------------
Spain - 0.9%
- ----------------------------------------------------------------------------------------------
Kingdom of Spain, 6%, 2008 (International Market
Sovereign) EUR 2,530 $3,344,461
- ----------------------------------------------------------------------------------------------
Sweden - 0.3%
- ----------------------------------------------------------------------------------------------
Kingdom of Sweden, 6.75%, 2014 (International Market
Sovereign) SEK 1,015 $155,172
- ----------------------------------------------------------------------------------------------
Spintab AB, 5%, 2008 (Banks & Credit Companies) 7,400 1,003,465
- ----------------------------------------------------------------------------------------------
$1,158,637
- ----------------------------------------------------------------------------------------------
Ukraine - 0.3%
- ----------------------------------------------------------------------------------------------
Ukraine Cabinet of Ministers, 7.65%, 2013 (Emerging
Market Sovereign)## $1,135 $1,089,600
- ----------------------------------------------------------------------------------------------
United Kingdom - 0.4%
- ----------------------------------------------------------------------------------------------
United Kingdom Treasury, 7.25%, 2007 (International
Market Sovereign) GBP 206 $394,688
- ----------------------------------------------------------------------------------------------
United Kingdom Treasury, 5%, 2008 - 2012 (International
Market Sovereign) 587 1,046,778
- ----------------------------------------------------------------------------------------------
$1,441,466
- ----------------------------------------------------------------------------------------------
Total Foreign Bonds $127,364,836
- ----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $349,976,789) $360,343,805
- ----------------------------------------------------------------------------------------------
Stocks - 0.2%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
U.S. Stocks - 0.2%
- ----------------------------------------------------------------------------------------------
Apparel Manufacturers
- ----------------------------------------------------------------------------------------------
Sind Holdings, Inc.* 814 $63,492
- ----------------------------------------------------------------------------------------------
Specialty Chemicals
- ----------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 12 $306
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.2%
- ----------------------------------------------------------------------------------------------
MCI, Inc.* 44,339 $628,727
- ----------------------------------------------------------------------------------------------
Telephone Services
- ----------------------------------------------------------------------------------------------
ITC DeltaCom, Inc.* 5,274 $31,275
- ----------------------------------------------------------------------------------------------
Total U.S. Stocks $723,800
- ----------------------------------------------------------------------------------------------
Foreign Stocks
- ----------------------------------------------------------------------------------------------
United Kingdom
- ----------------------------------------------------------------------------------------------
Jazztel PLC (Telephone Services) 174,169 $68,836
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,369,519) $792,636
- ----------------------------------------------------------------------------------------------
Warrants
- ----------------------------------------------------------------------------------------------
Foreign Warrants
- ----------------------------------------------------------------------------------------------
South Korea
- ----------------------------------------------------------------------------------------------
DWC Construction Co., Inc. (Utilities - Other)* 67,756 $1,105
- ----------------------------------------------------------------------------------------------
DWC Trading (Utilities - Other)* 26,835 4,206
- ----------------------------------------------------------------------------------------------
$5,311
- ----------------------------------------------------------------------------------------------
Uruguay
- ----------------------------------------------------------------------------------------------
Banco Central del Uruguay (Emerging Market Sovereign) 1,250,000 $0
- ----------------------------------------------------------------------------------------------
Total Foreign Warrants $5,311
- ----------------------------------------------------------------------------------------------
U.S. Warrants
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV
- ----------------------------------------------------------------------------------------------
ONO Finance PLC* 250 $3
- ----------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $34,490) $5,314
- ----------------------------------------------------------------------------------------------
Convertible Bonds - 0.4%
- ----------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- ----------------------------------------------------------------------------------------------
U.S. Bonds - 0.4%
- ----------------------------------------------------------------------------------------------
Wireless Communications - 0.4%
- ----------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25%, 2010
(Identified Cost, $734,563) $1,300 $1,309,739
- ----------------------------------------------------------------------------------------------
Repurchase Agreements - 6.0%
- ----------------------------------------------------------------------------------------------
Morgan Stanley, dated 4/30/04, due 5/03/04, total to be
received $22,516,951 (secured by U.S. Treasury and
Federal Agency obligations in a jointly traded account),
at Cost $22,515 $22,515,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $374,630,361) $384,966,494
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (3.0)% (11,093,686)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $373,872,808
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
^^ Interest only security.
## SEC Rule 144A restriction.
### Security segregated as collateral for open futures contracts.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in currencies
other than the U.S. dollar. A list of abbreviations is shown below.
AUD = Australian Dollar KRW = Korean Wong
CAD = Canadian Dollar GBP = British Pound
DKK = Danish Krone NZD = New Zealand Dollar
EUR = Euro SEK = Swedish Krona
JPY = Japanese Yen
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
- --------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value (identified cost, $374,630,361) $384,966,494
- --------------------------------------------------------------------------------------------------
Cash 27,714
- --------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 1,207,847
- --------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts
subject to master netting agreements 58,471
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 127,832
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 427,682
- --------------------------------------------------------------------------------------------------
Interest receivable 6,751,929
- --------------------------------------------------------------------------------------------------
Other assets 9,428
- --------------------------------------------------------------------------------------------------
Total assets $393,577,397
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $1,807,109
- --------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 139,831
- --------------------------------------------------------------------------------------------------
Payable for daily variation margin on open futures
contracts 71,531
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 370,819
- --------------------------------------------------------------------------------------------------
Payable for TBA purchase commitments 15,369,438
- --------------------------------------------------------------------------------------------------
Deferred MDR income 23,148
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 1,756,080
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 4,139
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 21,676
- --------------------------------------------------------------------------------------------------
Distribution and service fee 6,689
- --------------------------------------------------------------------------------------------------
Administrative fee 120
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 134,009
- --------------------------------------------------------------------------------------------------
Total liabilities $19,704,589
- --------------------------------------------------------------------------------------------------
Net assets $373,872,808
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
NET ASSETS CONSIST OF
Paid-in capital $444,499,453
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 12,017,742
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (78,533,189)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (4,111,198)
- --------------------------------------------------------------------------------------------------
Net assets $373,872,808
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 56,041,506
- --------------------------------------------------------------------------------------------------
Class A shares
Net assets $188,693,192
- --------------------------------------------------------------------------------------------------
Shares outstanding 28,128,987
- --------------------------------------------------------------------------------------------------
Net asset value per share $6.71
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $136,437,772
- --------------------------------------------------------------------------------------------------
Shares outstanding 20,561,689
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.64
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $37,957,551
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,745,290
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.61
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $10,784,293
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,605,540
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $6.72
- --------------------------------------------------------------------------------------------------
On sales of $100,000 or more, the offering price of Class A shares are reduced. A contingent
deferred sales charge may be imposed on redemptions of Class A shares.
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
- --------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It
also describes any gains and/or losses generated by fund operations.
FOR THE SIX MONTHS ENDED 4/30/04
NET INVESTMENT INCOME (LOSS)
Income
- --------------------------------------------------------------------------------------------------
Interest $13,114,294
- --------------------------------------------------------------------------------------------------
Dividends 1,396
- --------------------------------------------------------------------------------------------------
Total investment income $13,115,690
- --------------------------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------------------------
Management fee $910,463
- --------------------------------------------------------------------------------------------------
Trustees' compensation 10,535
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 390,103
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 339,909
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 722,968
- --------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 203,493
- --------------------------------------------------------------------------------------------------
Administrative fee 20,674
- --------------------------------------------------------------------------------------------------
Custodian fee 90,170
- --------------------------------------------------------------------------------------------------
Printing 41,682
- --------------------------------------------------------------------------------------------------
Postage 11,677
- --------------------------------------------------------------------------------------------------
Auditing fees 18,970
- --------------------------------------------------------------------------------------------------
Legal fees 1,197
- --------------------------------------------------------------------------------------------------
Miscellaneous 87,951
- --------------------------------------------------------------------------------------------------
Total expenses $2,849,792
- --------------------------------------------------------------------------------------------------
Fees paid indirectly (2,716)
- --------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (514,226)
- --------------------------------------------------------------------------------------------------
Net expenses $2,332,850
- --------------------------------------------------------------------------------------------------
Net investment income $10,782,840
- --------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- --------------------------------------------------------------------------------------------------
Investment transactions $8,710,822
- --------------------------------------------------------------------------------------------------
Futures contracts (481,134)
- --------------------------------------------------------------------------------------------------
Foreign currency transactions (3,137,732)
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $5,091,956
- --------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- --------------------------------------------------------------------------------------------------
Investments $(5,292,584)
- --------------------------------------------------------------------------------------------------
Futures contracts 566,242
- --------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 1,056,889
- --------------------------------------------------------------------------------------------------
Net unrealized loss on investments and foreign currency
translation $(3,669,453)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $1,422,503
- --------------------------------------------------------------------------------------------------
Increase in net assets from operations $12,205,343
- --------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations,
any distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
4/30/04 10/31/03
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $10,782,840 $21,464,494
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions 5,091,956 7,109,012
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation (3,669,453) 19,366,235
- ------------------------------------------------------- ------------ ------------
Increase in net assets from operations $12,205,343 $47,939,741
- ------------------------------------------------------- ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- ---------------------------------------------------------------------------------------------------
Class A $(5,735,975) $(11,234,807)
- ---------------------------------------------------------------------------------------------------
Class B (3,798,471) (8,085,948)
- ---------------------------------------------------------------------------------------------------
Class C (1,069,203) (1,949,589)
- ---------------------------------------------------------------------------------------------------
Class I (329,035) (599,006)
- ------------------------------------------------------- ------------ ------------
Total distributions declared to shareholders $(10,932,684) $(21,869,350)
- ------------------------------------------------------- ------------ ------------
Net decrease in net assets from fund share transactions $(15,696,093) $(6,475,192)
- ------------------------------------------------------- ------------ ------------
Total increase (decrease) in net assets $(14,423,434) $19,595,199
- ------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $388,296,242 $368,701,043
- ---------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions
in excess of net investment income of $4,111,198 and
$3,961,354, respectively) $373,872,808 $388,296,242
- ---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period and
the past 5 fiscal years (or, if shorter, the period of the fund's operation). 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 (assuming reinvestment of all distributions) held for the entire period.
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS A 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $6.69 $6.24 $6.46 $6.67 $7.30 $7.33
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.20 $0.38 $0.41 $0.52 $0.60 $0.62
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.02 0.46 (0.20) (0.16) (0.59) 0.06
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.22 $0.84 $0.21 $0.36 $0.01 $0.68
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.20) $(0.39) $(0.39) $(0.49) $(0.48) $(0.71)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.04) (0.08) (0.16) --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.20) $(0.39) $(0.43) $(0.57) $(0.64) $(0.71)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.71 $6.69 $6.24 $6.46 $6.67 $7.30
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 3.30++ 13.81 3.39 5.54 (0.03) 9.72
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS A (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 0.90+ 0.93 0.94 0.96 0.92 0.88
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.86+ 5.89 6.59 7.83 8.57 8.42
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 37 136 147 153 127 204
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $188,693 $190,926 $176,624 $184,482 $111,791 $100,469
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management, distribution and service, and certain other fees and expenses in excess of 0.08% of average daily
net assets. In addition, the investment adviser contractually waived a portion of its fee for the periods indicated. To the
extent actual expenses were over this limitation and the waivers had not been in place, the net investment income per share
and the ratios would have been:
Net investment income $0.18 $0.36 $0.39 $0.46 $0.54 $0.55
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.35+ 1.32 1.40 1.80 1.81 1.83
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.41+ 5.50 6.13 6.99 7.68 7.47
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium and accreting market discount on debt securities. The effect of this
change for the year ended October 31, 2002 was to decrease net investment income per share and increase net realized and
unrealized gains and losses per share. The impact of this change calculates to less than $0.01 per share. In addition,
the ratio of net investment income to average net assets decreased by 0.05%. Per share, ratios, and supplemental data for
periods prior to October 31, 2002 have not been restated to reflect this change in presentation.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the results
would have been lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS B 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $6.62 $6.18 $6.39 $6.61 $7.24 $7.27
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.17 $0.34 $0.37 $0.47 $0.55 $0.57
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.03 0.45 (0.19) (0.17) (0.59) 0.07
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.20 $0.79 $0.18 $0.30 $(0.04) $0.64
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.18) $(0.35) $(0.36) $(0.45) $(0.44) $(0.67)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.03) (0.07) (0.15) --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.18) $(0.35) $(0.39) $(0.52) $(0.59) $(0.67)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.64 $6.62 $6.18 $6.39 $6.61 $7.24
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 2.97++ 13.00 2.93 4.71 (0.67) 9.10
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS B (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.56+ 1.58 1.59 1.61 1.56 1.53
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.21+ 5.25 5.95 7.22 7.89 7.77
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 37 136 147 153 127 204
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $136,438 $146,903 $146,096 $163,299 $137,013 $144,849
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management, distribution and service, and certain other fees and expenses in excess of 0.08% of average daily
net assets. In addition, the investment adviser contractually waived a portion of its fee for the periods indicated. To the
extent actual expenses were over this limitation and the waivers had not been in place, the net investment income per share
and the ratios would have been:
Net investment income $0.16 $0.31 $0.34 $0.42 $0.49 $0.50
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.01+ 1.97 2.05 2.45 2.45 2.48
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.76+ 4.86 5.49 6.38 7.00 6.82
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium and accreting market discount on debt securities. The effect of this
change for the year ended October 31, 2002 was to decrease net investment income per share and increase net realized and
unrealized gains and losses per share. The impact of this change calculates to less than $0.01 per share. In addition,
the ratio of net investment income to average net assets decreased by 0.05%. Per share, ratios, and supplemental data for
periods prior to October 31, 2002 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS C 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $6.59 $6.15 $6.37 $6.59 $7.22 $7.25
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.17 $0.33 $0.37 $0.47 $0.55 $0.57
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.03 0.45 (0.20) (0.17) (0.59) 0.07
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.20 $0.78 $0.17 $0.30 $(0.04) $0.64
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.18) $(0.34) $(0.36) $(0.45) $(0.44) $(0.67)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.03) (0.07) (0.15) --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.18) $(0.34) $(0.39) $(0.52) $(0.59) $(0.67)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.61 $6.59 $6.15 $6.37 $6.59 $7.22
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 2.97++ 13.04 2.78 4.73 (0.67) 9.12
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS C (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 1.56+ 1.58 1.59 1.61 1.56 1.53
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.21+ 5.23 5.95 7.18 7.90 7.78
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 37 136 147 153 127 204
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $37,958 $40,703 $35,952 $40,787 $37,956 $38,808
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management, distribution and service, and certain other fees and expenses in excess of 0.08% of average daily
net assets. In addition, the investment adviser contractually waived a portion of its fee for the periods indicated. To the
extent actual expenses were over this limitation and the waivers had not been in place, the net investment income per share
and the ratios would have been:
Net investment income $0.16 $0.31 $0.34 $0.42 $0.49 $0.50
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.01+ 1.97 2.05 2.45 2.45 2.48
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.76+ 4.84 5.49 6.34 7.01 6.83
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium and accreting market discount on debt securities. The effect of this
change for the year ended October 31, 2002 was to decrease net investment income per share and increase net realized and
unrealized gains and losses per share. The impact of this change calculates to less than $0.01 per share. In addition,
the ratio of net investment income to average net assets decreased by 0.05%. Per share, ratios, and supplemental data for
periods prior to October 31, 2002 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS I 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of
period $6.70 $6.25 $6.47 $6.68 $7.31 $7.33
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.21 $0.40 $0.44 $0.55 $0.68 $0.65
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.02 0.46 (0.21) (0.17) (0.65) 0.07
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.23 $0.86 $0.23 $0.38 $0.03 $0.72
- ----------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.21) $(0.41) $(0.41) $(0.51) $(0.50) $(0.74)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- (0.04) (0.08) (0.16) --
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.21) $(0.41) $(0.45) $(0.59) $(0.66) $(0.74)
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.72 $6.70 $6.25 $6.47 $6.68 $7.31
- ----------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 3.48++ 14.19 3.75 5.92 0.33 10.25
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED ----------------------------------------------------------------------
CLASS I (CONTINUED) 4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA(S):
Expenses## 0.55+ 0.58 0.59 0.61 0.60 0.53
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 6.20+ 6.23 6.93 8.21 9.53 8.77
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 37 136 147 153 127 204
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $10,784 $9,764 $10,029 $10,249 $7,542 $304
- -------------------------------------------------------------------------------------------------------------------------------
(S) The investment adviser contractually agreed under a temporary expense agreement to pay all of the fund's operating expenses,
exclusive of management and certain other fees and expenses in excess of 0.08% of average daily net assets. In addition, the
investment adviser contractually waived a portion of its fee for the periods indicated. To the extent actual expenses were
over this limitation and the waivers had not been in place, the net investment income per share and the ratios would have
been:
Net investment income $0.20 $0.38 $0.41 $0.49 $0.62 $0.58
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.00+ 0.97 1.05 1.45 1.49 1.48
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.75+ 5.84 6.47 7.37 8.64 7.82
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(S)(S) As required, effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium and accreting market discount on debt securities. The effect of this
change for the year ended October 31, 2002 was to decrease net investment income per share and increase net realized and
unrealized gains and losses per share. The impact of this change calculates to less than $0.01 per share. In addition,
the ratio of net investment income to average net assets decreased by 0.05%. Per share, ratios, and supplemental data for
periods prior to October 31, 2002 have not been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Strategic Income Fund (the fund) is a non-diversified series of MFS Series
Trust VIII (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 accounting
principles generally accepted in the United States of America 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 up to 100% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions.
The fund can invest in foreign securities. Investments in foreign securities
are vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - The fund uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. Bonds and other
fixed income securities (other than short-term obligations) in the fund's
portfolio are valued at an evaluated bid price as reported by an independent
pricing service, or to the extent a valuation is not reported by a pricing
service, such securities are valued on the basis of quotes from brokers and
dealers. Prices obtained from pricing services utilize both dealer-supplied
valuations and electronic data processing techniques which take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data without exclusive reliance upon quoted
prices or exchange or over-the-counter prices, since such valuations are
believed to reflect more accurately the fair value of such securities. Bonds
and other fixed income securities for which it is determined that current
market quotations are not readily available will be fair valued under the
direction of the Board of Trustees. Equity securities in the fund's portfolio
for which market quotations are available are valued at the last sale or
official closing price as reported by an independent pricing service on the
primary market or exchange on which they are primarily traded, or at the last
quoted bid price for securities in which there were no sales during the day.
Equity securities traded over the counter are valued at the last sales price
traded each day as reported by an independent pricing service, or to the extent
there are no sales reported, such securities are valued on the basis of
quotations obtained from brokers and dealers. Equity securities for which it is
determined that current market quotations are not readily available will be
fair valued under the direction of the Board of Trustees. The fund may also
fair value foreign equity securities in cases where closing market quotations
are not readily available or are deemed not reflective of readily available
market quotations. For example, significant events (such as movement in the
U.S. securities market, or other regional and local developments) may occur
between the time that foreign markets close (where the security is principally
traded) and the time that the fund calculates its net asset value (generally,
the close of the NYSE) that may impact the value of securities traded in these
foreign markets. In these cases, the fund may utilize information from an
external vendor or other sources to adjust closing market quotations of foreign
equity securities to reflect what it believes to be the fair value of the
securities as of the fund's valuation time. Because the frequency of
significant events is not predictable, fair valuation of foreign equity
securities may occur on a frequent basis. Futures contracts are valued at the
settlement price as reported by an independent pricing service on the primary
exchange on which they are traded. Forward foreign currency contracts are
valued using spot rates and forward points as reported by an independent
pricing source. Short-term obligations with a remaining maturity in excess of
60 days will be valued upon dealer-supplied valuations. All other short-term
obligations in the fund's portfolio are valued at amortized cost, which
constitutes market value as determined by the Board of Trustees. Investment
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted each business day into U.S. dollars based upon current
exchange rates.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the fund to obtain those
securities in the event of a default under the repurchase agreement. The fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the fund
under each such repurchase agreement. The fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a joint
trading account for the purpose of entering into one or more repurchase
agreements.
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. 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 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.
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. The fund's investment in futures
contracts is designed to hedge against anticipated future changes in interest
rates. Investments in interest rate futures for purposes other than hedging may
be made to modify the duration of the portfolio without incurring the
additional transaction costs involved in buying and selling the underlying
securities. Investments in currency futures for purposes other than hedging may
be made to change the fund's relative position in one or more currencies
without buying and selling portfolio assets. Investments in equity index
contracts or contracts on related options for purposes other than hedging, may
be made when the fund has cash on hand and wishes to participate in anticipated
market appreciation while the cash is being invested. Should interest move
unexpectedly, 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 a foreign currency relative to the U.S. dollar. 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.
DOLLAR ROLL TRANSACTIONS - The fund enters into dollar roll transactions, with
respect to mortgage backed securities issued by GNMA, FNMA, and FHLMC, in which
the fund sells mortgage backed securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon, and
maturity) securities at a later date at an agreed-upon price. The fund's total
return is enhanced through either a reduced purchase price on the buy, or
receipt of an income fee from the broker.
SHORT TERM FEES - Effective July 1, 2004, the fund will charge a 2% redemption
fee (which is retained by the fund) on proceeds from shares redeemed or
exchanged within 5 business days following the acquisition (either by purchase
or exchange) of certain fund shares. The fund may change the redemption fee
period in the future, including in connection with pending Securities and
Exchange Commission rules. See the fund's prospectus for details.
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 accounting principles generally accepted in the United States
of America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date.
The fund may enter in "TBA" (to be announced) purchase commitments to purchase
securities for a fixed unit price at a future date. Although the unit price has
been established, the principal value has not been finalized. However, the
principal amount of the commitments will not fluctuate more than 0.01%. The
fund holds, and maintains until settlement date, cash or high-grade debt
obligations in an amount sufficient to meet the purchase price, or the fund may
enter into offsetting contracts for the forward sale of other securities it
owns. Income on the securities will not be earned until settlement date. TBA
purchase commitments may be considered securities in themselves, and involve a
risk of loss if the value of the security to be purchased declines prior to
settlement date, which is in addition to the risk of decline in the value of
the fund's other assets. Unsettled TBA purchase commitments are valued at the
current market value of the underlying securities, according to the procedures
described under "Investment Valuations" above.
The fund may enter into "TBA" (to be announced) sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are held as
"cover" for the transaction.
Legal fees and other related expenses incurred to preserve and protect the
value of a security owned are added to the cost of the security; other legal
fees are expensed. Capital infusions made directly to the security issuer,
which are generally non-recurring, incurred to protect or enhance the value of
high-yield debt securities, are reported as additions to the cost basis of the
security. Costs that are incurred to negotiate the terms or conditions of
capital infusions or that are expected to result in a plan of reorganization
are reported as realized losses. Ongoing costs incurred to protect or enhance
an investment, or costs incurred to pursue other claims or legal actions, are
expensed.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended April 30, 2004, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, derivatives, defaulted bonds, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended October 31,
2003 and October 31, 2002 were as follows:
10/31/03 10/31/02
Distributions declared from:
- ------------------------------------------------------------------------------
Ordinary income $21,869,350 $22,883,052
- ------------------------------------------------------------------------------
Long-term capital gain -- --
- ------------------------------------------------------------------------------
$21,869,350 $22,883,052
- ------------------------------------------------------------------------------
Tax return of capital -- 2,136,972
- ------------------------------------------------------------------------------
Total distributions declared $21,869,350 $25,020,024
- ------------------------------------------------------------------------------
As of October 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $--
----------------------------------------------------------
Undistributed long-term capital gain --
----------------------------------------------------------
Capital loss carryforward (83,382,655)
----------------------------------------------------------
Post-October capital loss deferral --
----------------------------------------------------------
Post-October currency loss deferral --
----------------------------------------------------------
Unrealized appreciation 15,398,398
----------------------------------------------------------
Other temporary differences (3,915,436)
----------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
October 31, 2006 $(22,210,208)
----------------------------------------------------------
October 31, 2007 (11,626,162)
----------------------------------------------------------
October 31, 2008 (3,849,634)
----------------------------------------------------------
October 31, 2009 (17,590,678)
----------------------------------------------------------
October 31, 2010 (28,105,973)
----------------------------------------------------------
Total $(83,382,655)
----------------------------------------------------------
The availability of a portion of these respective capital loss carryforwards,
which were acquired on August 6, 2001, in connection with the MFS Global
Governments Fund acquisition, may be limited in a given year.
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. Differences in per
share dividend rates are generally due to differences in separate class
expenses. Class B shares will convert to Class A shares approximately eight
years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.65% of
the fund's average daily net assets. The investment adviser has contractually
agreed to pay the fund's operating expenses exclusive of management and
distribution fees such that the fund's aggregate expenses do not exceed 0.08%
of its average daily net assets. This is reflected as a reduction of expenses
in the Statement of Operations.
As part of the settlement agreement with the New York Attorney General
concerning market timing and related matters, MFS has agreed to reduce the
fund's management fee to 0.40% of average daily net assets for the period March
1, 2004 through February 28, 2009. During this time period, the Board of
Trustees will continue to review the appropriateness of all advisory fees in
accordance with their oversight responsibilities. After February 28, 2009 the
management fee will be determined in accordance with then existing review
policies approved by the Board of Trustees overseeing the fund.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and pays no compensation directly to
its Trustees who are officers of the investment adviser, or to officers of the
fund, all of whom receive remuneration for their services to the fund from MFS.
Certain officers and Trustees of the fund are officers or directors of MFS, MFS
Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). The fund
has an unfunded, defined benefit plan for retired Trustees and an unfunded
retirement benefit deferral plan for current Trustees. Included in Trustees'
compensation is $2,153 as a result of the change in the fund's unfunded
retirement benefit deferral plan for certain current Independent Trustees and a
pension expense of $2,656 for retired Independent Trustees for the six months
ended April 30, 2004.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the fund paid MFS an administrative fee up to the following
annual percentage rates of the fund's average daily net assets:
First $2 billion 0.0175%
----------------------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
Effective April 1, 2004 the fund paid MFS an administrative fee up to the
following annual percentage rates of the fund's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
For the six months ended April 30, 2004, the fund paid MFS $20,674, equivalent
to 0.0107% of average daily net assets, to partially reimburse MFS for the
costs of providing administrative services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$22,210 for the six months ended April 30, 2004, as its portion of the sales
charge on sales of Class A shares of the fund, respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share
classes in order that MFD may pay expenses on behalf of the fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD
based on the average daily net assets of accounts attributable to such dealers.
These fees are calculated based on each class' average daily net assets. The
maximum distribution and service fees for each class of shares are as follows:
CLASS A CLASS B CLASS C
Distribution Fee 0.10% 0.75% 0.75%
- ----------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ----------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00%
- ----------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the six months ended April 30, 2004, amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $6,216 $370 $142
- ----------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended
April 30, 2004, were as follows:
CLASS A CLASS B CLASS C
Effective Annual Percentage Rates 0.35% 1.00% 1.00%
- ----------------------------------------------------------------------------
Certain Class A, shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within, for Class A shares, 12 months
following the purchase, and, for Class C shares, the first year from the end of
the calendar month of purchase. A contingent deferred sales charge is imposed
on shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years from the end of the calendar month of purchase.
MFD receives all contingent deferred sales charges. Contingent deferred sales
charges imposed during the six months ended April 30, 2004, were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $1,492 $130,126 $5,115
- ----------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - Included in shareholder servicing costs is a fee
paid to MFSC, a wholly owned subsidiary of MFS, for its services as shareholder
servicing agent. The fee, which is calculated as a percentage of the fund's
average daily net assets is set periodically under the supervision of the
fund's Trustees. Prior to April 1, 2004, the fee was set at 0.11% of the fund's
average daily net assets. Effective April 1, 2004 the fee is set at 0.10% of
the fund's average daily net assets. For the six months ended April 30, 2004
the fund paid MFSC a fee of $211,471 for shareholder services which equated to
0.11% of the fund's average net assets. Also included in shareholder servicing
costs are out-of-pocket expenses, paid to MFSC, which amounted to $40,778 for
the six months ended April 30, 2004, as well as other expenses paid to
unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
U.S. government securities $39,740,852 $29,270,395
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $99,047,926 $114,673,902
- -------------------------------------------------------------------------------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $374,010,868
-----------------------------------------------------------
Gross unrealized appreciation $17,510,206
-----------------------------------------------------------
Gross unrealized depreciation (6,554,580)
-----------------------------------------------------------
Net unrealized appreciation $10,955,626
-----------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Six months ended Year ended
4/30/04 10/31/03
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 3,458,379 $23,585,142 7,567,850 $49,531,911
- --------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 640,052 4,348,152 1,321,769 8,588,972
- --------------------------------------------------------------------------------------------------------
Shares reacquired (4,506,190) (30,662,676) (8,643,657) (56,501,924)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) (407,759) $(2,729,382) 245,962 $1,618,959
- --------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,832,718 $12,345,212 5,148,028 $33,175,157
- --------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 376,846 2,532,754 845,214 5,431,058
- --------------------------------------------------------------------------------------------------------
Shares reacquired (3,846,321) (25,907,854) (7,450,870) (48,077,748)
- --------------------------------------------------------------------------------------------------------
Net decrease (1,636,757) $(11,029,888) (1,457,628) $(9,471,533)
- --------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 932,335 $6,226,477 2,303,782 $14,947,512
- --------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 110,870 741,784 206,996 1,324,544
- --------------------------------------------------------------------------------------------------------
Shares reacquired (1,473,724) (9,913,777) (2,179,827) (13,993,479)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) (430,519) $(2,945,516) 330,951 $2,278,577
- --------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 284,945 $1,945,633 720,482 $4,702,562
- --------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 46,996 319,732 91,637 595,677
- --------------------------------------------------------------------------------------------------------
Shares reacquired (183,884) (1,256,672) (959,003) (6,199,434)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 148,057 $1,008,693 (146,884) $(901,195)
- --------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate plus 0.50%. In addition, a commitment fee, based on the average
daily, unused portion of the line of credit, is allocated among the
participating funds at the end of each calendar quarter. The commitment fee
allocated to the fund for the six months ended April 30, 2004 was $325, and is
included in miscellaneous expense. The fund had no significant borrowings
during the period.
(7) FINANCIAL INSTRUMENTS
The fund trades financial instruments with off-balance-sheet risk in the normal
course of its investing activities in order to manage exposure to market risks
such as interest rates and foreign currency exchange rates. These financial
instruments include forward foreign currency exchange contracts and futures
contracts. The notional or contractual amounts of these instruments represent
the investment the fund has in particular classes of financial instruments and
does not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
- ----------
SALES
- ----------
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
6/16/04 AUD 1,127,000 $814,398 $808,218 $6,180
5/17/04-6/16/04 DKK 21,759,838 3,540,794 3,499,159 41,635
6/16/04 EUR 41,206,551 50,252,647 49,287,077 965,570
5/17/04 GBP 678,314 1,198,676 1,201,551 (2,875)
6/15/04 NZD 4,644,259 3,054,792 2,882,644 172,148
6/16/04 SEK 11,014,533 1,454,979 1,440,232 14,747
----------- ----------- ----------
$60,316,286 $59,118,881 $1,197,405
=========== =========== ==========
- ----------
PURCHASES
- ----------
6/16/04 AUD 432,548 $328,736 $310,198 $(18,538)
6/16/04 EUR 4,711,540 5,703,407 5,635,464 (67,943)
5/17/04 GBP 804,595 1,449,383 1,425,242 (24,141)
6/15/04 JPY 314,650,824 2,847,519 2,855,086 7,567
5/07/04 KRW 1,134,116,250 987,304 965,947 (21,357)
6/16/04 SEK 39,195,559 517,488 512,511 (4,977)
----------- ----------- ----------
$11,833,837 $11,704,448 $(129,389)
=========== =========== ==========
At April 30, 2004, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net receivable of $58,471 with
Merrill Lynch International.
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
U.S. Treasury Notes June 2004 218 Short $566,242
- -------------------------------------------------------------------------------
At April 30, 2004, the fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) RESTRICTED SECURITIES
The fund may invest not more than 15% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 2004,
the fund owned the following restricted securities, excluding securities issued
under Rule 144A, constituting 1.08% of net assets which may not be publicly
sold without registration under the Securities Act of 1933. The fund does not
have the right to demand that such securities be registered. The value of these
securities is determined by valuations furnished by dealers or by a pricing
service, or if not available, in good faith at the direction of the Trustees.
DATE OF SHARE/PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
DLJ Mortgage Acceptance Corp. 3/1/98 852,782 $514,790 $776,067
- ------------------------------------------------------------------------------------------------------------
Kazkommerts International B.V. 4/14/03 999,000 1,105,111 1,069,089
- ------------------------------------------------------------------------------------------------------------
State of Qatar 4/10/03 1,610,000 2,260,728 2,181,550
- ------------------------------------------------------------------------------------------------------------
(9) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with fund sales. Under the terms of the settlement, in
which MFS neither admitted nor denied any wrongdoing, MFS agreed to pay (one
dollar) $1.00 in disgorgement and $50 million in penalty to certain MFS funds,
pursuant to a plan administered by an independent distribution consultant. The
agreement with the SEC is reflected in an order of the SEC. The settlement
order states that MFS failed to adequately disclose to the Boards and Trustees
and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The
settlement order states that MFS had in place policies designed to obtain best
execution of all fund trades. As part of the settlement, MFS has retained an
independent compliance consultant to review the completeness of its disclosure
to fund trustees and to fund shareholders of strategic alliances between MFS or
its affiliates and broker-dealers and other financial advisers who support the
sale of fund shares. The brokerage allocation practices which were the subject
of this proceeding were discontinued by MFS in November 2003.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false and
misleading because, although the prospectuses for those funds in the
regulators' view indicated that the funds prohibited market timing, MFS did not
limit trading activity in 11 domestic large cap stock, high grade bond and
money market funds. MFS' former Chief Executive Officer, John W. Ballen, and
former President, Kevin R. Parke, also reached agreement with the SEC in which
they agreed to, among other terms, monetary fines and temporary suspensions
from association with any investment adviser or registered investment company.
Messrs. Ballen and Parke have resigned their positions with, and will not be
returning to, MFS and the MFS funds. Under the terms of the February
Settlements, MFS and the executives neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain of the MFS funds
offered to retail investors ("Retail Funds"), which has been funded by MFS and
of which $50 million is characterized as a penalty. This pool will be
distributed in accordance with a methodology developed by an independent
distribution consultant in consultation with MFS and the Board of Trustees of
the Retail Funds, and acceptable to the SEC. MFS has further agreed with NYAG
to reduce its management fees in the aggregate amount of approximately $25
million annually over the next five years, and not to increase certain
management fees during this period. MFS has also paid an administrative fine to
NH in the amount of $1 million, which will be used for investor education
purposes (NH retained $250,000 and $750,000 was contributed to the North
American Securities Administrators Association's Investor Protection Trust). In
addition, under the terms of the February Settlements, MFS is in the process of
adopting certain governance changes and reviewing its policies and procedures.
Since December 2003, MFS, Sun Life Financial Inc., various MFS funds, the
Trustees of these MFS funds, and certain officers of MFS have been named as
defendants in multiple lawsuits filed in federal and state courts. The lawsuits
variously have been commenced as class actions or individual actions on behalf
of investors who purchased, held or redeemed shares of the funds during
specified periods, as class actions on behalf of participants in certain
retirement plan accounts, or as derivative actions on behalf of the MFS funds.
The lawsuits generally allege that some or all of the defendants (i) permitted
or acquiesced in market timing and/or late trading in some of the MFS funds,
inadequately disclosed MFS' internal policies concerning market timing and such
matters, and received excessive compensation as fiduciaries to the MFS funds,
or (ii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of fund shares and inadequately disclosed MFS' use of
fund assets in this manner. The actions assert that some or all of the
defendants violated the federal securities laws, including the Securities Act
of 1933 and the Securities Exchange Act of 1934, the Investment Company Act of
1940 and the Investment Advisers Act of 1940, the Employee Retirement Income
Security Act of 1974, as well as fiduciary duties and other violations of
common law. The lawsuits seek unspecified compensatory damages. Insofar as any
of the actions is appropriately brought derivatively on behalf of any of the
MFS funds, any recovery will inure to the benefit of the funds. The defendants
are reviewing the allegations of the multiple complaints and will respond
appropriately. Additional lawsuits based on similar allegations may be filed in
the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the funds,
and will pay $50 million to compensate certain MFS funds based upon the amount
of brokerage commissions allocated in recognition of fund sales. It is not
clear whether these amounts will be sufficient to compensate shareholders for
all of the damage they allegedly sustained, whether certain shareholders or
putative class members may have additional claims to compensation, or whether
the damages that may be awarded in any of the actions will exceed these
amounts. In the event the MFS funds incur any losses, costs or expenses in
connection with such lawsuits, the Boards of Trustees of the affected funds may
pursue claims on behalf of such funds against any party that may have liability
to the funds in respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the funds.
- --------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
- --------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past
five years. (Their titles may have varied during that period.) The business address of each Trustee and officer is
500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- ---------------- ------------------------------
INTERESTED TRUSTEES
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services
(born 12/14/59) February 2004 Company, President, Chief Investment
Officer and Director (until February
2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School (education),
John Olin Visiting Professor (since
July 2002); Secretary of Economic
Affairs, The Commonwealth of
Massachusetts (January 2002 to
December 2002); Fidelity Investments,
Vice Chairman (June 2000 to December
2001); Fidelity Management & Research
Company (investment adviser),
President (March 1997 to July 2001);
The Bank of New York (financial
services), Director; Bell Canada
Enterprises (telecommunications),
Director; Telesat (satellite
communications), Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services
(born 06/02/55) February 2004 Company, Chairman (until February
2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation
(born 05/01/36) (energy related services), Director;
Eastern Enterprises (diversified
services company), Chairman, Trustee
and Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital, Chief of
(born 03/11/37) Cardiac Surgery; Harvard Medical
School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining
(born 05/30/42) products and service provider), Vice
Chairman/Director (since April 2001);
Encinitos Ventures (private investment
company), Principal (1997 to April
2001); Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas Corporation
(natural gas distribution company),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video franchise),
Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc.,
(born 02/08/53) Managing Director, Investment Banking
Group (1997 to February 2001); Borders
Group, Inc. (book and music retailer),
Director; Federal Realty Investment
Trust (real estate investment trust),
Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys), Partner
(born 06/23/35)
William J. Poorvu Trustee August 1982 Private investor; Harvard University
(born 04/10/35) Graduate School of Business
Administration, Class of 1961 Adjunct
Professor in Entrepreneurship
Emeritus; CBL & Associates Properties,
Inc. (real estate investment trust),
Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition
(born 09/23/38) planning specialists), President;
Wellfleet Investments (investor in
health care companies), Managing
General Partner (since 1993);
Cambridge Nutraceuticals (professional
nutritional products), Chief Executive
Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J. Manning(3) President and Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment Officer
and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services
(born 09/12/59) February 2004 Company, Chief Executive Officer and
Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services
(born 03/06/59) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 Massachusetts Financial Services
(born 11/06/53) until March 2004 Company, Senior Vice President,
General Counsel and Secretary (until
March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services
(born 10/01/53) Company, Vice President (since April
2003); Brown Brothers Harriman & Co.,
Senior Vice President (November 2002
to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services
(born 09/18/63) Company, Vice President (since August
2000); UAM Fund Services, Senior Vice
President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President (since
July 2002); The Bank of New York,
Senior Vice President (September 2000
to July 2002); Lexington Global Asset
Managers, Inc., Executive Vice
President and Chief Financial Officer
(prior to September 2000); Lexington
Funds, Chief Financial Officer (prior
to September 2000)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Vice President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 06/12/60) Company, Senior Vice President
- ------------------
(1) Date first appointed to serve as Trustee/Officer of an MFS fund. Each Trustee has served continuously since
appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e.,
"public companies").
(3) "Interested person" of MFS 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 series/the fund. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. The Trust will hold a shareholders' meeting in 2005 and at least once every five years
thereafter to elect Trustees. 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.
Each of the Trust'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. Each Trustee serves as a board member of 109 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available without
charge upon request by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services State Street Bank and Trust Company
Company 225 Franklin Street, Boston, MA 02110
500 Boylston Street, Boston, MA
02116-3741 JP Morgan Chase Bank
One Chase Manhattan Plaza
DISTRIBUTOR New York, NY 10081
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGER
William Adams
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
A prospectus for any MFS product can be obtained from your investment
professional. You should read the prospectus carefully before investing as it
contains complete information on the fund's investment objective(s), the risks
associated with an investment in the fund, and the fees, charges, and expenses
involved. These elements, as well as other information contained in the
prospectus, should be considered carefully before investing.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
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 About MFS section of mfs.com or by visiting the SEC's website at
http://www.sec. gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 55824
Boston, MA 02205-5824
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day, 365 days a
or stock and bond outlooks touch-tone required year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to MFS.COM for a clear view of market events, investor education, account
access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to mfs.com, log
in to your account via MFS Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available to
you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MFO-SEM-6/04 49M
ITEM 2. CODE OF ETHICS.
Applicable for semi-annual reports if the registrant has amended the code of
ethics during the period covered by the report or has granted a waiver,
including an implicit waiver, from a provision of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time. [Applicable for periods ending on or after July 9,
2004 (beginning with Form N-CSRs filed at the end of September, 2004 for July
31, 2004 reporting period.)]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this 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 registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 11. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) [**An amendment to the code of ethics, 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: The amendment is attached hereto.**][**APPLICABLE IF THE
REGISTRANT HAS AMENDED ITS CODE OF ETHICS DURING THE PERIOD COVERED BY
REPORT**]
(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.
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 VIII
By (Signature and Title)* ROBERT J. MANNING
--------------------------------------------------
Robert J. Manning, President
Date: June 23, 2004
-------------
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)* ROBERT J. MANNING
--------------------------------------------------
Robert J. Manning, President (Principal Executive
Officer)
Date: June 23, 2004
-------------
By (Signature and Title)* RICHARD M. HISEY
--------------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting Officer)
Date: June 23, 2004
-------------
* Print name and title of each signing officer under his or her signature.