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)
Susan S. Newton
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
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Date of reporting period: April 30, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) GLOBAL GROWTH FUND 4/30/05
SEMIANNUAL REPORT
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M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT
IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PERFORMANCE SUMMARY 6
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EXPENSE TABLE 11
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PORTFOLIO OF INVESTMENTS 13
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FINANCIAL STATEMENTS 20
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NOTES TO FINANCIAL STATEMENTS 41
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RESULTS OF SHAREHOLDER MEETING 54
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PROXY VOTING POLICIES AND INFORMATION 55
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QUARTERLY PORTFOLIO DISCLOSURE 55
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CONTACT INFORMATION BACK COVER
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LETTER FROM THE CEO
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Dear Contract Owners,
[Photo of Robert J. Manning]
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and rebalance
regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can guarantee
a profit or protect against a loss, I would voice the opinion that, to a large
extent, a failure to have a plan, diversify contributions, and rebalance a
portfolio annually has been behind many U.S. investors' failure to reach their
long-term financial goals.
For more information on how to apply a disciplined diversification(SM) strategy
to your portfolio, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Website, MFS.COM.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
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PORTFOLIO COMPOSITION
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PORTFOLIO STRUCTURE
Stocks 97.7%
Cash & Other Net Assets 1.8%
Preferred Stock 0.5%
TOP TEN HOLDINGS
Telefonica S.A. 1.8%
------------------------------------------------
Sumsung Electronics Co., Ltd. 1.8%
------------------------------------------------
Vodafone Group PLC 1.7%
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Roche Holding AG 1.6%
------------------------------------------------
Cisco Systems, Inc. 1.6%
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TOTAL S.A. 1.3%
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Sanofi-Aventis 1.3%
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Reckitt Benckiser PLC 1.3%
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Oracle Corp. 1.3%
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Dell, Inc. 1.2%
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SECTOR WEIGHTINGS
Technology 17.1%
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Financial Services 14.0%
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Health Care 13.4%
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Leisure 9.0%
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Consumer Staples 7.9%
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Retailing 7.2%
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Basic Materials 6.8%
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Utilities & Communications 6.7%
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Industrial Goods & Services 5.8%
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Energy 5.4%
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Special Products & Services 2.7%
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Autos & Housing 1.7%
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COUNTRY WEIGHTINGS
United States 34.2%
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Great Britain 11.9%
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Japan 10.0%
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France 8.2%
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Switzerland 5.3%
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Spain 3.4%
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South Korea 2.7%
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Canada 2.7%
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Sweden 2.7%
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Other 18.9%
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Percentages are based on net assets as of 4/30/05.
The portfolio is actively managed, and current holdings may be different.
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MANAGEMENT REVIEW
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SUMMARY OF RESULTS
For the six months ended April 30, 2005, Class A shares of the MFS Global
Growth Fund provided a total return of 3.72%, at net asset value. In
comparison, the fund's benchmarks, the Morgan Stanley Capital International
(MSCI) All Country World Growth Index returned 4.94% and the MSCI World Growth
Index returned 4.52%. The investment objective of the fund is 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.
The fund invests, under normal market conditions, at least 65% of its net
assets in common stocks and related securities of US and foreign (including
emerging market) issuers. The fund focuses on companies that MFS believes have
above average growth potential.
MARKET ENVIRONMENT
Stocks experienced considerable volatility during the six months ended April
30, 2005. Investors endured another rise in oil prices, a volatile U.S. dollar,
record U.S. budget and trade deficits, and war in Iraq. Fundamental economic
factors, however, such as corporate spending and earnings, continued to improve
around the globe. Over the course of the period, investors seemed to conclude
that the global economic recovery, although modest, was still intact. However,
in March and April, it appeared to us that high oil prices and concerns about
the credit quality of some major U.S. corporations chipped away at investor
confidence. As a result, major U.S. stock indices finished the period lower.
DETRACTORS FROM PERFORMANCE
Stock selection in the technology sector held back performance relative to the
MSCI All Country World Growth Index. Wireless solutions developer Research In
Motion, online auctioneer eBay, electronic devices manufacturer Seiko Epson,
and consumer electronics manufacturer Funai Electric* were among the top
relative detractors in this sector.
In the health care sector, a combination of stock selection and an
underweighted position in the group held back results. Our position in
dermatological treatment company Medicis Pharmaceutical held back results as
did our decision not to hold pharmaceutical firm GlaxoSmithKline (an index
constituent that outperformed the benchmarks). Stock selection in the leisure
sector also held back results, although no stocks in the sector were among the
top detractors.
Stocks in other sectors that hampered relative results included home
improvement store operator Kingfisher, diamond miner Aber Diamond, and
management consulting firm Accenture, from the retailing, basic materials, and
special products and services sectors, respectively.
CONTRIBUTORS TO PERFORMANCE
The basic materials, retailing, and financial services sectors were the
principal contributors to the portfolio's relative performance. In basic
materials, a combination of stock selection and an overweighted position in the
group aided relative results. Agricultural products supplier Monsanto and
integrated chemical producer Sasol* were top contributors in this area.
Stock selection in the retailing and the financial services sector also aided
relative results. In retailing, avoiding Wal-Mart and underweighting Home
Depot* (both index constituents that underperformed the benchmarks). In
financial services, holding Israel based Bank Hapoalim* and avoiding poor
performing insurer American International Group yielded two top relative
contributors.
While the technology and health care sectors held back results overall,
positioning in both sectors resulted in some of the fund's top individual
contributors. In technology, the fund benefited by avoiding computer products
manufacturer International Business Machine (an index constituent that lagged
the benchmarks) while underweighting wireless communications firm
QUALCOMM. In the health care sector, avoiding poor performing Pfizer and
holding Teva Pharmaceutical contributed to relative results.
Respectfully,
/s/ Barry P. Dargan /s/ Nicholas D. Smithie
Barry P. Dargan Nicholas D. Smithie
Portfolio Manager Portfolio Manager
* Security was not held in the portfolio at period-end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market 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.
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PERFORMANCE SUMMARY THROUGH 4/30/05
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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 RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES CALL 1-888-808-6374.) 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
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Average annual
without sales charge
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Class
Share class inception date 6-mo 1-yr 3-yr 5-yr 10-yr
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A 11/18/93 3.72% 8.10% 6.04% -3.93% 8.18%
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B 11/18/93 3.31% 7.25% 5.24% -4.64% 7.37%
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C 1/03/94 3.35% 7.25% 5.25% -4.65% 7.37%
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I 1/02/97 3.82% 8.33% 6.31% -3.70% 8.42%
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R* 12/31/02 3.56% 7.77% 5.82% -4.04% 8.12%
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R1 4/01/05 3.31% 7.25% 5.24% -4.64% 7.37%
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R2 4/01/05 3.31% 7.25% 5.24% -4.64% 7.37%
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R3* 10/31/03 3.40% 7.49% 5.36% -4.57% 7.41%
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R4 4/01/05 3.66% 8.04% 6.02% -3.94% 8.18%
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R5 4/01/05 3.72% 8.10% 6.04% -3.93% 8.18%
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Average annual
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Comparative benchmarks 6-mo 1-yr 3-yr 5-yr 10-yr
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Average global multi-cap growth
fund+ 5.70% 9.40% 6.48% -1.02% 9.46%
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MSCI All Country World Growth
Index#(S) 4.94% 6.91% 5.38% -6.71% N/A
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MSCI World Growth Index# 4.52% 6.26% 4.96% -7.12% 5.63%
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- -----------------------
Average annual
with sales charge
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Share class
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A -2.25% 1.88% 3.96% -5.06% 7.54%
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B -0.69% 3.25% 4.33% -4.94% 7.37%
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C 2.35% 6.25% 5.25% -4.65% 7.37%
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Class I, Class R, Class R1, Class R2, Class R3, Class R4 and Class R5 shares
do not have a sales charge. Please see Notes to Performance Summary for more
details.
- -----------------------
Cumulative without
sales charge
- -----------------------
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A 3.72% 8.10% 19.22% -18.15% 119.59%
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B 3.31% 7.25% 16.56% -21.15% 103.61%
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C 3.35% 7.25% 16.58% -21.19% 103.62%
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I 3.82% 8.33% 20.14% -17.18% 124.38%
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R* 3.56% 7.77% 18.51% -18.64% 118.28%
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R1 3.31% 7.25% 16.56% -21.15% 103.61%
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R2 3.31% 7.25% 16.56% -21.15% 103.61%
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R3* 3.40% 7.49% 16.97% -20.87% 104.33%
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R4 3.66% 8.04% 19.16% -18.20% 119.47%
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R5 3.72% 8.10% 19.22% -18.15% 119.59%
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* Effective April 1, 2005, Class R1 shares have been renamed "Class R
shares", and Class R2 shares have been renamed "Class R3 shares".
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
(S) Returns for the MSCI All Country World Growth Index are not available for
periods prior to January 1, 1997.
Periods less than one year are actual, not annualized.
INDEX DEFINITIONS
MSCI All Country World Growth Index - is a market capitalization index that is
designed to measure equity market performance for growth securities in the
global developed and emerging markets.
MSCI World Growth Index - is a market capitalization index that is designed to
measure global developed market equity performance for growth securities.
Note to Shareholders: Returns for the MSCI All Country World Growth Index are
not available for periods prior to January 1, 1997. Therefore the MSCI World
Growth Index has been included to supplement the index performance since the
fund's inception date.
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. 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
(assuming redemption within one year from the end of the prior month of
purchase) reflect the deduction of the 1% CDSC. Class R shares have no initial
sales charge or CDSC and are available only to existing Class R shareholders.
Class I, R1, R2, R3, R4, and R5 shares have no initial sales charge or CDSC.
Class I shares are only available to certain investors, and Class R1, R2, R3,
R4, and R5 shares are only available to certain retirement plans.
Performance for Class I, R, R4, and R5 shares includes the performance of the
fund's Class A shares for periods prior to their offering. Performance for
Class R1, R2, and R3 shares includes the performance of the fund's Class B
shares for periods prior to their offering. This blended class performance has
been adjusted to take into account differences in sales loads, if any,
applicable to these share classes, but has not been adjusted to take into
account differences in class specific operating expenses (such as Rule 12b-1
fees). Compared to performance these share classes would have experienced had
they been offered for the entire period, the use of blended performance
generally results in higher performance for share classes with higher operating
expenses than the share class to which it is blended, and lower performance for
share classes with lower operating expenses than the share class to which it is
blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
The performance shown reflects a non-recurring accrual made to the fund on July
28, 2004, relating to MFS" revenue sharing settlement with the Securities and
Exchange Commission, without which the performance would have been lower. The
proceeds were paid to the fund on February 16, 2005.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
Prices of securities react to the economic condition of the company that issued
the security. The fund's investments in an issuer may rise and fall based on
the issuer's actual and anticipated earnings, changes in management and the
potential for takeovers and acquisitions.
Investments in emerging growth companies may be subject to more abrupt or
erratic market movements and may involve greater risks than investments in
other companies.
Growth companies risk is the risk that prices of growth company securities held
by the fund will fall to a greater extent than the overall equity markets due
to changing economic, political or market conditions or disappointing growth
company earnings results.
Investments in foreign securities involve risks relating to political, social
and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. All of the risks of investing in foreign securities are
heightened when investing in emerging markets countries.
The fund may invest a substantial amount of its assets in issuers located in a
single country or a limited number of countries. If the fund focuses its
investments in this manner, it assumes the risk that economic, political and
social conditions in those countries will have a significant impact on its
investment performance.
The fund may invest in over-the-counter transactions, which involve risks in
addition to those associated with transactions in securities traded on
exchanges. OTC-listed companies may have limited product lines, markets or
financial resources. Many OTC stocks trade less frequently and in smaller
volume than exchange-listed stocks. The values of these stocks may be more
volatile than exchange-listed stocks, and the fund may experience difficulty
buying and selling these stocks at prevailing market prices.
The fund has engaged and may engage in active or frequent trading to achieve
its principal investment strategies. This may result in the realization and
distribution to shareholders of higher capital gains, as compared to a fund
with less active trading policies, which would increase your tax liability
unless you hold your shares through a tax-deferred or exempt vehicle (such as
an Individual Retirement Account). Frequent trading also increases transaction
costs, which could detract from the fund's performance.
Please see the prospectus for further information regarding these and other
risk considerations.
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EXPENSE TABLE
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FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD,
NOVEMBER 1, 2004, THROUGH APRIL 30, 2005.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period November 1, 2004 through April 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below provides information
about actual account values and actual expenses. You may use the information in
this line, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first line under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the table below provides information
about hypothetical account values and hypothetical expenses based on the fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- --------------
Share Class
- --------------
- -------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 11/01/04-
Ratio 11/01/04 4/30/05 4/30/05
- -------------------------------------------------------------------------------
Actual 1.60% $1,000 $1,037 $8.08
A --------------------------------------------------------------------
Hypothetical* 1.60% $1,000 $1,017 $8.00
- -------------------------------------------------------------------------------
Actual 2.35% $1,000 $1,033 $11.85
B ---------------------------------------------------------------------
Hypothetical* 2.35% $1,000 $1,013 $11.73
- -------------------------------------------------------------------------------
Actual 2.35% $1,000 $1,034 $11.85
C --------------------------------------------------------------------
Hypothetical* 2.35% $1,000 $1,013 $11.73
- -------------------------------------------------------------------------------
Actual 1.36% $1,000 $1,038 $6.87
I --------------------------------------------------------------------
Hypothetical* 1.36% $1,000 $1,018 $6.80
- -------------------------------------------------------------------------------
R Actual 1.88% $1,000 $1,036 $9.49
(formerly --------------------------------------------------------------------
R1) Hypothetical* 1.88% $1,000 $1,015 $9.39
- -------------------------------------------------------------------------------
Actual 2.67% $1,000 $1,033 $13.46
R1 --------------------------------------------------------------------
Hypothetical* 2.67% $1,000 $1,012 $13.32
- -------------------------------------------------------------------------------
Actual 2.43% $1,000 $1,033 $12.25
R2 --------------------------------------------------------------------
Hypothetical* 2.43% $1,000 $1,013 $12.13
- -------------------------------------------------------------------------------
R3 Actual 2.13% $1,000 $1,034 $10.74
(formerly --------------------------------------------------------------------
R2) Hypothetical* 2.13% $1,000 $1,014 $10.64
- -------------------------------------------------------------------------------
Actual 1.90% $1,000 $1,037 $9.60
R4 --------------------------------------------------------------------
Hypothetical* 1.90% $1,000 $1,015 $9.49
- -------------------------------------------------------------------------------
Actual 1.60% $1,000 $1,037 $8.08
R5 --------------------------------------------------------------------
Hypothetical* 1.60% $1,000 $1,017 $8.00
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
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PORTFOLIO OF INVESTMENTS (unaudited) - 4/30/05
- ----------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 97.7%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Aerospace - 0.7%
- ----------------------------------------------------------------------------------------------
Lockheed Martin Corp. 50,920 $ 3,103,574
- ----------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.7%
- ----------------------------------------------------------------------------------------------
Pernod Ricard^ 20,770 $ 3,145,979
- ----------------------------------------------------------------------------------------------
Apparel Manufacturers - 1.4%
- ----------------------------------------------------------------------------------------------
Burberry Group PLC 288,530 $ 1,990,622
- ----------------------------------------------------------------------------------------------
LVMH Moet Hennessy Louis Vuitton S.A.^ 28,600 2,020,812
- ----------------------------------------------------------------------------------------------
Toray Industries, Inc. 442,000 1,972,687
- ----------------------------------------------------------------------------------------------
$ 5,984,121
- ----------------------------------------------------------------------------------------------
Banks & Credit Companies - 9.9%
- ----------------------------------------------------------------------------------------------
AEON Credit Service Co. Ltd. 37,700 $ 2,491,183
- ----------------------------------------------------------------------------------------------
Aiful Corp.^ 23,150 1,722,608
- ----------------------------------------------------------------------------------------------
American Express Co. 72,280 3,809,156
- ----------------------------------------------------------------------------------------------
Anglo Irish Bank Corp. PLC 191,100 2,200,616
- ----------------------------------------------------------------------------------------------
Citigroup, Inc. 93,197 4,376,531
- ----------------------------------------------------------------------------------------------
DEPFA Bank PLC 163,720 2,523,495
- ----------------------------------------------------------------------------------------------
Erste Bank der Oesterreichischen Sparkassen AG 85,610 4,129,528
- ----------------------------------------------------------------------------------------------
Kookmin Bank 95,890 4,067,262
- ----------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC 96,666 2,918,059
- ----------------------------------------------------------------------------------------------
Shinsei Bank Ltd. 570,000 3,092,981
- ----------------------------------------------------------------------------------------------
Standard Chartered PLC 116,130 2,095,225
- ----------------------------------------------------------------------------------------------
Takefuji Corp. 57,150 3,618,882
- ----------------------------------------------------------------------------------------------
UBS AG 60,358 4,837,540
- ----------------------------------------------------------------------------------------------
$ 41,883,066
- ----------------------------------------------------------------------------------------------
Biotechnology - 1.2%
- ----------------------------------------------------------------------------------------------
Genzyme Corp.* 35,260 $ 2,066,589
- ----------------------------------------------------------------------------------------------
Gilead Sciences, Inc.* 39,000 1,446,900
- ----------------------------------------------------------------------------------------------
ImClone Systems, Inc.* 50,770 1,617,025
- ----------------------------------------------------------------------------------------------
$ 5,130,514
- ----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.5%
- ----------------------------------------------------------------------------------------------
Antena TV S.A.^ 118,832 $ 2,379,135
- ----------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 66,200 3,719,116
- ----------------------------------------------------------------------------------------------
News Corp., Inc., "B"^ 242,067 3,832,312
- ----------------------------------------------------------------------------------------------
Premiere AG* 63,090 2,421,443
- ----------------------------------------------------------------------------------------------
Viacom, Inc., "B" 76,180 2,637,352
- ----------------------------------------------------------------------------------------------
Walt Disney Co. 153,820 4,060,848
- ----------------------------------------------------------------------------------------------
$ 19,050,206
- ----------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.2%
- ----------------------------------------------------------------------------------------------
Ameritrade Holding Corp.* 132,640 $ 1,390,067
- ----------------------------------------------------------------------------------------------
Franklin Resources, Inc. 55,080 3,782,894
- ----------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. 39,250 4,191,508
- ----------------------------------------------------------------------------------------------
$ 9,364,469
- ----------------------------------------------------------------------------------------------
Business Services - 2.7%
- ----------------------------------------------------------------------------------------------
Accenture Ltd., "A"* 196,360 $ 4,261,012
- ----------------------------------------------------------------------------------------------
Getty Images, Inc.* 61,560 4,404,618
- ----------------------------------------------------------------------------------------------
Manpower, Inc.^ 67,150 2,588,633
- ----------------------------------------------------------------------------------------------
$ 11,254,263
- ----------------------------------------------------------------------------------------------
Chemicals - 1.4%
- ----------------------------------------------------------------------------------------------
Monsanto Co. 63,130 $ 3,700,681
- ----------------------------------------------------------------------------------------------
Nalco Holding Co.* 116,900 2,104,200
- ----------------------------------------------------------------------------------------------
$ 5,804,881
- ----------------------------------------------------------------------------------------------
Computer Software - 4.1%
- ----------------------------------------------------------------------------------------------
Amdocs Ltd.* 74,920 $ 2,001,113
- ----------------------------------------------------------------------------------------------
Business Objects S.A., ADR^* 117,600 3,035,256
- ----------------------------------------------------------------------------------------------
Opsware, Inc.^* 222,910 1,065,510
- ----------------------------------------------------------------------------------------------
Oracle Corp.* 461,060 5,329,854
- ----------------------------------------------------------------------------------------------
Symantec Corp.* 78,600 1,476,108
- ----------------------------------------------------------------------------------------------
TIBCO Software, Inc.* 303,600 2,167,704
- ----------------------------------------------------------------------------------------------
VERITAS Software Corp.* 104,740 2,156,597
- ----------------------------------------------------------------------------------------------
$ 17,232,142
- ----------------------------------------------------------------------------------------------
Computer Software - Systems - 1.7%
- ----------------------------------------------------------------------------------------------
Dell, Inc.* 148,570 $ 5,174,693
- ----------------------------------------------------------------------------------------------
Sun Microsystems, Inc.* 500,100 1,815,363
- ----------------------------------------------------------------------------------------------
$ 6,990,056
- ----------------------------------------------------------------------------------------------
Construction - 1.7%
- ----------------------------------------------------------------------------------------------
CEMEX S.A. de C.V., ADR 115,100 $ 4,143,600
- ----------------------------------------------------------------------------------------------
Siam Cement Public Co. Ltd. 511,940 3,088,510
- ----------------------------------------------------------------------------------------------
$ 7,232,110
- ----------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.4%
- ----------------------------------------------------------------------------------------------
Colgate-Palmolive Co. 65,620 $ 3,267,220
- ----------------------------------------------------------------------------------------------
Kimberly-Clark de Mexico S.A. de C.V 514,600 1,465,699
- ----------------------------------------------------------------------------------------------
Reckitt Benckiser PLC 167,990 5,457,215
- ----------------------------------------------------------------------------------------------
$ 10,190,134
- ----------------------------------------------------------------------------------------------
Electrical Equipment - 3.2%
- ----------------------------------------------------------------------------------------------
Molex, Inc.^ 82,000 $ 2,083,620
- ----------------------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc., "A" 58,990 1,585,061
- ----------------------------------------------------------------------------------------------
Nidec Corp. 24,800 2,916,117
- ----------------------------------------------------------------------------------------------
Nitto Denko Corp. 70,300 3,841,493
- ----------------------------------------------------------------------------------------------
Schneider Electric S.A.^ 41,027 2,953,410
- ----------------------------------------------------------------------------------------------
$ 13,379,701
- ----------------------------------------------------------------------------------------------
Electronics - 6.2%
- ----------------------------------------------------------------------------------------------
Analog Devices, Inc. 85,900 $ 2,930,049
- ----------------------------------------------------------------------------------------------
CANON, Inc. 90,000 4,693,598
- ----------------------------------------------------------------------------------------------
KLA-Tencor Corp. 60,200 2,349,004
- ----------------------------------------------------------------------------------------------
Marvell Technology Group Ltd.* 83,740 2,803,615
- ----------------------------------------------------------------------------------------------
Murata Manufacturing Co. Ltd. 50,900 2,533,836
- ----------------------------------------------------------------------------------------------
Samsung Electronics Co. Ltd., GDR 16,370 7,510,492
- ----------------------------------------------------------------------------------------------
Seiko Epson Corp. 94,000 3,263,017
- ----------------------------------------------------------------------------------------------
$ 26,083,611
- ----------------------------------------------------------------------------------------------
Energy - Independent - 3.0%
- ----------------------------------------------------------------------------------------------
CNOOC Ltd. 8,063,000 $ 4,342,782
- ----------------------------------------------------------------------------------------------
EnCana Corp. 36,100 2,306,254
- ----------------------------------------------------------------------------------------------
Reliance Industries Ltd. 312,480 3,794,860
- ----------------------------------------------------------------------------------------------
Talisman Energy, Inc. 74,970 2,257,961
- ----------------------------------------------------------------------------------------------
$ 12,701,857
- ----------------------------------------------------------------------------------------------
Energy - Integrated - 2.4%
- ----------------------------------------------------------------------------------------------
BP PLC, ADR 73,364 $ 4,467,868
- ----------------------------------------------------------------------------------------------
TOTAL S.A.^ 25,030 5,555,338
- ----------------------------------------------------------------------------------------------
$ 10,023,206
- ----------------------------------------------------------------------------------------------
Engineering - Construction - 0.3%
- ----------------------------------------------------------------------------------------------
InfraSource Services, Inc.^* 119,120 $ 1,197,156
- ----------------------------------------------------------------------------------------------
Food & Drug Stores - 0.5%
- ----------------------------------------------------------------------------------------------
7-Eleven, Inc.^* 86,430 $ 2,021,598
- ----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 4.1%
- ----------------------------------------------------------------------------------------------
Coca-Cola HBC 162,500 $ 4,394,876
- ----------------------------------------------------------------------------------------------
Groupe Danone^ 42,980 4,027,262
- ----------------------------------------------------------------------------------------------
Nestle S.A. 16,987 4,459,126
- ----------------------------------------------------------------------------------------------
PepsiCo, Inc. 76,170 4,238,099
- ----------------------------------------------------------------------------------------------
$ 17,119,363
- ----------------------------------------------------------------------------------------------
Forest & Paper Products - 0.9%
- ----------------------------------------------------------------------------------------------
Aracruz Celulose S.A., ADR^ 127,800 $ 3,923,460
- ----------------------------------------------------------------------------------------------
Gaming & Lodging - 1.5%
- ----------------------------------------------------------------------------------------------
Carnival Corp. 36,710 $ 1,794,385
- ----------------------------------------------------------------------------------------------
OPAP S.A. 78,500 2,050,341
- ----------------------------------------------------------------------------------------------
William Hill Organization Ltd. 235,000 2,420,957
- ----------------------------------------------------------------------------------------------
$ 6,265,683
- ----------------------------------------------------------------------------------------------
General Merchandise - 0.6%
- ----------------------------------------------------------------------------------------------
Target Corp. 51,950 $ 2,411,000
- ----------------------------------------------------------------------------------------------
Insurance - 1.9%
- ----------------------------------------------------------------------------------------------
Riunione Adriatica di Sicurta S.p.A.^* 175,190 $ 3,816,201
- ----------------------------------------------------------------------------------------------
Sanlam Group 2,201,610 4,164,033
- ----------------------------------------------------------------------------------------------
$ 7,980,234
- ----------------------------------------------------------------------------------------------
Internet - 1.8%
- ----------------------------------------------------------------------------------------------
eBay, Inc.* 98,960 $ 3,140,001
- ----------------------------------------------------------------------------------------------
Yahoo!, Inc.* 128,240 4,425,562
- ----------------------------------------------------------------------------------------------
$ 7,565,563
- ----------------------------------------------------------------------------------------------
Leisure & Toys - 0.9%
- ----------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 68,100 $ 3,635,859
- ----------------------------------------------------------------------------------------------
Machinery & Tools - 1.6%
- ----------------------------------------------------------------------------------------------
Atlas Copco AB, "A"^ 35,670 $ 1,621,111
- ----------------------------------------------------------------------------------------------
Mitsui Mining & Smelting Co. Ltd. 587,000 2,524,671
- ----------------------------------------------------------------------------------------------
Sandvik AB^ 70,880 2,776,998
- ----------------------------------------------------------------------------------------------
$ 6,922,780
- ----------------------------------------------------------------------------------------------
Medical Equipment - 4.6%
- ----------------------------------------------------------------------------------------------
Boston Scientific Corp.* 82,200 $ 2,431,476
- ----------------------------------------------------------------------------------------------
Discovery Partners International, Inc.* 120 384
- ----------------------------------------------------------------------------------------------
Medtronic, Inc. 78,600 4,142,220
- ----------------------------------------------------------------------------------------------
Smith & Nephew PLC 357,800 3,685,451
- ----------------------------------------------------------------------------------------------
Straumann Holding AG 11,720 2,528,638
- ----------------------------------------------------------------------------------------------
Synthes, Inc. 30,790 3,490,330
- ----------------------------------------------------------------------------------------------
Zimmer Holdings, Inc.* 36,000 2,931,120
- ----------------------------------------------------------------------------------------------
$ 19,209,619
- ----------------------------------------------------------------------------------------------
Metals & Mining - 2.4%
- ----------------------------------------------------------------------------------------------
Aber Diamond Corp.+* 69,320 $ 1,778,226
- ----------------------------------------------------------------------------------------------
BHP Billiton Ltd. 309,930 3,915,331
- ----------------------------------------------------------------------------------------------
Companhia Vale do Rio Doce, ADR 159,500 4,298,525
- ----------------------------------------------------------------------------------------------
$ 9,992,082
- ----------------------------------------------------------------------------------------------
Pharmaceuticals - 7.6%
- ----------------------------------------------------------------------------------------------
AstraZeneca PLC 104,960 $ 4,604,677
- ----------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd.^ 135,700 2,120,218
- ----------------------------------------------------------------------------------------------
Eli Lilly & Co. 49,780 2,910,637
- ----------------------------------------------------------------------------------------------
Johnson & Johnson 56,130 3,852,202
- ----------------------------------------------------------------------------------------------
Medicis Pharmaceutical Corp., "A" 42,510 1,194,531
- ----------------------------------------------------------------------------------------------
Roche Holding AG^ 56,750 6,863,008
- ----------------------------------------------------------------------------------------------
Sanofi-Aventis^ 61,680 5,460,948
- ----------------------------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd., ADR 153,770 4,803,775
- ----------------------------------------------------------------------------------------------
$ 31,809,996
- ----------------------------------------------------------------------------------------------
Printing & Publishing - 2.1%
- ----------------------------------------------------------------------------------------------
Reed Elsevier N.V.^ 148,900 $ 2,142,831
- ----------------------------------------------------------------------------------------------
Reuters Group PLC 264,500 1,948,813
- ----------------------------------------------------------------------------------------------
Yell Group PLC 625,040 4,798,986
- ----------------------------------------------------------------------------------------------
$ 8,890,630
- ----------------------------------------------------------------------------------------------
Specialty Chemicals - 2.1%
- ----------------------------------------------------------------------------------------------
Asahi Glass Co. Ltd.^ 266,000 $ 2,950,200
- ----------------------------------------------------------------------------------------------
Kaneka Corp. 196,000 2,134,579
- ----------------------------------------------------------------------------------------------
L'Air Liquide S.A.^ 21,307 3,801,832
- ----------------------------------------------------------------------------------------------
$ 8,886,611
- ----------------------------------------------------------------------------------------------
Specialty Stores - 4.7%
- ----------------------------------------------------------------------------------------------
Esprit Holdings Ltd. 334,000 $ 2,500,306
- ----------------------------------------------------------------------------------------------
Hennes & Mauritz AB, "B"^ 118,780 4,098,013
- ----------------------------------------------------------------------------------------------
Kingfisher PLC 678,839 3,201,191
- ----------------------------------------------------------------------------------------------
NEXT PLC 110,473 3,131,782
- ----------------------------------------------------------------------------------------------
Nishimatsuya Chain Co. Ltd.^ 94,680 2,415,625
- ----------------------------------------------------------------------------------------------
RONA, Inc.* 96,600 1,852,004
- ----------------------------------------------------------------------------------------------
TJX Cos., Inc. 111,320 2,521,398
- ----------------------------------------------------------------------------------------------
$ 19,720,319
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.7%
- ----------------------------------------------------------------------------------------------
Vodafone Group PLC 2,776,980 $ 7,252,179
- ----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 3.3%
- ----------------------------------------------------------------------------------------------
Blue Coat Systems, Inc.^* 91,660 $ 1,319,904
- ----------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 395,700 6,837,696
- ----------------------------------------------------------------------------------------------
QUALCOMM, Inc. 64,400 2,246,916
- ----------------------------------------------------------------------------------------------
Research In Motion Ltd.^* 52,500 3,381,525
- ----------------------------------------------------------------------------------------------
$ 13,786,041
- ----------------------------------------------------------------------------------------------
Telephone Services - 3.0%
- ----------------------------------------------------------------------------------------------
FastWeb S.p.A.^* 47,629 $ 2,134,144
- ----------------------------------------------------------------------------------------------
Sprint Corp. 137,360 3,057,634
- ----------------------------------------------------------------------------------------------
Telefonica S.A. 441,959 7,514,279
- ----------------------------------------------------------------------------------------------
$ 12,706,057
- ----------------------------------------------------------------------------------------------
Tobacco - 0.7%
- ----------------------------------------------------------------------------------------------
Swedish Match AB^ 254,250 $ 2,999,556
- ----------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.0%
- ----------------------------------------------------------------------------------------------
Iberdrola S.A.^ 162,270 $ 4,230,568
- ----------------------------------------------------------------------------------------------
Suez S.A.^ 160,000 4,370,154
- ----------------------------------------------------------------------------------------------
$ 8,600,722
- ----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $369,463,858) $411,450,398
- ----------------------------------------------------------------------------------------------
Preferred Stock - 0.5%
- ----------------------------------------------------------------------------------------------
Automotive - 0.5%
- ----------------------------------------------------------------------------------------------
Porsche AG^* (Identified Cost, $1,233,019) 2,995 $ 1,938,159
- ----------------------------------------------------------------------------------------------
Short-Term Obligation - 1.8%
- ----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------
General Electric Capital Corp., 2.95%, due 5/02/05,
at Amortized Cost< $ 7,697,000 $ 7,696,369
- ----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 19.0%
- ----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 80,255,684 $ 80,255,684
- ----------------------------------------------------------------------------------------------
Repurchase Agreement - 0%
- ----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------
Morgan Stanley, 2.95%, dated 4/29/05, due 5/02/05, total to
be received $2,001 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account), at
Cost $ 2,000 $ 2,000
- ----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $458,650,930)(S) $501,342,610
- ----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (19.0)% (80,002,164)
- ----------------------------------------------------------------------------------------------
Net Assets - 100.0% $421,340,446
- ----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
(S) As of April 30, 2005 the fund had forty-seven securities representing
$171,322,655 and 40.7% of net assets that were fair valued in accordance
with the policies adopted by the Board of Trustees.
< The rate shown represents an annualized yield at time of purchase.
+ Restricted security.
ADR = American Depository Receipt
GDR = Global Depository Receipt
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 4/30/05
ASSETS
Investments, at value, including $76,735,050 of securities
on loan (identified cost, $458,650,930) $501,342,610
- --------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $64,520) 66,768
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 155,499
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 1,154,377
- --------------------------------------------------------------------------------------------------
Other assets 7,365
- --------------------------------------------------------------------------------------------------
Total assets $502,726,619
- --------------------------------------------------------------------------------------------------
LIABILITIES
Payable to custodian $717
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 714,471
- --------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 80,255,684
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 20,660
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 119,361
- --------------------------------------------------------------------------------------------------
Distribution and service fee 10,421
- --------------------------------------------------------------------------------------------------
Administrative fee 340
- --------------------------------------------------------------------------------------------------
Administrative service fee 9
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 264,510
- --------------------------------------------------------------------------------------------------
Total liabilities $81,386,173
- --------------------------------------------------------------------------------------------------
Net assets $421,340,446
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $543,680,855
- --------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies
(net of $21,721 deferred country tax) 42,678,272
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and
foreign currency transactions (164,376,635)
- --------------------------------------------------------------------------------------------------
Accumulated net investment loss (642,046)
- --------------------------------------------------------------------------------------------------
Net assets $421,340,446
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 23,229,829
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $295,367,668
- --------------------------------------------------------------------------------------------------
Shares outstanding 16,038,676
- --------------------------------------------------------------------------------------------------
Net asset value per share $18.42
- --------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$18.42) $19.54
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $94,311,674
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,402,464
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.46
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $21,178,235
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,224,301
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $17.30
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $7,008,390
- --------------------------------------------------------------------------------------------------
Shares outstanding 374,265
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.73
- --------------------------------------------------------------------------------------------------
Class R shares (formerly Class R1)
Net assets $2,790,353
- --------------------------------------------------------------------------------------------------
Shares outstanding 152,423
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.31
- --------------------------------------------------------------------------------------------------
Class R1 shares
Net assets $48,170
- --------------------------------------------------------------------------------------------------
Shares outstanding 2,759
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.46
- --------------------------------------------------------------------------------------------------
Class R2 shares
Net assets $48,180
- --------------------------------------------------------------------------------------------------
Shares outstanding 2,759
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $17.46
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class R3 shares (formerly Class R2)
Net assets $491,362
- --------------------------------------------------------------------------------------------------
Shares outstanding 26,946
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.23
- --------------------------------------------------------------------------------------------------
Class R4 shares
Net assets $48,201
- --------------------------------------------------------------------------------------------------
Shares outstanding 2,618
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.41
- --------------------------------------------------------------------------------------------------
Class R5 shares
Net assets $48,213
- --------------------------------------------------------------------------------------------------
Shares outstanding 2,618
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $18.42
- --------------------------------------------------------------------------------------------------
Shares outstanding are rounded for presentation purposes.
On sales of $50,000 or more, the offering price of Class A shares is reduced.
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED 4/30/05
NET INVESTMENT LOSS
Income
- ---------------------------------------------------------------------------------------------------
Dividends $3,674,895
- ---------------------------------------------------------------------------------------------------
Interest 168,570
- ---------------------------------------------------------------------------------------------------
Foreign taxes withheld (315,302)
- ---------------------------------------------------------------------------------------------------
Total investment income $3,528,163
- ---------------------------------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------------------------------
Management fee $2,050,426
- ---------------------------------------------------------------------------------------------------
Trustees' compensation 6,754
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 476,757
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 552,713
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 538,123
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 114,112
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 4,996
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R1) 30
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R2) 20
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R3) 808
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class R4) 10
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R1) 18
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R2) 16
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R3) 404
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R4) 6
- ---------------------------------------------------------------------------------------------------
Administrative service fee (Class R5) 4
- ---------------------------------------------------------------------------------------------------
Administrative fee 20,577
- ---------------------------------------------------------------------------------------------------
Custodian fee 215,691
- ---------------------------------------------------------------------------------------------------
Printing 37,346
- ---------------------------------------------------------------------------------------------------
Postage 22,207
- ---------------------------------------------------------------------------------------------------
Auditing fees 30,930
- ---------------------------------------------------------------------------------------------------
Legal fees 5,733
- ---------------------------------------------------------------------------------------------------
Miscellaneous 220,528
- ---------------------------------------------------------------------------------------------------
Total expenses $4,298,209
- ---------------------------------------------------------------------------------------------------
Fees paid indirectly (16,314)
- ---------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and
distributor (159,653)
- ---------------------------------------------------------------------------------------------------
Net expenses $4,122,242
- ---------------------------------------------------------------------------------------------------
Net investment loss $(594,079)
- ---------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- ---------------------------------------------------------------------------------------------------
Investment transactions $35,419,422
- ---------------------------------------------------------------------------------------------------
Foreign currency transactions (77,557)
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $35,341,865
- ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- ---------------------------------------------------------------------------------------------------
Investments (net of $21,721 deferred country tax) $(17,373,733)
- ---------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies (29,897)
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(17,403,630)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $17,938,235
- ---------------------------------------------------------------------------------------------------
Change in net assets from operations $17,344,156
- ---------------------------------------------------------------------------------------------------
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
4/30/05 10/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment loss $(594,079) $(1,300,236)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 35,341,865 74,526,809
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation (17,403,630) (23,437,280)
- ------------------------------------------------------- ------------- -------------
Change in net assets from operations $17,344,156 $49,789,293
- ------------------------------------------------------- ------------- -------------
Net change in net assets from fund share transactions $(39,491,280) $(73,285,854)
- ------------------------------------------------------- ------------- -------------
Redemption fees $-- $6,574
- ------------------------------------------------------- ------------- -------------
Total change in net assets $(22,147,124) $(23,489,987)
- ------------------------------------------------------- ------------- -------------
NET ASSETS
At beginning of period $443,487,570 $466,977,557
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
loss of $642,046 and $47,967, respectively) $421,340,446 $443,487,570
- --------------------------------------------------------------------------------------------------
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 YEARS ENDED 10/31
ENDED -----------------------------------------------------------------------------------
CLASS A 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value,
beginning of period $17.76 $15.91 $12.73 $14.60 $27.51 $23.20
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment income
(loss)(S) $(0.00)+++ $(0.01) $0.04 $(0.01) $(0.03) $0.07
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.66 1.86 3.14 (1.86) (6.91) 6.14
- -------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.66 $1.85 $3.18 $(1.87) $(6.94) $6.21
- -------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain
on investments and
foreign currency
transactions $-- $-- $-- $-- $(5.97) $(1.90)
- -------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $-- $0.00+++ $-- $-- $-- $--
- -------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period $18.42 $17.76 $15.91 $12.73 $14.60 $27.51
- -------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+)& 3.72++ 11.70^^^+ 24.90^^ (12.81) (30.91) 27.22
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -----------------------------------------------------------------------------------
CLASS A (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.60+ 1.60 1.59 1.57 1.52 1.45
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) (0.04)+ (0.04) 0.30 (0.08) (0.17) 0.26
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 163 93 130 112 182
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $295,368 $304,348 $306,333 $269,893 $268,548 $389,664
- -------------------------------------------------------------------------------------------------------------------------------
(S) The distributor contractually waived a portion of its fee for the periods indicated. In addition, effective June 7, 2004,
the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. If these fees had been incurred by the fund, the
net investment income (loss) per share and the ratios would have been:
Net investment income
(loss) $(0.01) $(0.02) $0.03 $(0.03) $(0.05) $0.04
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.70+ 1.70 1.69 1.67 1.62 1.55
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) (0.14)+ (0.14) 0.20 (0.18) (0.27) 0.16
- -------------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
(+) Total returns do not include the applicable sales charge. If the charge had been included, the results would have been
lower.
^^ The fund's net asset value and total return calculation include 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
on the day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2003 would have been 0.47% lower.
^^^ The fund's net asset value and total return calculation include 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 day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2004 would have been 0.05% lower.
+ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual did not have a
material impact on the net asset value per share based on the shares outstanding on the day the proceeds were recorded.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED --------------------------------------------------------------------------------
CLASS B 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $16.90 $15.25 $12.29 $14.21 $26.87 $22.73
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS#
Net investment loss(S) $(0.07) $(0.13) $(0.06) $(0.13) $(0.16) $(0.14)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 0.63 1.78 3.02 (1.79) (6.74) 6.04
- ---------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.56 $1.65 $2.96 $(1.92) $(6.90) $5.90
- ---------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain
on investments and
foreign currency
transactions $-- $-- $-- $-- $(5.76) $(1.76)
- ---------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $-- $0.00+++ $-- $-- $-- $--
- ---------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period $17.46 $16.90 $15.25 $12.29 $14.21 $26.87
- ---------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 3.31++ 10.82^^^+ 24.08^^ (13.51) (31.39) 26.26
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED --------------------------------------------------------------------------------
CLASS B (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.35+ 2.35 2.34 2.32 2.27 2.20
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.82)+ (0.81) (0.47) (0.89) (0.92) (0.47)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 163 93 130 112 182
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of
period (000 Omitted) $94,312 $108,750 $129,229 $133,525 $268,518 $442,368
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.07)* $(0.13)* $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.35+* 2.35* -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.82)+* (0.81)* -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include 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
on the day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2003 would have been 0.56% lower.
^^^ The fund's net asset value and total return calculation include 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 day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2004 would have been 0.05% lower.
+ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual did not have a
material impact on the net asset value per share based on the shares outstanding on the day the proceeds were recorded.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -------------------------------------------------------------------------------
CLASS C 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $16.74 $15.11 $12.18 $14.08 $26.74 $22.64
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment loss(S) $(0.07) $(0.13) $(0.06) $(0.13) $(0.16) $(0.11)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and
foreign currency 0.63 1.76 2.99 (1.77) (6.70) 5.99
- ----------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.56 $1.63 $2.93 $(1.90) $(6.86) $5.88
- ----------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(5.80) $(1.78)
- ----------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $-- $0.00+++ $-- $-- $-- $--
- ----------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period $17.30 $16.74 $15.11 $12.18 $14.08 $26.74
- ----------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 3.35++ 10.79^^^+ 24.06^^ (13.49) (31.45) 26.28
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -------------------------------------------------------------------------------
CLASS C (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.35+ 2.35 2.34 2.32 2.27 2.20
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.80)+ (0.81) (0.47) (0.91) (0.92) (0.39)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 163 93 130 112 182
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $21,178 $21,945 $24,777 $24,035 $44,241 $62,520
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment loss per share and the ratios would have been:
Net investment loss $(0.07)* $(0.13)* $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.35+* 2.35* -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.80)+* (0.81)* -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include 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
on the day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2003 would have been 0.58% lower.
^^^ The fund's net asset value and total return calculation include 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 day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2004 would have been 0.06% lower.
+ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual did not have a
material impact on the net asset value per share based on the shares outstanding on the day the proceeds were recorded.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -------------------------------------------------------------------------------
CLASS I 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $18.04 $16.11 $12.86 $14.71 $27.71 $23.23
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS#
Net investment income(S) $0.02 $0.04 $0.07 $0.02 $0.01 $0.15
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments and
foreign currency 0.67 1.89 3.18 (1.87) (6.97) 6.19
- ----------------------------- ------ ------ ------ ------ ------ ------
Total from investment
operations $0.69 $1.93 $3.25 $(1.85) $(6.96) $6.34
- ----------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net realized gain on
investments and foreign
currency transactions $-- $-- $-- $-- $(6.04) $(1.96)
- ----------------------------- ------ ------ ------ ------ ------ ------
Redemption fees added to
paid-in capital# $-- $0.00+++ $-- $-- $-- $--
- ----------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of
period $18.73 $18.04 $16.11 $12.86 $14.71 $27.71
- ----------------------------- ------ ------ ------ ------ ------ ------
Total return (%)& 3.82++ 11.98^^^+ 25.27^^ (12.64) (30.77) 27.56
- ------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -------------------------------------------------------------------------------
CLASS I (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.36+ 1.34 1.33 1.32 1.27 1.20
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.21+ 0.21 0.53 0.16 0.08 0.50
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 163 93 130 112 182
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $7,008 $7,011 $6,249 $5,207 $6,085 $9,003
- ------------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of
substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been
incurred by the fund, the net investment income per share and the ratios would have been:
Net investment income $0.02* $0.04* $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.36+* 1.34* -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.21+* 0.21* -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include 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
on the day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2003 would have been 0.54% lower.
^^^ The fund's net asset value and total return calculation include 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 day the proceeds were received. Excluding the effect of this payment from the ending net asset value per share,
total return for the year ended October 31, 2004 would have been 0.05% lower.
+ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, as
described in the Legal Proceedings and Transactions with Affiliates footnotes. The non-recurring accrual did not have a
material impact on the net asset value per share based on the shares outstanding on the day the proceeds were recorded.
The proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R (FORMERLY CLASS R1) 4/30/05 10/31/04 10/31/03**
(UNAUDITED)
Net asset value, beginning of period $17.68 $15.87 $12.63
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.01) $(0.02) $0.03
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.64 1.83 3.21
- ------------------------------------------------------ ------ ------ ------
Total from investment operations $0.63 $1.81 $3.24
- ------------------------------------------------------ ------ ------ ------
Redemption fees added to paid-in capital# $-- $0.00+++ $--
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.31 $17.68 $15.87
- ------------------------------------------------------ ------ ------ ------
Total return (%)& 3.56++ 11.41^^^+ 25.65++^^
- ---------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED PERIOD ENDED
CLASS R (FORMERLY CLASS R1) (CONTINUED) 4/30/05 10/31/04 10/31/03**
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.88+ 1.83 1.78+
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.10)+ (0.10) 0.21+
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover 47 163 93
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $2,790 $1,194 $385
- ---------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to
Tarantino LLC. If this fee had been incurred by the fund, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.01)* $(0.02)* $--
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.88+* 1.83* --
- ---------------------------------------------------------------------------------------------------------------
Net investment loss (0.10)+* (0.10)* --
- ---------------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
** For the period from the inception of Class R shares, December 31, 2002, through October 31, 2003.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^ The fund's net asset value and total return calculation include 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 on the day the proceeds were received. Excluding the effect of
this payment from the ending net asset value per share, total return for the year ended October 31, 2003
would have been 0.55% lower.
^^^ The fund's net asset value and total return calculation include 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. Theproceeds resulted in an increase in the net asset value of
$0.01 per share based on shares outstanding on the day the proceeds were received. Excluding the effect of
this payment from the ending net asset value per share, total return for the year ended October 31, 2004
would have been 0.06% lower.
+ The fund's net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales, as described in the Legal Proceedings and Transactions with Affiliates
footnotes. The non-recurring accrual did not have a material impact on the net asset value per share based
on the shares outstanding on the day the proceeds were recorded. The proceeds were paid to the fund on
February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which performance
would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
CLASS R1 4/30/05**
(UNAUDITED)
Net asset value, beginning of period $18.12
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.01
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.67)^
- ----------------------------------------------------------------- -------
Total from investment operations $(0.66)
- ----------------------------------------------------------------- -------
Net asset value, end of period $17.46
- ----------------------------------------------------------------- -------
Total return (%)& (3.64)++
- -----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.67+
- -----------------------------------------------------------------------------
Net investment income 0.69+
- -----------------------------------------------------------------------------
Portfolio turnover 47
- -----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $48
- -----------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to
reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. If
this fee had been incurred by the fund, the net investment income per share
and the ratios would have been:
Net investment income $0.01*
- -----------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.67+*
- -----------------------------------------------------------------------------
Net investment income 0.69+*
- -----------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01
and 0.01%, respectively.
** For the period from the inception of Class R1 shares, April 1, 2005 through
April 30, 2005.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
^ The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
& From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
CLASS R2 4/30/05**
(UNAUDITED)
Net asset value, beginning of period $18.12
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.01
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.67)^
- ----------------------------------------------------------------- -------
Total from investment operations $(0.66)
- ----------------------------------------------------------------- -------
Net asset value, end of period $17.46
- ----------------------------------------------------------------- -------
Total return (%)& (3.64)++
- -------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.43+
- -------------------------------------------------------------------------------
Net investment income 0.94+
- -------------------------------------------------------------------------------
Portfolio turnover 47
- -------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $48
- -------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to
reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. If
this fee had been incurred by the fund, the net investment income per share
and the ratios would have been:
Net investment income $0.01*
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.43+*
- -------------------------------------------------------------------------------
Net investment income 0.94+*
- -------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01
and 0.01%, respectively.
** For the period from the inception of Class R2 shares, April 1, 2005 through
April 30, 2005.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
^ The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
& From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS
ENDED YEAR ENDED
CLASS R3 (FORMERLY CLASS R2) 4/30/05 10/31/04
(UNAUDITED)
Net asset value, beginning of period $17.63 $15.87
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.02) $(0.07)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency 0.62 1.83
- ------------------------------------------------------------------- ------ ------
Total from investment operations $0.60 $1.76
- ------------------------------------------------------------------- ------ ------
Redemption fees added to paid-in capital# $-- $0.00+++
- ------------------------------------------------------------------- ------ ------
Net asset value, end of period $18.23 $17.63
- ------------------------------------------------------------------- ------ ------
Total return (%)& 3.40++ 11.09^^^+
- ------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.13+ 2.08
- ------------------------------------------------------------------------------------------------------
Net investment loss (0.27)+ (0.45)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover 47 163
- ------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $491 $239
- ------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for
its proportional share of substantially all of Independent Chief Compliance Officer service fees
paid to Tarantino LLC. If this fee had been incurred by the fund, the net investment loss per
share and the ratios would have been:
Net investment loss $(0.02)* $(0.07)*
- ------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 2.13+* 2.08*
- ------------------------------------------------------------------------------------------------------
Net investment loss (0.27)+* (0.45)*
- ------------------------------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%,
respectively.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
^^^ The fund's net asset value and total return calculation include 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 day the
proceeds were received. Excluding the effect of this payment from the ending net asset value per
share, total return for the year ended October 31, 2004 would have been 0.05% lower.
+ The fund's net asset value and total return calculation include a non-recurring accrual recorded
as a result of an administrative proceeding regarding disclosure of brokerage allocation
practices in connection with fund sales, as described in the Legal Proceedings and Transactions
with Affiliates footnotes. The non-recurring accrual did not have a material impact on the net
asset value per share based on the shares outstanding on the day the proceeds were recorded. The
proceeds were paid to the fund on February 16, 2005.
& From time to time the fund may receive proceeds from litigation settlements, without which
performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
CLASS R4 4/30/05**
(UNAUDITED)
Net asset value, beginning of period $19.10
- -------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.02
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.71)^
- ----------------------------------------------------------------- -------
Total from investment operations $(0.69)
- ----------------------------------------------------------------- -------
Net asset value, end of period $18.41
- ----------------------------------------------------------------- -------
Total return (%)& (3.61)++
- -------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.90+
- -------------------------------------------------------------------------------
Net investment income 1.46+
- -------------------------------------------------------------------------------
Portfolio turnover 47
- -------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $48
- -------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to
reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. If
this fee had been incurred by the fund, the net investment income per share
and the ratios would have been:
Net investment income $0.02*
- -------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.90+*
- -------------------------------------------------------------------------------
Net investment income 1.46+*
- -------------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01
and 0.01%, respectively.
** For the period from the inception of Class R4 shares, April 1, 2005 through
April 30, 2005.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
^ The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
& From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
PERIOD ENDED
CLASS R5 4/30/05**
(UNAUDITED)
Net asset value, beginning of period $19.10
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.03
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments and foreign currency (0.71)^
- ----------------------------------------------------------------- -------
Total from investment operations $(0.68)
- ----------------------------------------------------------------- -------
Net asset value, end of period $18.42
- ----------------------------------------------------------------- -------
Total return (%)& (3.56)++
- -----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.60+
- -----------------------------------------------------------------------------
Net investment income 1.78+
- -----------------------------------------------------------------------------
Portfolio turnover 47
- -----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $48
- -----------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to
reimburse the fund for its proportional share of substantially all of
Independent Chief Compliance Officer service fees paid to Tarantino LLC. If
this fee had been incurred by the fund, the net investment income per share
and the ratios would have been:
Net investment income $0.03*
- -----------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.60+*
- -----------------------------------------------------------------------------
Net investment income 1.78+*
- -----------------------------------------------------------------------------
* The reimbursement impact per share amount and ratios were less than $0.01
and 0.01%, respectively.
** For the period from the inception of Class R5 shares, April 1, 2005 through
April 30, 2005.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
+ Annualized.
++ Not annualized.
^ The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and losses
at such time.
& From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
SEE NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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 U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
fund can invest in foreign securities. 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 - 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. 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 approximates market value as determined by the Board of
Trustees. Money market mutual funds area 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. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. 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.
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 - For purchases made prior to July 1, 2004, the fund charges a
2% redemption fee (which is retained by the fund) on proceeds from Class A,
Class B, Class C, and Class I shares redeemed or exchanged within 30 calendar
days following their acquisition (either by purchase or exchange). For
purchases made on or after July 1, 2004 and before April 1, 2005, the fund
will charge a 2% redemption fee on proceeds from Class A, Class B, Class C,
and Class I 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. Effective April 1,
2005, the fund will no longer charge a redemption fee. See the fund's
prospectus for details. Any redemption fees charged 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 U.S. generally accepted accounting principles. 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.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date.
The fund may receive proceeds from litigation settlements involving its
portfolio holdings. Any proceeds received are reflected in realized gain/loss
in the statement of operations, or in unrealized gain/loss if the security is
still held by the fund.
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 remaining 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 year ended October 31, 2004 would have been lower by 0.05%,
0.05%, 0.06%, 0.05%, 0.06%, and 0.05% for Class A, B, C, I, R, and R3 shares,
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, 2005, the fund's custodian
fees were reduced by $7,666 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, 2005, the fund's miscellaneous
expenses were reduced by $8,648 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 foreign currency transactions, passive foreign investment
companies, and
wash sales.
The fund paid no distributions for the years ended October 31, 2004 and
October 31, 2003.
As of October 31, 2004 the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(197,464,451)
----------------------------------------------------------
Unrealized appreciation (depreciation) 57,827,853
----------------------------------------------------------
Other temporary differences (47,967)
----------------------------------------------------------
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.
EXPIRATION DATE
October 31, 2009 $(88,353,717)
----------------------------------------------------------
October 31, 2010 (95,953,969)
----------------------------------------------------------
October 31, 2011 (13,156,765)
----------------------------------------------------------
Total $(197,464,451)
----------------------------------------------------------
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%
----------------------------------------------------------
Management fees incurred for the six months ended April 30, 2005 were an
effective rate of 0.90% of average daily net assets on an annualized basis.
The fund pays compensation to its Independent Trustees in the form of 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). The fund has an
unfunded, defined benefit plan for retired Independent Trustees and an
unfunded retirement benefit deferral plan for current Independent Trustees.
Included in Trustees' compensation is $769 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 $1,315 for retired Independent
Trustees for the six months ended April 30, 2005.
This fund and certain other MFS funds (the "funds") have entered into a
services agreement (the "Agreement") which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse each of the funds for a proportional share of substantially all of
the payments made by the funds to Tarantino LLC and also to provide office
space and other administrative support and supplies to the ICCO. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement.
The fund's investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales, as described in the Legal Proceedings Footnote. On
July 28, 2004, the fund accrued an estimate of the amount to be received
pursuant to this matter in the amount of $117,040, which did not have a
material impact on the net asset value per share based on the shares
outstanding on the day the proceeds were recorded. The proceeds were paid to
the fund on February 16, 2005.
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. The
fund paid MFS an administrative fee up to the following annual percentage
rates of the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
-----------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
-----------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
-----------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
-----------------------------------------------------------
For the six months ended April 30, 2005, the fund paid MFS $20,577, equivalent
to 0.00903% 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 retirement plan
administration and services with respect to Class R1, Class R2, Class R3
(formerly Class R2), Class R4, and Class R5 shares. These services include
various administrative, recordkeeping, and communication/educational services
with respect to the retirement plans which invest in these shares, and may be
provided directly by MFS or by a third party. Effective April 1, 2005, the
fund pays an annual plan administration and service fee in an amount up to
0.45%, 0.40%, 0.25%, 0.15%, and 0.10% solely from the assets of Class R1,
Class R2, Class R3 (formerly Class R2), Class R4, and Class R5 shares,
respectively, to MFS for the provision of these services. Prior to April 1,
2005, the fund paid an annual 0.25% plan administration and service fee solely
from the assets of Class R3 (formerly Class R2) shares to MFS for the
provision of these services.
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$14,431 for the six months ended April 30, 2005, 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 R (formerly Class R1), Class R1, Class R2, Class R3 (formerly Class R2),
and Class R4 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 as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its
shares. One component of the plan is a distribution fee and another is a
service fee paid by MFD to financial intermediaries that enter into sales or
service agreements with MFD or its affiliates based on the average daily net
assets of accounts attributable to such intermediaries. 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 R CLASS R1
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.50%
- ------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00% 0.50% 0.75%
- ------------------------------------------------------------------------------
CLASS R2 CLASS R3 CLASS R4
Distribution Fee 0.25% 0.25% --
- ------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------
Total Distribution Plan 0.50% 0.50% 0.25%
- ------------------------------------------------------------------------------
MFD may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by
MFD for the six months ended April 30, 2005 amounted to:
CLASS A CLASS B CLASS C CLASS R CLASS R1
Service Fee Retained by MFD $10,095 $1,063 $962 $10 $--
- ------------------------------------------------------------------------------
CLASS R2 CLASS R3 CLASS R4
Service Fee Retained by MFD $-- $14 $--
- -----------------------------------------------------------
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, 2005 were as follows:
CLASS A CLASS B CLASS C CLASS R CLASS R1
Effective Annual Percentage
Rates 0.25% 1.00% 1.00% 0.50% 0.75%
- ------------------------------------------------------------------------------
CLASS R2 CLASS R3 CLASS R4
Effective Annual Percentage
Rates 0.50% 0.50% 0.25%
- -----------------------------------------------------------
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 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 of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended
April 30, 2005 were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales
Charges Imposed $9,461 $59,923 $504
- -----------------------------------------------------------
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. For the beginning of the period through December 31,
2004, the fund was charged up to 0.0861% of its average daily net assets. For
the period January 1, 2005 through February 28, 2005, the fund was charged up
to 0.1035% of its average daily net assets. Effective March 1, 2005, the fund
is charged up to 0.1159% of its average daily net assets. For the six months
ended April 30, 2005, the fund paid MFSC a fee of $231,528 for shareholder
services which equated to 0.1016% of the fund's average daily net assets.
Shareholder service costs include out of pocket expenses and sub accounting
services expenses paid by MFSC on behalf of the fund and subsequently
reimbursed to MFSC which amounted to $107,387, and other costs paid by the
fund directly to unaffiliated vendors for the six months ended April 30, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$209,336,789 and $246,654,043, 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 $460,904,979
----------------------------------------------------------
Gross unrealized appreciation $53,277,870
----------------------------------------------------------
Gross unrealized depreciation (12,840,239)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $40,437,631
----------------------------------------------------------
(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 4/30/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 1,516,693 $28,680,586 3,300,847 $56,503,582
- -------------------------------------------------------------------------------------------------------
Shares reacquired (2,613,563) (49,750,543) (5,422,553) (92,414,483)
- -------------------------------------------------------------------------------------------------------
Net change (1,096,870) $(21,069,957) (2,121,706) $(35,910,901)
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 400,785 $7,204,411 932,789 $15,208,458
- -------------------------------------------------------------------------------------------------------
Shares reacquired (1,433,831) (25,849,368) (2,971,167) (48,310,681)
- -------------------------------------------------------------------------------------------------------
Net change (1,033,046) $(18,644,957) (2,038,378) $(33,102,223)
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 101,634 $1,788,820 139,965 $2,265,902
- -------------------------------------------------------------------------------------------------------
Shares reacquired (188,185) (3,359,199) (468,899) (7,546,242)
- -------------------------------------------------------------------------------------------------------
Net change (86,551) $(1,570,379) (328,934) $(5,280,340)
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 20,874 $406,440 54,853 $955,087
- -------------------------------------------------------------------------------------------------------
Shares reacquired (35,293) (690,814) (53,953) (932,446)
- -------------------------------------------------------------------------------------------------------
Net change (14,419) $(284,374) 900 $22,641
- -------------------------------------------------------------------------------------------------------
CLASS R SHARES (FORMERLY R1)
Shares sold 99,519 $1,899,328 91,918 $1,588,452
- -------------------------------------------------------------------------------------------------------
Shares reacquired (14,626) (278,454) (48,614) (829,241)
- -------------------------------------------------------------------------------------------------------
Net change 84,893 $1,620,874 43,304 $759,211
- -------------------------------------------------------------------------------------------------------
Period ended 4/30/05*
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 2,759 $50,000
- -----------------------------------------------------------------------
CLASS R2 SHARES
Shares sold 2,759 $50,000
- -----------------------------------------------------------------------
Six months ended 4/30/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES (FORMERLY R2)
Shares sold 15,780 $303,884 17,681 $299,195
- -------------------------------------------------------------------------------------------------------
Shares reacquired (2,397) (46,371) (4,433) (73,437)
- -------------------------------------------------------------------------------------------------------
Net change 13,383 $257,513 13,248 $225,758
- -------------------------------------------------------------------------------------------------------
Period ended 4/30/05*
SHARES AMOUNT
CLASS R4 SHARES
Shares sold 2,618 $50,000
- -----------------------------------------------------------------------
CLASS R5 SHARES
Shares sold 2,618 $50,000
- -----------------------------------------------------------------------
* For the period from the inception of Class R1, Class R2, Class R4, and Class R5 shares, April 1, 2005
through April 30, 2005.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion 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 Federal Reserve
funds rate plus 0.35%. 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, 2005, was $1,486, and
is included in miscellaneous expense. The fund had no significant borrowings
during the six months ended April 30, 2005.
(7) RESTRICTED SECURITIES
At April 30, 2005, the fund owned the following restricted securities which
are subject to legal or contractual restrictions on resale, excluding
securities issued under Rule 144A, constituting 0.42% 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
DESCRIPTION ACQUISITION SHARES COST VALUE
Aber Diamond Corp. 12/07/04 69,320 $2,412,403 $1,778,226
- -----------------------------------------------------------------------------
(8) 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 MFS fund sales (the term "MFS funds" means the
open-end registered management investment companies sponsored by MFS). 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 developed by an
independent distribution consultant. The brokerage allocation practices which
were the subject of this proceeding were discontinued by MFS in November 2003.
The agreement with the SEC is reflected in an order of the SEC. The SEC
settlement order states that MFS failed to adequately disclose to the Boards of
Trustees and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The SEC
settlement order states that MFS had in place policies designed to obtain best
execution of all MFS fund trades. As part of the settlement, MFS retained an
independent compliance consultant to review the completeness of its current
policies and practices regarding disclosure to MFS fund trustees and to MFS
fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial intermediaries who support the sale of MFS
fund shares. Pursuant to the SEC order, on July 28, 2004, MFS transferred these
settlement amounts to the SEC, and those MFS funds entitled to these settlement
amounts accrued an estimate of their pro rata portion of these amounts. The
final distribution plan was approved by the SEC on January 21, 2005, and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS retail funds")
prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain
MFS retail funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that they prohibited market
timing, MFS did not limit trading activity in 11 domestic large cap stock, high
grade bond and money market retail funds. MFS' former Chief Executive Officer
and former President 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. These
individuals 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 MFS 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 MFS 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 MFS funds during specified periods, as ERISA
actions by participants in certain retirement plan accounts on behalf of those
accounts, or as derivative actions on behalf of the MFS funds. The lawsuits
relating to market timing and related matters have been transferred to, and
consolidated before, the United States District Court for the District of
Maryland, as part of a multi-district litigation of market timing and related
claims involving several other fund complexes (In re Mutual Funds Investment
Litigation (Alger, Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two lawsuits alleging improper brokerage allocation practices and excessive
compensation are pending in the United States District Court for the District
of Massachusetts (Forsythe v. Sun Life Financial Inc., et al., No. 04cv10584
(GAO) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of MFS 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. 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 MFS funds. In February, March, and April 2005, the defendants filed
separate motions to dismiss all claims of the various lawsuits. The parties
continue to brief the issues for the courts and various hearing dates have been
scheduled. Additional lawsuits based on similar allegations may be filed in the
future.
On March 21, 2005, a class action complaint alleging breach of contract was
filed in Massachusetts state court on behalf of Brian Reaves and other Class B
shareholders in certain MFS Series Trusts and Funds. (Reaves v. MFS Series
Trust I, et al, Mass.Super.Ct., C.A. No. 05-1094). Plaintiffs alleged that the
named MFS Series Trusts and Funds breached their contract with Plaintiffs by
(i) engaging in alleged misconduct, including market timing, (ii) failing to
act in the best interests of the Class B shareholders, and (iii) by engaging in
unfair and deceptive trade practices in the performance of contractual duties.
In relief, Plaintiffs generally seek damages and equitable relief, including
the rescission of fees already paid when Plaintiffs sold Class B shares and
injunctive relief preventing the named MFS Series Trusts and Funds from
charging fees on the Plaintiffs future sale of Class B shares and attorney's
fees and costs. The Reaves lawsuit is subject to a conditional transfer order
dated May 6, 2005 that would consolidate and transfer the case to the
multi-district litigation in the District of Maryland (In re Mutual Funds
Investment Litigation; see above). Plaintiffs have given notice of their
opposition to transfer, and the parties will be submitting briefs to the
multi-district panel in June of 2005.
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 certain MFS retail funds for damages that they
allegedly sustained as a result of market timing or late trading in certain of
the MFS retail funds, and distributed $50 million to affected MFS funds to
compensate those funds based upon the amount of brokerage commissions allocated
in recognition of MFS 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 MFS 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 MFS funds.
- -------------------------------------------------------------------------------
RESULTS OF SHAREHOLDER MEETING (unaudited) - 4/30/05
- -------------------------------------------------------------------------------
At a special meeting of shareholders of MFS Global Growth Fund, which was held
on March 23, 2005, the following actions were taken:
ITEM 1. To elect a Board of Trustees:
NUMBER OF DOLLARS
-----------------------------------
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Lawrence H. Cohn $513,280,779.34 $13,855,521.20
- ------------------------------------------------------------------------------
David H. Gunning 514,041,593.07 13,094,707.47
- ------------------------------------------------------------------------------
William R. Gutow 513,483,276.62 13,653,023.92
- ------------------------------------------------------------------------------
Michael Hegarty 513,964,251.57 13,172,048.97
- ------------------------------------------------------------------------------
J. Atwood Ives 513,305,005.21 13,831,295.33
- ------------------------------------------------------------------------------
Amy B. Lane 515,431,513.10 11,704,787.44
- ------------------------------------------------------------------------------
Robert J. Manning 513,818,995.89 13,317,304.65
- ------------------------------------------------------------------------------
Lawrence T. Perera 513,384,556.38 13,751,744.16
- ------------------------------------------------------------------------------
Robert C. Pozen 513,970,141.81 13,166,158.73
- ------------------------------------------------------------------------------
J. Dale Sherratt 513,488,977.77 13,647,322.77
- ------------------------------------------------------------------------------
Laurie J. Thomsen 515,427,571.45 11,708,729.09
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
WGF-SEM-06/05 60M
MFS(R) STRATEGIC INCOME FUND 4/30/05
SEMIANNUAL REPORT
- -------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
THIS REPORT HAS BEEN PREPARED FOR THE GENERAL INFORMATION TO SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
SEMIANNUAL REPORT
LETTER FROM THE CEO 1
--------------------------------------------------
PORTFOLIO COMPOSITION 2
--------------------------------------------------
MANAGEMENT REVIEW 3
--------------------------------------------------
PERFORMANCE SUMMARY 5
--------------------------------------------------
EXPENSE TABLE 9
--------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
--------------------------------------------------
FINANCIAL STATEMENTS 24
--------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 37
--------------------------------------------------
RESULTS OF SHAREHOLDER MEETING 52
--------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 53
--------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 53
--------------------------------------------------
CONTACT INFORMATION BACK COVER
--------------------------------------------------
- -------------------------------------------------------------------------------
LETTER FROM THE CEO
- -------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Robert J. Manning]
As a professional investor for more than 20 years, I've often been asked to
name the single most important factor in investment success. My answer is
always the same: diversification. At MFS we talk about applying a disciplined
diversification(SM) strategy to a portfolio as a three step process: allocate
among the major asset classes; diversify within each asset class; and rebalance
regularly to avoid unnecessary risk.
Individual investors sometimes assume that the amount they're putting away is
too small to allow for diversification. My response would be that a good
investment plan, developed with the help of an investment professional, should
provide a way to properly diversify your contributions.
Remember that the purpose of diversification is to own investments that
historically have not moved in sync with each other - in the hope that, in any
given period, underperforming holdings will be somewhat counteracted by other
outperforming holdings. If none of your asset classes did badly in the past
year or so, you're probably not properly diversified.
Americans today have more of their wealth tied up in the markets than in any
previous period of our history, but we are not yet making the most of our
opportunities. While neither asset allocation nor diversification can guarantee
a profit or protect against a loss, I would voice the opinion that, to a large
extent, a failure to have a plan, diversify contributions, and rebalance a
portfolio annually has been behind many U.S. investors' failure to reach their
long-term financial goals.
For more information on how to apply a disciplined diversification(SM) strategy
to your portfolio, I would urge you to contact your own investment
professional. You may also want to refer to information on the subject on our
Website, MFS.COM.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2005
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
- -------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- -------------------------------------------------------------------------------
PORTFOLIO STRUCTURE*
Bonds 91.7%
Cash & Other Net Assets 7.7%
Convertibles 0.4%
Convertible Preferred 0.2%
MARKET SECTORS*
High Yield Corporates 35.7%
-------------------------------------------------
International Government Bonds 15.7%
-------------------------------------------------
Emerging Market Bonds 14.7%
-------------------------------------------------
High Grade Corporates 10.3%
-------------------------------------------------
Commercial Mortgage-Backed
Securities 8.6%
-------------------------------------------------
Cash & Other Net Assets 7.7%
-------------------------------------------------
Mortgage-Backed Securities 4.8%
-------------------------------------------------
U.S. Government Agencies 1.8%
-------------------------------------------------
Domestic Convertibles 0.6%
-------------------------------------------------
Other Securities 0.1%
-------------------------------------------------
CREDIT QUALITY OF BONDS**
AAA 29.4%
-------------------------------------------------
AA 1.3%
-------------------------------------------------
A 3.1%
-------------------------------------------------
BBB 12.6%
-------------------------------------------------
BB 22.5%
-------------------------------------------------
B 23.4%
-------------------------------------------------
CCC 6.7%
-------------------------------------------------
CC 0.3%
-------------------------------------------------
Not Rated 0.7%
-------------------------------------------------
PORTFOLIO FACTS
Average Duration 4.2
-------------------------------------------------
Average Life 7.9 yrs.
-------------------------------------------------
Average Maturity*** 10.6 yrs.
-------------------------------------------------
Average Credit Quality**** BBB
-------------------------------------------------
Average Credit Quality
Short-Term Bonds A-1
-------------------------------------------------
COUNTRY WEIGHTINGS
United States 63.8%
-------------------------------------------------
Germany 4.4%
-------------------------------------------------
Brazil 2.9%
-------------------------------------------------
Russia 2.8%
-------------------------------------------------
Ireland 2.4%
-------------------------------------------------
Great Britain 2.4%
-------------------------------------------------
Spain 2.3%
-------------------------------------------------
Mexico 2.1%
-------------------------------------------------
France 1.9%
-------------------------------------------------
Other Countries 15.0%
-------------------------------------------------
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based
on the rating assigned by Fitch, Inc. For those portfolios that hold a
security which is not rated by any of the three agencies, the security is
considered Not Rated. Holdings in U.S. Treasuries and government agency
mortgage-backed securities, if any, are included in a "AAA"-rating
category. Percentages are based on the total market value of investments as
of 4/30/05.
*** The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which
have been pre-refunded to an earlier date or which have a mandatory put
date prior to the stated maturity. The average life shown takes into
account these earlier dates.
**** The Portfolio Average Credit Quality rating is based upon a market weighted
average of portfolio holdings.
Percentages are based on net assets as of 4/30/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
SUMMARY OF RESULTS
For the six months ended April 30, 2005, Class A shares of the MFS Strategic
Income Fund provided a total return of 0.88%, at net asset value. In
comparison, the fund's benchmarks, the Lehman Brothers High Yield Index, the
Lehman Brothers Aggregate Bond Index, the J.P. Morgan Emerging Market Bond
Index Global, and the Citigroup World Government Bond Non-Dollar Hedged Index
returned 0.08%, 0.98%, 3.51%, and 4.02%, respectively. The fund's main
objective is to provide high current income by investing in fixed income
securities. Its secondary objective is to provide significant capital
appreciation. The fund invests, under normal market conditions, at least 65% of
its net assets in fixed income securities including U.S. Government securities,
foreign government securities, mortgage-backed securities, asset- backed
securities, corporate bonds, and emerging market securities.
MARKET ENVIRONMENT
The U.S. fixed-income market experienced a flattening of the yield curve during
the six-month period. (A yield curve for bonds shows the relationship between
yield and time to maturity; in a majority of market environments,
longer-maturity bonds offer higher yields.) The U.S. Federal Reserve Board
raised its target federal funds rate four times, continuing its steady drumbeat
of quarter-point rate hikes that had begun on June 30, 2004. But while the Fed
seemed committed to a course of gradually raising short-term rates, it appeared
to us that several factors caused long-term rates to stagnate or retreat.
Job growth, which had shot up in the spring of 2004, ebbed and flowed during
the period; uncertainty about the employment situation helped to push down
yields on longer-dated bonds. Another factor that held long-term rates down was
overseas demand for U.S. Treasuries, especially from foreign central banks.
However, moderate Gross Domestic Product (GDP) growth and inflation concerns
kept shorter-term interest rates moving up. For the period as a whole, the net
effect was a substantial flattening of the yield curve as short-term rates rose
significantly while long-term rates were generally flat to down.
In addition, performance in the corporate bond market slowed dramatically in
the final months of the period as investors anticipated that General Motors,
one of the largest issuers of corporate high-grade bonds, would see its debt
downgraded to junk status.
DETRACTORS FROM PERFORMANCE
This is a broadly diversified bond fund. The fund's asset allocation is
actively managed across a wide range of fixed-income sectors, including U.S.
government bonds, mortgage-backed, agency-backed, and asset-backed securities,
international bonds (including emerging market debt), and high-grade and high-
yield corporate bonds.
A large portion of the fund's underperformance came from our exposure to high
yield bonds. During the prior six months the high yield market - as measured by
the Lehman Brothers High Yield Index - advanced an anemic 0.08%. In North
America, quality factors hindered performance; this was particularly true with
"BBB", "BB" and "CCC"-rated bonds. Bond selection in the industrial group also
detracted from results. At the issue level, bonds from Iron Mountain and Stone
Container were among the top detractors.
CONTRIBUTORS TO PERFORMANCE
While we do not actively manage interest rates, our overall duration
positioning in North America contributed to results. (Duration is a measure of
sensitivity to interest rate changes.) Among individual contributors to
performance, sovereign bonds from the nations of New Zealand, Germany, Finland,
and Spain contributed to performance.
Respectfully,
/s/ William J. Adams
William J. 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.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 4/30/05
- -------------------------------------------------------------------------------
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 RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR I SHARES CALL 1-888-808-6374.) 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 class inception date 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 10/29/87 0.88% 7.00% 8.74% 6.28% 6.87%
- ------------------------------------------------------------------------------
B 9/07/93 0.53% 6.32% 8.08% 5.59% 6.19%
- ------------------------------------------------------------------------------
C 9/01/94 0.52% 6.32% 8.04% 5.57% 6.19%
- ------------------------------------------------------------------------------
I 1/08/97 1.06% 7.38% 9.11% 6.65% 7.17%
- ------------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative benchmarks 6-mo 1-yr 3-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
Average multisector
income fund+ 1.83% 7.87% 9.37% 7.21% 6.88%
- ------------------------------------------------------------------------------
Citigroup World Government Bond
Non-Dollar Hedged Index## 4.02% 6.86% 5.33% 5.86% 8.00%
- ------------------------------------------------------------------------------
J.P. Morgan Emerging Market Bond
Index Global# 3.51% 14.60% 14.24% 12.04% 14.70%
- ------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond
Index## 0.98% 5.26% 5.79% 7.49% 7.14%
- ------------------------------------------------------------------------------
Lehman Brothers High Yield
Index## 0.08% 6.52% 10.06% 6.88% 6.96%
- ------------------------------------------------------------------------------
- --------------------
Average annual
with sales charge
- --------------------
Share class
- ------------------------------------------------------------------------------
A -3.91% 1.92% 6.99% 5.25% 6.36%
- ------------------------------------------------------------------------------
B -3.38% 2.32% 7.22% 5.28% 6.19%
- ------------------------------------------------------------------------------
C -0.46% 5.32% 8.04% 5.57% 6.19%
- ------------------------------------------------------------------------------
Class I shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
- --------------------
Cumulative
without sales charge
- --------------------
- ------------------------------------------------------------------------------
A 0.88% 7.00% 28.57% 35.58% 94.43%
- ------------------------------------------------------------------------------
B 0.53% 6.32% 26.25% 31.25% 82.30%
- ------------------------------------------------------------------------------
C 0.52% 6.32% 26.11% 31.13% 82.38%
- ------------------------------------------------------------------------------
I 1.06% 7.38% 29.90% 37.97% 99.86%
- ------------------------------------------------------------------------------
Periods less than one year are actual, not annualized.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg.
## Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITIONS
Citigroup World Government Non-Dollar Hedged Bond Index - is a market
capitalization weighted index that tracks the currency-hedged performance of
the major government bond markets, excluding the U.S. Country eligibility is
determined based upon market capitalization and investability criteria.
J.P. Morgan Emerging Markets Bond Index Global (EMBI Global) - tracks total
returns for dollar-denominated Brady Bonds, Eurobonds, traded loans and local
market debt instruments issued by sovereign and quasi-sovereign entities of
emerging markets countries.
Lehman Brothers Aggregate Bond Index - measures the U.S. investment grade,
fixed rate bond market, with index components for government and corporate
securities, mortgage pass-through securities, and asset- backed securities.
Lehman Brothers High Yield Index - measures the universe of non-investment
grade, fixed rate debt. Eurobonds, and debt issues from countries designated as
emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded.
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
(assuming redemption within one year from the end of the prior month of
purchase) reflect 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. This blended class performance has been
adjusted to take into account differences in sales loads, if any, applicable to
these share classes, but has not been adjusted to take into account differences
in class specific operating expenses (such as Rule 12b-1 fees). Compared to
performance these share classes would have experienced had they been offered
for the entire period, the use of blended performance generally results in
higher performance for share classes with higher operating expenses than the
share class to which it is blended, and lower performance for share classes
with lower operating expenses than the share class to which it is blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
From time to time, 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
The portfolio may invest in foreign and/or emerging markets securities, which
are more susceptible to risks relating to interest rates, currency exchange
rates, economic, and political conditions.
The portfolio may invest in high yield or lower-rated securities (non-rated,
below "BBB"), which may provide greater returns but are subject to greater-
than-average risk.
The portfolio may invest a relatively high percentage of its assets in a small
number of issuers or even in a single issuer. This makes the portfolio's value
more sensitive to developments associated with the issuer and the overall
market.
When interest rates rise, the prices of fixed income securities in the
portfolio will generally fall. Conversely, when interest rates fall, the prices
of fixed income securities in the portfolio will generally rise.
Interest rate risk will generally affect the price of a fixed income security
more if the security has a longer maturity. Fixed income securities with longer
maturities will therefore be more volatile than other fixed income securities
with shorter maturities, therefore, the average maturity of the portfolio's
fixed income investments will affect the volatility of the portfolio's share
price.
Credit risk is the risk that the issuer of a fixed income security will not be
able to pay principal and interest when due.
Please see the prospectus for further information regarding these and other
risk considerations.
- -------------------------------------------------------------------------------
EXPENSE TABLE
- -------------------------------------------------------------------------------
FUND EXPENSES BORNE BY SHAREHOLDERS DURING THE PERIOD FROM NOVEMBER 1, 2004,
THROUGH APRIL 30, 2005.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period Novemer 1, 2004 through April 30,
2005.
ACTUAL EXPENSES
The first line for each share class in the table below provides information
about actual account values and actual expenses. You may use the information in
this line, together with the amount you invested, to estimate the expenses that
you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first line under the heading entitled "Expenses
Paid During Period" to estimate the expenses you paid on your account during
this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the table below provides information
about hypothetical account values and hypothetical expenses based on the fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) or redemption fees. Therefore, the second line for each share
class in the table is useful in comparing ongoing costs only, and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
- ------------
Share Class
- ------------
- -------------------------------------------------------------------------------
Expenses
Beginning Ending Paid During
Annualized Account Account Period**
Expense Value Value 11/01/04
Ratio 11/01/04 4/30/05 -4/30/05
- -------------------------------------------------------------------------------
Actual 0.83% $1,000 $1,009 $4.13
A --------------------------------------------------------------------------
Hypothetical* 0.83% $1,000 $1,021 $4.16
- -------------------------------------------------------------------------------
Actual 1.49% $1,000 $1,005 $7.41
B --------------------------------------------------------------------------
Hypothetical* 1.49% $1,000 $1,017 $7.45
- -------------------------------------------------------------------------------
Actual 1.49% $1,000 $1,005 $7.41
C --------------------------------------------------------------------------
Hypothetical* 1.49% $1,000 $1,017 $7.45
- -------------------------------------------------------------------------------
Actual 0.48% $1,000 $1,011 $2.39
I --------------------------------------------------------------------------
Hypothetical* 0.48% $1,000 $1,022 $2.41
- -------------------------------------------------------------------------------
* 5% class return per year before expenses.
** Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
- -------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (unaudited) - 4/30/05
- -------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your
fund. It is categorized by broad-based asset classes.
Bonds - 94.6%
- -------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- -------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 3.1%
- -------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 1,000,000 $ 952,500
- -------------------------------------------------------------------------------------------------
Echostar DBS Corp., 6.375%, 2011 870,000 859,125
- -------------------------------------------------------------------------------------------------
Emmis Operating Co., 6.875%, 2012 445,000 439,438
- -------------------------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.75%, 2010 1,975,000 1,802,187
- -------------------------------------------------------------------------------------------------
Innova S. de R.L., 9.375%, 2013 445,000 486,719
- -------------------------------------------------------------------------------------------------
Intelsat Ltd., 8.625%, 2015## 945,000 959,175
- -------------------------------------------------------------------------------------------------
Lamar Media Corp., 7.25%, 2013 965,000 993,950
- -------------------------------------------------------------------------------------------------
News America Holdings, 8.5%, 2025 463,000 582,361
- -------------------------------------------------------------------------------------------------
Panamsat Holding Corp., 0% to 2009, 10.375% to 2014## 830,000 531,200
- -------------------------------------------------------------------------------------------------
Paxson Communications Corp., 0% to 2006,
12.25% to 2009 1,645,000 1,529,850
- -------------------------------------------------------------------------------------------------
Spanish Broadcasting System, Inc., 9.625%, 2009 1,820,000 1,904,175
- -------------------------------------------------------------------------------------------------
$ 11,040,680
- -------------------------------------------------------------------------------------------------
Aerospace - 0.2%
- -------------------------------------------------------------------------------------------------
TransDigm Holding Co., 8.375%, 2011 $ 700,000 $ 714,000
- -------------------------------------------------------------------------------------------------
Airlines - 0.3%
- -------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.568%, 2006 $ 400,000 $ 325,489
- -------------------------------------------------------------------------------------------------
Continental Airlines, Inc., 7.566%, 2020 787,145 639,955
- -------------------------------------------------------------------------------------------------
$ 965,444
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0.1%
- -------------------------------------------------------------------------------------------------
Levi Strauss & Co., 12.25%, 2012 $ 435,000 $ 461,100
- -------------------------------------------------------------------------------------------------
Asset Backed & Securitized - 8.6%
- -------------------------------------------------------------------------------------------------
ARCap, Inc., FRN, 6.0996%, 2045## $ 900,000 $ 827,004
- -------------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6%, 2017## 1,200,000 1,076,040
- -------------------------------------------------------------------------------------------------
Asset Securitization Corp., FRN, 8.2905%, 2029 1,485,000 1,541,567
- -------------------------------------------------------------------------------------------------
Asset Securitization Corp., FRN, 8.7805%, 2029## 790,000 692,824
- ------------------------------------------------------------------------------------------------
Chase Commercial Mortgage Securities Corp., 6.6%, 2012 3,640,000 3,747,099
- -------------------------------------------------------------------------------------------------
Commercial Mortgage Acceptance Corp., 5.44%, 2013## 2,000,000 2,025,311
- -------------------------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates, 4.575%, 2035 148,000 148,579
- -------------------------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage Securities Corp.,
6.38%, 2035 1,600,000 1,733,806
- -------------------------------------------------------------------------------------------------
Credit Suisse First Boston Mortgage Securities Corp.,
6.78%, 2040 2,150,000 2,317,114
- -------------------------------------------------------------------------------------------------
Crest Ltd., 7%, 2040## 400,000 386,516
- -------------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., 6.04%, 2031 550,000 555,325
- -------------------------------------------------------------------------------------------------
DLJ Commercial Mortgage Corp., FRN, 7.8612%, 2032 385,000 427,485
- -------------------------------------------------------------------------------------------------
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,050,000 982,508
- -------------------------------------------------------------------------------------------------
Falcon Franchise Loan LLC, 3.4122%, 2023^^ ## 6,301,985 802,334
- -------------------------------------------------------------------------------------------------
Falcon Franchise Loan LLC, 4.1285%, 2023^^ 4,803,488 838,448
- -------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Bank of America,
0.7035%, 2035^^ 51,683,987 1,098,584
- -------------------------------------------------------------------------------------------------
First Union-Lehman Brothers Commercial Mortgage
Trust, 7%, 2029## 600,000 675,537
- -------------------------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 1,758,000 1,670,978
- -------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 7.18%, 2009 430,000 459,358
- -------------------------------------------------------------------------------------------------
Morgan Stanley Capital I, Inc., 1.5009%, 2014^^ ## 10,951,115 930,845
- -------------------------------------------------------------------------------------------------
Mortgage Capital Funding, Inc., 7.214%, 2007 2,500,000 2,590,213
- -------------------------------------------------------------------------------------------------
Nationslink Funding Corp., 5%, 2009 1,975,000 1,987,379
- -------------------------------------------------------------------------------------------------
Prudential Securities Secured Financing Corp., FRN,
7.3941%, 2013## 875,000 957,131
- -------------------------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities, Inc., FRN,
7.3429%, 2012## 1,800,000 2,030,522
- -------------------------------------------------------------------------------------------------
$ 30,502,507
- -------------------------------------------------------------------------------------------------
Automotive - 1.2%
- -------------------------------------------------------------------------------------------------
Affinia Group, Inc., 9%, 2014## $ 105,000 $ 93,450
- -------------------------------------------------------------------------------------------------
General Motors Acceptance Corp., 5.125%, 2008 1,501,000 1,399,105
- -------------------------------------------------------------------------------------------------
General Motors Corp., 8.375%, 2033 2,698,000 2,053,664
- -------------------------------------------------------------------------------------------------
TRW Automotive, Inc., 9.375%, 2013 219,000 226,665
- -------------------------------------------------------------------------------------------------
TRW Automotive, Inc., 11%, 2013 361,000 388,075
- -------------------------------------------------------------------------------------------------
$ 4,160,959
- -------------------------------------------------------------------------------------------------
Banks & Credit Companies - 2.8%
- -------------------------------------------------------------------------------------------------
Banco Mercantil del Norte S.A., 5.875%, 2014## $ 1,682,000 $ 1,682,000
- -------------------------------------------------------------------------------------------------
Bosphorus Financial Services Ltd., 4.77%, 2012## 800,000 760,000
- -------------------------------------------------------------------------------------------------
Chuo Mitsui Trust & Banking Co., FRN, 5.506% to 2015,
5.70% to 2049## 773,000 738,941
- -------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007 999,000 1,079,919
- -------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 10.125%, 2007## 85,000 91,885
- -------------------------------------------------------------------------------------------------
Kazkommerts International B.V., 8.5%, 2013## 182,000 187,460
- -------------------------------------------------------------------------------------------------
Mizuho Financial Group, Inc., 4.75%, 2014## EUR 755,000 $ 1,024,440
- -------------------------------------------------------------------------------------------------
RBS Capital Trust II, FRN, 5.1525% to 2034,
6.425% to 2049 $ 576,000 621,801
- -------------------------------------------------------------------------------------------------
Turanalem Finance B.V., 8%, 2014## 1,368,000 1,345,770
- -------------------------------------------------------------------------------------------------
UFJ Finance Aruba AEC, 6.75%, 2013 648,000 714,278
- -------------------------------------------------------------------------------------------------
UniCredito Italiano Capital Trust II, FRN, 6.56% to 2010,
9.2% to 2049## 1,482,000 1,789,362
- -------------------------------------------------------------------------------------------------
$ 10,035,856
- -------------------------------------------------------------------------------------------------
Basic Industry - 0.1%
- -------------------------------------------------------------------------------------------------
Trimas Corp., 9.875%, 2012 $ 275,000 $ 270,875
- -------------------------------------------------------------------------------------------------
Thermadyne Holdings, 12.5%, 2008* 2,000,000 0
- -------------------------------------------------------------------------------------------------
$ 270,875
- -------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.4%
- -------------------------------------------------------------------------------------------------
CSC Holdings, Inc., 8.125%, 2009 $ 1,634,000 $ 1,674,850
- -------------------------------------------------------------------------------------------------
Charter Communications, Inc., 8.625%, 2009 1,580,000 1,141,550
- -------------------------------------------------------------------------------------------------
Charter Communications, Inc., 8.375%, 2014## 1,090,000 1,046,400
- -------------------------------------------------------------------------------------------------
Continental Cablevision, Inc., 9.5%, 2013 1,628,000 1,726,797
- -------------------------------------------------------------------------------------------------
Mediacom Broadband LLC, 9.5%, 2013 420,000 402,150
- -------------------------------------------------------------------------------------------------
Mediacom Broadband LLC, 11%, 2013 395,000 414,750
- -------------------------------------------------------------------------------------------------
Rogers Cable, Inc., 5.5%, 2014 1,427,000 1,262,895
- -------------------------------------------------------------------------------------------------
TCI Communications, Inc., 9.8%, 2012 841,000 1,071,523
- -------------------------------------------------------------------------------------------------
$ 8,740,915
- -------------------------------------------------------------------------------------------------
Building - 0.7%
- -------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 735,000 $ 788,947
- -------------------------------------------------------------------------------------------------
Building Materials Corp. of America, 7.75%, 2014 545,000 527,969
- -------------------------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625%, 2010 355,000 379,850
- -------------------------------------------------------------------------------------------------
Nortek Holdings, Inc., 8.5%, 2014 665,000 588,525
- -------------------------------------------------------------------------------------------------
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014## 795,000 397,500
- -------------------------------------------------------------------------------------------------
$ 2,682,791
- -------------------------------------------------------------------------------------------------
Business Services - 1.2%
- -------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $ 650,000 $ 651,625
- -------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 7.75%, 2015 1,250,000 1,193,750
- -------------------------------------------------------------------------------------------------
Lucent Technologies, Inc., 5.5%, 2008 1,060,000 1,028,200
- -------------------------------------------------------------------------------------------------
Xerox Corp., 7.625%, 2013 1,185,000 1,264,988
- -------------------------------------------------------------------------------------------------
$ 4,138,563
- -------------------------------------------------------------------------------------------------
Chemicals - 2.7%
- -------------------------------------------------------------------------------------------------
Acetex Corp., 10.875%, 2009 $ 900,000 $ 949,500
- -------------------------------------------------------------------------------------------------
BCP Crystal Holdings Corp., 9.625%, 2009 1,116,000 1,230,390
- -------------------------------------------------------------------------------------------------
Equistar Chemicals LP, 10.625%, 2011 835,000 931,025
- -------------------------------------------------------------------------------------------------
Huntsman International LLC, 10.125%, 2009 438,000 454,425
- -------------------------------------------------------------------------------------------------
IMC Global, Inc., 10.875%, 2013 1,210,000 1,427,800
- -------------------------------------------------------------------------------------------------
Kronos International, Inc., 8.875%, 2009 EUR 70,000 95,469
- -------------------------------------------------------------------------------------------------
Lyondell Chemical Co., 11.125%, 2012 $ 1,340,000 1,530,950
- -------------------------------------------------------------------------------------------------
Nalco Co., 7.75%, 2011 475,000 484,500
- -------------------------------------------------------------------------------------------------
Nalco Financial Holdings LLC, 0% to 2009, 9% to 2014 605,000 444,675
- -------------------------------------------------------------------------------------------------
Nova Chemicals Corp., 6.5%, 2012 955,000 965,744
- -------------------------------------------------------------------------------------------------
Rhodia S.A., 8.875%, 2011 1,190,000 1,112,650
- -------------------------------------------------------------------------------------------------
$ 9,627,128
- -------------------------------------------------------------------------------------------------
Conglomerates - 0.1%
- -------------------------------------------------------------------------------------------------
Invensys PLC, 9.875%, 2011## $ 315,000 $ 311,850
- -------------------------------------------------------------------------------------------------
Construction - 0.2%
- -------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8%, 2009 $ 760,000 $ 825,533
- -------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.3%
- -------------------------------------------------------------------------------------------------
Remington Arms Co., Inc., 10.5%, 2011 $ 415,000 $ 394,250
- -------------------------------------------------------------------------------------------------
Revlon Consumer Products Corp., 9.5%, 2011 760,000 731,500
- -------------------------------------------------------------------------------------------------
$ 1,125,750
- -------------------------------------------------------------------------------------------------
Containers - 1.2%
- -------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 9.5%, 2011 $ 1,435,000 $ 1,549,800
- -------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.875%, 2009 390,000 415,350
- -------------------------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc., 8.25%, 2013 1,460,000 1,547,600
- -------------------------------------------------------------------------------------------------
Pliant Corp., 13%, 2010 1,030,000 772,500
- -------------------------------------------------------------------------------------------------
$ 4,285,250
- -------------------------------------------------------------------------------------------------
Defense Electronics - 0.4%
- -------------------------------------------------------------------------------------------------
L-3 Communications Holdings, Inc., 6.125%, 2014 $ 1,575,000 $ 1,547,438
- -------------------------------------------------------------------------------------------------
Electronics - 0.2%
- -------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 790,000 $ 754,450
- -------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 1.7%
- -------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 $ 1,330,000 $ 1,559,425
- -------------------------------------------------------------------------------------------------
Gazprom OAO, 8.625%, 2034## 950,000 1,090,125
- -------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625%, 2022 916,000 1,060,270
- -------------------------------------------------------------------------------------------------
Petroliam Nasional Berhad, 7.75%, 2015 801,000 971,075
- -------------------------------------------------------------------------------------------------
Petronas Capital Ltd., 7.875%, 2022## 1,020,000 1,254,249
- -------------------------------------------------------------------------------------------------
$ 5,935,144
- -------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 10.3%
- -------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 $ 6,511,318 $ 6,490,937
- -------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8.875%, 2019 3,071,000 3,040,290
- -------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 4.25%, 2024 995,000 905,450
- -------------------------------------------------------------------------------------------------
Republic of Argentina, FRN, 3.01%, 2012 3,115,000 2,593,238
- -------------------------------------------------------------------------------------------------
Republic of Colombia, 10.75%, 2013 662,000 750,377
- -------------------------------------------------------------------------------------------------
Republic of Colombia, 11.75%, 2020 623,000 756,945
- -------------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2023 - 2029 2,954,000 3,482,495
- -------------------------------------------------------------------------------------------------
Republic of Panama, 8.875%, 2027 529,000 592,480
- -------------------------------------------------------------------------------------------------
Republic of Peru, 9.875%, 2015 1,014,000 1,190,183
- -------------------------------------------------------------------------------------------------
Republic of Peru, 8.75%, 2033 907,000 956,885
- -------------------------------------------------------------------------------------------------
Republic of South Africa, 9.125%, 2009 308,000 355,740
- -------------------------------------------------------------------------------------------------
Republic of South Africa, 8.5%, 2017 2,164,000 2,683,360
- -------------------------------------------------------------------------------------------------
Republic of Turkey, 7.25%, 2015 908,000 880,760
- -------------------------------------------------------------------------------------------------
Russian Federation, 3%, 2008 - 2011 3,336,000 2,997,285
- -------------------------------------------------------------------------------------------------
Russian Federation, 11%, 2018 1,214,000 1,733,471
- -------------------------------------------------------------------------------------------------
Russian Federation, 5%, 2030 1,267,000 1,347,074
- -------------------------------------------------------------------------------------------------
State of Qatar, 9.75%, 2030 1,610,000 2,406,950
- -------------------------------------------------------------------------------------------------
United Mexican States, 6.625%, 2015 1,078,000 1,141,602
- -------------------------------------------------------------------------------------------------
United Mexican States, 8.125%, 2019 921,000 1,078,491
- -------------------------------------------------------------------------------------------------
United Mexican States, 7.5%, 2033 1,374,000 1,487,355
- -------------------------------------------------------------------------------------------------
$ 36,871,368
- -------------------------------------------------------------------------------------------------
Energy - Independent - 1.4%
- -------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 8.125%, 2011## $ 855,000 $ 897,750
- -------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.5%, 2014 860,000 900,850
- -------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.375%, 2015## 185,000 181,300
- -------------------------------------------------------------------------------------------------
Encore Acquisition Co., 6.25%, 2014 665,000 641,725
- -------------------------------------------------------------------------------------------------
Kerr-McGee Corp., 6.95%, 2024 994,000 913,400
- -------------------------------------------------------------------------------------------------
Newfield Exploration Co., 6.625%, 2014 665,000 658,350
- -------------------------------------------------------------------------------------------------
Plains Exploration & Production Co., 7.125%, 2014 665,000 691,600
- -------------------------------------------------------------------------------------------------
$ 4,884,975
- -------------------------------------------------------------------------------------------------
Energy - Integrated - 0.2%
- -------------------------------------------------------------------------------------------------
Siberian Oil Co., 10.75%, 2009 $ 87,000 $ 96,761
- -------------------------------------------------------------------------------------------------
Tyumen Oil Co., 11%, 2007 590,000 654,163
- -------------------------------------------------------------------------------------------------
$ 750,924
- -------------------------------------------------------------------------------------------------
Entertainment - 1.1%
- -------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 864,000 $ 855,360
- -------------------------------------------------------------------------------------------------
Liberty Media Corp., 5.7%, 2013 890,000 841,561
- -------------------------------------------------------------------------------------------------
Loews Cineplex Entertainment Corp., 9%, 2014## 565,000 542,400
- -------------------------------------------------------------------------------------------------
Six Flags, Inc., 9.75%, 2013 913,000 798,875
- -------------------------------------------------------------------------------------------------
Turner Broadcasting System, Inc., 8.375%, 2013 653,000 791,142
- -------------------------------------------------------------------------------------------------
$ 3,829,338
- -------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 1.0%
- -------------------------------------------------------------------------------------------------
Burns, Philp & Co. Ltd., 9.75%, 2012 $ 1,515,000 $ 1,651,350
- -------------------------------------------------------------------------------------------------
Michael Foods, Inc., 8%, 2013 880,000 902,000
- -------------------------------------------------------------------------------------------------
Tyson Foods, Inc., 8.25%, 2011 750,000 880,694
- -------------------------------------------------------------------------------------------------
$ 3,434,044
- -------------------------------------------------------------------------------------------------
Forest & Paper Products - 2.0%
- -------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.5%, 2013 $ 1,145,000 $ 1,190,800
- -------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 9.375%, 2013 1,750,000 1,949,062
- -------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 7.25%, 2028 1,075,000 1,057,531
- -------------------------------------------------------------------------------------------------
Graphic Packaging International, Inc., 8.5%, 2011 775,000 771,125
- -------------------------------------------------------------------------------------------------
JSG Funding PLC, 7.75%, 2015## EUR 575,000 614,054
- -------------------------------------------------------------------------------------------------
MDP Acquisitions PLC, 9.625%, 2012 $ 775,000 767,250
- -------------------------------------------------------------------------------------------------
Stone Container Corp., 7.375%, 2014 890,000 818,800
- -------------------------------------------------------------------------------------------------
$ 7,168,622
- -------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.2%
- -------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 6.75%, 2014 $ 720,000 $ 709,200
- -------------------------------------------------------------------------------------------------
Host Marriott LP, 7.125%, 2013 900,000 911,250
- -------------------------------------------------------------------------------------------------
Host Marriott LP, 6.375%, 2015## 510,000 485,137
- -------------------------------------------------------------------------------------------------
MGM Mirage, Inc., 8.375%, 2011 1,740,000 1,848,750
- -------------------------------------------------------------------------------------------------
Pinnacle Entertainment, Inc., 8.75%, 2013 1,025,000 1,030,125
- -------------------------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 8%, 2010 935,000 1,019,150
- -------------------------------------------------------------------------------------------------
Scientific Games Corp., 6.25%, 2012## 750,000 735,000
- -------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 1,000,000 1,096,250
- -------------------------------------------------------------------------------------------------
$ 7,834,862
- -------------------------------------------------------------------------------------------------
Industrial - 1.2%
- -------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011## $ 1,280,000 $ 1,369,600
- -------------------------------------------------------------------------------------------------
JohnsonDiversey Holding, Inc., "B", 9.625%, 2012 1,000,000 1,015,000
- -------------------------------------------------------------------------------------------------
JohnsonDiversey Holding, Inc., 0% to 2007, 10.67% to 2013 1,000,000 790,000
- -------------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 9.875%, 2007 1,000,000 982,500
- -------------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 10%, 2008 140,000 148,400
- -------------------------------------------------------------------------------------------------
$ 4,305,500
- -------------------------------------------------------------------------------------------------
Insurance - 1.0%
- -------------------------------------------------------------------------------------------------
American International Group, Inc., 4.25%, 2013 $ 3,664,000 $ 3,479,811
- -------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.4%
- -------------------------------------------------------------------------------------------------
Allianz AG, 5.5%, 2049 EUR 947,000 $ 1,324,970
- -------------------------------------------------------------------------------------------------
International Market Sovereign - 15.4%
- -------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.65%, 2009 CAD 400,000 $ 329,950
- -------------------------------------------------------------------------------------------------
Commonwealth of Australia, 6%, 2017 AUD 1,113,000 914,459
- -------------------------------------------------------------------------------------------------
Federal Republic of Germany, 3.5%, 2008 EUR 7,834,000 10,406,157
- -------------------------------------------------------------------------------------------------
Federal Republic of Germany, 3.75%, 2015 EUR 436,000 577,347
- -------------------------------------------------------------------------------------------------
Federal Republic of Germany, 6.25%, 2030 EUR 494,000 866,468
- -------------------------------------------------------------------------------------------------
Government of Canada, 5.5%, 2009 CAD 366,000 312,155
- -------------------------------------------------------------------------------------------------
Government of Canada, 5.25%, 2012 CAD 1,448,000 1,238,122
- -------------------------------------------------------------------------------------------------
Government of Canada, 4.5%, 2015 CAD 177,000 143,678
- -------------------------------------------------------------------------------------------------
Government of New Zealand, 7%, 2009 NZD 829,000 631,119
- -------------------------------------------------------------------------------------------------
Government of New Zealand, 6.5%, 2013 NZD 5,301,000 4,037,254
- -------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 5.75%, 2007 EUR 1,962,000 2,681,572
- -------------------------------------------------------------------------------------------------
Kingdom of Netherlands, 3.75%, 2009 EUR 2,814,000 3,774,522
- -------------------------------------------------------------------------------------------------
Kingdom of Norway, 6.5%, 2013 NOK 3,105,000 589,219
- -------------------------------------------------------------------------------------------------
Kingdom of Spain, 6%, 2008 EUR 2,209,328 3,117,290
- -------------------------------------------------------------------------------------------------
Kingdom of Spain, 5.35%, 2011 EUR 3,300,000 4,816,393
- -------------------------------------------------------------------------------------------------
Republic of Finland, 3%, 2008 EUR 2,262,000 2,957,027
- -------------------------------------------------------------------------------------------------
Republic of France, 4.75%, 2007 EUR 3,684,000 4,987,491
- -------------------------------------------------------------------------------------------------
Republic of France, 6%, 2025 EUR 187,000 312,308
- -------------------------------------------------------------------------------------------------
Republic of Ireland, 4.25%, 2007 EUR 4,186,000 5,629,528
- -------------------------------------------------------------------------------------------------
Republic of Ireland, 4.6%, 2016 EUR 459,000 651,189
- -------------------------------------------------------------------------------------------------
United Kingdom Treasury, 5%, 2008 GBP 411,000 794,623
- -------------------------------------------------------------------------------------------------
United Kingdom Treasury, 5.75%, 2009 GBP 865,000 1,735,599
- -------------------------------------------------------------------------------------------------
United Kingdom Treasury, 8%, 2015 GBP 1,335,000 3,289,521
- -------------------------------------------------------------------------------------------------
$ 54,792,991
- -------------------------------------------------------------------------------------------------
Machinery & Tools - 1.9%
- -------------------------------------------------------------------------------------------------
AGCO Corp., 9.5%, 2008 $ 1,415,000 $ 1,482,213
- -------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011## 755,000 770,100
- -------------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.5%, 2012 562,000 625,225
- -------------------------------------------------------------------------------------------------
Terex Corp., 9.25%, 2011 995,000 1,079,575
- -------------------------------------------------------------------------------------------------
Terex Corp., 10.375%, 2011 795,000 862,575
- -------------------------------------------------------------------------------------------------
Terex Corp., 7.375%, 2014 120,000 120,600
- -------------------------------------------------------------------------------------------------
United Rentals, Inc., 6.5%, 2012 2,075,000 1,976,438
- -------------------------------------------------------------------------------------------------
$ 6,916,726
- -------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.5%
- -------------------------------------------------------------------------------------------------
Baxter International, Inc., 9.5%, 2008 $ 677,000 $ 772,295
- -------------------------------------------------------------------------------------------------
DaVita, Inc., 6.625%, 2013## 270,000 267,300
- -------------------------------------------------------------------------------------------------
HCA, Inc., 6.375%, 2015 690,000 692,489
- -------------------------------------------------------------------------------------------------
$ 1,732,084
- -------------------------------------------------------------------------------------------------
Metals & Mining - 1.0%
- -------------------------------------------------------------------------------------------------
Century Aluminum Co., 7.5%, 2014 $ 150,000 $ 147,000
- -------------------------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25%, 2014 115,000 118,162
- -------------------------------------------------------------------------------------------------
International Steel Group, Inc., 6.5%, 2014 901,000 894,242
- -------------------------------------------------------------------------------------------------
Peabody Energy Corp., 6.875%, 2013 860,000 890,100
- -------------------------------------------------------------------------------------------------
Phelps Dodge Corp., 8.75%, 2011 742,000 891,124
- -------------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75%, 2010 627,000 689,700
- -------------------------------------------------------------------------------------------------
$ 3,630,328
- -------------------------------------------------------------------------------------------------
Mortgage Backed - 4.8%
- -------------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2018 - 2034 $13,661,436 $ 13,888,947
- -------------------------------------------------------------------------------------------------
Fannie Mae, 6.5%, 2031 603,348 628,604
- -------------------------------------------------------------------------------------------------
Fannie Mae, 5%, 2034 2,696,735 2,678,099
- -------------------------------------------------------------------------------------------------
$ 17,195,650
- -------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
- -------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 8.875%, 2011 $ 610,000 $ 661,850
- -------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.3%
- -------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875%, 2010 $ 300,000 $ 325,425
- -------------------------------------------------------------------------------------------------
CenterPoint Energy Resources Corp., 7.875%, 2013 1,826,000 2,150,575
- -------------------------------------------------------------------------------------------------
El Paso Energy Corp., 7%, 2011 570,000 538,650
- -------------------------------------------------------------------------------------------------
El Paso Energy Corp., 7.75%, 2013 1,090,000 1,098,175
- -------------------------------------------------------------------------------------------------
Enterprise Products Operating LP, 6.375%, 2013 850,000 906,504
- -------------------------------------------------------------------------------------------------
Magellan Midstream Partners LP, 5.65%, 2016 167,000 169,101
- -------------------------------------------------------------------------------------------------
Southern Natural Gas Co., Inc., 8.875%, 2010 1,250,000 1,358,625
- -------------------------------------------------------------------------------------------------
Williams Cos., Inc., 7.125%, 2011 1,500,000 1,563,750
- -------------------------------------------------------------------------------------------------
$ 8,110,805
- -------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
- -------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., 7.875%, 2013 $ 715,000 $ 695,338
- -------------------------------------------------------------------------------------------------
Printing & Publishing - 1.6%
- -------------------------------------------------------------------------------------------------
Cenveo, Inc., 9.625%, 2012 $ 1,530,000 $ 1,629,450
- -------------------------------------------------------------------------------------------------
Dex Media East LLC, 9.875%, 2009 1,100,000 1,204,500
- -------------------------------------------------------------------------------------------------
Dex Media West LLC, 9.875%, 2013 986,000 1,094,460
- -------------------------------------------------------------------------------------------------
Lighthouse International Co. S.A., 8%, 2014## EUR 640,000 815,222
- -------------------------------------------------------------------------------------------------
MediaNews Group, Inc., 6.875%, 2013 $ 1,180,000 1,144,600
- -------------------------------------------------------------------------------------------------
$ 5,888,232
- -------------------------------------------------------------------------------------------------
Restaurants - 0.2%
- -------------------------------------------------------------------------------------------------
YUM! Brands, Inc., 8.875%, 2011 $ 480,000 $ 579,642
- -------------------------------------------------------------------------------------------------
Retailers - 0.8%
- -------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 885,000 $ 907,125
- -------------------------------------------------------------------------------------------------
Limited Brands, Inc., 5.25%, 2014 1,126,000 1,074,163
- -------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25%, 2013 1,080,000 1,004,400
- -------------------------------------------------------------------------------------------------
$ 2,985,688
- -------------------------------------------------------------------------------------------------
Supermarkets - 0.3%
- -------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875%, 2012 $ 1,125,000 $ 1,164,375
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.5%
- -------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 11%, 2010 $ 744,000 $ 830,490
- -------------------------------------------------------------------------------------------------
American Tower Corp., 7.125%, 2012 675,000 669,938
- -------------------------------------------------------------------------------------------------
American Tower Escrow Corp., 0%, 2008 1,225,000 924,875
- -------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 995,000 1,087,038
- -------------------------------------------------------------------------------------------------
Crown Castle International Corp., 7.5%, 2013 620,000 660,300
- -------------------------------------------------------------------------------------------------
Dolphin Telecom PLC, 14%, 2009* 2,800,000 0
- -------------------------------------------------------------------------------------------------
Mobile TeleSystems OJSC, 8.375%, 2010## 229,000 234,725
- -------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.95%, 2014 1,340,000 1,356,750
- -------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375%, 2015 205,000 218,325
- -------------------------------------------------------------------------------------------------
Rogers Wireless, Inc., 7.5%, 2015 990,000 1,015,988
- -------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.875%, 2010 1,045,000 1,047,613
- -------------------------------------------------------------------------------------------------
U.S. Unwired, Inc., 10%, 2012 425,000 466,438
- -------------------------------------------------------------------------------------------------
Ubiquitel Operating Co., 9.875%, 2011 440,000 476,300
- -------------------------------------------------------------------------------------------------
$ 8,988,780
- -------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
- -------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25%, 2011 $ 1,398,000 $ 1,513,335
- -------------------------------------------------------------------------------------------------
Deutsche Telekom International Finance B.V., 8.75%, 2030 543,000 727,625
- -------------------------------------------------------------------------------------------------
Eircom Funding PLC, 8.25%, 2013 675,000 729,000
- -------------------------------------------------------------------------------------------------
MCI, Inc., 8.735%, 2014 645,000 698,213
- -------------------------------------------------------------------------------------------------
Qwest Services Corp., 13.5%, 2010## 1,055,000 1,186,875
- -------------------------------------------------------------------------------------------------
Telecom Italia S.p.A., 5.625%, 2007 EUR 966,000 1,305,845
- -------------------------------------------------------------------------------------------------
Time Warner Telecom Holdings, Inc., 9.25%, 2014 $ 540,000 491,400
- -------------------------------------------------------------------------------------------------
$ 6,652,293
- -------------------------------------------------------------------------------------------------
Tobacco - 0.3%
- -------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 1,069,000 $ 1,111,760
- -------------------------------------------------------------------------------------------------
Transportation - Services - 0.1%
- -------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 520,000 $ 522,600
- -------------------------------------------------------------------------------------------------
U.S. Government Agencies - 1.8%
- -------------------------------------------------------------------------------------------------
Fannie Mae, 3.25%, 2006 $ 910,000 $ 904,742
- -------------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 472,981 459,218
- -------------------------------------------------------------------------------------------------
Small Business Administration, 4.77%, 2024 1,001,040 997,160
- -------------------------------------------------------------------------------------------------
Small Business Administration, 5.18%, 2024 2,412,774 2,455,072
- -------------------------------------------------------------------------------------------------
Small Business Administration, 4.625%, 2025 900,000 885,475
- -------------------------------------------------------------------------------------------------
Small Business Administration, 4.86%, 2025 725,000 724,127
- -------------------------------------------------------------------------------------------------
$ 6,425,794
- -------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.6%
- -------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 5.75%, 2005 $ 3,000,000 $ 3,040,194
- -------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3.25%, 2008### 6,787,000 6,677,505
- -------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 3%, 2012 840,268 934,634
- -------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 2%, 2014 3,990,240 4,140,964
- -------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 1.625%, 2015 911,714 914,242
- -------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 4%, 2015 697,000 685,701
- -------------------------------------------------------------------------------------------------
$ 16,393,240
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - 5.9%
- -------------------------------------------------------------------------------------------------
AES Corp., 9%, 2015## $ 1,435,000 $ 1,564,150
- -------------------------------------------------------------------------------------------------
Allegheny Energy Supply Co. LLC, 8.25%, 2012## 1,450,000 1,544,250
- -------------------------------------------------------------------------------------------------
Beaver Valley Funding Corp., 9%, 2017 1,705,000 2,040,868
- -------------------------------------------------------------------------------------------------
CMS Energy Corp., 8.5%, 2011 1,500,000 1,605,000
- -------------------------------------------------------------------------------------------------
Calpine Corp., 8.75%, 2013## 800,000 552,000
- -------------------------------------------------------------------------------------------------
DPL, Inc., 6.875%, 2011 446,000 474,990
- -------------------------------------------------------------------------------------------------
Duke Capital Corp., 8%, 2019 679,000 828,692
- -------------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 9.875%, 2010## 790,000 797,900
- -------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A., 8.35%, 2013 712,000 803,489
- -------------------------------------------------------------------------------------------------
Enersis S.A., 7.375%, 2014 838,000 883,002
- -------------------------------------------------------------------------------------------------
MSW Energy Holdings LLC, 7.375%, 2010 785,000 781,075
- -------------------------------------------------------------------------------------------------
Midland Funding II, 13.25%, 2006 1,500,000 1,607,970
- -------------------------------------------------------------------------------------------------
NRG Energy, Inc., 8%, 2013## 1,531,000 1,546,310
- -------------------------------------------------------------------------------------------------
NorthWestern Corp., 5.875%, 2014## 670,000 680,806
- -------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 8.125%, 2005 342,000 345,212
- -------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25%, 2010 795,000 812,888
- -------------------------------------------------------------------------------------------------
TXU Corp., 6.5%, 2024## 2,475,000 2,442,902
- -------------------------------------------------------------------------------------------------
Utilities - Electric Power - continued
- -------------------------------------------------------------------------------------------------
Texas Genco LLC, 6.875%, 2014## $ 1,065,000 $ 1,043,700
- -------------------------------------------------------------------------------------------------
W3A Funding Corp., 8.09%, 2017 553,646 609,187
- -------------------------------------------------------------------------------------------------
$ 20,964,391
- -------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $329,115,098) $ 337,423,214
- -------------------------------------------------------------------------------------------------
Stocks - 0%
- -------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Apparel Manufacturers - 0%
- -------------------------------------------------------------------------------------------------
Sind Holdings, Inc.*+ 814 $ 85,470
- -------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0%
- -------------------------------------------------------------------------------------------------
Renaissance Cosmetics, Inc.* 809 $ 0
- -------------------------------------------------------------------------------------------------
Specialty Chemicals - 0%
- -------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 1 $ 30
- -------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $302,783) $ 85,500
- -------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.2%
- -------------------------------------------------------------------------------------------------
Automotive - 0.2%
- -------------------------------------------------------------------------------------------------
Ford Motor Co. Capital Trust II, 6.5%
(Identified Cost, $721,213) 13,755 $ 535,757
- -------------------------------------------------------------------------------------------------
Preferred Stocks - 0%
- -------------------------------------------------------------------------------------------------
Real Estate - 0%
- -------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", 8.75% (Identified Cost, 74,529) 2,725 $ 72,376
- -------------------------------------------------------------------------------------------------
Warrants - 0%
- -------------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES $ VALUE
- -------------------------------------------------------------------------------------------------
Banco Central del Uruguay
(Emerging Market Sovereign)* N/A N/A 1,250,000 $ 0
- -------------------------------------------------------------------------------------------------
DWC Construction Co., Inc.
(Utilities - Other)* KRW 373.00 6/29/01 67,756 20,149
- -------------------------------------------------------------------------------------------------
DWC Trading (Utilities - Other)* KRW 166.00 6/29/01 26,835 13,349
- -------------------------------------------------------------------------------------------------
Renaissance Cosmetics, Inc.
(Consumer Goods and Services)* $0.01 8/08/96 655 0
- -------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.
(Specialty Chemicals)* $52.00 12/31/02 2 3
- -------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $--) $ 33,501
- ------------------------------------------------------------------------------------------------
Convertible Bonds - 0.4%
- ------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.4%
------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25%, 2010
(Identified Cost, $1,246,287) $ 1,300,000 $ 1,287,000
------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.0%
- ------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings, Inc., 2.93%, due 5/02/05< $ 900 $ 900
------------------------------------------------------------------------------------------------
General Electric Capital Corp., 2.95%, due 5/02/05< 10,586,000 10,585,133
------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 10,586,033
------------------------------------------------------------------------------------------------
Repurchase Agreement - 0%
- ------------------------------------------------------------------------------------------------
Morgan Stanley, 2.95%, dated 4/29/05, due 5/02/05, total
to be received $2,000.49 (secured by various U.S.
Treasury and Federal Agency obligations in a jointly
traded account), at Cost $ 2,000 $ 2,000
------------------------------------------------------------------------------------------------
Total Investments(+) (Identified Cost, $342,047,943) $ 350,025,381
------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.8% 6,484,563
------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 356,509,944
------------------------------------------------------------------------------------------------
* Non-income producing security.
< The rate shown represents an annualized yield at time of purchase.
^^ Interest only security for which the fund receives interest on notional principal (Par
amount). Par amount shown is the notional principal and does not reflect the cost of the
security.
## SEC Rule 144A restriction.
### Security segregated as collateral for open futures contracts.
+ Resticted security.
(+) As of April 30, 2005, the fund had 4 securities representing $85,470 and 0.02% of net assets
that were fair valued in accordance with the policies adopted by the Board of Trustees.
FRN= Floating Rate Note.
N/A= Strike price and first exercise date have not been made available by issuer.
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 GBP = British Pound
CAD = Canadian Dollar KRW = South Korean Won
CHF = Swiss Franc NOK = Norwegian Krone
DKK = Danish Krone NZD = New Zealand Dollar
EUR = Euro SEK = Swedish Krona
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 4/30/05
ASSETS
Investments, at value (identified cost, $342,047,943) $350,025,381
- --------------------------------------------------------------------------------------------------
Cash 78
- --------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 442,211
- --------------------------------------------------------------------------------------------------
Receivable for daily variation margin on open futures
contracts 60,750
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 5,321,487
- --------------------------------------------------------------------------------------------------
Receivable for fund shares sold 613,081
- --------------------------------------------------------------------------------------------------
Interest and dividends receivable 6,154,025
- --------------------------------------------------------------------------------------------------
Other assets 2,965
- --------------------------------------------------------------------------------------------------
Total assets $362,619,978
- --------------------------------------------------------------------------------------------------
LIABILITIES
Distributions payable $432,944
- --------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 390,679
- --------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts
subject to master netting agreements 14,263
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 4,658,352
- --------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 422,905
- --------------------------------------------------------------------------------------------------
Payable to affiliates
- --------------------------------------------------------------------------------------------------
Management fee 4,679
- --------------------------------------------------------------------------------------------------
Shareholder servicing costs 41,831
- --------------------------------------------------------------------------------------------------
Distribution and service fee 12,019
- --------------------------------------------------------------------------------------------------
Administrative fee 318
- --------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 132,044
- --------------------------------------------------------------------------------------------------
Total liabilities $6,110,034
- --------------------------------------------------------------------------------------------------
Net assets $356,509,944
- --------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $425,126,444
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 7,592,421
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (72,270,883)
- --------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (3,938,038)
- --------------------------------------------------------------------------------------------------
Net assets $356,509,944
- --------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 53,061,818
- --------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
Net assets $192,052,118
- --------------------------------------------------------------------------------------------------
Shares outstanding 28,440,480
- --------------------------------------------------------------------------------------------------
Net asset value per share $6.75
- --------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$6.75) $7.09
- --------------------------------------------------------------------------------------------------
Class B shares
Net assets $117,731,852
- --------------------------------------------------------------------------------------------------
Shares outstanding 17,624,104
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.68
- --------------------------------------------------------------------------------------------------
Class C shares
Net assets $34,619,807
- --------------------------------------------------------------------------------------------------
Shares outstanding 5,206,673
- --------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.65
- --------------------------------------------------------------------------------------------------
Class I shares
Net assets $12,106,167
- --------------------------------------------------------------------------------------------------
Shares outstanding 1,790,561
- --------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption
price per share $6.76
- --------------------------------------------------------------------------------------------------
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
SEE NOTES TO FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------------
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.
SIX MONTHS ENDED 4/30/05
NET INVESTMENT INCOME
Income
- ---------------------------------------------------------------------------------------------------
Interest $11,709,378
- ---------------------------------------------------------------------------------------------------
Dividends 25,332
- ---------------------------------------------------------------------------------------------------
Total investment income $11,734,710
- ---------------------------------------------------------------------------------------------------
Expenses
- ---------------------------------------------------------------------------------------------------
Management fee $1,178,221
- ---------------------------------------------------------------------------------------------------
Trustees' compensation 9,916
- ---------------------------------------------------------------------------------------------------
Shareholder servicing costs 319,510
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 333,666
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 620,087
- ---------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 178,972
- ---------------------------------------------------------------------------------------------------
Administrative fee 16,300
- ---------------------------------------------------------------------------------------------------
Custodian fee 87,318
- ---------------------------------------------------------------------------------------------------
Printing 49,099
- ---------------------------------------------------------------------------------------------------
Postage 5,338
- ---------------------------------------------------------------------------------------------------
Auditing fees 28,275
- ---------------------------------------------------------------------------------------------------
Legal fees 5,000
- ---------------------------------------------------------------------------------------------------
Miscellaneous 66,653
- ---------------------------------------------------------------------------------------------------
Total expenses $2,898,355
- ---------------------------------------------------------------------------------------------------
Fees paid indirectly (7,756)
- ---------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (887,469)
- ---------------------------------------------------------------------------------------------------
Net expenses $2,003,130
- ---------------------------------------------------------------------------------------------------
Net investment income $9,731,580
- ---------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- ---------------------------------------------------------------------------------------------------
Investment transactions $7,702,941
- ---------------------------------------------------------------------------------------------------
Futures contracts 114,663
- ---------------------------------------------------------------------------------------------------
Foreign currency transactions (2,165,072)
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $5,652,532
- ---------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- ---------------------------------------------------------------------------------------------------
Investments $(13,744,540)
- ---------------------------------------------------------------------------------------------------
Futures contracts 17,086
- ---------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 1,124,438
- ---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(12,603,016)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(6,950,484)
- ---------------------------------------------------------------------------------------------------
Change in net assets from operations $2,781,096
- ---------------------------------------------------------------------------------------------------
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
4/30/05 10/31/04
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
Net investment income $9,731,580 $21,158,187
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 5,652,532 7,279,088
- --------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation (12,603,016) 4,508,242
- -------------------------------------------------------- ------------ ------------
Change in net assets from operations $2,781,096 $32,945,517
- -------------------------------------------------------- ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- --------------------------------------------------------------------------------------------------
Class A $(5,909,753) $(11,527,423)
- --------------------------------------------------------------------------------------------------
Class B (3,437,398) (7,428,777)
- --------------------------------------------------------------------------------------------------
Class C (992,138) (2,061,458)
- --------------------------------------------------------------------------------------------------
Class I (399,782) (687,080)
- -------------------------------------------------------- ------------ ------------
Total distributions declared to shareholders $(10,739,071) $(21,704,738)
- -------------------------------------------------------- ------------ ------------
Change in net assets from fund share transactions $(4,275,436) $(30,796,574)
- -------------------------------------------------------- ------------ ------------
Redemption fees $1,105 $1,803
- -------------------------------------------------------- ------------ ------------
Total change in net assets $(12,232,306) $(19,553,992)
- -------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $368,742,250 $388,296,242
- --------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $3,938,038 and
$2,295,382, respectively) $356,509,944 $368,742,250
- --------------------------------------------------------------------------------------------------
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 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $6.90 $6.69 $6.24 $6.46 $6.67 $7.30
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.19 $0.40 $0.38 $0.41 $0.52 $0.60
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency (0.13) 0.22 0.46 (0.20) (0.16) (0.59)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.06 $0.62 $0.84 $0.21 $0.36 $0.01
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.21) $(0.41) $(0.39) $(0.39) $(0.49) $(0.48)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.04) (0.08) (0.16)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.21) $(0.41) $(0.39) $(0.43) $(0.57) $(0.64)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.75 $6.90 $6.69 $6.24 $6.46 $6.67
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%)(+) 0.88++ 9.57 13.81 3.39 5.54 (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED --------------------------------------------------------------------------
CLASS A (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.83+ 0.87 0.93 0.94 0.96 0.92
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.64+ 5.92 5.89 6.59 7.83 8.57
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 34 64 136 147 153 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $192,052 $190,165 $190,926 $176,624 $184,482 $111,791
- -------------------------------------------------------------------------------------------------------------------------------
(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. Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional
share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. 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 $0.17 $0.37 $0.36 $0.39 $0.46 $0.54
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.32+ 1.32 1.32 1.40 1.80 1.81
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.15+ 5.47 5.50 6.13 6.99 7.68
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from fees paid indirectly.
(+) Total returns do not include the applicable sales charge. If the charge had been included, the results would have been
lower.
(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 B 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $6.83 $6.62 $6.18 $6.39 $6.61 $7.24
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.17 $0.35 $0.34 $0.37 $0.47 $0.55
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency (0.13) 0.22 0.45 (0.19) (0.17) (0.59)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.04 $0.57 $0.79 $0.18 $0.30 $(0.04)
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.19) $(0.36) $(0.35) $(0.36) $(0.45) $(0.44)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.03) (0.07) (0.15)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.19) $(0.36) $(0.35) $(0.39) $(0.52) $(0.59)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.68 $6.83 $6.62 $6.18 $6.39 $6.61
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 0.53++ 8.90 13.00 2.93 4.71 (0.67)
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED --------------------------------------------------------------------------
CLASS B (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.49+ 1.52 1.58 1.59 1.61 1.56
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.01+ 5.27 5.25 5.95 7.22 7.89
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 34 64 136 147 153 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $117,732 $130,075 $146,903 $146,096 $163,299 $137,013
- -------------------------------------------------------------------------------------------------------------------------------
(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. Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. 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 $0.15 $0.32 $0.31 $0.34 $0.42 $0.49
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.98+ 1.97 1.97 2.05 2.45 2.45
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.52+ 4.82 4.86 5.49 6.38 7.00
- -------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios 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 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $6.80 $6.59 $6.15 $6.37 $6.59 $7.22
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.17 $0.35 $0.33 $0.37 $0.47 $0.55
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency (0.13) 0.22 0.45 (0.20) (0.17) (0.59)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.04 $0.57 $0.78 $0.17 $0.30 $(0.04)
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.19) $(0.36) $(0.34) $(0.36) $(0.45) $(0.44)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.03) (0.07) (0.15)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.19) $(0.36) $(0.34) $(0.39) $(0.52) $(0.59)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.65 $6.80 $6.59 $6.15 $6.37 $6.59
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 0.52++ 8.91 13.04 2.78 4.73 (0.67)
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED --------------------------------------------------------------------------
CLASS C (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.49+ 1.53 1.58 1.59 1.61 1.56
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 4.99+ 5.26 5.23 5.95 7.18 7.90
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 34 64 136 147 153 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $34,620 $36,537 $40,703 $35,952 $40,787 $37,956
- -------------------------------------------------------------------------------------------------------------------------------
(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. Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the fund for its
proportional share of substantially all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. 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 $0.15 $0.32 $0.31 $0.34 $0.42 $0.49
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.98+ 1.98 1.97 2.05 2.45 2.45
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 4.50+ 4.81 4.84 5.49 6.34 7.01
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
Net asset value, beginning
of period $6.91 $6.70 $6.25 $6.47 $6.68 $7.31
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)(S)
Net investment income(S) $0.20 $0.42 $0.40 $0.44 $0.55 $0.68
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and
foreign currency (0.13) 0.22 0.46 (0.21) (0.17) (0.65)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total from investment operations $0.07 $0.64 $0.86 $0.23 $0.38 $0.03
- ------------------------------------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.22) $(0.43) $(0.41) $(0.41) $(0.51) $(0.50)
- -------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.04) (0.08) (0.16)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total distributions declared
to shareholders $(0.22) $(0.43) $(0.41) $(0.45) $(0.59) $(0.66)
- ------------------------------------- ------ ------ ------ ------ ------ ------
Net asset value, end of period $6.76 $6.91 $6.70 $6.25 $6.47 $6.68
- ------------------------------------- ------ ------ ------ ------ ------ ------
Total return (%) 1.06++ 9.95 14.19 3.75 5.92 0.33
- -------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED --------------------------------------------------------------------------
CLASS I (CONTINUED) 4/30/05 2004 2003 2002 2001 2000
(UNAUDITED)
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.48+ 0.52 0.58 0.59 0.61 0.60
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.97+ 6.28 6.23 6.93 8.21 9.53
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 34 64 136 147 153 127
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $12,106 $11,965 $9,764 $10,029 $10,249 $7,542
- -------------------------------------------------------------------------------------------------------------------------------
(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. Effective June 7,
2004, the investment adviser has voluntarily agreed to reimburse the fund for its proportional share of substantially
all of Independent Chief Compliance Officer service fees paid to Tarantino LLC. 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 $0.19 $0.39 $0.38 $0.41 $0.49 $0.62
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 0.97+ 0.97 0.97 1.05 1.45 1.49
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 5.48+ 5.83 5.84 6.47 7.37 8.64
- -------------------------------------------------------------------------------------------------------------------------------
+ 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 U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The fund
can invest 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 - 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. 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. 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
approximates 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.
When pricing service information or market quotations are not readily
available, securities are priced at fair value as determined under the
direction of the Board of Trustees. 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.
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 rates
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 Ginnie Mae, Fannie Mae, and
Freddie Mac, 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.
During the period between the sale and repurchase in a dollar roll transaction
the fund will not be entitled to receive interest and principal payments on the
securities sold but is compensated by interest earned on the proceeds of the
initial sale and by a lower purchase price on the securities to be repurchased
which enhances the fund's total return. The fund accounts for dollar roll
transactions as purchases and sales. If certain criteria are met these dollar
roll transactions may be considered a financing transaction whereby the
difference in the sales price and the future purchase price is recorded as an
adjustment to interest income.
SHORT TERM FEES - For purchases made on or after July 1, 2004 and before April
1, 2005, the fund charged a 2% redemption fee (which was retained by the fund)
on proceeds from Class A, Class B, Class C, and Class I shares redeemed or
exchanged within 5 business days following their acquisition (either by
purchase or exchange). Effective April 1, 2005, the fund no longer charges a
redemption fee. See the fund's prospectus for details. Any redemption fees
charged 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 U.S. generally accepted accounting principles. 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.
Dividend and interest payments received in additional securities are recorded
on the ex-dividend or ex-interest date in an amount equal to the value of the
security on such date. The fund may receive proceeds from litigation
settlements involving its portfolio holdings. Any proceeds received are
reflected in realized gain/loss in the statement of operations, or in
unrealized gain/loss if the security is still held by the fund.
The fund may enter into "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.
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, 2005, 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,
2004 and October 31, 2003 was as follows:
10/31/04 10/31/03
Distributions declared from:
-------------------------------------------------------------
Ordinary income $21,704,738 $21,869,350
-------------------------------------------------------------
As of October 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $2,937,454
----------------------------------------------------------
Capital loss carryforward (78,537,252)
----------------------------------------------------------
Unrealized appreciation (depreciation) 19,666,336
----------------------------------------------------------
Other temporary differences (6,297,781)
----------------------------------------------------------
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 as follows:
EXPIRATION DATE
October 31, 2006 $(17,364,805)
----------------------------------------------------------
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 $(78,537,252)
----------------------------------------------------------
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. As part of a settlement agreement with the
New York Attorney General concerning market timing and related matters (See
Legal Proceedings footnote), 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, which is shown as a reduction of total expenses in the
Statement of Operations. 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. Management fees incurred for the six
months ended April 30, 2005 were an effective rate of 0.40% of average daily
net assets on an annualized basis.
The investment adviser has contractually agreed to pay the fund's "other
expenses", which are defined as the fund's operating expenses, exclusive of
management, distribution and service, and certain other fees and expenses, such
that the fund's aggregate expenses do not exceed 0.08% annually. This is
reflected as a reduction of expenses in the Statement of Operations.
The fund pays compensation to its Independent Trustees in the form of 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). The fund has an
unfunded defined benefit plan for retired Independent Trustees and an unfunded
retirement benefit deferral plan for current Independent Trustees. Included in
Trustees' compensation is $68 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 $2,711 for retired Independent Trustees for the six months
ended April 30, 2005.
This fund and certain other MFS funds (the "funds") have entered into a
services agreement (the "Agreement") which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse each of the funds for a proportional share of substantially all of
the payments made by the funds to Tarantino LLC and also to provide office
space and other administrative support and supplies to the ICCO. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement.
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. The
fund paid MFS an administrative fee up to the following annual percentage rates
of the fund's average daily net assets:
BEGINNING OF
PERIOD THROUGH
EFFECTIVE DATE 2/28/05 3/01/05
First $2 billion 0.01120% 0.01626%
- ----------------------------------------------------------------------------
Next $2.5 billion 0.00832% 0.01206%
- ----------------------------------------------------------------------------
Next $2.5 billion 0.00032% 0.00056%
- ----------------------------------------------------------------------------
In excess of $7 billion 0.00000% 0.00000%
- ----------------------------------------------------------------------------
For the six months ended April 30, 2005, the fund paid MFS $16,300, equivalent
to 0.00899% 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
$30,852 for the six months ended April 30, 2005, 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, and 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 as compensation for services provided by MFD and financial
intermediaries in connection with the distribution and servicing of its shares.
One component of the plan is a distribution fee and another is a service fee
paid by MFD to financial intermediaries that enter into sales or service
agreements with MFD or its affiliates based on the average daily net assets of
accounts attributable to such intermediaries. 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 may retain all or a portion of the service fee, including for accounts for
which there is no financial intermediary of record. Service fees retained by MFD
for the six months ended April 30, 2005 amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $5,796 $235 $287
- ------------------------------------------------------------------------------
Fees incurred under the distribution plan during the six months ended April 30,
2005 were as follows:
CLASS A CLASS B CLASS C
Effective Annual Percentage Rates 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------
Class A shares sold prior to May 14, 1991 are subject to a service fee of 0.15%
per annum attributable to Class A shares.
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 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 of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the six months ended April 30,
2005 were as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $2,467 $83,618 $1,411
- --------------------------------------------------------------------------------
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 December 31, 2004, the fund was charged up to 0.0861%
of its average daily net assets. For the period January 1, 2005 through
February 28, 2005, the fund was charged up to 0.1035% of its average daily net
assets. Effective March 1, 2005, the fund is charged up to 0.1159% of its
average daily net assets. For the six months ended April 30, 2005, the fund
paid MFSC a fee of $184,428 for shareholder services which equated to 0.1017%
of the fund's average daily net assets. Shareholder service costs include out
of pocket expenses and sub accounting services expenses paid by MFSC on behalf
of the fund and subsequently reimbursed to MFSC which amounted to $79,974, and
other costs paid by the fund directly to unaffiliated vendors for the six
months ended April 30, 2005.
(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 $12,176,221 $12,013,780
- --------------------------------------------------------------------------------
Investments (non-U.S. government securities) $107,684,907 $124,217,888
- --------------------------------------------------------------------------------
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 $343,727,313
----------------------------------------------------------
Gross unrealized appreciation $12,178,034
----------------------------------------------------------
Gross unrealized depreciation (5,879,966)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $6,298,068
----------------------------------------------------------
(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 4/30/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 3,607,902 $24,892,017 5,835,048 $39,675,485
- -------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 663,535 4,563,622 1,412,848 9,558,766
- -------------------------------------------------------------------------------------------------------
Shares reacquired (3,378,986) (23,303,699) (8,236,613) (55,676,175)
- -------------------------------------------------------------------------------------------------------
Net change 892,451 $6,151,940 (988,717) $(6,441,924)
- -------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 1,393,881 $9,511,557 3,177,700 $21,382,554
- -------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 335,568 2,283,620 800,463 5,358,327
- -------------------------------------------------------------------------------------------------------
Shares reacquired (3,155,221) (21,515,952) (7,126,733) (47,651,435)
- -------------------------------------------------------------------------------------------------------
Net change (1,425,772) $(9,720,775) (3,148,570) $(20,910,554)
- -------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 765,781 $5,183,879 1,708,821 $11,379,196
- -------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 100,515 680,536 231,053 1,540,142
- -------------------------------------------------------------------------------------------------------
Shares reacquired (1,034,178) (6,989,523) (2,741,128) (18,241,249)
- -------------------------------------------------------------------------------------------------------
Net change (167,882) $(1,125,108) (801,254) $(5,321,911)
- -------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 271,205 $1,873,131 556,653 $3,796,259
- -------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 57,573 396,289 108,319 733,832
- -------------------------------------------------------------------------------------------------------
Shares reacquired (269,270) (1,850,913) (391,402) (2,652,276)
- -------------------------------------------------------------------------------------------------------
Net change 59,508 $418,507 273,570 $1,877,815
- -------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in a $1 billion 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 Federal Reserve
funds rate plus 0.35%. 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, 2005 was $702, and is
included in miscellaneous expense. The fund had no significant borrowings
during the six months ended April 30, 2005.
(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 and purchases in the table below are netted by currency.
- ---------
SALES
- ---------
NET
IN UNREALIZED
CONTRACTS TO EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
6/07/05 AUD 640,000 $487,114 $498,395 $(11,281)
6/08/05-6/27/05 EUR 32,042,952 41,698,797 41,287,284 411,513
5/09/05 GBP 3,045,276 5,798,205 5,807,980 (9,775)
5/03/05-6/08/05 NOK 15,556,868 2,455,091 2,466,735 (11,644)
6/08/05 NZD 6,378,573 4,508,376 4,650,060 (141,684)
----------- ----------- --------
$54,947,583 $54,710,454 $237,129
=========== =========== ========
- ---------
PURCHASES
- ---------
6/07/05 AUD 126,569 $96,458 $98,565 $2,107
6/08/05 CHF 2,283,904 1,900,142 1,915,079 14,937
5/09/05 DKK 167,499 28,936 28,954 18
6/08/05-6/27/05 EUR 2,675,062 3,491,669 3,446,596 (45,073)
5/03/05-6/08/05 NOK 23,348,182 3,730,696 3,703,297 (27,399)
5/06/05-6/14/05 SEK 20,862,615 3,052,020 2,921,833 (130,187)
----------- ----------- ---------
$12,299,921 $12,114,324 $(185,597)
=========== =========== =========
At April 30, 2005, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $14,263 with
Merrill Lynch International.
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 on
page 23.
At April 30, 2005, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
U.S. 10-Yr. Treasury Notes June 05 243 Short $(390,181)
- --------------------------------------------------------------------------------
At April 30, 2005, the fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) RESTRICTED SECURITIES
At April 30, 2005, the fund owned the following restricted securities which are
subject to legal or contractual restrictions on resale, excluding securities
issued under Rule 144A, constituting 0.024% 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/PAR
DESCRIPTION ACQUISITION AMOUNT COST VALUE
Sind Holdings, Inc. 12/15/99 814 $302,783 $85,470
- -------------------------------------------------------------------------------
(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 MFS fund sales (the term "MFS funds" means the
open-end registered management investment companies sponsored by MFS). 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 developed by an
independent distribution consultant. The brokerage allocation practices which
were the subject of this proceeding were discontinued by MFS in November 2003.
The agreement with the SEC is reflected in an order of the SEC. The SEC
settlement order states that MFS failed to adequately disclose to the Boards of
Trustees and to shareholders of the MFS funds the specifics of its preferred
arrangements with certain brokerage firms selling MFS fund shares. The SEC
settlement order states that MFS had in place policies designed to obtain best
execution of all MFS fund trades. As part of the settlement, MFS retained an
independent compliance consultant to review the completeness of its current
policies and practices regarding disclosure to MFS fund trustees and to MFS
fund shareholders of strategic alliances between MFS or its affiliates and
broker-dealers and other financial intermediaries who support the sale of MFS
fund shares. Pursuant to the SEC order, on July 28, 2004, MFS transferred these
settlement amounts to the SEC, and those MFS funds entitled to these settlement
amounts accrued an estimate of their pro rata portion of these amounts. The
final distribution plan was approved by the SEC on January 21, 2005, and the
affected MFS funds received the payment on February 16, 2005.
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 open-end retail fund ("MFS retail funds")
prospectuses regarding market timing and related matters (the "February
Settlements"). These regulators alleged that prospectus language for certain
MFS retail funds was false and misleading because, although the prospectuses
for those funds in the regulators' view indicated that they prohibited market
timing, MFS did not limit trading activity in 11 domestic large cap stock, high
grade bond and money market retail funds. MFS' former Chief Executive Officer
and former President 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. These
individuals 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 MFS 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 MFS 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, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former 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 MFS funds during specified periods, as ERISA
actions by participants in certain retirement plan accounts on behalf of those
accounts, or as derivative actions on behalf of the MFS funds. The lawsuits
relating to market timing and related matters have been transferred to, and
consolidated before, the United States District Court for the District of
Maryland, as part of a multi-district litigation of market timing and related
claims involving several other fund complexes (In re Mutual Funds Investment
Litigation (Alger, Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner),
No. 1:04-md-15863 (transfer began March 19, 2004)). The market timing cases
related to the MFS complex are Riggs v. MFS et al., Case No. 04-cv-01162-JFM
(direct), Hammerslough v. MFS et al., Case No. 04-md-01620 (derivative) and
Anita Walker v. MFS et al., Case No. 1:04-CV-01758 (ERISA). The plaintiffs in
these consolidated lawsuits generally seek injunctive relief including removal
of the named Trustees, adviser and distributor, rescission of contracts and
12b-1 Plans, disgorgement of fees and profits, monetary damages, punitive
damages, attorney's fees and costs and other equitable and declaratory relief.
Two lawsuits alleging improper brokerage allocation practices and excessive
compensation are pending in the United States District Court for the District
of Massachusetts (Forsythe v. Sun Life Financial Inc., et al., No. 04cv10584
(GAO) (a consolidated action) and Marcus Dumond, et al. v. Massachusetts
Financial Servs. Co., et al., No. 04cv11458 (GAO)). The plaintiffs in these
lawsuits generally seek compensatory damages, punitive damages, recovery of
fees, rescission of contracts, an accounting, restitution, declaratory relief,
equitable and/or injunctive relief and attorney's fees and costs. The various
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 (ii) received excessive compensation as fiduciaries to the MFS funds,
or (iii) permitted or acquiesced in the improper use of fund assets by MFS to
support the distribution of MFS 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. 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 MFS funds. In February, March, and April 2005, the defendants filed
separate motions to dismiss all claims of the various lawsuits. The parties
continue to brief the issues for the courts and various hearing dates have been
scheduled. Additional lawsuits based on similar allegations may be filed in the
future.
On March 21, 2005, a class action complaint alleging breach of contract was
filed in Massachusetts state court on behalf of Brian Reaves and other Class B
shareholders in certain MFS Series Trusts and Funds. (Reaves v. MFS Series
Trust I, et al, Mass.Super.Ct., C.A. No. 05-1094). Plaintiffs alleged that the
named MFS Series Trusts and Funds breached their contract with Plaintiffs by
(i) engaging in alleged misconduct, including market timing, (ii) failing to
act in the best interests of the Class B shareholders, and (iii) by engaging in
unfair and deceptive trade practices in the performance of contractual duties.
In relief, Plaintiffs generally seek damages and equitable relief, including
the rescission of fees already paid when Plaintiffs sold Class B shares and
injunctive relief preventing the named MFS Series Trusts and Funds from
charging fees on the Plaintiffs future sale of Class B shares and attorney's
fees and costs. The Reaves lawsuit is subject to a conditional transfer order
dated May 6, 2005 that would consolidate and transfer the case to the
multi-district litigation in the District of Maryland (In re Mutual Funds
Investment Litigation; see above). Plaintiffs have given notice of their
opposition to transfer, and the parties will be submitting briefs to the
multi-district panel in June of 2005.
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 certain MFS retail funds for damages that they
allegedly sustained as a result of market timing or late trading in certain of
the MFS retail funds, and distributed $50 million to affected MFS funds to
compensate those funds based upon the amount of brokerage commissions allocated
in recognition of MFS 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 MFS 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 MFS funds.
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RESULTS OF SHAREHOLDER MEETING (unaudited) - 4/30/05
- -------------------------------------------------------------------------------
At the annual meeting of shareholders of MFS Trust VIII, which was held on
March 23, 2005, the following actions were taken:
ITEM 1. The election of 11 Trustees of the trust.
NUMBER OF SHARES
-----------------------------------
NOMINEE FOR WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. 513,280,779.34 13,855,521.20
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David H. Gunning 514,041,593.07 13,094,707.47
- ------------------------------------------------------------------------------
William R. Gutow 513,483,276.62 13,653,023.92
- ------------------------------------------------------------------------------
Michael Hegarty 513,964,251.57 13,172,048.97
- ------------------------------------------------------------------------------
J. Atwood Ives 513,305,005.21 13,831,295.33
- ------------------------------------------------------------------------------
Amy B. Lane 515,431,513.10 11,704,787.44
- ------------------------------------------------------------------------------
Robert J. Manning 513,818,995.89 13,317,304.65
- ------------------------------------------------------------------------------
Lawrence T. Perera 513,384,556.38 13,751,744.16
- ------------------------------------------------------------------------------
Robert C. Pozen 513,970,141.81 13,166,158.73
- ------------------------------------------------------------------------------
J. Dale Sherratt 513,488,977.77 13,647,322.77
- ------------------------------------------------------------------------------
Laurie J. Thomsen 515,427,571.45 11,708,729.09
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION
- -------------------------------------------------------------------------------
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec. gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
- -------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
- -------------------------------------------------------------------------------
The fund will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The fund's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
CONTACT INFORMATION
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
- --------------------------------------------------------------------------------
M F S(SM)
INVESTMENT MANAGEMENT(R)
(C) 2005 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc., 500
Boylston Street, Boston, MA 02116.
MFO-SEM-06/05 39M
ITEM 2. CODE OF ETHICS.
The Registrant has amended its Code of Ethics to reflect that the Registrant's
Principal Financial Officer has changed.
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
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Act) 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 second fiscal quarter covered by the report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(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, 2005
-------------
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, 2005
-------------
By (Signature and Title)* MARIA F. DWYER
---------------------------------------------------
Maria F. Dwyer, Treasurer (Principal
Financial Officer and Accounting Officer)
Date: June 23, 2005
-------------
* Print name and title of each signing officer under his or her signature.