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: October 31, 2005
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) STRATEGIC INCOME FUND 10/31/05
ANNUAL REPORT
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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 4
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EXPENSE TABLE 7
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PORTFOLIO OF INVESTMENTS 9
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FINANCIAL STATEMENTS 20
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NOTES TO FINANCIAL STATEMENTS 28
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 37
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TRUSTEES AND OFFICERS 38
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 43
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PROXY VOTING POLICIES AND INFORMATION 47
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QUARTERLY PORTFOLIO DISCLOSURE 47
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FEDERAL TAX INFORMATION 47
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CONTACT INFORMATION BACK COVER
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF
SHAREHOLDERS. IT IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
[logo] M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 15, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE*
Bonds 94.2%
Cash & Other Net Assets 5.2%
Convertible Bonds 0.4%
Convertible Preferred Stocks 0.2%
MARKET SECTORS*
High Yield Corporates 34.5%
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Non-U.S. Government Bonds 16.0%
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Emerging Market Bonds 12.9%
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High Grade Corporates 9.8%
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Commercial Mortgage-Backed Securities 7.1%
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Mortgage-Backed Securities 5.9%
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Cash & Other Net Assets 5.2%
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U.S. Treasury Securities 4.5%
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U.S. Government Agencies 3.1%
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U.S. Convertibles 0.6%
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Asset Backed Securities 0.4%
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CREDIT QUALITY OF BONDS**
AAA 31.4%
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AA 1.9%
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A 5.2%
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BBB 14.4%
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BB 22.8%
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B 17.6%
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CCC 5.3%
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CC 0.4%
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Not Rated 1.0%
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PORTFOLIO FACTS
Average Duration***** 3.9
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Average Life*** 7.6 yrs.
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Average Maturity*** 10.0 yrs.
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Average Credit Quality of Rated
Securities**** BBB+
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Average Short Term Quality A-1
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COUNTRY WEIGHTINGS*
United States 64.5%
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Russia 3.3%
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Germany 3.2%
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Great Britain 3.0%
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Mexico 2.9%
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Ireland 2.3%
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France 2.2%
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Spain 2.0%
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Netherlands 1.8%
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Other Countries 14.8%
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* 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 the "AAA"-rating
category. Percentages are based on the total market value of investments
as of 10/31/05.
*** 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 Average Credit Quality of Rated Securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
***** Duration is a measure of how much a bond fund's price is likely to
fluctuate with general changes in interest rates, e.g., if rates rise
1.00%, a fund with a 5-year duration is likely to lose about 5.00% of
its value.
Percentages are based on net assets as of 10/31/05, unless otherwise noted.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2005, Class A shares of the MFS
Strategic Income Fund provided a total return of 2.68%, 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 4.08%, 1.13%, 10.54%, and 5.82%, respectively.
DETRACTORS FROM PERFORMANCE
Currency exposure, particularly our exposure to the Euro, held back results.
During the period the dollar appreciated against the euro and is up over 13%
year to date. Throughout the period credit spreads widened, the portfolios
overweighting of "BBB"-rated bonds held back results, along with our
positioning in "CCC"-rated bonds and below which also detracted. Bonds rated
BBB or higher are considered investment grade; bonds rated BB or lower are
considered non-investment grade. In the high yield area, the fund's holding in
Pliant Corp detracted from results as the company saw its bond prices plummet
over the period.
CONTRIBUTORS TO PERFORMANCE
European sovereign debt performed well even after the cost of hedging back
into U.S. dollars, which helped performance. Our overall duration stance in
North America contributed to results (duration is a measure of a portfolio's
sensitivity to changes in interest rates). Our positioning in emerging market
debt added to results as well. Contributing countries included debt from
Russia, Panama, Brazil, and Mexico. During the period, the fund's position in
mortgage backed securities was a very minor contributor, however the fund's
holdings in commercial mortgage backed and asset backed securities performed
even better as these securities have less pre-payment sensitivity.
Respectfully,
James Calmas
Portfolio Manager
Note to shareholders: Effective October 1, 2005, James Calmas, Robert Persons,
Scott Richards, Matthew Ryan and Erik Weisman have become portfolio managers
of the fund. They replaced William J. Adams.
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 10/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Citigroup
World
MFS Government J.P. Morgan Lehman Lehman
Strategic Bond Emerging Brothers Brothers
Income Non-Dollar Market Aggregate High
Fund -- Hedged Bond Index Bond Yield
Class A Index Global Index Index
10/95 $ 9,525 $10,000 $10,000 $10,000 $10,000
10/96 10,518 11,277 14,085 10,585 11,110
10/97 11,611 12,540 15,661 11,526 12,634
10/98 11,354 14,168 14,118 12,602 12,570
10/99 12,458 14,526 17,101 12,669 13,116
10/00 12,454 15,628 20,210 13,594 12,905
10/01 13,144 17,251 21,324 15,573 12,885
10/02 13,589 17,930 22,733 16,490 12,178
10/03 15,467 18,393 29,058 17,299 16,291
10/04 16,947 19,242 32,775 18,256 18,298
10/05 17,401 20,362 36,229 18,463 19,045
TOTAL RETURNS THROUGH 10/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
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A 10/29/87 2.68% 6.92% 6.21%
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B 9/07/93 1.83% 6.19% 5.51%
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C 9/01/94 1.81% 6.17% 5.52%
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I 1/08/97 2.90% 7.26% 6.51%
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AVERAGE ANNUAL
Comparative benchmarks
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Average multisector income fund+ 3.49% 7.69% 6.59%
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Citigroup World Government Bond Non-
Dollar Hedged Index## 5.82% 5.43% 7.37%
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J.P. Morgan Emerging Market Bond Index
Global# 10.54% 12.38% 13.74%
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Lehman Brothers Aggregate Bond Index## 1.13% 6.31% 6.32%
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Lehman Brothers High Yield Index## 4.08% 8.09% 6.65%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A -2.19% 5.88% 5.70%
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B -2.03% 5.88% 5.51%
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C 0.85% 6.17% 5.52%
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Class I shares have no sales charge. Please see Notes to Performance Summary
for more details.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Bloomberg.
## Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITIONS
Citigroup World Government Bond Non-Dollar Hedged Index - is a
market capitalization weighted index that tracks the currency-hedged
performance of the major government bond markets, excluding the United States.
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 eligible investors.
Performance for Class 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.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MAY 1, 2005 THROUGH OCTOBER 31, 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 May 1, 2005 through October 31, 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.
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Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 5/01/05-
Share Class Ratio 5/01/05 10/31/05 10/31/05
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Actual 0.82% $1,000.00 $1,017.90 $4.17
A ---------------------------------------------------------------------
Hypothetical* 0.82% $1,000.00 $1,021.07 $4.18
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Actual 1.48% $1,000.00 $1,012.90 $7.51
B ----------------------------------------------------------------------
Hypothetical* 1.48% $1,000.00 $1,017.74 $7.53
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Actual 1.48% $1,000.00 $1,012.90 $7.51
C ---------------------------------------------------------------------
Hypothetical* 1.48% $1,000.00 $1,017.74 $7.53
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Actual 0.48% $1,000.00 $1,018.20 $2.44
I ---------------------------------------------------------------------
Hypothetical* 0.48% $1,000.00 $1,022.79 $2.45
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* 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 - 10/31/05
The Portfolio of Investments is a complete list of all securities owned by
your fund. It is categorized by broad-based asset classes.
Bonds - 93.0%
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ISSUER PAR AMOUNT $ VALUE
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Advertising & Broadcasting - 2.4%
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Allbritton Communications Co., 7.75%, 2012 $ 1,000,000 $ 987,500
EchoStar DBS Corp., 6.375%, 2011 870,000 846,074
Emmis Operating Co., 6.875%, 2012 445,000 439,438
Granite Broadcasting Corp., 9.75%, 2010 840,000 785,400
Innova S. de R.L., 9.375%, 2013 235,000 260,263
Intelsat Ltd., 8.625%, 2015# 945,000 956,813
Lamar Media Corp., 7.25%, 2013 965,000 1,001,188
Liberty Media Corp., 5.7%, 2013 890,000 802,877
Panamsat Holding Corp., 0% to 2009, 10.375% to 2014 830,000 566,475
Paxson Communications Corp., 0% to 2006, 12.25% to 2009 1,645,000 1,607,988
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$ 8,254,016
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Aerospace - 0.2%
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TransDigm Holding Co., 8.375%, 2011 $ 700,000 $ 728,000
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Airlines - 0.2%
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Continental Airlines, Inc., 7.566%, 2020 $ 783,913 $ 698,089
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Apparel Manufacturers - 0.1%
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Levi Strauss & Co., 12.25%, 2012 $ 435,000 $ 477,413
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Asset Backed & Securitized - 7.4%
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Anthracite CDO Ltd., 6%, 2037# $ 1,200,000 $ 1,046,280
ARCap, Inc., "H", 6.1%, 2045# 900,000 846,000
Asset Securitization Corp., FRN, 8.2920%, 2026 1,485,000 1,575,382
Asset Securitization Corp., FRN, 8.7820%, 2029# 790,000 713,839
Chase Commercial Mortgage Securities Corp., 6.6%, 2012 3,640,000 3,706,006
Commercial Mortgage Acceptance Corp., FRN, 5.44%, 2013# 2,000,000 1,989,961
Countrywide Asset-Backed Certificates, FRN, 4.575%, 2035 148,000 146,004
Crest Ltd., 7%, 2040# 400,000 376,720
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,050,000 1,110,120
DLJ Commercial Mortgage Corp., 6.04%, 2031 550,000 542,781
DLJ Commercial Mortgage Corp., FRN, 7.8697%, 2032 385,000 416,433
Falcon Franchise Loan Corp., 6.5%, 2014# 700,000 593,797
Falcon Franchise Loan LLC, FRN, 3.3861%, 2023^# 6,145,661 733,242
Falcon Franchise Loan LLC, FRN, 4.0971%, 2023^ 4,708,561 780,404
First Union-Lehman Brothers Bank of America, FRN,
0.6937%, 2028^ 48,496,394 916,519
First Union-Lehman Brothers Commercial Mortgage Trust,
7%, 2029# 600,000 649,740
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 1,758,000 1,660,526
Morgan Stanley Capital I, Inc., 7.18%, 2009 430,000 444,784
Morgan Stanley Capital I, Inc., FRN, 1.4835%, 2014^# 10,951,115 762,296
Mortgage Capital Funding, Inc., 7.214%, 2007 2,500,000 2,577,176
Preferred Term Securities IV Ltd., FRN, 6.1356%, 2031# 1,290,000 1,312,575
Prudential Securities Secured Financing Corp., FRN, 7.4221%, 2013# 875,000 941,059
Salomon Brothers Mortgage Securities, Inc., FRN, 7.2983%, 2012# 1,800,000 1,950,923
------------
$ 25,792,567
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Automotive - 1.9%
- ----------------------------------------------------------------------------------------------------
Affinia Group, Inc., 9%, 2014# $ 105,000 $ 81,375
Ford Motor Credit Co., 5.8%, 2009 2,208,000 2,022,199
General Motors Acceptance Corp., 5.85%, 2009 1,932,000 1,846,961
General Motors Acceptance Corp., 6.75%, 2014 480,000 458,993
General Motors Corp., 8.375%, 2033 954,000 707,153
Lear Corp., 8.11%, 2009 245,000 230,300
Navistar International Corp., 7.5%, 2011 630,000 598,500
TRW Automotive, Inc., 9.375%, 2013 219,000 235,425
TRW Automotive, Inc., 11%, 2013 361,000 403,418
------------
$ 6,584,324
- ----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 4.0%
- ----------------------------------------------------------------------------------------------------
Banco De Estado de Sao Paulo S.A., 8.7%, 2049# $ 700,000 $ 705,250
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014# 1,682,000 1,669,385
BNP Paribas, 5.186% to 2015, FRN to 2049# 962,000 924,973
Bosphorus Financial Services Ltd., FRN, 6.14%, 2012# 800,000 787,918
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049# 773,000 731,920
Credit Suisse First Boston (USA), Inc., 4.875%, 2010 955,000 943,446
DFS Funding Corp., FRN, 5.87%, 2010# 1,082,000 1,090,115
Kazkommerts International B.V., 10.125%, 2007# 85,000 90,313
Kazkommerts International B.V., 10.125%, 2007 999,000 1,061,438
Mizuho Financial Group, Inc., 4.75%, 2014# EUR 755,000 946,957
Resona Bank Ltd., FRN, 5.85%, 2049# $ 246,000 237,444
Royal Bank of Scotland Group PLC, 9.118%, 2049 857,000 984,900
Russian Standard Finance S.A., 7.5%, 2010# 168,000 165,270
Turanalem Finance B.V., 8%, 2014# 667,000 661,998
UFJ Finance Aruba AEC, 6.75%, 2013 648,000 701,255
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049# 1,187,000 1,378,107
VTB Capital S.A., 6.25%, 2035# 647,000 648,618
------------
$ 13,729,307
- ----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.1%
- ----------------------------------------------------------------------------------------------------
CCH I Holdings LLC, 11%, 2015# $ 917,000 $ 829,885
Charter Communications, Inc., 8.625%, 2009 474,000 388,680
Charter Communications, Inc., 8.375%, 2014# 1,090,000 1,092,725
CSC Holdings, Inc., 8.125%, 2009 1,634,000 1,670,765
Mediacom Broadband LLC, 9.5%, 2013 420,000 410,550
Mediacom Broadband LLC, 11%, 2013 395,000 422,650
Rogers Cable, Inc., 5.5%, 2014 714,000 656,880
TCI Communications, Inc., 9.8%, 2012 841,000 1,017,925
Time Warner Entertainment Co., LP, 8.375%, 2033 642,000 775,130
------------
$ 7,265,190
- ----------------------------------------------------------------------------------------------------
Building - 0.6%
- ----------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 735,000 $ 768,288
Jacuzzi Brands, Inc., 9.625%, 2010 355,000 370,975
Nortek Holdings, Inc., 8.5%, 2014 665,000 635,075
Nortek Holdings, Inc., 0% to 2009, 10.75%, 2014 795,000 477,000
------------
$ 2,251,338
- ----------------------------------------------------------------------------------------------------
Business Services - 1.2%
- ----------------------------------------------------------------------------------------------------
Iron Mountain, Inc., 8.625%, 2013 $ 650,000 $ 677,625
Iron Mountain, Inc., 7.75%, 2015 1,055,000 1,049,725
Lucent Technologies, Inc., 5.5%, 2008 1,060,000 1,057,350
Xerox Corp., 7.625%, 2013 1,185,000 1,244,250
------------
$ 4,028,950
- ----------------------------------------------------------------------------------------------------
Chemicals - 2.3%
- ----------------------------------------------------------------------------------------------------
BCP Crystal Holdings Corp., 9.625%, 2014 $ 1,116,000 $ 1,227,600
Equistar Chemicals LP, 10.625%, 2011 835,000 910,150
Huntsman International LLC, 10.125%, 2009 438,000 450,593
IMC Global, Inc., 10.875%, 2013 1,210,000 1,403,600
Kronos International, Inc., 8.875%, 2009 EUR 70,000 87,68
Lyondell Chemical Co., 11.125%, 2012 $ 1,340,000 1,494,100
Nalco Co., 7.75%, 2011 475,000 485,094
Nalco Finance Holdings LLC, 0% to 2009, 9% to 2014 605,000 443,163
NOVA Chemicals Corp., 6.5%, 2012 545,000 520,475
Rhodia S.A., 8.875%, 2011 1,190,000 1,124,550
------------
$ 8,147,006
- ----------------------------------------------------------------------------------------------------
Construction - 0.2%
- ----------------------------------------------------------------------------------------------------
D.R. Horton, Inc., 8%, 2009 $ 760,000 $ 808,493
- ----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.4%
- ----------------------------------------------------------------------------------------------------
Church & Dwight Co., Inc., 6%, 2012 $ 715,000 $ 693,550
Revlon Consumer Products Corp., 9.5%, 2011 760,000 712,500
------------
$ 1,406,050
- ----------------------------------------------------------------------------------------------------
Containers - 1.0%
- ----------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 9.5%, 2011 $ 1,435,000 $ 1,578,500
Huntsman Packaging Corp., 13%, 2010** 130,000 18,850
Owens-Brockway Glass Container, Inc., 8.875%, 2009 390,000 407,550
Owens-Brockway Glass Container, Inc., 8.25%, 2013 1,460,000 1,489,200
Pliant Corp., 13%, 2010** 900,000 130,500
------------
$ 3,624,600
- ----------------------------------------------------------------------------------------------------
Defense Electronics - 0.8%
- ----------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 5.2%, 2015# $ 1,297,000 $ 1,257,205
L-3 Communications Holdings, Inc., 6.125%, 2014 1,575,000 1,539,563
------------
$ 2,796,768
- ----------------------------------------------------------------------------------------------------
Electronics - 0.2%
- ----------------------------------------------------------------------------------------------------
Flextronics International Ltd., 6.5%, 2013 $ 790,000 $ 791,975
- ----------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 2.2%
- ----------------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013 $ 1,370,000 $ 1,644,000
Gazprom OAO, 8.625%, 2034# 950,000 1,197,000
Pemex Project Funding Master Trust, 7.375%, 2014 783,000 855,819
Pemex Project Funding Master Trust, 8.625%, 2022 1,366,000 1,632,370
Petronas Capital Ltd., 7.875%, 2022# 1,020,000 1,233,934
Petronas Capital Ltd., 7.875%, 2022 791,000 956,904
------------
$ 7,520,027
- ----------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 7.0%
- ----------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2018 $ 222,000 $ 229,326
Federal Republic of Brazil, 8.875%, 2019 992,000 1,046,560
Federal Republic of Brazil, 5.1875%, 2024 995,000 947,738
Federal Republic of Brazil, FRN, 5.25%, 2012 1,936,271 1,889,026
Republic of Argentina, FRN, 4.005%, 2012 3,115,000 2,417,761
Republic of Korea, 5.58%, 2025 1,081,000 1,070,406
Republic of Panama, 9.375%, 2029 597,000 729,833
Republic of Peru, 5%, 2017 2,326,520 2,186,929
Republic of Peru, 7.35%, 2025 102,000 103,020
Republic of South Africa, 9.125%, 2009 308,000 345,730
Republic of South Africa, 8.5%, 2017 866,000 1,073,840
Russian Federation, 3%, 2008 1,946,000 1,831,964
Russian Federation, 3%, 2011 5,950,000 5,176,500
Russian Federation, 11%, 2018 522,000 761,546
State of Qatar, 9.75%, 2030 483,000 717,255
United Mexican States, 6.625%, 2015 1,078,000 1,151,304
United Mexican States, 8.125%, 2019 1,603,000 1,917,188
United Mexican States, 8.3%, 2031 575,000 704,375
------------
$ 24,300,301
- ----------------------------------------------------------------------------------------------------
Energy - Independent - 1.5%
- ----------------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.375%, 2015 $ 1,345,000 $ 1,321,463
Clayton Williams Energy, Inc., 7.75%, 2013# 755,000 728,575
Kerr-McGee Corp., 6.95%, 2024 994,000 1,017,452
Newfield Exploration Co., 6.625%, 2014 665,000 676,638
Pioneer Natural Resource Co., 6.5%, 2008 647,000 659,465
Plains Exploration & Production Co., 7.125%, 2014 665,000 689,938
------------
$ 5,093,531
- ----------------------------------------------------------------------------------------------------
Entertainment - 0.9%
- ----------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 9.5%, 2011 $ 864,000 $ 818,640
Loews Cineplex Entertainment Corp., 9%, 2014 565,000 543,813
Six Flags, Inc., 9.75%, 2013 913,000 908,435
Turner Broadcasting System, Inc., 8.375%, 2013 653,000 755,349
------------
$ 3,026,237
- ----------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.3%
- ----------------------------------------------------------------------------------------------------
Michael Foods, Inc., 8%, 2013 $ 880,000 $ 893,200
- ----------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.9%
- ----------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.5%, 2013 $ 1,145,000 $ 1,136,413
Georgia-Pacific Corp., 9.375%, 2013 1,120,000 1,234,800
Georgia-Pacific Corp., 7.25%, 2028 1,075,000 1,058,875
Graphic Packaging International Corp., 8.5%, 2011 1,035,000 998,775
JSG Funding PLC, 7.75%, 2015 EUR 575,000 578,948
MDP Acquisitions PLC, 9.625%, 2012 $ 775,000 744,000
Stone Container Corp., 7.375%, 2014 890,000 789,875
------------
$ 6,541,686
- ----------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.4%
- ----------------------------------------------------------------------------------------------------
Boyd Gaming Corp., 6.75%, 2014 $ 720,000 $ 710,100
Host Marriott LP, 7.125%, 2013 900,000 912,375
Host Marriott LP, 6.375%, 2015 510,000 494,700
MGM Mirage, Inc., 8.375%, 2011 1,740,000 1,840,050
Pinnacle Entertainment, Inc., 8.75%, 2013 1,025,000 1,049,344
Royal Caribbean Cruises Ltd., 8%, 2010 935,000 1,009,800
Scientific Games Corp., 6.25%, 2012 750,000 743,438
Starwood Hotels & Resorts Worldwide, Inc., 7.875%, 2012 1,000,000 1,077,500
Station Casinos, Inc., 6.5%, 2014 520,000 518,700
------------
$ 8,356,007
- ----------------------------------------------------------------------------------------------------
Industrial - 1.0%
- ----------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011# $ 1,280,000 $ 1,369,600
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 1,000,000 990,000
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 1,000,000 720,000
Milacron Escrow Corp., 11.5%, 2011 430,000 369,800
------------
$ 3,449,400
- ----------------------------------------------------------------------------------------------------
Insurance - 1.1%
- ----------------------------------------------------------------------------------------------------
American International Group, Inc., 4.25%, 2013 $ 3,664,000 $ 3,449,754
UnumProvident Corp., 7.625%, 2011 350,000 367,334
------------
$ 3,817,088
- ----------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.5%
- ----------------------------------------------------------------------------------------------------
Allianz AG, 5.5%, 2049 EUR 947,000 $ 1,227,859
Willis Group North America, Inc., 5.625%, 2015 $ 377,000 369,923
------------
$ 1,597,782
- ----------------------------------------------------------------------------------------------------
International Market Sovereign - 15.8%
- ----------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.65%, 2009 CAD 400,000 $ 347,821
Federal Republic of Germany, 3.5%, 2008 EUR 4,255,000 5,203,204
Federal Republic of Germany, 3.75%, 2015 EUR 1,297,000 1,602,370
Federal Republic of Germany, 6.25%, 2030 EUR 494,000 824,440
Government of Australia, 6.25%, 2015 AUD 1,204,000 950,038
Government of Canada, 5.25%, 2012 CAD 412,000 373,854
Government of New Zealand, 7%, 2009 NZD 829,000 596,442
Government of New Zealand, 6.5%, 2013 NZD 5,174,000 3,729,577
Government of New Zealand, 6%, 2015 NZD 1,534,000 1,075,142
Kingdom of Netherlands, 5.75%, 2007 EUR 2,412,000 3,007,740
Kingdom of Netherlands, 3.75%, 2009 EUR 2,595,000 3,210,178
Kingdom of Norway, 6.5%, 2013 NOK 3,806,000 689,788
Kingdom of Spain, 6%, 2008 EUR 3,065,328 3,935,336
Kingdom of Spain, 5.35%, 2011 EUR 2,130,000 2,862,905
Republic of Austria, 5.5%, 2007 EUR 2,112,000 2,667,961
Republic of Finland, 3%, 2008 EUR 4,451,000 5,373,385
Republic of France, 4.75%, 2007 EUR 3,684,000 4,567,677
Republic of France, 4.75%, 2012 EUR 408,000 536,460
Republic of France, 6%, 2025 EUR 187,000 295,685
Republic of Ireland, 4.25%, 2007 EUR 4,603,000 5,685,059
Republic of Ireland, 4.6%, 2016 EUR 59,000 78,049
United Kingdom Treasury, 5%, 2008 GBP 411,000 738,120
United Kingdom Treasury, 5.75%, 2009 GBP 1,573,000 2,929,312
United Kingdom Treasury, 8%, 2015 GBP 1,583,000 3,641,321
------------
$ 54,921,864
- ----------------------------------------------------------------------------------------------------
Machinery & Tools - 1.3%
- ----------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011 $ 955,000 $ 1,005,138
Manitowoc Co., Inc., 10.5%, 2012 562,000 629,440
Terex Corp., 9.25%, 2011 995,000 1,062,163
Terex Corp., 10.375%, 2011 795,000 848,663
Terex Corp., 7.375%, 2014 120,000 119,400
United Rentals, Inc., 6.5%, 2012 990,000 949,163
------------
$ 4,613,967
- ----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.7%
- ----------------------------------------------------------------------------------------------------
AmerisourceBergen Corp., 5.875%, 2015# $ 465,000 $ 447,563
Baxter International, Inc., 9.5%, 2008 677,000 745,636
DaVita, Inc., 6.625%, 2013 270,000 273,375
HCA, Inc., 6.375%, 2015 1,120,000 1,098,991
------------
$ 2,565,565
- ----------------------------------------------------------------------------------------------------
Metals & Mining - 1.0%
- ----------------------------------------------------------------------------------------------------
Century Aluminum Co., 7.5%, 2014 $ 150,000 $ 148,125
Codelco, Inc., 5.625%, 2035# 922,000 878,364
Foundation PA Coal Co., 7.25%, 2014 115,000 117,588
International Steel Group, Inc., 6.5%, 2014 901,000 885,233
Peabody Energy Corp., "B", 6.875%, 2013 860,000 887,950
U.S. Steel Corp., 9.75%, 2010 627,000 683,430
------------
$ 3,600,690
- ----------------------------------------------------------------------------------------------------
Mortgage Backed - 5.9%
- ----------------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2018 - 2035 $ 14,602,460 $ 14,523,527
Fannie Mae, 6.5%, 2031 481,562 495,257
Fannie Mae, 6%, 2034 5,328,846 5,377,243
------------
$ 20,396,027
- ----------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 2.2%
- ----------------------------------------------------------------------------------------------------
ANR Pipeline Co., 8.875%, 2010 $ 300,000 $ 321,968
CenterPoint Energy Resources Corp., 7.875%, 2013 1,826,000 2,062,158
El Paso Energy Corp., 7%, 2011 570,000 561,450
El Paso Energy Corp., 7.75%, 2013 1,090,000 1,122,700
Enterprise Products Operating LP, 6.375%, 2013 270,000 279,527
Southern Natural Gas Co., Inc., 8.875%, 2010 1,250,000 1,341,534
Williams Cos., Inc., 7.125%, 2011 1,940,000 2,000,625
------------
$ 7,689,962
- ----------------------------------------------------------------------------------------------------
Network & Telecom - 2.2%
- ----------------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25%, 2011 $ 1,398,000 $ 1,513,335
Deutsche Telekom International Finance B.V., 8.5%, 2010 543,000 605,951
Eircom Funding PLC, 8.25%, 2013 675,000 727,313
MCI, Inc., 8.735%, 2014 645,000 714,338
Qwest Services Corp., 13.5%, 2010 1,055,000 1,205,338
TDC AS, 3.875%, 2011 EUR 860,000 909,200
Telecom Italia Capital, 4.875%, 2010 $ 248,000 242,886
Telecom Italia S.p.A., 5.625%, 2007 EUR 966,000 1,198,224
Time Warner Telecom Holdings, Inc., 9.25%, 2014 $ 540,000 540,000
------------
$ 7,656,585
- ----------------------------------------------------------------------------------------------------
Oil Services - 0.3%
- ----------------------------------------------------------------------------------------------------
Petroleum Export Peloil, 5.265%, 2011# $ 298,000 $ 296,485
Petroleum Geo-Services A.S.A., 10%, 2010 685,000 756,925
------------
$ 1,053,410
- ----------------------------------------------------------------------------------------------------
Oils - 0.4%
- ----------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 1,290,000 $ 1,373,850
- ----------------------------------------------------------------------------------------------------
Printing & Publishing - 1.7%
- ----------------------------------------------------------------------------------------------------
Cenveo, Inc., 9.625%, 2012 $ 1,530,000 $ 1,614,150
Dex Media East LLC, 9.875%, 2009 1,100,000 1,196,250
Dex Media West LLC, 9.875%, 2013 986,000 1,087,065
Lighthouse International Co. S.A., 8%, 2014# EUR 640,000 805,493
MediaNews Group, Inc., 6.875%, 2013 $ 1,180,000 1,165,250
------------
$ 5,868,208
- ----------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
- ----------------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012# $ 520,000 $ 564,200
- ----------------------------------------------------------------------------------------------------
Retailers - 0.7%
- ----------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 885,000 $ 898,275
GSC Holdings Corp., 8%, 2012# 260,000 252,850
Limited Brands, Inc., 5.25%, 2014 1,126,000 1,030,544
Rite Aid Corp., 8.125%, 2010 425,000 425,000
------------
$ 2,606,669
- ----------------------------------------------------------------------------------------------------
Supermarkets - 0.4%
- ----------------------------------------------------------------------------------------------------
Roundy's, Inc., 8.875%, 2012 $ 1,125,000 $ 1,240,178
- ----------------------------------------------------------------------------------------------------
Supranational - 0.3%
- ----------------------------------------------------------------------------------------------------
Central American Bank, 4.875%, 2012# $ 919,000 $ 883,172
- ----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.4%
- ----------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 11%, 2010 $ 744,000 $ 823,980
America Movil S.A. de C.V., 5.75%, 2015 1,041,000 1,021,978
American Tower Corp., 7.125%, 2012 675,000 696,094
American Tower Escrow Corp., 0%, 2008 1,225,000 944,781
Centennial Communications Corp., 10.125%, 2013 490,000 547,575
Dolphin Telecom PLC, "B", 14%, 2009** 2,800,000 0
Nextel Communications, Inc., 5.95%, 2014 1,545,000 1,549,814
Rogers Wireless, Inc., 7.5%, 2015 990,000 1,061,775
Rural Cellular Corp., 9.875%, 2010 1,045,000 1,086,800
U.S. Unwired, Inc., 10%, 2012 425,000 483,438
------------
$ 8,216,235
- ----------------------------------------------------------------------------------------------------
Tobacco - 0.3%
- ----------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc., 7.25%, 2012 $ 1,069,000 $ 1,074,345
- ----------------------------------------------------------------------------------------------------
U.S. Government Agencies - 3.1%
- ----------------------------------------------------------------------------------------------------
Fannie Mae, 3.25%, 2006 $ 910,000 $ 901,303
Fannie Mae, 4.25%, 2007 3,750,000 3,710,040
Small Business Administration, 4.34%, 2024 459,672 440,090
Small Business Administration, 4.77%, 2024 967,520 949,961
Small Business Administration, 5.18%, 2024 2,349,320 2,359,715
Small Business Administration, 4.625%, 2025 879,095 853,090
Small Business Administration, 4.86%, 2025 711,189 700,437
Small Business Administration, 5.11%, 2025 799,000 797,032
------------
$ 10,711,668
- ----------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.7%
- ----------------------------------------------------------------------------------------------------
U.S. Treasury Notes, 5.75%, 2005 $ 3,000,000 $ 3,001,992
U.S. Treasury Notes, 3.25%, 2008## 6,787,000 6,580,207
U.S. Treasury Notes, 4.125%, 2015 504,000 486,360
U.S. Treasury Notes, 4.25%, 2015 1,100,000 1,073,359
U.S. Treasury Notes, TIPS, 0.875%, 2010 722,468 694,304
U.S. Treasury Notes, TIPS, 3%, 2012 860,614 920,219
U.S. Treasury Notes, TIPS, 2%, 2014 2,733,578 2,740,732
U.S. Treasury Notes, TIPS, 1.625%, 2015 933,787 905,810
------------
$ 16,402,983
- ----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 5.6%
- ----------------------------------------------------------------------------------------------------
AES Corp., 9%, 2015# $ 1,210,000 $ 1,312,850
Allegheny Energy Supply Co., LLC, 8.25%, 2012# 1,685,000 1,861,925
Beaver Valley Funding Corp., 9%, 2017 1,705,000 1,968,644
CMS Energy Corp., 8.5%, 2011 1,500,000 1,638,750
DPL, Inc., 6.875%, 2011 321,000 340,260
Duke Capital Corp., 8%, 2019 679,000 801,575
Dynegy Holdings, Inc., 9.875%, 2010# 790,000 849,250
Empresa Nacional de Electricidad S.A., 8.35%, 2013 103,000 115,373
Enersis S.A., 7.375%, 2014 1,489,000 1,568,766
FirstEnergy Corp., 6.45%, 2011 857,000 901,485
Midland Funding II, 13.25%, 2006 1,107,475 1,160,790
MSW Energy Holdings LLC, 7.375%, 2010 785,000 812,475
NorthWestern Corp., 5.875%, 2014 670,000 663,828
NRG Energy, Inc., 8%, 2013 1,443,000 1,572,870
Texas Genco LLC, 6.875%, 2014# 1,585,000 1,695,950
TXU Corp., 5.55%, 2014 1,715,000 1,576,462
W3A Funding Corp., 8.09%, 2017 553,646 590,635
------------
$ 19,431,888
- ----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $321,681,664) $322,850,811
- ----------------------------------------------------------------------------------------------------
Stock - 0%
- ----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------------
Specialty Chemicals - 0%
- ----------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* (Identified Cost, $--) 1 $ 23
- ----------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.2%
- ----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------------
Automotive - 0.2%
- ----------------------------------------------------------------------------------------------------
Ford Motor Co. Capital Trust II 6.5% 13,755 $ 438,647
General Motors Corp., 5.25% 21,525 355,163
- ----------------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost, $1,079,267) $ 793,810
- ----------------------------------------------------------------------------------------------------
Preferred Stocks - 0%
- ----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 0%
- ----------------------------------------------------------------------------------------------------
Renaissance Cosmetics, Inc., 14%* 809 $ 0
- ----------------------------------------------------------------------------------------------------
Real Estate - 0%
- ----------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", 8.75% 2,725 $ 70,768
- ----------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $74,529) $ 70,768
- ----------------------------------------------------------------------------------------------------
Warrants - 0%
- ----------------------------------------------------------------------------------------------------
STRIKE FIRST
PRICE EXERCISE
- ----------------------------------------------------------------------------------------------------
Renaissance Cosmetics, Inc. (Consumer Goods &
Services)* $ 0.01 8/08/96 655 $ 0
Sterling Chemicals, Inc. (Specialty
Chemicals)* $52.00 12/31/02 2 2
- ----------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $--) $ 2
- ----------------------------------------------------------------------------------------------------
Rights - 0%
- ----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------------
Banco Central del Uruguay (Emerging
Market Sovereign)* (Identified Cost, $--) 1,250,000 $ 0
- ----------------------------------------------------------------------------------------------------
Convertible Bonds - 0.4%
- ----------------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
- ----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 0.4%
- ----------------------------------------------------------------------------------------------------
Nextel Communications, Inc., 5.25%, 2010 (Identified Cost,
$1,251,315) $ 1,300,000 $ 1,311,375
- ----------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.9%
- ----------------------------------------------------------------------------------------------------
General Electric Co., 4.03%, due 11/01/05< $ 3,311,000 $ 3,311,000
New Center Asset Trust, 4.02%, due 11/01/05< 13,864,000 13,864,000
- ----------------------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $ 17,175,000
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $341,261,775)(S) $342,201,789
- ----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.5% 5,054,010
- ----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $347,255,799
- ----------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non income producing security - in default.
^ 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.
## All or a portion of the security has been segregated as collateral for an open futures contract.
< The rate shown represents an annualized yield at time of purchase.
(S) As of October 31, 2005, the fund had three securities representing $0 of net assets that were
fair valued in accordance with the policies adopted by the Board of Trustees.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are netted by currency.
NET UNREALIZED
CONTRACTS TO SETTLEMENT CONTRACTS APPRECIATION
DELIVER/RECEIVE DATE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------
SALES
- ---------------------------------------------------------------------------------------------------
AUD 1,340,000 12/07/05 $1,019,308 $999,747 $19,561
EUR 26,650,530 11/22/05 32,318,733 31,982,533 336,200
GBP 8,261,607 11/02/05 - 1/31/06 14,804,145 14,608,732 195,413
NZD 8,842,450 12/07/05 6,092,678 6,166,148 (73,470)
- ---------------------------------------------------------------------------------------------------
$54,234,864 $53,757,160 $477,704
- ---------------------------------------------------------------------------------------------------
PURCHASES
- ---------------------------------------------------------------------------------------------------
AUD 15,077 12/07/05 $11,466 $11,249 $(217)
DKK1 67,499 11/15/05 27,639 26,924 (715)
EUR 1,082,413 12/05/05 1,306,960 1,299,902 (7,058)
GBP 4,130,803 11/02/05 7,374,475 7,306,605 (67,870)
NOK 6,932,949 11/22/05 1,083,108 1,067,329 (15,779)
- ---------------------------------------------------------------------------------------------------
$9,803,648 $9,712,009 $(91,639)
- ---------------------------------------------------------------------------------------------------
At October 31, 2005, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $342,625 with
Merrill Lynch International.
FUTURES CONTRACTS OUTSTANDING AT OCTOBER 31, 2005
UNREALIZED
EXPIRATION APPRECIATION
CONTRACTS VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------
U.S. Treasury Note 10 yr (Short) 10 $1,119,688 Dec-05 $(2,848)
At October 31, 2005, the fund had sufficient cash and/or securities to cover any commitments under
these derivative contracts.
The following abbreviations are used in the Portfolio of Investments and are defined:
FRN Floating Rate Note. The interest rate is the rate in effect as of period end.
TIPS Treasury Inflation Protected Security
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. All amounts are stated in U.S. dollars unless otherwise indicated. A list of
abbreviations is shown below:
AUD Australian Dollar
CAD Canadian Dollar
DKK Danish Krone
EUR Euro
GBP British Pound
NOK Norwegian Krone
NZD New Zealand Dollar
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Assets and Liabilities
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of the fund.
AT 10/31/05
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $341,261,775) $342,201,789
Cash 1,394,154
Receivable for forward foreign currency exchange contracts 551,174
Receivable for investments sold 2,002,231
Receivable for fund shares sold 215,383
Interest and dividends receivable 5,415,788
Receivable from investment adviser 61,002
Other assets 2,965
- ------------------------------------------------------------------------------------------------------
Total assets $351,844,486
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Distributions payable $424,308
Payable for forward foreign currency exchange contracts 165,109
Payable for forward foreign currency exchange contracts subject
to master netting agreements 342,625
Payable for daily variation margin on open futures contracts 1,563
Payable for investments purchased 2,749,234
Payable for fund shares reacquired 651,537
Payable to affiliates
Management fee 11,324
Shareholder servicing costs 45,573
Distribution and service fees 16,874
Administrative services fee 345
Accrued expenses and other liabilities 180,195
- ------------------------------------------------------------------------------------------------------
Total liabilities $4,588,687
- ------------------------------------------------------------------------------------------------------
Net assets $347,255,799
- ------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------
Paid-in capital $421,282,413
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 958,888
Accumulated net realized gain (loss) on investments and foreign
currency transactions (74,969,106)
Accumulated distributions in excess of net investment income (16,396)
- ------------------------------------------------------------------------------------------------------
Net assets $347,255,799
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 52,337,277
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $196,672,412
Shares outstanding 29,503,002
- ------------------------------------------------------------------------------------------------------
Net asset value per share $6.67
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25X$6.67) $7.00
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $105,223,169
Shares outstanding 15,956,185
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.59
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $32,412,743
Shares outstanding 4,938,172
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.56
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $12,947,475
Shares outstanding 1,939,918
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $6.67
- ------------------------------------------------------------------------------------------------------
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
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.
YEAR ENDED 10/31/05
NET INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------
Income
Interest $22,853,404
Dividends 50,665
Foreign taxes withheld (3,118)
- -------------------------------------------------------------------------------------------------------
Total investment income $22,900,951
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $2,347,049
Distribution and service fees 2,223,431
Shareholder servicing costs 654,102
Administrative services fee 42,014
Independent trustees' compensation 15,959
Custodian fee 219,073
Printing 95,050
Postage 23,355
Auditing fees 52,586
Legal fees 11,908
Shareholder solicitation expenses 25,648
Miscellaneous 80,715
- -------------------------------------------------------------------------------------------------------
Total expenses $5,790,890
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (28,352)
Reduction of expenses by investment adviser (1,834,733)
- -------------------------------------------------------------------------------------------------------
Net expenses $3,927,805
- -------------------------------------------------------------------------------------------------------
Net investment income $18,973,146
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $10,294,213
Futures contracts (514,281)
Foreign currency transactions (1,106,807)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $8,673,125
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(20,781,964)
Futures contracts 404,419
Translation of assets and liabilities in foreign currencies 1,141,385
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(19,236,160)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(10,563,035)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $8,410,111
- -------------------------------------------------------------------------------------------------------
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.
FOR YEARS ENDED 10/31 2005 2004
CHANGE IN NET ASSETS
- ------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- ------------------------------------------------------------------------------------------------------
Net investment income $18,973,146 $21,158,187
Net realized gain (loss) on investments and foreign
currency transactions 8,673,125 7,279,088
Net unrealized gain (loss) on investments and foreign
currency translation (19,236,160) 4,508,242
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $8,410,111 $32,945,517
- ------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------
From net investment income
Class A $(11,723,434) $(11,527,423)
Class B (6,438,530) (7,428,777)
Class C (1,905,524) (2,061,458)
Class I (807,911) (687,080)
- ------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(20,875,399) $(21,704,738)
- ------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(9,022,268) $(30,796,574)
- ------------------------------------------------------------------------------------------------------
Redemption fees $1,105 $1,803
- ------------------------------------------------------------------------------------------------------
Total change in net assets $(21,486,451) $(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 $16,396 and
$2,295,382, respectively) $347,255,799 $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 past 5 years.
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. This information has been audited by the fund's independent registered public accounting firm, whose
report, together with the fund's financial statements, are included in this report.
CLASS A
YEARS ENDED 10/31
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $6.90 $6.69 $6.24 $6.46 $6.67
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS(S)
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.38 $0.40 $0.38 $0.41 $0.52
Net realized and unrealized gain (loss) on
investments and foreign currency (0.20) 0.22 0.46 (0.20) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.18 $0.62 $0.84 $0.21 $0.36
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.41) $(0.41) $(0.39) $(0.39) $(0.49)
From paid-in capital -- -- -- (0.04) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.41) $(0.41) $(0.39) $(0.43) $(0.57)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.67 $6.90 $6.69 $6.24 $6.46
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&* 2.68 9.57 13.81 3.39 5.54
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.34 1.32 1.32 1.40 1.80
Expenses after expense reductions## 0.83 0.87 0.93 0.94 0.96
Net investment income(S) 5.51 5.92 5.89 6.59 7.83
Portfolio turnover 63 64 136 147 153
Net assets at end of period (000 Omitted) $196,672 $190,165 $190,926 $176,624 $184,482
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 10/31
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $6.83 $6.62 $6.18 $6.39 $6.61
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS(S)
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.33 $0.35 $0.34 $0.37 $0.47
Net realized and unrealized gain (loss) on
investments and foreign currency (0.21) 0.22 0.45 (0.19) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.12 $0.57 $0.79 $0.18 $0.30
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.36) $(0.36) $(0.35) $(0.36) $(0.45)
From paid-in capital -- -- -- (0.03) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.36) $(0.36) $(0.35) $(0.39) $(0.52)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.59 $6.83 $6.62 $6.18 $6.39
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&* 1.83 8.90 13.00 2.93 4.71
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.99 1.97 1.97 2.05 2.45
Expenses after expense reductions## 1.48 1.52 1.58 1.59 1.61
Net investment income(S) 4.89 5.27 5.25 5.95 7.22
Portfolio turnover 63 64 136 147 153
Net assets at end of period (000 Omitted) $105,223 $130,075 $146,903 $146,096 $163,299
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 10/31
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $6.80 $6.59 $6.15 $6.37 $6.59
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS(S)
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.33 $0.35 $0.33 $0.37 $0.47
Net realized and unrealized gain (loss) on
investments and foreign currency (0.21) 0.22 0.45 (0.20) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.12 $0.57 $0.78 $0.17 $0.30
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.36) $(0.36) $(0.34) $(0.36) $(0.45)
From paid-in capital -- -- -- (0.03) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.36) $(0.36) $(0.34) $(0.39) $(0.52)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.56 $6.80 $6.59 $6.15 $6.37
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&* 1.81 8.91 13.04 2.78 4.73
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.99 1.98 1.97 2.05 2.45
Expenses after expense reductions## 1.48 1.53 1.58 1.59 1.61
Net investment income(S) 4.87 5.26 5.23 5.95 7.18
Portfolio turnover 63 64 136 147 153
Net assets at end of period (000 Omitted) $32,413 $36,537 $40,703 $35,952 $40,787
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 10/31
---------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of period $6.91 $6.70 $6.25 $6.47 $6.68
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS(S)
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.40 $0.42 $0.40 $0.44 $0.55
Net realized and unrealized gain (loss) on
investments and foreign currency (0.20) 0.22 0.46 (0.21) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.20 $0.64 $0.86 $0.23 $0.38
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.44) $(0.43) $(0.41) $(0.41) $(0.51)
From paid-in capital -- -- -- (0.04) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.44) $(0.43) $(0.41) $(0.45) $(0.59)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.67 $6.91 $6.70 $6.25 $6.47
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)&* 2.90 9.95 14.19 3.75 5.92
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 0.99 0.97 0.97 1.05 1.45
Expenses after expense reductions## 0.48 0.52 0.58 0.59 0.61
Net investment income(S) 5.86 6.28 6.23 6.93 8.21
Portfolio turnover 63 64 136 147 153
Net assets at end of period (000 Omitted) $12,947 $11,965 $9,764 $10,029 $10,249
- ------------------------------------------------------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns do not include any applicable sales charges.
* Certain expenses have been reduced without which performance would have been lower.
(S) Effective November 1, 2001, the fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing and accreting all premiums and discounts on debt securities. Per share data and ratios
for periods prior to October 31, 2002 have not been restated to reflect this change.
& 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
(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, including securities of emerging market issuers.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment. The markets of emerging markets countries are generally more
volatile than the markets of developed countries with more mature economies.
All of the risks of investing in foreign securities previously described are
heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Bonds and other fixed income securities, including
restricted 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, including restricted 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.
INFLATION-ADJUSTED DEBT SECURITIES - The fund invests in inflation-adjusted
debt securities issued by the U.S. Treasury. The fund may also invest in
inflation-adjusted debt securities issued by U.S. Government agencies and
instrumentalities other than the U.S. Treasury and by other entities such as
U.S. and foreign corporations and foreign governments. The principal value of
these debt securities is adjusted by references to changes in the Consumer
Price Index or another general price or wage index. These debt securities
typically pay a fixed rate of interest, but this fixed rate is applied to the
inflation-adjusted principal amount. The principal paid at maturity of the debt
security is typically equal to the inflation-adjusted principal amount, or the
security's original par value, whichever is greater. Other types of
inflation-adjusted securities may use other methods to adjust for other
measures of inflation.
FOREIGN CURRENCY TRANSLATION - Purchases and sales of foreign investments,
income, and expenses are converted into U.S. dollars based upon currency
exchange rates prevailing on the respective dates of such transactions. 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.
DERIVATIVE RISK - The fund may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the fund uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include forward foreign currency exchange contracts and
futures contracts.
FUTURES CONTRACTS - The fund may enter into futures contracts for the delayed
delivery of securities or currency, or contracts based on financial indices at
a fixed price on a future date. In entering such contracts, the fund is
required to deposit with the broker either in cash or securities an amount
equal to a certain percentage of the contract amount. Subsequent payments are
made or received by the fund each day, depending on the daily fluctuations in
the value of the contract, and are recorded for financial statement purposes as
unrealized gains or losses by the fund. Upon entering into such contracts, the
fund bears the risk of interest or exchange rates or securities prices moving
unexpectedly, in which case, the fund may not achieve the anticipated benefits
of the futures contracts and may realize a loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the value
of the contract. The fund may enter into forward foreign currency exchange
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the fund may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
The fund may also use contracts in a manner intended to protect foreign
currency denominated securities from declines in value due to unfavorable
exchange rate movements. For non-hedging purposes, the fund may enter into
contracts with the intent of changing the relative exposure of the fund's
portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains or
losses on foreign currency transactions.
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 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 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 year ended October 31, 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 foreign currency transactions, amortization and accretion on
debt securities, derivatives, straddle loss deferrals, defaulted bonds, and
wash sales.
The tax character of distributions declared for the years ended October 31,
2005 and October 31, 2004 was as follows:
10/31/05 10/31/04
Distributions declared from:
Ordinary income $20,875,399 $21,704,738
During the year ended October 31, 2005, accumulated distributions in excess of
net investment income decreased by $4,181,239, accumulated net realized loss
on investments and foreign currency transactions increased by $3,511,322, and
paid-in capital decreased by $669,917 due to differences between book and tax
accounting for foreign currency transactions, amortization and accretion on
debt securities, and defaulted bonds. This change had no effect on the net
assets or net asset value per share.
As of October 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $2,878,121
Capital loss carryforward (70,418,377)
Unrealized appreciation (depreciation) (3,613,563)
Other temporary differences (2,872,795)
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 $(9,245,930)
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 $(70,418,377)
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,
MFS has agreed to reduce the management fee to 0.40% of the fund's average
daily net assets for the period March 1, 2004 through February 28, 2009.
For the year ended October 31, 2005, this waiver amounted to $902,999 and is
reflected as a reduction of total expenses in the Statement of Operations. The
management fee incurred for the year ended October 31, 2005 was equivalent to
an annual effective rate of 0.40% of the fund's average daily net assets. The
investment adviser has contractually agreed to pay a portion of the fund's
operating expenses, exclusive of management, distribution and service, and
certain other fees and expenses, such that operating expenses do not exceed
0.08% annually of the fund's average daily net assets. For the year ended
October 31, 2005, this reduction amounted to $930,302 and is reflected as a
reduction of total expenses in the Statement of Operations. This contractual
fee arrangement will continue until February 28, 2006.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $57,223 for the year ended October 31, 2005, as
its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD. Another component of the plan is a service
fee paid to MFD which subsequently pays a portion of this fee 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.
Distribution Fee Plan Table:
SERVICE
TOTAL ANNUAL FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.35% $11,194 $678,686
Class B 0.75% 0.25% 1.00% 1.00% 470 1,191,834
Class C 0.75% 0.25% 1.00% 1.00% 529 352,911
- -------------------------------------------------------------------------------
Total Distribution and Service Fees $2,223,431
(1) In accordance with the distribution plan for certain classes, the fund
pays distribution and/or service fees up to these annual percentage rates
of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the
distribution plan for the year ended October 31, 2005 based on each class'
average daily net assets. Assets attributable to Class A shares sold prior
to May 14, 1991 are subject to a service fee of 0.15% annually.
(3) For the year ended October 31, 2005, MFD retained these service fees.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. MFD retained all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended October 31, 2005, were as follows:
AMOUNT
Class A $3,908
Class B 147,194
Class C 2,820
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended October 31, 2005, the fee was $385,766, which equated to
0.1069% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended October 31, 2005, these costs
amounted to $156,936.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended October 31, 2005
was equivalent to an annual effective rate of 0.0116% of the fund's average
daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
Independent Trustees in the form of a retainer, attendance fees, and
additional compensation to Board and Committee chairpersons. The fund does not
pay compensation directly to Trustees 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, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for retired Independent
Trustees which resulted in a pension expense of $6,053. The fund also has an
unfunded retirement benefit deferral plan for certain current Independent
Trustees which resulted in an expense of $411. Both amounts are included in
Independent trustees' compensation for the year ended October 31, 2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $1,432, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
(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 $33,196,497 $24,794,345
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $185,111,858 $219,071,692
- -------------------------------------------------------------------------------
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 $345,815,352
----------------------------------------------------------
Gross unrealized depreciation $(11,173,090)
Gross unrealized appreciation 7,559,527
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(3,613,563)
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 10/31/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 7,084,535 $48,473,747 5,835,048 $39,675,485
Shares issued to shareholders in
reinvestment of distributions 1,328,861 9,073,574 1,412,848 9,558,766
Shares reacquired (6,458,423) (44,214,430) (8,236,613) (55,676,175)
- -----------------------------------------------------------------------------------------------------------
Net change 1,954,973 $13,332,891 (988,717) $(6,441,924)
CLASS B SHARES
Shares sold 2,563,239 $17,354,036 3,177,700 $21,382,554
Shares issued to shareholders in
reinvestment of distributions 632,755 4,277,333 800,463 5,358,327
Shares reacquired (6,289,685) (42,503,537) (7,126,733) (47,651,435)
- -----------------------------------------------------------------------------------------------------------
Net change (3,093,691) $(20,872,168) (3,148,570) $(20,910,554)
CLASS C SHARES
Shares sold 1,175,188 $7,918,678 1,708,821 $11,379,196
Shares issued to shareholders in
reinvestment of distributions 193,534 1,301,741 231,053 1,540,142
Shares reacquired (1,805,105) (12,125,937) (2,741,128) (18,241,249)
- -----------------------------------------------------------------------------------------------------------
Net change (436,383) $(2,905,518) (801,254) $(5,321,911)
CLASS I SHARES
Shares sold 612,319 $4,182,602 556,653 $3,796,259
Shares issued to shareholders in
reinvestment of distributions 117,226 801,159 108,319 733,832
Shares reacquired (520,680) (3,561,234) (391,402) (2,652,276)
- -----------------------------------------------------------------------------------------------------------
Net change 208,865 $1,422,527 273,570 $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 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 year ended October 31, 2005 was $1,745, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended October 31, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust VIII and Shareholders of
MFS Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Income Fund (the Fund) (one of the portfolios comprising MFS Series
Trust VIII), including the portfolio of investments, as of October 31, 2005,
and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Fund's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our procedures
included confirmation of securities owned as of October 31, 2005, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Strategic Income Fund at October 31, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the five
years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 13, 2005
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 2, 2005, are listed below, together with
their principal occupations during the past five years. (Their titles may have varied during that
period.) The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts
02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Maria F. Dwyer(3) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/19/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of
which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the
officers, with certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board
member of 99 funds within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Ernst & Young LLP
500 Boylston Street, Boston, MA 200 Clarendon Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGERS
James Calmas
Robert Persons
Scott Richards
Matthew Ryan
Erik Weisman
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of peer funds identified by objective
criteria suggested by MFS, (iii) information provided by MFS on the advisory
fees of comparable portfolios of other clients of MFS, including institutional
separate account and other clients, (iv) information as to whether and to what
extent applicable expense waivers, reimbursements or fee "breakpoints" are
observed for the Fund, (v) information regarding MFS' financial results and
financial condition, including MFS' and certain of its affiliates' estimated
profitability from services performed for the Fund and the MFS Funds as a
whole, (vi) MFS' views regarding the outlook for the mutual fund industry and
the strategic business plans of MFS, (vii) descriptions of various functions
performed by MFS for the Funds, such as compliance monitoring and portfolio
trading practices, and (viii) information regarding the overall organization
of MFS, including information about MFS' senior management and other personnel
providing investment advisory, administrative and other services to the Fund
and the other MFS Funds. The comparative performance, fee and expense
information prepared and provided by Lipper Inc. was not independently
verified and the independent Trustees did not independently verify any
information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 67th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 55th percentile
for the one-year period and the 73rd percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because
of the passage of time, these performance results are likely to differ from
the performance results for more recent periods, including those shown
elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings,
as well as during investment review meetings conducted with portfolio
management personnel during the course of the year, as to MFS' efforts to
improve the Fund's performance, including the replacement of the Fund's
primary portfolio manager in 2004 and the addition of a portfolio manager in
May of 2005. After reviewing these and related factors, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that they were satisfied with MFS' responses
and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and total expense ratio were each lower
than the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Taking into account fee waivers or
reductions or expense limitations, if any, the Trustees determined not to
recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of estimating
profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser which also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFS
Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement will be available on or before
December 1, 2005 by clicking on the Fund's name under "Select a fund" on the
MFS website (mfs.com).
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 Web site at http://
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov or by writing the Public Reference Section at the above
address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2005.
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
- --------------------------------------------------------------------------------
Share 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-ANN-12/05 33M
MFS(R) GLOBAL GROWTH FUND 10/31/05
ANNUAL REPORT
- -------------------------------------------------------------------------------
LETTER FROM THE CEO 1
- ---------------------------------------------------
PORTFOLIO COMPOSITION 2
- ---------------------------------------------------
MANAGEMENT REVIEW 3
- ---------------------------------------------------
PERFORMANCE SUMMARY 5
- ---------------------------------------------------
EXPENSE TABLE 8
- ---------------------------------------------------
PORTFOLIO OF INVESTMENTS 10
- ---------------------------------------------------
FINANCIAL STATEMENTS 16
- ---------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 26
- ---------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 35
- ---------------------------------------------------
TRUSTEES AND OFFICERS 36
- ---------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 41
- ---------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 45
- ---------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 45
- ---------------------------------------------------
FEDERAL TAX INFORMATION 45
- ---------------------------------------------------
CONTACT INFORMATION BACK COVER
- ---------------------------------------------------
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF
SHAREHOLDERS. IT IS AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
[logo] M F S(SM)
INVESTMENT MANAGEMENT(R)
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
Most investors are familiar with the basic principles of investing - focus on
the long term and keep your assets diversified across different investment
categories. Still, it is surprising how often we forget these basic lessons.
Certainly, the dot-com euphoria that overtook Wall Street in the late 1990s
had many people hoping they could become millionaires overnight. But the
market decline that started in the spring of 2000 taught everyone how
misguided those hopes had been.
Now, less than five years after the market taught a harsh lesson in the
follies of speculative investing, we are seeing a number of trends that
suggest many investors, including professionals, are hoping for overnight
miracles again. We see a steady stream of market "gurus" on television news
shows, promising to teach amateur investors the strategies that will allow
them to get rich quick. Hedge funds - which by their nature move in and out of
investments rapidly - have soared in popularity over the past five years. We
are reminded every day that we live in a "what have you done for me lately?"
world, but this mindset should not influence how we invest and manage our
money. In fact, investors often fall short of their goals because they trade
in and out of investments too frequently and at inopportune times.
Throughout our entire 80-year history, MFS' money management process has
focused on long-term investment opportunities. We firmly believe that one of
the best ways to realize long-term financial goals - be it a college
education, a comfortable retirement, or a secure family legacy - is to follow
a three-pronged approach that focuses on longer time horizons. Allocate
holdings across the major asset classes - including stocks, bonds, and cash.
Diversify within each class to take advantage of different market segments and
investing styles. And rebalance assets regularly to maintain a desired asset
allocation.*
This long-term approach requires diligence and patience, two traits that in
our experience are essential to capitalizing on the many opportunities the
financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 15, 2005
* Asset allocation, diversification, and rebalancing does not guarantee a
profit or protect against a loss. The opinions expressed in this letter are
those of MFS, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION,bmark,title="Portfolio Composition"
Stocks 99.9%
Preferred Stock 1.1%
Cash & Other Net Assets (1.0)%
TOP TEN HOLDINGS
Samsung Electronics Co. Ltd. 1.7%
------------------------------------------------
TOTAL S.A. 1.6%
------------------------------------------------
Roche Holding AG 1.6%
------------------------------------------------
Johnson & Johnson 1.5%
------------------------------------------------
AEON Credit Service Co. Ltd. 1.5%
------------------------------------------------
GlaxoSmithKline PLC 1.5%
------------------------------------------------
Reckitt Benckiser PLC 1.5%
------------------------------------------------
Vodafone Group PLC 1.5%
------------------------------------------------
Intel Corp. 1.4%
------------------------------------------------
Telefonica S.A. 1.3%
------------------------------------------------
SECTOR WEIGHTINGS
Technology 16.4%
------------------------------------------------
Health Care 16.1%
------------------------------------------------
Financial Services 14.0%
------------------------------------------------
Leisure 8.0%
------------------------------------------------
Utilities & Communications 7.5%
------------------------------------------------
Energy 7.1%
------------------------------------------------
Consumer Staples 6.7%
------------------------------------------------
Retailing 6.7%
------------------------------------------------
Basic Materials 6.6%
------------------------------------------------
Industrial Goods & Services 5.2%
------------------------------------------------
Autos & Housing 3.4%
------------------------------------------------
Special Products & Services 2.2%
------------------------------------------------
COUNTRY WEIGHTINGS
United States 34.2%
------------------------------------------------
Great Britain 14.0%
------------------------------------------------
Japan 13.0%
------------------------------------------------
France 9.0%
------------------------------------------------
Switzerland 5.5%
------------------------------------------------
Brazil 3.3%
------------------------------------------------
Spain 2.7%
------------------------------------------------
Canada 2.4%
------------------------------------------------
Mexico 2.1%
------------------------------------------------
Other 13.8%
------------------------------------------------
The fund's negative cash balance is due to either the timing of trade
settlements or the portfolio's use of forwards, futures, or options.
Percentages are based on net assets as of 10/31/05.
The portfolio is actively managed, and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2005, Class A shares of the MFS Global
Growth Fund provided a total return of 13.18%, at net asset value. In
comparison, the fund's benchmarks, the MSCI All Country World Growth Index and
the MSCI World Growth Index returned 14.48% and 13.40%, respectively.
DETRACTORS FROM PERFORMANCE
The financial services, energy, technology, and health care sectors were the
principal detractors from performance relative to the benchmark during the
reporting period. While overweighting the financial services sector helped
performance, stock selection held back the sector's overall results. No
individual stocks in this sector were among the fund's top detractors. Stock
selection in the energy sector also hurt performance, although again no energy
stocks were among the top detractors.
Although our underweighted position in technology did help relative
performance, weak stock selection resulted in the technology sector being a
relative detractor versus the benchmark. Canadian wireless solutions developer
Research In Motion (RIM)* (not an index constituent), and Japanese electronic
devices manufacturer Seiko Epson* were among the top detractors in this
sector. Not owning the strong-performing PC maker Apple Computer also
hurt results.
In the health care sector, our underweighted position in the group held
back results. Our holdings in dermatological treatment company Medicis*
(not an index constituent) dampened results. Not holding strong-performing
health care insurer UnitedHealth and biotech firm Genentech also
proved unfavorable.
Stocks in other sectors that hampered relative results included UK-based
retailer NEXT PLC and home improvement store operator Kingfisher*,
German pay-TV operator Premiere*, and media giant Viacom (not an
index constituent).
During the reporting period, our currency exposure was a significant
detractor from the portfolio's relative performance. All of MFS' investment
decisions are driven by the fundamentals of each individual opportunity, and
as such, it is common for our portfolios to have different currency exposure
than the benchmark.
CONTRIBUTORS TO PERFORMANCE
The basic materials, consumer staples, and industrial goods and services
sectors were the primary contributors to the fund's relative performance. In
basic materials, a combination of stock selection and an overweighted position
in the group aided relative results. Brazilian iron ore miner Companhia Vale
do Rio Doce and agrichemical products supplier Monsanto*, neither of which are
held in the benchmark, were among the fund's top contributors.
Stock selection in consumer staples was positive for relative results.
Brazilian brewer Companhia de Bebidas das Americas (not an index constituent)
was among the top contributors during the period. Stock selection in the
industrial goods and services also aided results, although no individual
stocks in this sector were among the fund's top contributors.
Stocks in other sectors that boosted results included Israel's generic drug
manufacturer Teva Pharmaceuticals (not an index constituent) and Mexican
cement producer CEMEX S.A. (not an index constituent). Not holding the poor-
performing IBM also aided relative results during the period. Although the
energy sector was an overall detractor from relative performance, there were
some bright spots, particularly our positions in EnCana and Reliance
Industries Ltd.
Respectfully,
Barry Dargan Nicholas 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 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 10/31/05
The following chart illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. (See Notes to Performance Summary.)
VISIT MFS.COM FOR THE MOST RECENT MONTH-END PERFORMANCE RESULTS. (FOR THE MOST
RECENT MONTH-END PERFORMANCE FOR CLASS 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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Global MSCI All
Growth Fund -- Country World MSCI World
Class A Growth Index Growth Index
10/95 $ 9,425 $10,000 $10,000
10/96 10,907 10,000 11,589
12/96 12,560 10,000 13,420
10/97 12,563 11,104 13,420
10/98 12,313 13,163 16,270
10/99 17,008 17,060 20,952
10/00 21,637 16,537 20,325
10/01 14,950 11,228 13,756
10/02 13,035 9,889 11,999
10/03 16,281 12,019 14,459
10/04 18,186 13,055 15,676
10/05 20,582 14,945 17,776
TOTAL RETURNS THROUGH 10/31/05
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- ------------------------------------------------------------------------------
A 11/18/93 13.18% -1.00% 8.12%
- ------------------------------------------------------------------------------
B 11/18/93 12.31% -1.73% 7.31%
- ------------------------------------------------------------------------------
C 1/03/94 12.31% -1.75% 7.31%
- ------------------------------------------------------------------------------
I 1/02/97 13.41% -0.77% 8.37%
- ------------------------------------------------------------------------------
R 12/31/02 12.84% -1.14% 8.04%
- ------------------------------------------------------------------------------
R1 4/01/05 12.19% -1.75% 7.30%
- ------------------------------------------------------------------------------
R2 4/01/05 12.37% -1.72% 7.32%
- ------------------------------------------------------------------------------
R3 10/31/03 12.59% -1.63% 7.37%
- ------------------------------------------------------------------------------
R4 4/01/05 13.06% -1.01% 8.11%
- ------------------------------------------------------------------------------
R5 4/01/05 13.23% -0.99% 8.13%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- ------------------------------------------------------------------------------
Average global multi-cap growth fund+ 14.99% 1.10% 9.74%
- ------------------------------------------------------------------------------
MSCI All Country World Growth Index#(S) 14.48% -2.00% --
- ------------------------------------------------------------------------------
MSCI World Growth Index# 13.40% -2.64% 5.92%
- ------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- ------------------------------------------------------------------------------
A 6.67% -2.16% 7.49%
- ------------------------------------------------------------------------------
B 8.31% -2.04% 7.31%
- ------------------------------------------------------------------------------
C 11.31% -1.75% 7.31%
- ------------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge. Please
see Notes to Performance Summary for more details.
+ 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.
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 eligible investors, and Class R1,
R2, R3, R4, and R5 shares are only available to certain retirement plans.
Performance for Classes I, R, R4, and R5 shares includes the performance of
the fund's Class A shares for periods prior to their offering. Performance for
Classes 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.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
EXPENSE TABLE
FUND EXPENSES BORNE BY THE SHAREHOLDERS DURING THE PERIOD,
MAY 1, 2005 THROUGH OCTOBER 31, 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 May 1, 2005 through October 31,
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.
- --------------------------------------------------------------------------------
Expenses
Paid During
Annualized Beginning Ending Period**
Expense Account Value Account Value 5/01/05-
Share Class Ratio 5/01/05 10/31/05 10/31/05
- --------------------------------------------------------------------------------
Actual 1.58% $1,000.00 $1,091.20 $8.33
A ---------------------------------------------------------------------
Hypothetical* 1.58% $1,000.00 $1,017.24 $8.03
- --------------------------------------------------------------------------------
Actual 2.33% $1,000.00 $1,087.10 $12.26
B ----------------------------------------------------------------------
Hypothetical* 2.33% $1,000.00 $1,013.46 $11.82
- --------------------------------------------------------------------------------
Actual 2.33% $1,000.00 $1,086.70 $12.25
C ---------------------------------------------------------------------
Hypothetical* 2.33% $1,000.00 $1,013.46 $11.82
- --------------------------------------------------------------------------------
Actual 1.33% $1,000.00 $1,092.40 $7.01
I ---------------------------------------------------------------------
Hypothetical* 1.33% $1,000.00 $1,018.50 $6.77
- --------------------------------------------------------------------------------
R Actual 1.83% $1,000.00 $1,089.60 $9.64
(formerly ---------------------------------------------------------------------
R1) Hypothetical* 1.83% $1,000.00 $1,015.98 $9.30
- --------------------------------------------------------------------------------
Actual 2.51% $1,000.00 $1,085.90 $13.20
R1 ---------------------------------------------------------------------
Hypothetical* 2.51% $1,000.00 $1,012.55 $12.73
- --------------------------------------------------------------------------------
Actual 2.19% $1,000.00 $1,087.60 $11.52
R2 ---------------------------------------------------------------------
Hypothetical* 2.19% $1,000.00 $1,014.17 $11.12
- --------------------------------------------------------------------------------
R3 Actual 2.07% $1,000.00 $1,088.90 $10.90
(formerly ---------------------------------------------------------------------
R2) Hypothetical* 2.07% $1,000.00 $1,014.77 $10.51
- --------------------------------------------------------------------------------
Actual 1.73% $1,000.00 $1,090.70 $9.12
R4 ---------------------------------------------------------------------
Hypothetical* 1.73% $1,000.00 $1,016.48 $8.79
- --------------------------------------------------------------------------------
Actual 1.43% $1,000.00 $1,091.70 $7.54
R5 ---------------------------------------------------------------------
Hypothetical* 1.43% $1,000.00 $1,018.00 $7.27
- --------------------------------------------------------------------------------
* 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.
Effective October 1, 2005 the fund's Class R1, Class R2, and Class R3's
retirement plan administration and services fee was reduced (as described in
Note 3 of the Notes to the Financial Statements). Had this fee reduction been
in effect throughout the entire six month period, the annualized expense ratio
would have been 2.43%, 2.07% and 1.98% for Class R1, Class R2 and Class R3,
respectively, and the actual expenses paid during the period would have been
approximately $12.78, $10.90, and $10.43 for Class R1, Class R2, and Class R3,
respectively.
PORTFOLIO OF INVESTMENTS - 10/31/05
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 99.9%
- ----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- ----------------------------------------------------------------------------------------------------
Aerospace - 0.6%
- ----------------------------------------------------------------------------------------------------
Lockheed Martin Corp. 41,550 $ 2,516,268
- ----------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.7%
- ----------------------------------------------------------------------------------------------------
Pernod Ricard^ 16,870 $ 2,950,276
- ----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 2.0%
- ----------------------------------------------------------------------------------------------------
Burberry Group PLC 278,950 $ 1,892,269
LVMH Moet Hennessy Louis Vuitton S.A.^ 51,180 4,143,983
Toray Industries, Inc. 383,000 2,119,459
------------
$ 8,155,711
- ----------------------------------------------------------------------------------------------------
Automotive - 2.4%
- ----------------------------------------------------------------------------------------------------
Autoliv, Inc.^ 50,100 $ 2,156,059
Harley-Davidson, Inc.^ 33,500 1,659,255
Kongsberg Automotive A.S.A.* 198,290 1,524,721
Toyota Motor Corp. 95,300 4,348,382
------------
$ 9,688,417
- ----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 10.6%
- ----------------------------------------------------------------------------------------------------
AEON Credit Service Co. Ltd. 80,100 $ 6,256,576
Aiful Corp. 39,650 2,953,946
American Express Co. 84,710 4,216,017
Anglo Irish Bank Corp. PLC 155,430 2,105,259
DEPFA Bank PLC 170,040 2,649,639
Erste Bank der Oesterreichischen Sparkassen AG 70,230 3,653,463
Nedbank Group Ltd. 289,800 3,688,505
Royal Bank of Scotland Group PLC 146,286 4,046,975
Shinsei Bank Ltd. 465,000 2,693,104
Standard Chartered PLC 204,760 4,295,571
Takefuji Corp. 29,130 2,030,026
UBS AG 56,595 4,801,575
------------
$ 43,390,656
- ----------------------------------------------------------------------------------------------------
Biotechnology - 2.0%
- ----------------------------------------------------------------------------------------------------
Amgen, Inc.* 59,230 $ 4,487,265
Genzyme Corp.* 24,980 1,806,054
Gilead Sciences, Inc.* 44,320 2,094,120
------------
$ 8,387,439
- ----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.3%
- ----------------------------------------------------------------------------------------------------
Grupo Televisa S.A., ADR 62,260 $ 4,551,206
PagesJaunes S.A.^ 122,220 3,149,728
Viacom, Inc., "B" 62,310 1,929,741
Walt Disney Co. 177,410 4,323,482
WPP Group PLC 369,880 3,631,156
------------
$ 17,585,313
- ----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.9%
- ----------------------------------------------------------------------------------------------------
Ameriprise Financial, Inc. 12,102 $ 450,436
Franklin Resources, Inc. 44,970 3,973,999
Goldman Sachs Group, Inc. 41,970 5,303,749
Julius Baer Holding Ltd. 27,756 2,150,544
------------
$ 11,878,728
- ----------------------------------------------------------------------------------------------------
Business Services - 2.2%
- ----------------------------------------------------------------------------------------------------
Accenture Ltd., "A" 123,260 $ 3,242,971
Amdocs Ltd.* 61,320 1,623,140
Getty Images, Inc.^* 50,340 4,178,723
------------
$ 9,044,834
- ----------------------------------------------------------------------------------------------------
Chemicals - 0.4%
- ----------------------------------------------------------------------------------------------------
Nalco Holding Co.* 95,820 $ 1,628,940
- ----------------------------------------------------------------------------------------------------
Computer Software - 2.1%
- ----------------------------------------------------------------------------------------------------
Oracle Corp.* 377,200 $ 4,782,896
Symantec Corp.* 160,654 3,831,598
------------
$ 8,614,494
- ----------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.1%
- ----------------------------------------------------------------------------------------------------
Dell, Inc.* 137,040 $ 4,368,835
- ----------------------------------------------------------------------------------------------------
Construction - 1.0%
- ----------------------------------------------------------------------------------------------------
CEMEX S.A. de C.V., ADR^ 81,163 $ 4,226,157
- ----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 3.1%
- ----------------------------------------------------------------------------------------------------
Avon Products, Inc. 60,210 $ 1,625,068
Colgate-Palmolive Co. 53,780 2,848,189
L'Oreal S.A. 28,200 2,073,748
Reckitt Benckiser PLC 201,690 6,089,883
------------
$ 12,636,888
- ----------------------------------------------------------------------------------------------------
Electrical Equipment - 3.0%
- ----------------------------------------------------------------------------------------------------
Keyence Corp. 8,200 $ 1,877,104
MSC Industrial Direct Co., Inc., "A"^ 48,230 1,841,421
Nidec Corp. 20,800 1,213,594
Nidec Corp. 20,800 1,152,825
Nitto Denko Corp. 57,400 3,457,564
Schneider Electric S.A.^ 33,607 2,761,401
------------
$ 12,303,909
- ----------------------------------------------------------------------------------------------------
Electronics - 8.5%
- ----------------------------------------------------------------------------------------------------
Analog Devices, Inc. 53,860 $ 1,873,251
CANON, Inc. 77,000 4,016,241
Intel Corp. 239,420 5,626,370
KLA-Tencor Corp. 49,360 2,284,874
Murata Manufacturing Co. Ltd.^ 41,500 2,057,615
Nippon Electric Glass Co. Ltd.^ 154,000 2,931,128
Ricoh Co. Ltd. 189,000 2,986,647
Royal Philips Electronics N.V. 137,810 3,601,053
Samsung Electronics Co. Ltd. 13,410 7,090,345
USHIO America, Inc.^ 136,000 2,524,253
------------
$ 34,991,777
- ----------------------------------------------------------------------------------------------------
Energy - Independent - 4.3%
- ----------------------------------------------------------------------------------------------------
Canadian Natural Resources Ltd. 40,610 $ 1,660,154
CNOOC Ltd. 6,595,000 4,253,741
EnCana Corp. 58,810 2,688,457
Norsk Hydro A.S.A. 19,200 1,922,215
Reliance Industries Ltd. 255,810 4,340,597
Talisman Energy, Inc. 61,260 2,712,813
------------
$ 17,577,977
- ----------------------------------------------------------------------------------------------------
Energy - Integrated - 2.8%
- ----------------------------------------------------------------------------------------------------
BP PLC, ADR 71,694 $ 4,760,482
TOTAL S.A.^ 26,220 6,581,149
------------
$ 11,341,631
- ----------------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 2.9%
- ----------------------------------------------------------------------------------------------------
Groupe Danone^ 35,210 $ 3,591,600
Nestle S.A. 15,994 4,758,607
PepsiCo, Inc. 62,280 3,679,502
------------
$ 12,029,709
- ----------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.0%
- ----------------------------------------------------------------------------------------------------
Aracruz Celulose S.A., ADR^ 104,640 $ 4,007,712
- ----------------------------------------------------------------------------------------------------
Gaming & Lodging - 1.0%
- ----------------------------------------------------------------------------------------------------
Hilton Group PLC 366,070 $ 2,196,722
William Hill Organization Ltd. 192,130 1,816,494
------------
$ 4,013,216
- ----------------------------------------------------------------------------------------------------
General Merchandise - 1.0%
- ----------------------------------------------------------------------------------------------------
Target Corp. 74,370 $ 4,141,665
- ----------------------------------------------------------------------------------------------------
Insurance - 0.5%
- ----------------------------------------------------------------------------------------------------
Ace Ltd. 41,000 $ 2,136,100
- ----------------------------------------------------------------------------------------------------
Internet - 1.7%
- ----------------------------------------------------------------------------------------------------
eBay, Inc.* 80,970 $ 3,206,412
Yahoo!, Inc.* 104,900 3,878,153
------------
$ 7,084,565
- ----------------------------------------------------------------------------------------------------
Leisure & Toys - 0.8%
- ----------------------------------------------------------------------------------------------------
Electronic Arts, Inc.* 55,730 $ 3,169,922
- ----------------------------------------------------------------------------------------------------
Machinery & Tools - 1.6%
- ----------------------------------------------------------------------------------------------------
Atlas Copco AB, "A" 62,700 $ 1,147,961
Fanuc Ltd. 27,000 2,111,278
Precision Castparts Corp. 3,390 160,550
Sandvik AB^ 67,250 3,241,066
------------
$ 6,660,855
- ----------------------------------------------------------------------------------------------------
Medical Equipment - 5.2%
- ----------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc.* 57,500 $ 2,051,600
Alcon, Inc. 15,950 2,119,755
Cytyc Corp.* 79,530 2,016,086
Discovery Partners International, Inc.* 120 346
Medtronic, Inc. 64,120 3,633,039
Smith & Nephew PLC 504,310 4,263,993
Straumann Holding AG^ 9,550 2,223,511
Synthes, Inc. 21,600 2,284,430
Zimmer Holdings, Inc.* 42,090 2,684,079
------------
$ 21,276,839
- ----------------------------------------------------------------------------------------------------
Metals & Mining - 3.0%
- ----------------------------------------------------------------------------------------------------
Aber Diamond Corp.## 65,220 $ 2,042,870
Aber Diamond Corp. 27,000 845,714
BHP Billiton Ltd. 257,300 3,989,016
Companhia Vale do Rio Doce, ADR 130,560 5,396,045
------------
$ 12,273,645
- ----------------------------------------------------------------------------------------------------
Network & Telecom - 1.9%
- ----------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 285,310 $ 4,978,660
QUALCOMM, Inc. 75,300 2,993,928
------------
$ 7,972,588
- ----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.1%
- ----------------------------------------------------------------------------------------------------
EMC Corp.* 161,100 $ 2,248,957
Network Appliance, Inc.* 85,950 2,351,592
------------
$ 4,600,549
- ----------------------------------------------------------------------------------------------------
Pharmaceuticals - 8.9%
- ----------------------------------------------------------------------------------------------------
AstraZeneca PLC 85,950 $ 3,850,988
Chugai Pharmaceutical Co. Ltd.^ 94,100 2,053,826
Eli Lilly & Co. 75,410 3,754,664
GlaxoSmithKline PLC 240,000 6,236,259
Johnson & Johnson 101,490 6,355,304
Roche Holding AG 43,430 6,480,934
Sanofi-Aventis^ 38,480 3,081,086
Teva Pharmaceutical Industries Ltd., ADR^ 125,860 4,797,783
------------
$ 36,610,844
- ----------------------------------------------------------------------------------------------------
Printing & Publishing - 0.8%
- ----------------------------------------------------------------------------------------------------
Yell Group PLC 424,040 $ 3,319,030
- ----------------------------------------------------------------------------------------------------
Restaurants - 1.1%
- ----------------------------------------------------------------------------------------------------
Outback Steakhouse, Inc.^ 53,380 $ 2,010,291
Starbucks Corp.* 92,660 2,620,425
------------
$ 4,630,716
- ----------------------------------------------------------------------------------------------------
Specialty Chemicals - 2.2%
- ----------------------------------------------------------------------------------------------------
Asahi Glass Co. Ltd.^ 202,000 $ 2,176,653
Kaneka Corp. 161,000 1,983,880
L'Air Liquide S.A., Bearer Shares^ 26,747 4,863,546
------------
$ 9,024,079
- ----------------------------------------------------------------------------------------------------
Specialty Stores - 3.7%
- ----------------------------------------------------------------------------------------------------
Esprit Holdings Ltd. 273,500 $ 1,938,703
Industria de Diseno Textil S.A. 73,340 2,170,473
Lowe's Cos., Inc. 30,530 1,855,308
NEXT PLC 150,793 3,558,181
Nishimatsuya Chain Co. Ltd.^ 59,900 2,264,748
PETsMART, Inc. 143,450 3,371,075
------------
$ 15,158,488
- ----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.4%
- ----------------------------------------------------------------------------------------------------
MTN Group Ltd. 551,180 $ 4,102,507
Vodafone Group PLC 2,273,790 5,962,606
------------
$ 10,065,113
- ----------------------------------------------------------------------------------------------------
Telephone Services - 3.3%
- ----------------------------------------------------------------------------------------------------
FastWeb S.p.A.^* 38,929 $ 1,771,765
Sprint Nextel Corp. 175,820 4,098,364
Telefonica S.A. 341,464 5,447,727
Telenor A.S.A. 238,560 2,329,652
------------
$ 13,647,508
- ----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.8%
- ----------------------------------------------------------------------------------------------------
Iberdrola S.A. 122,040 $ 3,267,967
Suez S.A.^ 146,226 3,961,187
------------
$ 7,229,154
- ----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $360,443,025) $410,340,547
- ----------------------------------------------------------------------------------------------------
Preferred Stock - 1.1%
- ----------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.1%
- ----------------------------------------------------------------------------------------------------
Companhia de Bebidas das Americas, ADR^
(Identified Cost, $3,013,798) 122,540 $ 4,350,170
- ----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 15.7%
- ----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 64,697,636 $ 64,697,636
- ----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $428,154,459).SM. $479,388,353
- ----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (16.7)% (68,677,657)
- ----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $410,710,696
- ----------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
* Non-income producing security.
^ All or a portion of this security is on loan.
(S) As of October 31, 2005 the fund had one security representing $2,042,870 and 0.5% of net assets
that was fair valued in accordance with the policies adopted by the Board of Trustees.
The following abbreviations are used in the Portfolio of Investments and are defined:
ADR American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS Statement of Assets and Liabilities
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of the fund.
AT 10/31/05
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $62,084,733 of securities
on loan (identified cost, $428,154,459) $479,388,353
Cash 1,968
Foreign currency, at value (identified cost, $29,900) 29,917
Receivable for investments sold 5,134,409
Receivable for fund shares sold 202,774
Interest and dividends receivable 396,311
Other assets 7,938
- -------------------------------------------------------------------------------------------------------
Total assets $485,161,670
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Notes payable $2,345,000
Payable for investments purchased 4,945,243
Payable for fund shares reacquired 2,060,423
Collateral for securities loaned, at value 64,697,636
Payable to affiliates
Management fee 30,078
Shareholder servicing costs 87,712
Distribution and service fees 14,922
Administrative services fee 345
Retirement plan administration and services fees 15
Accrued expenses and other liabilities 269,600
- -------------------------------------------------------------------------------------------------------
Total liabilities $74,450,974
- -------------------------------------------------------------------------------------------------------
Net assets $410,710,696
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $495,440,023
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 51,223,582
Accumulated net realized gain (loss) on investments and
foreign currency transactions (135,908,975)
Accumulated net investment loss (43,934)
- -------------------------------------------------------------------------------------------------------
Net assets $410,710,696
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 20,762,711
- -------------------------------------------------------------------------------------------------------
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $290,255,968
Shares outstanding 14,443,647
- -------------------------------------------------------------------------------------------------------
Net asset value per share $20.10
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$20.10 of net asset
value per share) $21.33
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $87,768,720
Shares outstanding 4,624,888
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.98
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $20,924,261
Shares outstanding 1,112,698
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $18.80
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $7,233,293
Shares outstanding 353,561
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $20.46
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,640,719
Shares outstanding 182,526
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $19.95
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $103,545
Shares outstanding 5,461
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.96
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $213,319
Shares outstanding 11,233
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $18.99
- -------------------------------------------------------------------------------------------------------
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $465,663
Shares outstanding 23,461
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $19.85
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,558
Shares outstanding 2,618
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $20.08
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $52,650
Shares outstanding 2,618
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per
share $20.11
- -------------------------------------------------------------------------------------------------------
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
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.
YEAR ENDED 10/31/05
NET INVESTMENT LOSS
- ------------------------------------------------------------------------------------------------------
Income
Dividends $7,389,827
Interest 352,722
Foreign taxes withheld (458,096)
- ------------------------------------------------------------------------------------------------------
Total investment income $7,284,453
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,971,206
Distribution and service fees 2,323,818
Shareholder servicing costs 991,113
Administrative services fee 50,498
Retirement plan administration and services fees 1,549
Independent trustees' compensation 15,931
Custodian fee 397,561
Printing 99,541
Postage 28,234
Auditing fees 60,534
Legal fees 12,479
Registration fees 115,722
Shareholder solicitation expenses 43,774
Miscellaneous 137,130
- ------------------------------------------------------------------------------------------------------
Total expenses $8,249,090
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (17,057)
Reduction of expenses by investment adviser and distributor (309,068)
- ------------------------------------------------------------------------------------------------------
Net expenses $7,922,965
- ------------------------------------------------------------------------------------------------------
Net investment loss $(638,512)
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (net of $27,691 country tax) $63,781,834
Foreign currency transactions (230,903)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $63,550,931
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(8,809,798)
Translation of assets and liabilities in foreign currencies (48,522)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(8,858,320)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $54,692,611
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $54,054,099
- ------------------------------------------------------------------------------------------------------
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.
FOR YEARS ENDED 10/31 2005 2004
CHANGE IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment loss $(638,512) $(1,300,236)
Net realized gain (loss) on investments and foreign
currency transactions 63,550,931 74,526,809
Net unrealized gain (loss) on investments and foreign
currency translation (8,858,320) (23,437,280)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $54,054,099 $49,789,293
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(86,835,314) $(73,285,854)
- -------------------------------------------------------------------------------------------------------
Redemption fees $4,341 $6,574
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(32,776,874) $(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 $43,934 and $47,967, respectively) $410,710,696 $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 past 5 years
(or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share.
The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the
fund share class (assuming reinvestment of all distributions) held for the entire period. This information has been
audited by the fund's independent registered public accounting firm, whose report, together with the fund's financial
statements, are included in this report.
CLASS A
YEARS ENDED 10/31
--------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of
period $17.76 $15.91 $12.73 $14.60 $27.51
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)# $0.01 $(0.01) $0.04 $(0.01) $(0.03)
Net realized and unrealized gain
(loss) on investments and
foreign currency 2.33 1.86 3.14 (1.86) (6.91)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.34 $1.85 $3.18 $(1.87) $(6.94)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(5.97)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.10 $17.76 $15.91 $12.73 $14.60
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** 13.18 11.70[+]^^^^ 24.90^^^ (12.81) (30.91)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions## 1.69 1.70 1.69 1.67 1.62
Expenses after expense
reductions## 1.59 1.60 1.59 1.57 1.52
Net investment income (loss) 0.07 (0.04) 0.30 (0.08) (0.17)
Portfolio turnover 92 163 93 130 112
Net assets at end of period
(000 Omitted) $290,256 $304,348 $306,333 $269,893 $268,548
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B
YEARS ENDED 10/31
--------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of
period $16.90 $15.25 $12.29 $14.21 $26.87
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss# $(0.13) $(0.13) $(0.06) $(0.13) $(0.16)
Net realized and unrealized gain
(loss) on investments and
foreign currency 2.21 1.78 3.02 (1.79) (6.74)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.08 $1.65 $2.96 $(1.92) $(6.90)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(5.76)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.98 $16.90 $15.25 $12.29 $14.21
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** 12.31 10.82[+]^^^^ 24.08^^^ (13.51) (31.39)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions## 2.34 2.35 2.34 2.32 2.27
Expenses after expense
reductions## 2.34 2.35 2.34 2.32 2.27
Net investment loss (0.70) (0.81) (0.47) (0.89) (0.92)
Portfolio turnover 92 163 93 130 112
Net assets at end of period
(000 Omitted) $87,769 $108,750 $129,229 $133,525 $268,518
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C
YEARS ENDED 10/31
--------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of
period $16.74 $15.11 $12.18 $14.08 $26.74
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss# $(0.13) $(0.13) $(0.06) $(0.13) $(0.16)
Net realized and unrealized gain
(loss) on investments and
foreign currency 2.19 1.76 2.99 (1.77) (6.70)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.06 $1.63 $2.93 $(1.90) $(6.86)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(5.80)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.80 $16.74 $15.11 $12.18 $14.08
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)(+)&*** 12.31 10.79[+]^^^^ 24.06^^^ (13.49) (31.45)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions## 2.34 2.35 2.34 2.32 2.27
Expenses after expense
reductions## 2.34 2.35 2.34 2.32 2.27
Net investment loss (0.69) (0.81) (0.47) (0.91) (0.92)
Portfolio turnover 92 163 93 130 112
Net assets at end of period
(000 Omitted) $20,924 $21,945 $24,777 $24,035 $44,241
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I
YEARS ENDED 10/31
--------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
Net asset value, beginning of
period $18.04 $16.11 $12.86 $14.71 $27.71
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income# $0.06 $0.04 $0.07 $0.02 $0.01
Net realized and unrealized gain
(loss) on investments and
foreign currency 2.36 1.89 3.18 (1.87) (6.97)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.42 $1.93 $3.25 $(1.85) $(6.96)
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions $-- $-- $-- $-- $(6.04)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.46 $18.04 $16.11 $12.86 $14.71
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 13.41 11.98[+]^^^^ 25.27^^^ (12.64) (30.77)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions## 1.34 1.34 1.33 1.32 1.27
Expenses after expense
reductions## 1.34 1.34 1.33 1.32 1.27
Net investment income 0.31 0.21 0.53 0.16 0.08
Portfolio turnover 92 163 93 130 112
Net assets at end of period
(000 Omitted) $7,233 $7,011 $6,249 $5,207 $6,085
- ------------------------------------------------------------------------------------------------------------------------------
CLASS R
YEARS ENDED 10/31
--------------------------------------------------
2005 2004 2003**
Net asset value, beginning of period $17.68 $15.87 $12.63
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)# $(0.03) $(0.02) $0.03
Net realized and unrealized gain (loss) on investments
and foreign currency 2.30 1.83 3.21
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.27 $1.81 $3.24
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.95 $17.68 $15.87
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 12.84 11.41[+]^^^^ 25.65^^^++
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.85 1.83 1.78+
Expenses after expense reductions## 1.85 1.83 1.78+
Net investment income (loss) (0.16) (0.10) 0.21+
Portfolio turnover 92 163 93
Net assets at end of period (000 Omitted) $3,641 $1,194 $385
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 CLASS R2
YEAR ENDED YEAR ENDED
10/31/05** 10/31/05**
Net asset value, beginning of period $18.12 $18.12
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss# $(0.08) $(0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency 0.92^ 0.95^
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.84 $0.87
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.96 $18.99
- ---------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 4.64++ 4.80++
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.54+ 2.24+
Expenses after expense reductions## 2.52+ 2.20+
Net investment loss (0.77)+ (0.71)+
Portfolio turnover 92 92
Net assets at end of period (000 Omitted) $104 $213
- ---------------------------------------------------------------------------------------------------------------------
CLASS R3
YEARS ENDED 10/31
------------------------------------------------
2005 2004
Net asset value, beginning of period $17.63 $15.87
- ---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Net investment loss# $(0.06) $(0.07)
Net realized and unrealized gain (loss) on investments
and foreign currency 2.28 1.83
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.22 $1.76
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.85 $17.63
- ---------------------------------------------------------------------------------------------------------------------
Total return (%)&*** 12.59 11.09[+]^^^^
- ---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 2.10 2.08
Expenses after expense reductions## 2.09 2.08
Net investment loss (0.29) (0.45)
Portfolio turnover 92 163
Net assets at end of period (000 Omitted) $466 $239
- ---------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R4 CLASS R5
YEAR ENDED YEAR ENDED
10/31/05** 10/31/05**
Net asset value, beginning of period $19.10 $19.10
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS#
- -----------------------------------------------------------------------------------------------------------
Net investment income# $0.02 $0.06
Net realized and unrealized gain (loss) on investments
and foreign currency 0.96^ 0.95^
- -----------------------------------------------------------------------------------------------------------
Total from investment operations $0.98 $1.01
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.08 $20.11
- -----------------------------------------------------------------------------------------------------------
Total return (%)&*** 5.13++ 5.29++
- -----------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------
Expenses before expense reductions## 1.75+ 1.45+
Expenses after expense reductions## 1.75+ 1.45+
Net investment income 0.20+ 0.50+
Portfolio turnover 92 92
Net assets at end of period (000 Omitted) $53 $53
- -----------------------------------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share
impact of less than $0.01.
** For the period from the class" inception, December 31, 2002 (Class R) and April 1, 2005 (Classes R1,
R2, R4, and R5) through the stated period end.
*** Certain expenses have been reduced without which performance would have been lower.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ 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.
^^^ 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 for Class A, Class B, Class C, Class I and Class R would have been 0.47%, 0.56%,
0.58%, 0.54%, and 0.55% lower, respectively.
^^^^ 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 for Class A, Class B, Class C, Class I, Class R and Class R3 would have been 0.05%,
0.05%, 0.06%, 0.05%, 0.06%, and 0.05% lower, respectively.
[+] The fund's net asset value and total return calculation include a non-recurring accrual recorded as a
result of an administrative proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. The non-recurring accrual did not have a material impact on the net asset
value per share based on the shares outstanding on the day the proceeds were recorded.
(+) Total returns do not include any applicable sales charges.
& 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
(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, including restricted 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 are valued at net asset value. Investment valuations, other
assets, and liabilities initially expressed in foreign currencies are
converted each business day into U.S. dollars based upon current exchange
rates. 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 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 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
charged 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 did 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 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 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.
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 year ended October 31, 2005 the fund's custodian fees
were reduced by $15,584 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 year ended October 31, 2005 the fund's miscellaneous expenses
were reduced by $1,473 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, net operating losses, wash sales,
and foreign taxes.
The fund paid no distributions for the years ended October 31, 2005 and
October 31, 2004.
During the year ended October 31, 2005 accumulated net investment loss
decreased by $642,545 accumulated net realized loss on investments and foreign
currency transactions decreased by $258,594, and paid-in capital decreased by
$901,139 due to differences between book and tax accounting foreign currency
transactions, net operating losses, and foreign taxes. This change had no
effect on the net assets or net asset value per share.
As of October 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(135,205,196)
Unrealized appreciation (depreciation) 50,530,115
Other temporary differences (54,246)
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, 2009 $(26,094,462)
October 31, 2010 (95,953,969)
October 31, 2011 (13,156,765)
------------------------------------------------------
Total $(135,205,196)
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 daily net assets 0.90%
Next $1 billion of average daily net assets 0.75%
Average daily net assets in excess of $2 billion 0.65%
The management fee incurred for the year ended October 31, 2005 was equivalent
to an annual effective rate of 0.90% of the fund's average daily
net assets.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly owned subsidiary of
MFS, as distributor, received $22,012 for the year ended October 31, 2005, as
its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD. Another component of the plan is a service
fee paid to MFD which subsequently pays a portion of this fee 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.
Distribution Fee Plan Table:
TOTAL ANNUAL SERVICE FEE DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE RETAINED AND SERVICE
FEE RATE FEE RATE PLAN(1) RATE(2) BY MFD(3) FEE
Class A 0.10% 0.25% 0.35% 0.25% $19,351 $1,076,027
Class B 0.75% 0.25% 1.00% 1.00% 1,992 1,009,668
Class C 0.75% 0.25% 1.00% 1.00% 2,038 221,678
Class R 0.25% 0.25% 0.50% 0.50% 13 13,665
Class R1 0.50% 0.25% 0.75% 0.75% 190 296
Class R2 0.25% 0.25% 0.50% 0.50% 127 335
Class R3 0.25% 0.25% 0.50% 0.50% 20 2,074
Class R4 -- 0.25% 0.25% 0.25% 63 75
- -------------------------------------------------------------------------------
Total Distribution and Service Fees $2,323,818
(1) In accordance with the distribution plan for certain classes, the fund
pays distribution and/or service fees up to these annual percentage rates
of each class' average daily net assets.
(2) The annual effective rates represent actual fees incurred under the
distribution plan for the year ended October 31, 2005 based on each class'
average daily net assets. 0.10% of the Class A distribution fee
is currently being waived under a contractual waiver arrangement. For the
year ended October 31, 2005
this waiver amounted to $307,423 and is reflected as a reduction of total
expenses in the Statement
of Operations.
(3) For the year ended October 31, 2005, MFD retained these service fees.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months of purchase.
Class B shares are subject to a contingent deferred sales charge in the event
of a shareholder redemption within six years of purchase. MFD retained all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended October 31, 2005, were as follows:
AMOUNT
Class A $17,728
Class B $130,625
Class C $1,081
SHAREHOLDER SERVICING AGENT - The fund pays a portion of shareholder servicing
costs to MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS.
MFSC receives a fee from the fund, for its services as shareholder servicing
agent, set periodically under the supervision of the fund's Board of Trustees.
For the year ended October 31, 2005, the fee was $470,610 which equated to
0.1066% annually of the fund's average daily net assets. MFSC also receives
payment from the fund for out-of-pocket and sub-accounting expenses paid by
MFSC on behalf of the fund. For the year ended October 31, 2005, these costs
amounted to $289,375.
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, the funds may partially reimburse MFS the costs incurred to provide
these services, subject to review and approval by the Board of Trustees. Each
fund is charged a fixed amount plus a fee based on calendar year average net
assets. Effective July 1, 2005, the fund's annual fixed amount is $10,000.
The administrative services fee incurred for the year ended October 31, 2005
was equivalent to an annual effective rate of 0.0114% of the fund's average
daily net assets.
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 certain Class R 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. For the
year ended October 31, 2005 the fund paid an annual retirement plan
administration and services fee up to the following annual percentage rates of
each class' average daily net assets:
AMOUNT
FEE EFFECTIVE TOTAL RETAINED
RATE RATE(1) AMOUNT BY MFS
Class R1 0.45% 0.43% $177 $170
Class R2 0.40% 0.36% 265 248
Class R3 0.25% 0.24% 1,032 735
Class R4 0.15% 0.15% 45 44
Class R5 0.10% 0.10% 30 30
- -------------------------------------------------------------------------------
Total Retirement Plan Administration
and Services Fees $1,549 $1,227
(1) Effective October 1, 2005, MFS has contractually agreed to waive a portion
of the retirement plan administration and service fee equal to 0.10% for
Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares.
For the year ended October 31, 2005 this waiver amounted to $76 and is
reflected as a reduction of total expenses in the Statement of Operations.
This agreement will continue until September 30, 2007.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
Independent Trustees in the form of a retainer, attendance fees, and
additional compensation to Board and Committee chairpersons. The fund does not
pay compensation directly to Trustees 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, MFD, and MFSC. The fund has an unfunded,
defined benefit plan for retired Independent Trustees which resulted in a
pension expense of $2,986. The fund also has an unfunded retirement benefit
deferral plan for certain current Independent Trustees which resulted in an
expense of $2,725. Both amounts are included in Independent trustees'
compensation for the year ended October 31, 2005.
OTHER - 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 the fund for a portion of the payments made by the funds to
Tarantino LLC in the amount of $1,569, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO. The funds can terminate the Agreement with
Tarantino LLC at any time under the terms of the Agreement.
The fund's investment adviser, MFS, was the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in
connection with fund sales. As a result, proceeds in the amount of $117,040
were paid to the fund on February 16, 2005.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$398,656,027 and $471,566,431, 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 $428,858,238
--------------------------------------------------------
Gross unrealized appreciation $58,104,449
Gross unrealized depreciation (7,574,334)
--------------------------------------------------------
Net unrealized appreciation (depreciation) $50,530,115
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 10/31/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 2,363,476 $45,304,341 3,300,847 $56,503,582
Shares reacquired (5,055,375) (97,458,855) (5,422,553) (92,414,483)
- ------------------------------------------------------------------------------------------------------------
Net change (2,691,899) $(52,154,514) (2,121,706) $(35,910,901)
CLASS B SHARES
Shares sold 610,157 $11,088,823 932,789 $15,208,458
Shares reacquired (2,420,779) (44,235,419) (2,971,167) (48,310,681)
- -------------------------------------------------------------------------------------------------------------
Net change (1,810,622) $(33,146,596) (2,038,378) $(33,102,223)
CLASS C SHARES
Shares sold 142,008 $2,535,644 139,965 $2,265,902
Shares reacquired (340,162) (6,147,379) (468,899) (7,546,242)
- ------------------------------------------------------------------------------------------------------------
Net change (198,154) $(3,611,735) (328,934) $(5,280,340)
CLASS I SHARES
Shares sold 38,353 $752,968 54,853 $955,087
Shares reacquired (73,476) (1,468,991) (53,953) (932,446)
- ------------------------------------------------------------------------------------------------------------
Net change (35,123) $(716,023) 900 $22,641
CLASS R SHARES
Shares sold 156,585 $2,986,933 91,918 $1,588,452
Shares reacquired (41,589) (800,438) (48,614) (829,241)
- ------------------------------------------------------------------------------------------------------------
Net change 114,996 $2,186,495 43,304 $759,211
Period ended 10/31/05*
SHARES AMOUNT
CLASS R1 SHARES
Shares sold 6,108 $112,095
Shares reacquired (647) (11,688)
- --------------------------------------------------------------------------
Net change 5,461 $100,407
CLASS R2 SHARES
Shares sold 11,233 $211,284
Year ended 10/31/05 Year ended 10/31/04
SHARES AMOUNT SHARES AMOUNT
CLASS R3 SHARES
Shares sold 45,856 $891,112 17,681 $299,195
Shares reacquired (35,958) (695,744) (4,433) (73,437)
- ------------------------------------------------------------------------------------------------------------
Net change 9,898 $195,368 13,248 $225,758
Period ended 10/31/05*
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 October 31, 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 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 year ended October 31, 2005 was $2,747, and is
included in miscellaneous expense. The fund had no significant borrowings
during the year ended October 31, 2005.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of MFS Series Trust VIII and the Shareholders of MFS
Global Growth Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Global Growth Fund (the "Fund")
(a portfolio of MFS Series Trust VIII) as of October 31, 2005, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Fund is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2005,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Global Growth
Fund as of October 31, 2005, the results of its operations for the year then
ended, the changes in its net assets, and its financial highlights for the
respective stated periods, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 22, 2005
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 2, 2005, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.)
The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(1) OTHER DIRECTORSHIPS(2)
- ------------------- ---------------- --------------- -----------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); Bell Canada
Enterprises (telecommunications),
Director; Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 08/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
OFFICERS
Maria F. Dwyer(3) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(3) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(3) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003); Nvest Services Company,
Assistant Vice President and
Associate Counsel (prior to
January 2001)
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/19/56) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since April 2004); Hale and Dorr
LLP (law firm), Partner (prior to
April 2004)
Ethan D. Corey(3) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(3) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (January
2001 to June 2005); State Street
Bank, Vice President and Corporate
Audit Manager (prior to January
2001)
Timothy M. Fagan(3) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(3) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Susan S. Newton(3) Assistant May 2005 Massachusetts Financial Services
(born 03/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(3) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (January 2001 to June
2004); Preti, Flaherty, Beliveau,
Pachios & Haley, LLC, Associate
(prior to January 2001)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
- ------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940
(referred to as the 1940 Act), which is the principal federal law governing investment companies
like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Each Trustee has been elected by shareholders and each Trustee and officer holds office until his or
her successor is chosen and qualified or until his or her earlier death, resignation, retirement or
removal. Messrs. Ives and Sherratt and Mses. Lane and Thomsen are members of the Trust's Audit
Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of December 31, 2004, each Trustee served as a board member of 99 funds
within the MFS Family of Funds.
The Trust held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once
every five years thereafter, to elect Trustees.
The Statement of Additional Information contains further information about the Trustees and is
available without charge upon request by calling 1-800-225-2606.
- -----------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
INDEPENDENT REGISTERED PUBLIC
DISTRIBUTOR ACCOUNTING FIRM
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA 200 Berkeley Street, Boston, MA 02116
02116-3741
PORTFOLIO MANAGERS
Barry Dargan
Nicholas Smithie
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2005 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2004 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of peer funds identified by objective criteria suggested by
MFS, (iii) information provided by MFS on the advisory fees of comparable
portfolios of other clients of MFS, including institutional separate account
and other clients, (iv) information as to whether and to what extent applicable
expense waivers, reimbursements or fee "breakpoints" are observed for the Fund,
(v) information regarding MFS' financial results and financial condition,
including MFS' and certain of its affiliates' estimated profitability from
services performed for the Fund and the MFS Funds as a whole, (vi) MFS' views
regarding the outlook for the mutual fund industry and the strategic business
plans of MFS, (vii) descriptions of various functions performed by MFS for the
Funds, such as compliance monitoring and portfolio trading practices, and
(viii) information regarding the overall organization of MFS, including
information about MFS' senior management and other personnel providing
investment advisory, administrative and other services to the Fund and the
other MFS Funds. The comparative performance, fee and expense information
prepared and provided by Lipper Inc. was not independently verified and the
independent Trustees did not independently verify any information provided to
them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2004, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund's
performance was in the 55th percentile relative to the other funds in the
universe for this three-year period (the 1st percentile being the best
performers and the 100th percentile being the worst performers). The total
return performance of the Fund's Class A shares was in the 42nd percentile
for the one-year period and the 71st percentile for the five-year period
ended December 31, 2004 relative to the Lipper performance universe. Because of
the passage of time, these performance results are likely to differ from the
performance results for more recent periods, including those shown elsewhere in
this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings, as
well as during investment review meetings conducted with portfolio management
personnel during the course of the year regarding the Fund's performance. After
reviewing these and related factors, the Trustees concluded, within the context
of their overall conclusions regarding the investment advisory agreement, that
they were satisfied with MFS' responses and efforts relating to investment
performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
whether the Fund was subject to any fee waivers or reductions or expense
limitations. The Trustees also considered that, according to the Lipper data,
the Fund's effective advisory fee rate and total expense ratio were each
approximately at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to breakpoints that reduce the Fund's advisory fee rate on
net assets over $1 billion and $2 billion. Taking into account fee waivers or
reductions or expense limitations, if any, the Trustees concluded that the
existing breakpoints were sufficient to allow the Fund to benefit from
economies of scale as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS.. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, including securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions to pay for research and other similar services
(including MFS' general policy to pay directly for third-party research), and
various other factors. Additionally, the Trustees considered so-called "fall-
out benefits" to MFS such as reputational value derived from serving as
investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2005.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement will be available on or before December 1, 2005
by clicking on the fund's name under "Select a fund" on the MFS Web site
(mfs.com).
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 Web site at http://
www.sec.gov, and copies of this information may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov or by writing the Public Reference Section at the above
address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
In January 2006, shareholders will be mailed a Form 1099-DIV, if applicable,
reporting the federal tax status of all distributions paid during the calendar
year 2005.
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
- --------------------------------------------------------------------------------
Share 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-ANN-12/05 45M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has amended its Code of Ethics to reflect that the
Registrant's Principal Financial Officer and Principal Executive Officer have
changed.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. J. Atwood Ives and Mses. Amy B. Lane and Laurie J. Thomsen, members of the
Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Mr. Ives
and Mses. Lane and Thomsen are "independent" members of the Audit Committee as
defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to certain series of the Registrant and Ernst &
Young LLP ("E&Y") to serve in the same capacity to certain other series of the
Registrant (the series referred to collectively as the "Funds" and singularly
as a "Fund"). The tables below set forth the audit fees billed to the Funds as
well as fees for non-audit services provided to the Funds and/or to the Funds'
investment adviser, Massachusetts Financial Services Company ("MFS") and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Funds ("MFS Related Entities").
For the fiscal years ended October 31, 2005 and 2004, audit fees billed to the
Funds by Deloitte and E&Y were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2005 2004
---- ----
MFS Global Growth Fund $44,680 $40,400
Audit Fees
FEES BILLED BY E&Y : 2005 2004
---- ----
MFS Strategic Income Fund $40,565 $36,950
For the fiscal years ended October 31, 2005 and 2004, fees billed by Deloitte
and E&Y for audit-related, tax and other services provided to the Funds and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY DELOITTE: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
To MFS Global Growth $0 $0 $9,800 $9,600 $0 $0
Fund
TOTAL FEES BILLED BY DELOITTE
TO ABOVE FUND:
To MFS and MFS Related $959,191 $928,350 $62,000 $35,000 $830,675 $32,500
Entities of MFS Global
Growth Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
---- ----
To MFS Global Growth Fund, $1,909,562 $1,041,450
MFS and MFS Related
Entities#
Audit-Related Fees(1) Tax Fees(2) All Other Fees(4)
FEES BILLED BY E&Y: 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
To MFS Strategic Income $0 $0 $10,400 $11,590 $129 $0
Fund
TOTAL FEES BILLED BY E&Y
To above Fund:
To MFS and MFS Related $0 $0 $0 $0 $20,000 $685,399
Entities of MFS Strategic
Income Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2005 2004
---- ----
To MFS Strategic Income $727,928 $38,590
Fund, MFS and MFS Related
Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the
operations and financial reporting of the Funds (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte and E&Y for non-audit services rendered to the Funds and
for non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are reasonably
related to the performance of the audit or review of financial statements, but not reported under "Audit Fees,"
including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters and internal
control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for services related to sales tax
refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales, and
analysis of certain portfolio holdings verses investment styles.
(4) The fees included under "All Other Fees" are fees for products and services provided by E&Y other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for services related to analysis of
fund administrative expenses, compliance program and records management projects.
For periods prior to May 6, 2003, the amounts shown above under "Audit-Related
Fees," "Tax Fees" and "All Other Fees" relate to permitted non-audit services
that would have been subject to pre-approval if the Securities and Exchange
Commission's rules relating to pre-approval of non-audit services had been in
effect.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
Item 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services were provided prior to the
effectiveness of SEC rules requiring pre-approval or because such services did
not relate directly to the operations and financial reporting of the
Registrant) was compatible with maintaining the independence of the independent
registered public accounting firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report
to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 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 Investment Company Act of
1940 (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
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By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: December 22, 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)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: December 22, 2005
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 22, 2005
-----------------
* Print name and title of each signing officer under his or her signature.