UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5262
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MFS SERIES TRUST VIII
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31
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Date of reporting period: April 30, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) STRATEGIC INCOME FUND
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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EXPENSE TABLE 4
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PORTFOLIO OF INVESTMENTS 6
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STATEMENT OF ASSETS AND LIABILITIES 23
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STATEMENT OF OPERATIONS 25
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STATEMENTS OF CHANGES IN NET ASSETS 27
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FINANCIAL HIGHLIGHTS 28
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NOTES TO FINANCIAL STATEMENTS 32
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 44
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PROXY VOTING POLICIES AND INFORMATION 44
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QUARTERLY PORTFOLIO DISCLOSURE 44
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CONTACT INFORMATION BACK COVER
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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.
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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4/30/07
MFO-SEM
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders,
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require diligence and patience, two traits that
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 94.1%
Floating Rate Loans 0.8%
Cash & Other Net Assets 5.1%
FIXED INCOME SECTORS (i)
High Yield Corporates 34.9%
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High Grade Corporates 20.0%
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Emerging Market Bonds 12.2%
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Non U.S. Government Bonds 12.2%
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Commercial Mortgage-Backed Securities 7.2%
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Mortgage-Backed Securities 4.7%
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U.S. Government Agencies 2.4%
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Floating Rate Loans 0.8%
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Asset-Backed Securities 0.6%
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Collateralized Debt Obligations 0.3%
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U.S. Treasury Securities (0.4)%
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CREDIT QUALITY OF BONDS (r)
AAA 20.8%
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AA 3.7%
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A 10.8%
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BBB 20.8%
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BB 17.8%
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B 20.3%
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CCC 5.2%
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Not Rated 0.6%
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PORTFOLIO FACTS
Average Duration (d)(i) 4.7
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Average Life (i)(m) 7.7 yrs.
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Average Maturity (i)(m) 11.6 yrs.
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Average Credit Quality of Rated
Securities (long-term) (a) BBB
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Average Credit Quality of Rated
Securities (short-term) (a) A-1
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COUNTRY WEIGHTINGS (i)
United States 68.1%
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Japan 4.4%
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Russia 3.5%
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Germany 2.7%
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Netherlands 2.4%
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Mexico 2.0%
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Brazil 1.9%
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France 1.8%
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Ireland 1.4%
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Other Countries 11.8%
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(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate
with general changes in interest rates, e.g., if rates rise 1.00%, a bond
with a 5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this presentation, the bond component includes both accrued
interest amounts and the equivalent exposure from any derivative holdings,
if applicable, which may result in the investment in a sector of less than
0%.
(m) 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 or pre-paid 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.
(r) 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 04/30/07.
Percentages are based on net assets as of 04/30/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
November 1, 2006 through April 30, 2007.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period November 1, 2006 through
April 30, 2007.
ACTUAL EXPENSES
The first line for each share class in the following table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value
by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the following table provides
information about hypothetical account values and hypothetical expenses based
on the fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) 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(p)
Share Expense Account Value Account Value 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
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Actual 0.83% $1,000.00 $1,045.60 $4.21
A ------------------------------------------------------------------------
Hypothetical (h) 0.83% $1,000.00 $1,020.68 $4.16
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Actual 1.48% $1,000.00 $1,040.90 $7.49
B ------------------------------------------------------------------------
Hypothetical (h) 1.48% $1,000.00 $1,017.46 $7.40
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Actual 1.48% $1,000.00 $1,040.90 $7.49
C ------------------------------------------------------------------------
Hypothetical (h) 1.48% $1,000.00 $1,017.46 $7.40
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Actual 0.48% $1,000.00 $1,045.90 $2.43
I ------------------------------------------------------------------------
Hypothetical (h) 0.48% $1,000.00 $1,022.41 $2.41
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(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by
your fund. It is categorized by broad-based asset classes.
Bonds - 95.2%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 0.4%
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Bombardier, Inc., 8%, 2014 (n) $ 540,000 $ 567,000
DRS Technologies, Inc., 7.625%, 2018 355,000 371,862
Hawker Beechcraft Acquisition Corp., 9.75%, 2017 (n) 340,000 364,650
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$ 1,303,512
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Airlines - 0.2%
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Continental Airlines, Inc., 7.566%, 2020 $ 746,514 $ 763,310
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Apparel Manufacturers - 0.2%
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Levi Strauss & Co., 12.25%, 2012 $ 435,000 $ 475,238
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Asset Backed & Securitized - 8.0%
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Anthracite Ltd., CDO, 6%, 2037 (z) $ 1,200,000 $ 1,067,437
ARCap REIT, Inc., "H", 6.1%, 2045 (n) 900,000 805,395
Asset Securitization Corp., FRN, 8.1466%, 2029 1,485,000 1,601,025
Asset Securitization Corp., FRN, 8.6366%, 2029 (z) 790,000 848,531
Bayview Financial Revolving Mortgage Loan Trust, FRN,
6.12%, 2040 (z) 674,286 674,284
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011 (z) 1,197,417 1,209,391
Chase Commercial Mortgage Securities Corp., 6.6%, 2029 (z) 3,640,000 3,711,298
Countrywide Asset-Backed Certificates, FRN, 4.575%, 2035 84,840 84,335
Crest Ltd., 7%, 2040 (n) 400,000 380,800
Deutsche Mortgage & Asset Receiving Corp., 7.5%, 2031 1,050,000 1,137,126
DL++++J Commercial Mortgage Corp., 6.04%, 2031 550,000 558,833
Falcon Franchise Loan LLC, 6.5%, 2014 (z) 700,000 621,906
Falcon Franchise Loan LLC, FRN, 3.426%, 2023 (i)(n) 5,313,343 549,028
Falcon Franchise Loan LLC, FRN, 4.1216%, 2025 (i)(z) 3,861,669 543,028
First Union-Lehman Brothers Bank of America, FRN,
0.6911%, 2035 (i) 41,552,784 606,031
First Union-Lehman Brothers Commercial Mortgage Trust,
7%, 2029 (n) 600,000 650,646
GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 1,758,000 1,785,336
JPMorgan Chase Commercial Mortgage Securities Corp., FRN,
5.5421%, 2043 1,789,097 1,782,474
KKR Financial CLO Ltd., "C", FRN, 6.82%, 2021 (z) 523,730 523,730
Morgan Stanley Capital I, Inc., 7.18%, 2030 430,000 433,790
Morgan Stanley Capital I, Inc., FRN, 1.4083%, 2039 (i)(n) 10,951,115 614,289
Preferred Term Securities IV Ltd., CDO, FRN, 7.6%, 2031 (z) 308,692 309,618
Prudential Securities Secured Financing Corp., FRN,
7.3872%, 2013 (z) 875,000 930,813
Salomon Brothers Mortgage Securities, Inc., FRN, 7.2786%, 2032 (z) 1,800,000 1,953,093
Wachovia Bank Commercial Mortgage Trust, FRN, 5.4906%, 2044 1,309,000 1,306,386
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$ 24,688,623
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Automotive - 1.9%
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Ford Motor Credit Co., 7%, 2013 $ 424,000 $ 400,932
Ford Motor Credit Co., 8%, 2016 475,000 464,538
Ford Motor Credit Co. LLC, 9.75%, 2010 1,885,000 1,994,658
Ford Motor Credit Co., FRN, 8.105%, 2012 315,000 310,689
General Motors Corp., 8.375%, 2033 1,212,000 1,095,345
Goodyear Tire & Rubber Co., 9%, 2015 705,000 777,263
Johnson Controls, Inc., 5.25%, 2011 290,000 290,722
TRW Automotive, Inc., 7%, 2014 (n) 515,000 509,850
TRW Automotive, Inc., 7.25%, 2017 (n) 60,000 59,550
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$ 5,903,547
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Broadcasting - 2.6%
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Allbritton Communications Co., 7.75%, 2012 $ 980,000 $ 1,006,950
Clear Channel Communications, Inc., 5.5%, 2014 900,000 798,035
Grupo Televisa S.A., 8.5%, 2032 589,000 747,584
Intelsat Bermuda Ltd., 11.25%, 2016 770,000 878,763
Intelsat Bermuda Ltd., FRN, 8.8719%, 2015 60,000 61,350
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 945,000 1,009,969
ION Media Networks, Inc., FRN, 11.6056%, 2013 (n) 900,000 936,000
Liberty Media Corp., 5.7%, 2013 520,000 496,851
News America, Inc., 6.4%, 2035 890,000 896,931
Umbrella Acquisition, Inc., 9.75%, 2015 (n)(p) 1,020,000 1,023,825
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$ 7,856,258
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Building - 1.6%
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American Standard Cos., Inc., 7.375%, 2008 $ 735,000 $ 743,011
Builders FirstSource, Inc., FRN, 9.61%, 2012 280,000 284,550
C10 Capital SPV Ltd., 6.722% to 2016, FRN to 2049 (n) 258,000 257,644
Hanson PLC, 6.125%, 2016 410,000 422,682
Lafarge S.A., 6.15%, 2011 1,320,000 1,363,332
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 625,000 468,750
NTK Holdings, Inc., 8.5%, 2014 560,000 553,000
Owens Corning, Inc., 6.5%, 2016 (n) 720,000 733,799
Ply Gem Industries, Inc., 9%, 2012 195,000 175,988
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$ 5,002,756
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Business Services - 1.1%
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Iron Mountain, Inc., 8.625%, 2013 $ 490,000 $ 504,700
Iron Mountain, Inc., 7.75%, 2015 380,000 389,500
Nortel Networks Ltd., 10.75%, 2016 (n) 380,000 427,500
SunGard Data Systems, Inc., 10.25%, 2015 845,000 929,500
Xerox Corp., 7.625%, 2013 970,000 1,018,500
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$ 3,269,700
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Cable TV - 1.5%
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CCH I Holdings LLC, 11%, 2015 $ 752,000 $ 799,000
CCH II Holdings LLC, 10.25%, 2010 440,000 468,600
CCO Holdings LLC, 8.75%, 2013 650,000 681,687
CSC Holdings, Inc., 6.75%, 2012 1,065,000 1,063,669
Rogers Cable, Inc., 5.5%, 2014 659,000 652,410
TCI Communications, Inc., 9.8%, 2012 841,000 997,188
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$ 4,662,554
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Chemicals - 2.1%
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Equistar Chemicals LP, 10.625%, 2011 $ 835,000 $ 880,925
Innophos, Inc., 8.875%, 2014 405,000 424,238
Koppers, Inc., 9.875%, 2013 355,000 385,175
Lyondell Chemical Co., 11.125%, 2012 1,340,000 1,427,100
Momentive Performance Materials, Inc., 11.5%, 2016 (n) 695,000 741,044
Mosaic Co., 7.625%, 2016 (n) 570,000 608,475
Nalco Co., 8.875%, 2013 275,000 294,250
Nalco Finance Holdings, Inc., 0% to 2009, 9% to 2014 450,000 396,000
Yara International A.S.A., 5.25%, 2014 (n) 1,300,000 1,257,942
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$ 6,415,149
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Construction - 0.4%
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Lennar Corp., 5.125%, 2010 $ 1,110,000 $ 1,088,191
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Consumer Goods & Services - 2.2%
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Corrections Corp. of America, 6.25%, 2013 $ 340,000 $ 340,000
Fortune Brands, Inc., 5.125%, 2011 1,025,000 1,015,483
Jarden Corp., 7.5%, 2017 505,000 516,994
Kar Holdings, Inc., 10%, 2015 (z) 570,000 590,663
Realogy Corp., 10.5%, 2014 (z) 210,000 210,263
Realogy Corp., 12.375%, 2015 (z) 370,000 370,000
Service Corp. International, 6.75%, 2015 (n) 135,000 136,350
Service Corp. International, 7%, 2017 240,000 238,800
Service Corp. International, 7.625%, 2018 740,000 783,475
Visant Holding Corp., 8.75%, 2013 605,000 636,763
Western Union Co., 5.4%, 2011 1,800,000 1,800,670
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$ 6,639,461
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Containers - 1.7%
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Berry Plastics Holding Corp., 8.875%, 2014 $ 550,000 $ 566,500
Crown Americas LLC, 7.75%, 2015 610,000 645,075
Graham Packaging Co. LP, 9.875%, 2014 310,000 320,850
Greif, Inc., 6.75%, 2017 (n) 1,790,000 1,821,325
Owens-Brockway Glass Container, Inc., 8.875%, 2009 343,000 349,860
Owens-Brockway Glass Container, Inc., 8.25%, 2013 1,460,000 1,540,300
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$ 5,243,910
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Defense Electronics - 0.9%
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BAE Systems Holdings, Inc., 5.2%, 2015 (n) $ 1,297,000 $ 1,272,121
L-3 Communications Corp., 6.125%, 2014 1,575,000 1,551,375
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$ 2,823,496
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Electronics - 0.5%
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Avago Technologies Finance, 11.875%, 2015 $ 160,000 $ 182,800
Freescale Semiconductor, Inc., 10.125%, 2016 (n) 930,000 939,300
NXP B.V./NXP Funding LLC, 7.875%, 2014 (n) 225,000 234,000
NXP B.V./NXP Funding LLC, 9.5%, 2015 (n) 185,000 194,250
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$ 1,550,350
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Emerging Market Quasi-Sovereign - 2.4%
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Banco do Brasil S.A., 7.95%, 2049 (n) $ 153,000 $ 158,814
Gaz Capital S.A., 6.212%, 2016 3,118,000 3,156,975
Gazprom International S.A., 6.51%, 2022 (n) 800,000 823,000
Gazprom OAO, 9.625%, 2013 530,000 631,760
Majapahit Holding B.V., 7.75%, 2016 (n) 107,000 113,286
Pemex Project Funding Master Trust, 8.625%, 2022 1,366,000 1,722,526
Ras Laffan Liquefied Natural Gas Co. Ltd., 5.832%, 2016 (n) 890,000 899,105
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$ 7,505,466
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Emerging Market Sovereign - 3.9%
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Federative Republic of Brazil, 8%, 2018 $ 222,000 $ 251,970
Federative Republic of Brazil, 7.125%, 2037 931,000 1,052,496
Peru Enhanced Pass-Through Trust, 0%, 2018 (z) 250,000 171,250
Republic of Argentina, FRN, 5.475%, 2012 1,953,000 1,865,668
Republic of Bulgaria, 8.25%, 2015 846,000 1,002,933
Republic of Colombia, FRN, 7.16%, 2015 751,000 799,815
Republic of El Salvador, 7.65%, 2035 472,000 545,160
Republic of Indonesia, 6.875%, 2017 (n) 173,000 183,380
Republic of Korea, 5.625%, 2025 795,000 795,999
Republic of Panama, 9.375%, 2029 1,136,000 1,547,800
Republic of Panama, 6.7%, 2036 372,000 393,390
Republic of Philippines, 9.375%, 2017 272,000 335,240
Republic of South Africa, 9.125%, 2009 308,000 330,715
Republic of Venezuela, 7%, 2018 184,000 185,840
United Mexican States, 6.375%, 2013 538,000 568,397
United Mexican States, 6.625%, 2015 69,000 74,796
United Mexican States, 6.75%, 2034 1,795,000 2,001,425
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$ 12,106,274
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Energy - Independent - 1.8%
- ----------------------------------------------------------------------------------------------------------------------
Anadarko Petroleum Corp., 5.95%, 2016 $ 760,000 $ 765,903
Chaparral Energy, Inc., 8.875%, 2017 (n) 450,000 461,250
Chesapeake Energy Corp., 6.375%, 2015 1,610,000 1,612,012
Cimarex Energy Co., 7.125%, 2017 (z) 360,000 363,600
Hilcorp Energy I, 9%, 2016 (n) 360,000 385,200
Hilcorp Energy I LP, 7.75%, 2015 (n) 195,000 195,975
Mariner Energy, Inc., 8%, 2017 120,000 120,750
Newfield Exploration Co., 6.625%, 2014 700,000 703,500
Plains Exploration & Production Co., 7%, 2017 515,000 515,644
Quicksilver Resources, Inc., 7.125%, 2016 575,000 572,125
------------
$ 5,695,959
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Energy - Integrated - 0.3%
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TNK-BP Finance S.A., 7.5%, 2016 (n) $ 878,000 $ 929,583
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Entertainment - 0.5%
- ----------------------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 8%, 2014 $ 220,000 $ 224,950
AMC Entertainment, Inc., 11%, 2016 345,000 395,887
Time Warner, Inc., 6.5%, 2036 110,000 110,083
Turner Broadcasting System, Inc., 8.375%, 2013 653,000 744,426
------------
$ 1,475,346
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Financial Institutions - 1.9%
- ----------------------------------------------------------------------------------------------------------------------
CIT Group, Inc., 6.1% to 2017, FRN to 2067 $ 80,000 $ 77,069
Countrywide Financial Corp., 6.25%, 2016 1,130,000 1,141,538
General Motors Acceptance Corp., 5.85%, 2009 1,179,000 1,165,882
General Motors Acceptance Corp., 6.875%, 2011 375,000 376,260
General Motors Acceptance Corp., 6.75%, 2014 1,436,000 1,416,116
ORIX Corp., 5.48%, 2011 1,580,000 1,589,036
------------
$ 5,765,901
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Food & Beverages - 1.4%
- ----------------------------------------------------------------------------------------------------------------------
ARAMARK Corp., 8.5%, 2015 (n) $ 690,000 $ 721,912
Del Monte Corp., 6.75%, 2015 360,000 360,900
Dole Foods Co., Inc., 8.875%, 2011 585,000 592,313
Michael Foods, Inc., 8%, 2013 495,000 509,850
Miller Brewing Co., 5.5%, 2013 (n) 1,370,000 1,375,306
Tyson Foods, Inc., 6.85%, 2016 660,000 688,050
------------
$ 4,248,331
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Forest & Paper Products - 1.2%
- ----------------------------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8%, 2010 $ 120,000 $ 120,150
Buckeye Technologies, Inc., 8.5%, 2013 1,145,000 1,209,406
Jefferson Smurfit Corp., 8.25%, 2012 304,000 307,420
JSG Funding PLC, 7.75%, 2015 EUR 530,000 770,502
MDP Acquisitions PLC, 9.625%, 2012 $ 72,000 75,780
Millar Western Forest Products Ltd., 7.75%, 2013 455,000 403,813
Stora Enso Oyj, 6.404%, 2016 (n) 690,000 707,620
------------
$ 3,594,691
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Gaming & Lodging - 2.3%
- ----------------------------------------------------------------------------------------------------------------------
Great Canadian Gaming Corp., 7.25%, 2015 (n) $ 495,000 $ 503,044
Harrah's Entertainment, Inc., 5.75%, 2017 1,350,000 1,120,500
Majestic Star Casino LLC, 9.75%, 2011 330,000 316,800
MGM Mirage, Inc., 8.375%, 2011 1,840,000 1,952,700
MGM Mirage, Inc., 6.75%, 2013 365,000 361,806
Scientific Games Corp., 6.25%, 2012 750,000 735,000
Station Casinos, Inc., 6.5%, 2014 735,000 691,819
Wimar Opco LLC, 9.625%, 2014 (n) 445,000 451,675
Wyndham Worldwide Corp., 6%, 2016 (n) 380,000 376,981
Wynn Las Vegas LLC, 6.625%, 2014 560,000 561,400
------------
$ 7,071,725
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Industrial - 0.5%
- ----------------------------------------------------------------------------------------------------------------------
Blount, Inc., 8.875%, 2012 $ 340,000 $ 357,000
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 585,000 612,788
Steelcase, Inc., 6.5%, 2011 618,000 634,837
------------
$ 1,604,625
- ----------------------------------------------------------------------------------------------------------------------
Insurance - 1.2%
- ----------------------------------------------------------------------------------------------------------------------
Allianz AG, 5.5% to 2014, FRN to 2049 EUR 947,000 $ 1,318,197
American International Group, Inc., 6.25%, 2037 $ 150,000 149,302
ING Groep N.V., 5.775% to 2015, FRN to 2049 2,160,000 2,151,919
USI Holdings Corp., 9.75%, 2015 (z) 70,000 71,400
------------
$ 3,690,818
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Insurance - Health - 0.1%
- ----------------------------------------------------------------------------------------------------------------------
Centene Corp., 7.25%, 2014 (n) $ 270,000 $ 274,050
- ----------------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 0.7%
- ----------------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 1,555,000 $ 1,544,567
Chubb Corp., 6.375% to 2017, FRN to 2067 630,000 637,596
------------
$ 2,182,163
- ----------------------------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 4.2%
- ----------------------------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.6%, 2011 CAD 266,000 $ 243,447
Development Bank of Japan, 1.75%, 2010 JPY 125,000,000 1,069,336
Development Bank of Japan, 1.4%, 2012 JPY 184,000,000 1,560,232
Development Bank of Japan, 1.05%, 2023 JPY 313,000,000 2,263,245
Development Bank of Japan, 2.3%, 2026 JPY 80,000,000 687,362
Japan Finance Corp. for Municipal Enterprises, 1.55%, 2012 JPY 182,000,000 1,545,853
Japan Finance Corp. for Municipal Enterprises, 2%, 2016 JPY 340,000,000 2,958,647
KfW Bankengruppe, 1.35%, 2014 JPY 295,000,000 2,460,945
------------
$ 12,789,067
- ----------------------------------------------------------------------------------------------------------------------
International Market Sovereign - 7.9%
- ----------------------------------------------------------------------------------------------------------------------
Commonwealth of Australia, 6%, 2017 AUD 231,000 $ 193,533
Federal Republic of Germany, 5.25%, 2010 EUR 1,278,000 1,801,074
Federal Republic of Germany, 3.75%, 2015 EUR 520,000 691,427
Federal Republic of Germany, 6.25%, 2030 EUR 795,000 1,379,590
Government of Canada, 5.5%, 2009 CAD 530,000 490,597
Government of Canada, 4.5%, 2015 CAD 213,000 196,598
Government of Canada, 8%, 2023 CAD 94,000 121,743
Government of Canada, 5.75%, 2033 CAD 241,000 270,307
Kingdom of Denmark, 4%, 2015 DKK 2,740,000 496,542
Kingdom of Netherlands, 3.75%, 2009 EUR 2,611,000 3,534,620
Kingdom of Netherlands, 3.75%, 2014 EUR 288,000 383,298
Kingdom of Spain, 5.35%, 2011 EUR 1,939,000 2,773,509
Republic of Austria, 4.65%, 2018 EUR 1,393,000 1,970,387
Republic of France, 4.75%, 2012 EUR 412,000 578,536
Republic of France, 5%, 2016 EUR 669,000 970,030
Republic of France, 6%, 2025 EUR 356,000 587,542
Republic of France, 4.75%, 2035 EUR 1,488,000 2,158,855
Republic of Ireland, 3.25%, 2009 EUR 1,111,000 1,491,638
Republic of Ireland, 4.6%, 2016 EUR 1,450,000 2,040,503
United Kingdom Treasury, 8%, 2015 GBP 198,000 474,546
United Kingdom Treasury, 8%, 2021 GBP 217,000 567,170
United Kingdom Treasury, 4.25%, 2036 GBP 547,000 1,047,412
------------
$ 24,219,457
- ----------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.8%
- ----------------------------------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011 $ 635,000 $ 667,544
Case New Holland, Inc., 7.125%, 2014 595,000 624,750
Manitowoc Co., Inc., 10.5%, 2012 562,000 597,125
Terex Corp., 7.375%, 2014 415,000 433,675
------------
$ 2,323,094
- ----------------------------------------------------------------------------------------------------------------------
Major Banks - 1.3%
- ----------------------------------------------------------------------------------------------------------------------
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) $ 962,000 $ 926,994
Royal Bank of Scotland Group PLC, 9.118%, 2049 857,000 946,090
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (n) 1,187,000 1,332,992
Wachovia Capital Trust III, 5.8% to 2011, FRN to 2042 920,000 933,708
------------
$ 4,139,784
- ----------------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 3.8%
- ----------------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc., 7.5%, 2017 (n) $ 270,000 $ 278,100
Cardinal Health, Inc., 5.85%, 2017 1,211,000 1,211,856
CDRV Investors, Inc., 0% to 2010, 9.625% to 2015 440,000 385,000
Cooper Cos., Inc., 7.125%, 2015 (n) 960,000 979,200
DaVita, Inc., 6.625%, 2013 270,000 271,012
DaVita, Inc., 7.25%, 2015 805,000 823,112
HCA, Inc., 6.375%, 2015 785,000 683,931
HCA, Inc., 9.25%, 2016 (n) 1,560,000 1,700,400
HealthSouth Corp., 10.75%, 2016 (n) 565,000 615,850
Hospira, Inc., 5.55%, 2012 450,000 452,457
Hospira, Inc., 6.05%, 2017 410,000 414,220
McKesson Corp., 5.7%, 2017 370,000 369,420
Omnicare, Inc., 6.875%, 2015 675,000 672,469
Owens & Minor, Inc., 6.35%, 2016 710,000 718,172
Psychiatric Solutions, Inc., 7.75%, 2015 565,000 577,713
Tenet Healthcare Corp., 9.25%, 2015 560,000 560,000
U.S. Oncology, Inc., 10.75%, 2014 495,000 553,163
Vanguard Health Holding II, 9%, 2014 330,000 341,963
------------
$ 11,608,038
- ----------------------------------------------------------------------------------------------------------------------
Metals & Mining - 1.9%
- ----------------------------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 950,000 $ 942,875
FMG Finance Ltd., 10.625%, 2016 (n) 625,000 731,250
Freeport-McMoRan Copper & Gold, 8.25%, 2015 455,000 491,969
Freeport-McMoRan Copper & Gold, 8.375%, 2017 760,000 831,250
Peabody Energy Corp., 7.375%, 2016 155,000 163,719
Peabody Energy Corp., "B", 6.875%, 2013 860,000 870,750
PNA Group, Inc., 10.75%, 2016 (n) 320,000 352,000
U.S. Steel Corp., 9.75%, 2010 627,000 658,350
Vale Overseas Ltd., 6.25%, 2017 860,000 881,933
------------
$ 5,924,096
- ----------------------------------------------------------------------------------------------------------------------
Mortgage Backed - 4.6%
- ----------------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2019 - 2035 $ 10,145,203 $ 10,084,591
Fannie Mae, 6.5%, 2031 330,366 340,655
Fannie Mae, 6%, 2034 3,819,737 3,865,850
------------
$ 14,291,096
- ----------------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
- ----------------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.125%, 2016 $ 560,000 $ 567,000
- ----------------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 3.2%
- ----------------------------------------------------------------------------------------------------------------------
Atlas Pipeline Partners LP, 8.125%, 2015 $ 520,000 $ 540,800
CenterPoint Energy Resources Corp., 7.875%, 2013 1,826,000 2,039,279
El Paso Energy Corp., 7.75%, 2013 795,000 836,990
El Paso Performance-Linked Trust, 7.75%, 2011 (n) 1,130,000 1,203,450
Kinder Morgan Energy Partners LP, 6%, 2017 830,000 843,370
Kinder Morgan Finance, 5.35%, 2011 1,516,000 1,505,133
Spectra Energy Capital LLC, 8%, 2019 679,000 781,522
Williams Cos., Inc., 7.125%, 2011 1,140,000 1,197,000
Williams Cos., Inc., 8.75%, 2032 325,000 378,219
Williams Partners LP, 7.25%, 2017 (n) 405,000 428,288
------------
$ 9,754,051
- ----------------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.5%
- ----------------------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 485,000 $ 496,519
Citizens Communications Co., 9.25%, 2011 1,623,000 1,807,616
Citizens Communications Co., 9%, 2031 630,000 691,425
Deutsche Telekom International Finance B.V., 8%, 2010 543,000 587,574
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 465,000 499,875
Qwest Corp., 8.875%, 2012 430,000 475,150
Qwest Corp., 7.5%, 2014 560,000 592,200
Telecom Italia Capital, 4.875%, 2010 248,000 244,860
Telefonica Europe B.V., 7.75%, 2010 1,090,000 1,174,175
Time Warner Telecom Holdings, Inc., 9.25%, 2014 540,000 580,500
Windstream Corp., 8.625%, 2016 425,000 466,438
Windstream Corp., 7%, 2019 (n) 125,000 125,625
------------
$ 7,741,957
- ----------------------------------------------------------------------------------------------------------------------
Oil Services - 0.6%
- ----------------------------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 590,000 $ 585,575
Compagnie Generale de Geophysique-Veritas, 7.75%, 2017 285,000 301,387
Halliburton Co., 5.5%, 2010 873,000 883,915
------------
$ 1,770,877
- ----------------------------------------------------------------------------------------------------------------------
Oils - 0.4%
- ----------------------------------------------------------------------------------------------------------------------
Premcor Refining Group, Inc., 7.5%, 2015 $ 1,290,000 $ 1,331,468
- ----------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 3.6%
- ----------------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN, 7.2549%, 2011 (n) $ 883,500 $ 883,500
Banco BMG S.A., 9.15%, 2016 (n) 659,000 711,720
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 (n) 700,000 742,875
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 841,000 843,523
Bosphorus Financial Services Ltd., FRN, 7.16%, 2012 (z) 800,000 808,074
CenterCredit International B.V., 8.625%, 2014 (n) 666,000 638,528
Chuo Mitsui Trust & Banking Co., 5.506% to 2015, FRN to 2049 (n) 773,000 750,063
DFS Funding Corp., FRN, 7.3549%, 2010 (z) 1,082,000 1,095,525
HSBK Europe B.V., 7.25%, 2017 (z) 588,000 586,530
ICICI Bank Ltd., FRN, 6.375%, 2022 (n) 126,000 125,953
Kazkommerts International B.V., 8%, 2015 360,000 363,600
Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) 660,000 677,914
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 246,000 244,809
RSHB Capital S.A., 7.175%, 2013 (n) 100,000 106,125
Russian Standard Finance S.A., 7.5%, 2010 (n) 168,000 164,220
Russian Standard Finance S.A., 8.625%, 2011 (n) 526,000 531,918
UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 1,120,000 1,157,635
UFJ Finance Aruba AEC, 6.75%, 2013 648,000 698,436
------------
$ 11,130,948
- ----------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.7%
- ----------------------------------------------------------------------------------------------------------------------
Teva Pharmaceutical Finance LLC, 5.55%, 2016 $ 359,000 $ 354,569
Warner Chilcott Corp., 8.75%, 2015 805,000 855,313
Wyeth, 5.45%, 2017 1,100,000 1,100,761
------------
$ 2,310,643
- ----------------------------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.7%
- ----------------------------------------------------------------------------------------------------------------------
Alrosa Finance S.A., 8.875%, 2014 $ 1,770,000 $ 2,045,058
- ----------------------------------------------------------------------------------------------------------------------
Printing & Publishing - 2.3%
- ----------------------------------------------------------------------------------------------------------------------
American Media Operations, Inc., 10.25%, 2009 $ 575,000 $ 541,937
Dex Media East LLC, 9.875%, 2009 1,100,000 1,148,125
Dex Media West LLC, 9.875%, 2013 986,000 1,073,507
Idearc, Inc., 8%, 2016 (n) 2,295,000 2,392,538
MediaNews Group, Inc., 6.875%, 2013 730,000 664,300
Nielsen Finance LLC, 0% to 2011, 12.5% to 2016 (z) 805,000 581,613
R.H. Donnelley Corp., 8.875%, 2016 575,000 623,875
------------
$ 7,025,895
- ----------------------------------------------------------------------------------------------------------------------
Real Estate - 0.6%
- ----------------------------------------------------------------------------------------------------------------------
Simon Property Group LP, REIT, 6.1%, 2016 $ 1,790,000 $ 1,866,687
- ----------------------------------------------------------------------------------------------------------------------
Retailers - 0.8%
- ----------------------------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 700,000 $ 722,750
J.C. Penney Corp., Inc., 6.375%, 2036 440,000 438,556
Jean Coutu Group (PJC), Inc., 7.625%, 2012 295,000 313,166
Limited Brands, Inc., 5.25%, 2014 1,126,000 1,077,552
------------
$ 2,552,024
- ----------------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.4%
- ----------------------------------------------------------------------------------------------------------------------
GSC Holdings Corp., 8%, 2012 $ 500,000 $ 533,125
Michaels Stores, Inc., 11.375%, 2016 (n) 450,000 495,000
Payless ShoeSource, Inc., 8.25%, 2013 75,000 78,938
------------
$ 1,107,063
- ----------------------------------------------------------------------------------------------------------------------
Supermarkets - 0.5%
- ----------------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.95%, 2010 $ 470,000 $ 464,818
Safeway, Inc., 6.5%, 2011 650,000 675,487
SUPERVALU, Inc., 7.5%, 2014 355,000 370,975
------------
$ 1,511,280
- ----------------------------------------------------------------------------------------------------------------------
Supranational - 0.4%
- ----------------------------------------------------------------------------------------------------------------------
Central American Bank, 4.875%, 2012 (n) $ 1,269,000 $ 1,237,157
- ----------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.6%
- ----------------------------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 11%, 2010 $ 744,000 $ 792,431
Centennial Communications Corp., 10%, 2013 110,000 119,075
Centennial Communications Corp., 10.125%, 2013 430,000 464,400
Nextel Communications, Inc., 5.95%, 2014 1,545,000 1,520,991
OJSC Vimpel Communications, 8.25%, 2016 1,248,000 1,339,104
Rural Cellular Corp., 9.875%, 2010 650,000 687,375
------------
$ 4,923,376
- ----------------------------------------------------------------------------------------------------------------------
Telephone Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------------
Embarq Corp., 7.082%, 2016 $ 830,000 $ 857,505
- ----------------------------------------------------------------------------------------------------------------------
Tobacco - 0.3%
- ----------------------------------------------------------------------------------------------------------------------
Reynolds American, Inc., 7.25%, 2012 $ 968,000 $ 1,023,691
- ----------------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 $ 540,000 $ 581,850
Stena AB, 7%, 2016 340,000 334,900
------------
$ 916,750
- ----------------------------------------------------------------------------------------------------------------------
U.S. Government Agencies - 2.4%
- ----------------------------------------------------------------------------------------------------------------------
Small Business Administration, 4.34%, 2024 $ 2,541,629 $ 2,422,740
Small Business Administration, 4.77%, 2024 808,309 793,137
Small Business Administration, 5.18%, 2024 2,020,482 2,029,802
Small Business Administration, 4.625%, 2025 865,866 836,723
Small Business Administration, 4.86%, 2025 626,253 616,419
Small Business Administration, 5.11%, 2025 730,625 730,630
------------
$ 7,429,451
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 1.5%
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 5.375%, 2031 $ 482,000 $ 516,267
U.S. Treasury Bonds, 4.5%, 2036 160,000 151,725
U.S. Treasury Notes, 4.875%, 2008 427,000 426,667
U.S. Treasury Notes, 3.25%, 2008 (f) 1,000,000 980,625
U.S. Treasury Notes, TIPS, 0.875%, 2010 748,571 724,769
U.S. Treasury Notes, TIPS, 3%, 2012 891,709 935,632
U.S. Treasury Notes, TIPS, 1.625%, 2015 967,528 930,301
------------
$ 4,665,986
- ----------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.9%
- ----------------------------------------------------------------------------------------------------------------------
AES Corp., 9.375%, 2010 $ 615,000 $ 674,962
Beaver Valley Funding Corp., 9%, 2017 1,705,000 1,935,823
Edison Mission Energy, 7.75%, 2016 665,000 699,913
Empresa Nacional de Electricidad S.A., 8.35%, 2013 103,000 116,777
Enersis S.A., 7.375%, 2014 1,489,000 1,616,628
FirstEnergy Corp., 6.45%, 2011 857,000 898,835
HQI Transelec Chile S.A., 7.875%, 2011 1,200,000 1,288,212
ISA Capital do Brasil S.A., 7.875%, 2012 (n) 315,000 322,875
ISA Capital do Brasil S.A., 8.8%, 2017 (n) 442,000 476,255
Mirant Americas Generation, Inc., 8.3%, 2011 100,000 105,750
Mirant North American LLC, 7.375%, 2013 585,000 618,638
NRG Energy, Inc., 7.375%, 2016 1,525,000 1,584,094
NRG Energy, Inc., 7.375%, 2017 185,000 191,706
Progress Energy, Inc., 5.625%, 2016 357,000 360,758
Reliant Resources, Inc., 9.25%, 2010 650,000 681,688
Waterford 3 Funding Corp., 8.09%, 2017 535,106 553,604
------------
$ 12,126,518
- ----------------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $285,500,267) $293,021,004
- ----------------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 0.8% (g)(r)
- ----------------------------------------------------------------------------------------------------------------------
Broadcasting - 0.2%
- ----------------------------------------------------------------------------------------------------------------------
Gray Television, Inc.,Term Loan B, 6.56%, 2014 (o) $ 187,847 $ 187,612
Univision Communications, Inc., Term Loan B, 7.61%, 2014 457,832 456,973
------------
$ 644,585
- ----------------------------------------------------------------------------------------------------------------------
Cable TV - 0.2%
- ----------------------------------------------------------------------------------------------------------------------
Charter Communications Operating LLC, Term Loan, 7.35%, 2014 $ 31,369 $ 31,317
CSC Holdings, Inc., Incremental Term Loan, 7.08%, 2013 374,656 375,843
Mediacom Illinois LLC, Term Loan, 6.86%, 2012 337,404 334,100
------------
$ 741,260
- ----------------------------------------------------------------------------------------------------------------------
Chemicals - 0.1%
- ----------------------------------------------------------------------------------------------------------------------
Celanese AG, Term Loan B, 7.10%, 2014 $ 346,284 $ 348,123
- ----------------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.1%
- ----------------------------------------------------------------------------------------------------------------------
Dean Foods Co., Term Loan B, 6.88%, 2014 $ 278,120 $ 278,526
- ----------------------------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
- ----------------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., Credit Linked Deposit, 7.07%, 2014 $ 149,848 $ 150,503
Allied Waste North America, Inc., Term Loan, 7.10%, 2014 320,950 322,354
------------
$ 472,857
- ----------------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $2,488,742) $ 2,485,351
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.0%
- ----------------------------------------------------------------------------------------------------------------------
Real Estate - 0.0%
- ----------------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", REIT, 8.75% (Identified Cost, $74,529) 2,725 $ 68,779
- ----------------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.0%
- ----------------------------------------------------------------------------------------------------------------------
New Center Asset Trust, 5.29%, due 5/01/07, at Amortized Cost and Value (y) $ 9,383,000 $ 9,383,000
- ----------------------------------------------------------------------------------------------------------------------
Rights - 0.0%
- ----------------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.0%
- ----------------------------------------------------------------------------------------------------------------------
Banco Central del Uruguay, Value Recovery Rights, Expiring January 2021
(Identified Cost, $0) 1,250,000 $ 0
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $297,446,538) (k) $304,958,134
- ----------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.0% 3,007,609
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $307,965,743
- ----------------------------------------------------------------------------------------------------------------------
(f) All or a portion of the security has been segregated as collateral for an open futures contract.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end.
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount
shown is the notional principal and does not reflect the cost of the security.
(k) As of April 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the
Board of Trustees, aggregating $281,678,324 and 92.37% of market value. An independent pricing service
provided an evaluated bid for 91.36% of the market value.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be
sold in the ordinary course of business in transactions exempt from registration, normally to qualified
institutional buyers. At period end, the aggregate value of these securities was $44,163,963, representing
14.3% of net assets.
(o) All or a portion of this position has not settled. Upon settlement date, interest rates will be determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of
contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty.
These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest
which are determined periodically by reference to a base lending rate plus a premium.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal
restrictions on resale. These securities generally may be resold in transactions exempt from registration or
to the public if the securities are subsequently registered. Disposal of these securities may involve
time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the
following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Anthracite CDO Ltd., 6%, 2037 5/14/02 $ 809,943 $1,067,437
Asset Securitization Corp., FRN,
8.6366%, 2029 1/25/05 681,838 848,531
Bayview Financial Revolving Mortgage Loan
Trust, FRN, 6.12%, 2040 3/01/06 674,286 674,284
Bosphorus Financial Services Ltd., FRN,
7.16%, 2012 3/08/05 800,000 808,074
Brazilian Merchant Voucher Receivables Ltd.,
5.911%, 2011 3/08/07 1,203,404 1,209,391
Chase Commercial Mortgage Securities Corp.,
6.6%, 2029 6/07/00 2,970,648 3,711,298
Cimarex Energy Co., 7.125%, 2017 4/17/07-4/18/07 363,294 363,600
DFS Funding Corp., FRN, 7.3549%, 2010 6/24/05 1,082,000 1,095,525
Falcon Franchise Loan LLC, 6.5%, 2014 7/15/05 607,195 621,906
Falcon Franchise Loan LLC, FRN,
4.1216%, 2025 1/29/03 733,575 543,028
HSBK Europe B.V., 7.25%, 2017 4/25/07 583,108 586,530
Kar Holdings, Inc., 10%, 2015 4/13/07-4/24/07 582,144 590,663
KKR Financial CLO Ltd., "C", FRN,
6.82%, 2021 4/27/07 523,730 523,730
Nielsen Finance LLC, 0% to 2011,
12.5% to 2016 4/03/07 569,306 581,613
Peru Enhanced Pass-Through Trust,
0%, 2018 12/14/06 160,025 171,250
Preferred Term Securities IV Ltd., CDO, FRN,
7.6%, 2031 9/13/05 314,036 309,618
Prudential Securities Secured Financing
Corp., FRN, 7.3872%, 2013 12/06/04 971,421 930,813
Realogy Corp., 10.5%, 2014 4/05/07 207,451 210,263
Realogy Corp., 12.375%, 2015 4/05/07 363,140 370,000
Salomon Brothers Mortgage Securities, Inc.,
FRN, 7.2786%, 2032 1/07/05 2,067,961 1,953,093
USI Holdings Corp., 9.75%, 2015 4/26/07 70,000 71,400
-----------------------
Total Restricted Securities $17,242,047 5.6%
=======================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 4/30/07
Appreciation and Depreciation in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO SETTLEMENT IN EXCHANGE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE DATE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------
APPRECIATION
- ----------------------------------------------------------------------------------------------------------------------
BUY CAD 857,045 5/23/07 $ 764,290 $ 773,132 $ 8,842
BUY DKK 328,094 6/13/07 60,000 60,199 199
BUY EUR 300,000 6/20/07 409,055 410,326 1,271
SELL GBP 2,454,737 6/20/07 4,920,323 4,906,275 14,048
SELL JPY 23,608,520 5/15/07 200,000 197,878 2,122
BUY MXN 5,253,329 5/09/07 477,536 480,393 2,857
BUY PLN 1,349,934 5/02/07 457,611 486,877 29,266
SELL PLN 1,349,934 5/02/07 487,711 486,877 834
--------
$ 59,439
========
NET
UNREALIZED
CONTRACTS TO SETTLEMENT IN EXCHANGE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE DATE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------
DEPRECIATION
- ----------------------------------------------------------------------------------------------------------------------
BUY AUD 805,802 6/04/07 $ 672,275 $ 668,630 $ (3,645)
SELL AUD 1,941,756 6/04/07 1,593,317 1,611,209 (17,892)
SELL CAD 679,947 5/23/07 588,039 613,374 (25,335)
SELL DKK 3,099,123 6/13/07 559,307 568,627 (9,320)
SELL EUR 5,989,769 5/23/07 - 6/20/07 7,997,246 8,191,655 (194,409)
BUY GBP 1,373,859 6/20/07 2,754,518 2,745,927 (8,591)
BUY PLN 1,349,934 7/02/07 488,602 487,729 (873)
BUY ZAR 2,270,313 5/31/07 324,247 321,393 (2,854)
--------
$(262,919)
=========
At April 30, 2007, forward foreign currency purchases and sales under master netting agreements excluded above amounted
to a net receivable of $131,851 with Merrill Lynch International Bank.
FUTURES CONTRACTS OUTSTANDING AT 4/30/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Short) 17 1,899,750 Jun-07 $27,300
U.S. Treasury Note 5 yr (Long) 29 3,069,016 Jun-07 5,180
U.S. Treasury Note 10 yr (Short) 64 6,933,000 Jun-07 (7,943)
- --------------------------------------------------------------------------------------------------------------
$24,537
=======
SWAP AGREEMENTS AT 4/30/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
9/20/10 USD 1,130,000 Merrill Lynch (1) 0.68% (fixed rate) $ 2,667
International
4/20/12 USD 770,000 Morgan Stanley Capital
Services, Inc. (2) 2.08% (fixed rate) (8,264)
4/20/12 USD 770,000 Morgan Stanley Capital
Services, Inc. (3) 0.98% (fixed rate) (5,029)
3/20/17 USD 880,000 Merrill Lynch (4) 0.37% (fixed rate) 5,684
International
3/20/17 USD 1,330,000 JPMorgan Chase Bank 0.49% (fixed) (5) (10,235)
--------
$(15,177)
========
(1) Fund to receive notional amount upon a defined credit default event by Lennar Corporation, 5.95%, 3/01/13.
(2) Fund to receive notional amount upon a defined credit default event by Argentina Republic, 8.28%, 12/31/33.
(3) Fund to receive notional amount upon a defined credit default event by Republic of Colombia, 10.375%, 1/28/33.
(4) Fund to receive notional amount upon a defined credit default event by Rohm & Haas Co., 7.8%, 7/15/29.
(5) Fund to pay notional amount upon a defined credit default event by Burlington Northern Santa Fe Corp., 6.75%,
7/15/11.
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these
derivative contracts.
UNFUNDED LOAN COMMITMENTS
As of April 30, 2007, the portfolio had unfunded loan commitments of $26,879, which could be extended at the option
of the borrower, pursuant to the following loan agreements:
UNFUNDED UNREALIZED
LOAN APPRECIATION
BORROWER COMMITMENT (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------
Gray Television, Inc., Delayed Draw Term Loan B, 2014 $ 8,490 $(15)
Univision Communications, Delayed Draw Term Loan, 2014 18,389 $(34)
--------------------------------
$26,879 $(49)
================================
At April 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these
contracts.
The following abbreviations are used in this report and are defined:
CDO Collateralized Debt Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported
at period end.
REIT Real Estate Investment Trust
TIPS Treasury Inflation Protected Security
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in U.S.
dollars unless otherwise indicated. A list of abbreviations is shown below:
AUD Australian Dollar
CAD Canadian Dollar
DKK Danish Krone
EUR Euro
GBP British Pound
JPY Japanese Yen
MXN Mexican Peso
PLN Polish Zloty
ZAR South African Rand
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities
comprising the total value of the fund.
ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value (identified cost, $297,446,538) $304,958,134
Receivable for forward foreign currency exchange contracts 59,439
Receivable for forward foreign currency exchange contracts
subject to master netting agreements 131,851
Receivable for investments sold 2,413,167
Receivable for fund shares sold 507,922
Interest and dividends receivable 4,874,866
Receivable from investment adviser 58,706
Unrealized appreciation on credit default swaps 8,351
Other assets 4,757
- ------------------------------------------------------------------------------------------------------
Total assets $313,017,193
- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Payable to custodian $65,903
Distributions payable 355,769
Payable for forward foreign currency exchange contracts 262,919
Payable for daily variation margin on open futures contracts 36,281
Payable for investments purchased 3,238,760
Payable for fund shares reacquired 791,704
Unrealized depreciation on credit default swaps 23,528
Unrealized depreciation on unfunded loan commitments 49
Payable to affiliates
Management fee 13,441
Shareholder servicing costs 89,551
Distribution and service fees 18,407
Administrative services fee 684
Payable for independent trustees' compensation 48,222
Accrued expenses and other liabilities 106,232
- ------------------------------------------------------------------------------------------------------
Total liabilities $5,051,450
- ------------------------------------------------------------------------------------------------------
Net assets $307,965,743
- ------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
NET ASSETS CONSIST OF
- ------------------------------------------------------------------------------------------------------
Paid-in capital $365,952,346
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 7,467,907
Accumulated net realized gain (loss) on investments and foreign
currency transactions (64,424,161)
Accumulated distributions in excess of net investment income (1,030,349)
- ------------------------------------------------------------------------------------------------------
Net assets $307,965,743
- ------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 45,436,119
- ------------------------------------------------------------------------------------------------------
Class A shares
- ------------------------------------------------------------------------------------------------------
Net assets $190,695,707
Shares outstanding 28,021,702
- ------------------------------------------------------------------------------------------------------
Net asset value per share $6.81
- ------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $7.15
- ------------------------------------------------------------------------------------------------------
Class B shares
- ------------------------------------------------------------------------------------------------------
Net assets $69,894,930
Shares outstanding 10,382,058
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.73
- ------------------------------------------------------------------------------------------------------
Class C shares
- ------------------------------------------------------------------------------------------------------
Net assets $32,025,499
Shares outstanding 4,779,493
- ------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.70
- ------------------------------------------------------------------------------------------------------
Class I shares
- ------------------------------------------------------------------------------------------------------
Net assets $15,349,607
Shares outstanding 2,252,866
- ------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.81
- ------------------------------------------------------------------------------------------------------
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
Six months ended 4/30/07 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses. It
also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Income
Interest $10,138,555
Dividends 2,981
Foreign taxes withheld (2,787)
- ------------------------------------------------------------------------------------------------------
Total investment income $10,138,749
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,006,376
Distribution and service fees 852,060
Shareholder servicing costs 228,913
Administrative services fee 31,435
Independent trustees' compensation 8,141
Custodian fee 102,948
Shareholder communications 28,812
Auditing fees 26,226
Legal fees 3,742
Miscellaneous 44,821
- ------------------------------------------------------------------------------------------------------
Total expenses $2,333,474
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (14,367)
Reduction of expenses by investment adviser (737,918)
- ------------------------------------------------------------------------------------------------------
Net expenses $1,581,189
- ------------------------------------------------------------------------------------------------------
Net investment income $8,557,560
- ------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions (s) $2,748,734
Futures contracts (81,460)
Swap transactions 3,250
Foreign currency transactions (1,239,582)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $1,430,942
- ------------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
Change in unrealized appreciation (depreciation)
Investments $2,992,002
Futures contracts 91,587
Swap transactions 3,030
Translation of assets and liabilities in foreign currencies 397,574
Unfunded loan commitments (49)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $3,484,144
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $4,915,086
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $13,472,646
- ------------------------------------------------------------------------------------------------------
(s) Includes proceeds received from a non-recurring cash settlement in the amount of $405,433 from a
litigation settlement against WorldCom, Inc.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
SIX MONTHS ENDED YEAR ENDED
4/30/07 10/31/06
CHANGE IN NET ASSETS (UNAUDITED)
FROM OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
Net investment income $8,557,560 $17,422,229
Net realized gain (loss) on investments and foreign
currency transactions 1,430,942 (263,244)
Net unrealized gain (loss) on investments and foreign
currency translation 3,484,144 3,024,875
- ---------------------------------------------------------------------------------------------------------------
Change in net assets from operations $13,472,646 $20,183,860
- ---------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A $(5,483,971) $(11,497,120)
Class B (1,854,419) (4,796,016)
Class C (771,199) (1,612,849)
Class I (449,736) (848,322)
- ---------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(8,559,325) $(18,754,307)
- ---------------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(13,474,659) $(32,158,271)
- ---------------------------------------------------------------------------------------------------------------
Total change in net assets $(8,561,338) $(30,728,718)
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------------------------
At beginning of period 316,527,081 347,255,799
At end of period (including accumulated distributions in
excess of net investment income of $1,030,349 and
$1,028,584, respectively) $307,965,743 $316,527,081
- ---------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual
period and the past 5 fiscal years (or 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.
SIX MONTHS YEARS ENDED 10/31
ENDED ------------------------------------------------------------------------
CLASS A 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $6.70 $6.67 $6.90 $6.69 $6.24 $6.46
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.37 $0.38 $0.40 $0.38 $0.41
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.11 0.05 (0.20) 0.22 0.46 (0.20)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.30 $0.42 $0.18 $0.62 $0.84 $0.21
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.19) $(0.39) $(0.41) $(0.41) $(0.39) $(0.39)
From paid-in capital -- -- -- -- -- (0.04)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.19) $(0.39) $(0.41) $(0.41) $(0.39) $(0.43)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.81 $6.70 $6.67 $6.90 $6.69 $6.24
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.56(n) 6.59 2.68 9.57 13.81 3.39
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.31(a) 1.33 1.34 1.32 1.32 1.40
Expenses after expense reductions (f) 0.83(a) 0.83 0.83 0.87 0.93 0.94
Net investment income 5.73(a) 5.55 5.51 5.92 5.89 6.59
Portfolio turnover 31 66 63 64 136 147
Net assets at end of period
(000 omitted) $190,696 $194,376 $196,672 $190,165 $190,926 $176,624
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -----------------------------------------------------------------------
CLASS B 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $6.63 $6.59 $6.83 $6.62 $6.18 $6.39
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.32 $0.33 $0.35 $0.34 $0.37
Net realized and unrealized
gain (loss) on investments and
foreign currency 0.10 0.07 (0.21) 0.22 0.45 (0.19)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.27 $0.39 $0.12 $0.57 $0.79 $0.18
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $(0.35) $(0.36) $(0.36) $(0.35) $(0.36)
From paid-in capital -- -- -- -- -- (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared
to shareholders $(0.17) $(0.35) $(0.36) $(0.36) $(0.35) $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.73 $6.63 $6.59 $6.83 $6.62 $6.18
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.09(n) 6.06 1.83 8.90 13.00 2.93
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.96(a) 1.97 1.99 1.97 1.97 2.05
Expenses after expense reductions (f) 1.48(a) 1.48 1.48 1.52 1.58 1.59
Net investment income 5.08(a) 4.90 4.89 5.27 5.25 5.95
Portfolio turnover 31 66 63 64 136 147
Net assets at end of period
(000 omitted) $69,895 $77,822 $105,223 $130,075 $146,903 $146,096
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -------------------------------------------------------------------
CLASS C 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning of period $6.60 $6.56 $6.80 $6.59 $6.15 $6.37
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.32 $0.33 $0.35 $0.33 $0.37
Net realized and unrealized gain (loss)
on investments and foreign currency 0.10 0.07 (0.21) 0.22 0.45 (0.20)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.27 $0.39 $0.12 $0.57 $0.78 $0.17
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $(0.35) $(0.36) $(0.36) $(0.34) $(0.36)
From paid-in capital -- -- -- -- -- (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.17) $(0.35) $(0.36) $(0.36) $(0.34) $(0.39)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.70 $6.60 $6.56 $6.80 $6.59 $6.15
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.09(n) 6.07 1.81 8.91 13.04 2.78
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.96(a) 1.98 1.99 1.98 1.97 2.05
Expenses after expense reductions (f) 1.48(a) 1.48 1.48 1.53 1.58 1.59
Net investment income 5.08(a) 4.90 4.87 5.26 5.23 5.95
Portfolio turnover 31 66 63 64 136 147
Net assets at end of period (000 omitted) $32,025 $29,892 $32,413 $36,537 $40,703 $35,952
- -------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -------------------------------------------------------------------
CLASS I 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value, beginning of period $6.71 $6.67 $6.91 $6.70 $6.25 $6.47
- -------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.20 $0.39 $0.40 $0.42 $0.40 $0.44
Net realized and unrealized gain (loss)
on investments and foreign currency 0.10 0.07 (0.20) 0.22 0.46 (0.21)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.30 $0.46 $0.20 $0.64 $0.86 $0.23
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.20) $(0.42) $(0.44) $(0.43) $(0.41) $(0.41)
From paid-in capital -- -- -- -- -- (0.04)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.20) $(0.42) $(0.44) $(0.43) $(0.41) $(0.45)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.81 $6.71 $6.67 $6.91 $6.70 $6.25
- -------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 4.59(n) 7.11 2.90 9.95 14.19 3.75
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.96(a) 0.98 0.99 0.97 0.97 1.05
Expenses after expense reductions (f) 0.48(a) 0.48 0.48 0.52 0.58 0.59
Net investment income 6.07(a) 5.89 5.86 6.28 6.23 6.93
Portfolio turnover 31 66 63 64 136 147
Net assets at end of period (000 omitted) $15,350 $14,437 $12,947 $11,965 $9,764 $10,029
- -------------------------------------------------------------------------------------------------------------------------------
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.
(a) Annualized.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(t) Total returns do not include any applicable sales charges.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Strategic Income Fund (the fund) is a 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 - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales
reported that day, equity securities are generally valued at the last quoted
daily bid quotation as reported by an independent pricing service on the market
or exchange on which they are primarily traded. For securities held short for
which there were no sales reported for the day, the position is generally
valued at the last quoted daily ask quotation as reported by an independent
pricing service on the market or exchange on which such securities are
primarily traded. Debt instruments (other than short-term instruments),
including restricted debt instruments, are generally valued at an evaluated or
composite bid as reported by an independent pricing service. Short-term
instruments with a maturity at issuance of 60 days or less may be valued at
amortized cost, which approximates market value. Futures contracts are
generally valued at last posted settlement price as reported by an independent
pricing service on the market on which they are primarily traded. Futures
contracts for which there were no trades that day for a particular position are
generally valued at the closing bid quotation as reported by an independent
pricing service on the market on which such futures contracts are primarily
traded. Forward foreign currency contracts are generally valued at the mean of
bid and asked prices for the time period interpolated from rates reported by an
independent pricing service for proximate time periods. Swaps are generally
valued at an evaluated bid as reported by an independent pricing service.
Securities and other assets generally valued on the basis of information from
an independent pricing service may also be valued at a broker-dealer bid
quotation. Values obtained from pricing services can utilize both
dealer-supplied valuations and electronic data processing techniques, which
take into account factors such as institutional-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. The values of foreign securities and
other assets and liabilities expressed in foreign currencies are converted to
U.S. dollars using the mean of bid and asked prices for rates reported by an
independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any
fair valuation) to the adviser pursuant to valuation policies and procedures
approved by the Board. If the adviser determines that reliable market
quotations are not readily available, investments are valued at fair value as
determined in good faith by the adviser in accordance with such procedures
under the oversight of the Board of Trustees. Under the fund's valuation
policies and procedures, market quotations are not considered to be readily
available for many types of debt instruments and certain types of derivatives.
These investments are generally valued at fair value based on information from
independent pricing services. In addition, investments may be valued at fair
value if the adviser determines that an investment's value has been materially
affected by events occurring after the close of the exchange or market on which
the investment is principally traded (such as foreign exchange or market) and
prior to the determination of the fund's net asset value, or after the halting
of trading of a specific security where trading does not resume prior to the
close of the exchange or market on which the security is principally traded.
Events that occur on a frequent basis after foreign markets close (such as
developments in foreign markets and significant movements in the U.S. markets)
and prior to the determination of the fund's net asset value may be deemed to
have a material affect on the value of securities traded in foreign markets.
Accordingly, the fund's foreign securities may often be valued at fair value.
The adviser may rely on independent pricing services or other information (such
as the correlation with price movements of similar securities in the same or
other markets; the type, cost and investment characteristics of the security;
the business and financial condition of the issuer; and trading and other
market data) to assist in determining whether to fair value and at what value
to fair value an investment. The value of an investment for purposes of
calculating the fund's net asset value can differ depending on the source and
method used to determine value. When fair valuation is used, the value of
investments used to determine the fund's net asset value may differ from quoted
or published prices for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management
is evaluating the application of the Statement to the fund, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the fund's financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159
permits entities to elect to measure certain financial assets and liabilities
at fair value. Unrealized gains and losses on items for which the fair value
option has been elected will be reported in earnings at each subsequent
reporting date. FAS 159 is effective for fiscal years beginning after November
15, 2007. Management is evaluating the application of the Statement to the fund
and its impact on the fund's financial statements, if any, has not been
determined.
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 and other funds managed by
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 futures contracts, forward foreign currency
exchange contracts, and swap agreements.
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.
SWAP AGREEMENTS - The fund may enter into swap agreements. A swap is an
exchange of cash payments between the fund and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or
loss in the Statement of Operations. The value of the swap is adjusted daily
and the change in value, including accruals of periodic amounts of interest to
be paid or received, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to
be held in segregated accounts with the fund's custodian in connection with
these agreements. Risk of loss may exceed amounts recognized on the Statement
of Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the fund with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of
an event of default, thereby reducing the credit risk to which such party is
exposed.
The fund holds a credit default swap in which one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The fund may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The fund may invest in loans and loan
participations or other receivables. These investments may include standby
financing commitments, including revolving credit facilities, which obligate
the fund to supply additional cash to the borrower on demand. At April 30,
2007, the portfolio had unfunded loan commitments of $26,879, which could be
extended at the option of the borrower and which are covered by sufficient cash
and/or liquid securities held by the fund. Loan participations involve a risk
of insolvency of the lending bank or other financial intermediary.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising
out of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. The fund earns certain fees in connection with its floating rate
loan purchasing activities. These fees are in addition to interest payments
earned and may include amendment fees, commitment fees, facility fees, consent
fees, and prepayment fees. These fees are recorded on an accrual basis as
income in the accompanying financial statements. Dividends received in cash are
recorded on the ex-dividend date. Certain dividends from foreign securities
will be recorded when the fund is informed of the dividend if such information
is obtained subsequent to the ex-dividend date. Dividend and interest payments
received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds
received from litigation involving portfolio holdings are reflected in the
Statement of Operations in realized gain/loss if the security has been disposed
of by the fund or in unrealized gain/loss if the security is still held by the
fund. Any other proceeds from litigation not related to portfolio holdings are
reflected as other income in the Statement of Operations. The fund was a
participant in litigation against WorldCom, Inc. On December 20, 2006, the fund
received a cash settlement in the amount of $405,433.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended April 30, 2007, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from U.S. generally accepted accounting
principles. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These adjustments have no impact on net assets or net asset value
per share. Temporary differences which arise from recognizing certain items of
income, expense, gain or loss in different periods for financial statement and
tax purposes will reverse at some time in the future. Distributions in excess
of net investment income or net realized gains are temporary overdistributions
for financial statement purposes resulting from differences in the recognition
or classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to expiration of capital loss
carryforwards, amortization and accretion of debt securities, defaulted bonds,
straddle loss deferrals and foreign currency transactions.
The tax character of distributions made during the current period will be
determined at fiscal year end. The tax character of distributions declared to
shareholders is as follows:
10/31/06
Ordinary income (including any short-term
capital gains) $18,754,307
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $298,743,465
----------------------------------------------------------
Gross appreciation 8,456,980
Gross depreciation (2,242,311)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $6,214,669
AS OF 10/31/06
Undistributed ordinary income 930,076
Capital loss carryforwards (64,524,586)
Other temporary differences (2,391,871)
Net unrealized appreciation (depreciation) 3,086,457
The aggregate cost above includes prior fiscal year end tax adjustments.
As of October 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/07 $(11,626,162)
10/31/08 (3,849,634)
10/31/09 (17,590,678)
10/31/10 (28,105,973)
10/31/14 (3,352,139)
--------------------------------------------------
$(64,524,586)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management
has evaluated the application of the Interpretation to the fund, and has
determined that there is no impact resulting from the adoption of this
Interpretation on the fund's financial statements.
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
management and related administrative services and facilities to the fund. The
management fee is computed daily and paid monthly at an annual rate of 0.65% 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 six
months ended April 30, 2007, this waiver amounted to $387,068 and is reflected
as a reduction of total expenses in the Statement of Operations. The management
fee incurred for the six months ended April 30, 2007 was equivalent to an
annual effective rate of 0.40% of the fund's average daily net assets.
The investment adviser has agreed in writing to pay a portion of the fund's
operating expenses, exclusive of 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. This written agreement
will continue through February 29, 2008 unless changed or rescinded by the
fund's Board of Trustees. For the six months ended April 30, 2007, this
reduction amounted to $350,067 and is reflected as a reduction of total
expenses in the Statement of Operations.
DISTRIBUTOR - MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of
MFS, as distributor, received $16,494 for the six months ended April 30, 2007,
as its portion of the initial sales charge on sales of Class A shares of the
fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.35% $335,047
Class B 0.75% 0.25% 1.00% 1.00% 365,109
Class C 0.75% 0.25% 1.00% 1.00% 151,904
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $852,060
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up
to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six months ended
April 30, 2007 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.
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. All contingent
deferred sales charges are paid to MFD and during the six months ended April
30, 2007, were as follows:
AMOUNT
Class A $1,213
Class B 51,107
Class C 1,194
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the six months ended April 30, 2007, the fee was $98,941,
which equated to 0.0639% annually of the fund's average daily net assets. MFSC
also receives payment from the fund for out-of-pocket expenses, sub-accounting
and other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the six months ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $111,522. The fund may also pay shareholder servicing related costs
directly to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund.
Under an administrative services agreement, the fund partially reimburses MFS
the costs incurred to provide these services. The fund is charged a fixed
amount plus a fee based on calendar year average net assets. The fund's annual
fixed amount is $17,500. The administrative services fee incurred for the six
months ended April 30, 2007 was equivalent to an annual effective rate of
0.0203% of the fund's average daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The fund does not pay
compensation directly to trustees or officers of the fund who are also officers
of the investment adviser, all of whom receive remuneration for their services
to the fund from MFS. Certain officers and trustees of the fund are officers or
directors of MFS, MFD, and MFSC.
The fund has an unfunded, defined benefit plan for certain retired independent
trustees which resulted in a pension expense of $1,442. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $970. Both amounts are included in independent
trustees' compensation for the six months ended April 30, 2007. The liability
for deferred retirement benefits payable to certain independent trustees under
both plans amounted to $46,223 at April 30, 2007, and is included in payable
for independent trustees' compensation.
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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended April 30, 2007, the fee paid to Tarantino
LLC was $1,213. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $783, 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.
(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 $-- $6,613,688
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) 96,085,308 109,379,924
- -------------------------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
4/30/07 10/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 3,359,867 $22,744,676 7,712,553 $51,176,438
Class B 833,355 5,570,917 1,928,316 12,657,467
Class C 649,923 4,330,435 877,466 5,731,384
Class I 415,528 2,814,605 598,513 3,977,143
- ----------------------------------------------------------------------------------------------------------
5,258,673 $35,460,633 11,116,848 $73,542,432
Shares issued to shareholders in
reinvestment of distributions
Class A 613,788 $4,154,050 1,324,781 $8,804,098
Class B 181,131 1,212,254 474,951 3,123,983
Class C 77,658 517,471 167,284 1,095,071
Class I 63,476 429,954 124,268 827,038
- ----------------------------------------------------------------------------------------------------------
936,053 $6,313,729 2,091,284 $13,850,190
Shares reacquired
Class A (4,970,811) $(33,595,383) (9,521,478) $(63,205,306)
Class B (2,376,441) (15,888,803) (6,615,439) (43,457,070)
Class C (480,349) (3,197,683) (1,450,661) (9,496,718)
Class I (378,777) (2,567,152) (510,060) (3,391,799)
- ----------------------------------------------------------------------------------------------------------
(8,206,378) $(55,249,021) (18,097,638) $(119,550,893)
Net change
Class A (997,156) $(6,696,657) (484,144) $(3,224,770)
Class B (1,361,955) (9,105,632) (4,212,172) (27,675,620)
Class C 247,232 1,650,223 (405,911) (2,670,263)
Class I 100,227 677,407 212,721 1,412,382
- ----------------------------------------------------------------------------------------------------------
(2,011,652) $(13,474,659) (4,889,506) $(32,158,271)
(6) LINE OF CREDIT
The fund and other funds managed by MFS participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other funds managed by MFS have
established uncommitted borrowing arrangements with certain banks. Borrowings
may be made for temporary financing needs. Interest is charged to each fund,
based on its borrowings, generally at a rate equal to the Federal Reserve funds
rate plus 0.30% for the committed line of credit and 0.35% for the uncommitted
line of credit. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the six months
ended April 30, 2007, the fund's commitment fee and interest expense were $935
and $0, respectively, and are included in miscellaneous expense on the
Statement of Operations.
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement is available 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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. 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.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA 02205-5824
1-800-637-8255
24 hours a day OVERNIGHT MAIL
MFS Service Center, Inc.
ACCOUNT SERVICE AND 500 Boylston Street
LITERATURE Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS(R) send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
SEMIANNUAL REPORT
MFS(R) GLOBAL GROWTH FUND
LETTER FROM THE CEO 1
- --------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- --------------------------------------------------------------
EXPENSE TABLE 3
- --------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 5
- --------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 11
- --------------------------------------------------------------
STATEMENT OF OPERATIONS 14
- --------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 16
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS 17
- --------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 28
- --------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 39
- --------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 39
- --------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 39
- --------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- --------------------------------------------------------------
THE REPORT IS PREPARED FOR THE GENERAL INFORMATION OF SHAREHOLDERS. IT IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
- ------------------------------------------------------------------------
NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
- ------------------------------------------------------------------------
4/30/07
WGF-SEM
LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
The past year has been a great example of why investors should keep their eyes
on the long term.
In 2006 the Dow Jones Industrial Average returned 19%. As of mid-May 2007, it
had returned another 8% and continued to reach new highs. But the Dow's upward
rise has not been without hiccups. After hitting new records in February, the
Dow lost 5.8% between February 20 and March 5, as stocks were sold off around
the globe. As we have said before, markets are volatile, and investors should
make sure they have an investment plan that can carry them through the peaks
and troughs.
If you are focused on a long-term investment strategy, the short-term ups and
downs of the markets should not necessarily dictate portfolio action on your
part. Both the bond and stock markets are cyclical. In our view, investors who
remain committed to a long-term plan are more likely to achieve their financial
goals. We believe you should not let the headlines guide you in your investment
decisions and should be cautious about overreacting to short-term volatility.
In any market environment, we believe individual investors are best served by
following a three-pronged investment strategy of allocating their holdings
across the major asset classes, diversifying within each class, and regularly
rebalancing their portfolios to maintain their desired allocations. Of course,
these strategies cannot guarantee a profit or protect against a loss. Investing
and planning for the long term require diligence and patience, two traits that
in our experience are essential to capitalizing on the many opportunities the
financial markets can offer -- through both up and down economic cycles.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
June 15, 2007
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTOLIO STRUCTURE
Common Stocks 98.9%
Cash & Other Net Assets 1.1%
TOP TEN HOLDINGS
HSBC Holdings PLC 3.2%
------------------------------------------------
LVMH Moet Hennessy Louis Vuitton S.A. 2.1%
------------------------------------------------
TOTAL S.A. 2.1%
------------------------------------------------
Roche Holding AG 1.9%
------------------------------------------------
BHP Billiton Ltd. 1.7%
------------------------------------------------
UBS AG 1.7%
------------------------------------------------
Tesco PLC 1.6%
------------------------------------------------
Intel Corp. 1.5%
------------------------------------------------
WPP Group PLC 1.5%
------------------------------------------------
Nestle S.A. 1.4%
------------------------------------------------
EQUITY SECTORS
Financial Services 19.7%
------------------------------------------------
Technology 16.0%
------------------------------------------------
Health Care 11.5%
------------------------------------------------
Consumer Staples 11.4%
------------------------------------------------
Basic Materials 10.0%
------------------------------------------------
Retailing 7.2%
------------------------------------------------
Energy 6.1%
------------------------------------------------
Utilities & Communications 4.3%
------------------------------------------------
Leisure 4.1%
------------------------------------------------
Industrial Goods & Services 3.1%
------------------------------------------------
Special Products & Services 3.1%
------------------------------------------------
Autos & Housing 1.9%
------------------------------------------------
Transportation 0.5%
------------------------------------------------
COUNTRY WEIGHTINGS
United States 35.1%
------------------------------------------------
United Kingdom 10.7%
------------------------------------------------
Japan 9.5%
------------------------------------------------
France 8.5%
------------------------------------------------
Switzerland 7.1%
------------------------------------------------
Germany 5.5%
------------------------------------------------
Brazil 3.8%
------------------------------------------------
Netherlands 1.9%
------------------------------------------------
Australia 1.7%
------------------------------------------------
Other Countries 16.2%
------------------------------------------------
Percentages are based on net assets as of 4/30/07.
The portfolio is actively managed and current holdings may be different.
EXPENSE TABLE
Fund expenses borne by the shareholders during the period,
November 1, 2006 through April 30, 2007.
As a shareholder of the fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on certain purchase or redemption
payments and redemption fees on certain exchanges and redemptions, and (2)
ongoing costs, including management fees; distribution and service (12b-1)
fees; and other fund expenses. This example is intended to help you understand
your ongoing costs (in dollars) of investing in the fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning
of the period and held for the entire period November 1, 2006 through
April 30, 2007.
ACTUAL EXPENSES
The first line for each share class in the following table provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value
by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first line under the heading entitled
"Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each share class in the following table provides
information about hypothetical account values and hypothetical expenses based
on the fund's actual expense ratio and an assumed rate of return of 5% per
year before expenses, which is not the fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the fund and other
funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the
other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads) 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(p)
Share Expense Account Value Account Value 11/01/06-
Class Ratio 11/01/06 4/30/07 4/30/07
- --------------------------------------------------------------------------------
Actual 1.51% $1,000.00 $1,111.60 $7.91
A -----------------------------------------------------------------------
Hypothetical (h) 1.51% $1,000.00 $1,017.31 $7.55
- --------------------------------------------------------------------------------
Actual 2.26% $1,000.00 $1,107.90 $11.81
B -----------------------------------------------------------------------
Hypothetical (h) 2.26% $1,000.00 $1,013.59 $11.28
- --------------------------------------------------------------------------------
Actual 2.26% $1,000.00 $1,107.90 $11.81
C -----------------------------------------------------------------------
Hypothetical (h) 2.26% $1,000.00 $1,013.59 $11.28
- --------------------------------------------------------------------------------
Actual 1.26% $1,000.00 $1,113.20 $6.60
I -----------------------------------------------------------------------
Hypothetical (h) 1.26% $1,000.00 $1,018.55 $6.31
- --------------------------------------------------------------------------------
Actual 1.76% $1,000.00 $1,110.60 $9.21
R -----------------------------------------------------------------------
Hypothetical (h) 1.76% $1,000.00 $1,016.07 $8.80
- --------------------------------------------------------------------------------
Actual 2.36% $1,000.00 $1,107.10 $12.33
R1 -----------------------------------------------------------------------
Hypothetical (h) 2.36% $1,000.00 $1,013.09 $11.78
- --------------------------------------------------------------------------------
Actual 2.01% $1,000.00 $1,108.80 $10.51
R2 -----------------------------------------------------------------------
Hypothetical (h) 2.01% $1,000.00 $1,014.83 $10.04
- --------------------------------------------------------------------------------
Actual 1.92% $1,000.00 $1,109.60 $10.04
R3 -----------------------------------------------------------------------
Hypothetical (h) 1.92% $1,000.00 $1,015.27 $9.59
- --------------------------------------------------------------------------------
Actual 1.66% $1,000.00 $1,111.10 $8.69
R4 -----------------------------------------------------------------------
Hypothetical (h) 1.66% $1,000.00 $1,016.56 $8.30
- --------------------------------------------------------------------------------
Actual 1.36% $1,000.00 $1,112.60 $7.12
R5 -----------------------------------------------------------------------
Hypothetical (h) 1.36% $1,000.00 $1,018.05 $6.80
- --------------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads) or
redemption fees. If these transaction costs had been included, your costs
would have been higher.
PORTFOLIO OF INVESTMENTS
4/30/07 (unaudited)
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Common Stocks - 98.9%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- -----------------------------------------------------------------------------------------------------
Aerospace - 1.0%
- -----------------------------------------------------------------------------------------------------
United Technologies Corp. 59,720 $ 4,009,051
- -----------------------------------------------------------------------------------------------------
Alcoholic Beverages - 1.8%
- -----------------------------------------------------------------------------------------------------
Companhia de Bebidas das Americas, ADR 73,290 $ 4,281,654
Pernod Ricard S.A. (l) 13,698 2,910,932
------------
$ 7,192,586
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 3.7%
- -----------------------------------------------------------------------------------------------------
Li & Fung Ltd. 1,026,200 $ 3,159,258
LVMH Moet Hennessy Louis Vuitton S.A. (l) 73,870 8,604,056
NIKE, Inc., "B" 61,810 3,329,087
------------
$ 15,092,401
- -----------------------------------------------------------------------------------------------------
Automotive - 1.9%
- -----------------------------------------------------------------------------------------------------
Continental AG 21,931 $ 3,059,813
Toyota Industries Corp. 96,200 4,533,206
------------
$ 7,593,019
- -----------------------------------------------------------------------------------------------------
Biotechnology - 1.8%
- -----------------------------------------------------------------------------------------------------
Amgen, Inc. (a) 61,810 $ 3,964,493
Genzyme Corp. (a) 24,730 1,615,116
Millipore Corp. (a)(l) 21,250 1,568,888
------------
$ 7,148,497
- -----------------------------------------------------------------------------------------------------
Broadcasting - 3.7%
- -----------------------------------------------------------------------------------------------------
Fuji Television Network, Inc. 873 $ 2,044,479
Societe Television Francaise 1 (l) 87,846 3,012,752
Walt Disney Co. 107,950 3,776,091
WPP Group PLC 401,920 5,950,296
------------
$ 14,783,618
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 5.7%
- -----------------------------------------------------------------------------------------------------
Daiwa Securities Group, Inc. 218,000 $ 2,423,469
Franklin Resources, Inc. (l) 28,810 3,783,041
Goldman Sachs Group, Inc. 18,220 3,983,074
Julius Baer Holding Ltd. (l) 64,342 4,482,672
Mellon Financial Corp. (l) 86,880 3,729,758
Morgan Stanley 51,900 4,360,119
------------
$ 22,762,133
- -----------------------------------------------------------------------------------------------------
Business Services - 1.7%
- -----------------------------------------------------------------------------------------------------
Amdocs Ltd. (a) 69,250 $ 2,544,938
Capita Group PLC 152,350 2,139,293
Global Payments, Inc. (l) 54,150 2,056,617
------------
$ 6,740,848
- -----------------------------------------------------------------------------------------------------
Chemicals - 3.0%
- -----------------------------------------------------------------------------------------------------
3M Co. 43,680 $ 3,615,394
Bayer AG (l) 34,580 2,370,342
Monsanto Co. 51,420 3,033,266
Wacker Chemie AG (l) 16,440 2,999,358
------------
$ 12,018,360
- -----------------------------------------------------------------------------------------------------
Computer Software - 2.2%
- -----------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (a) 45,490 $ 1,890,564
Oracle Corp. (a) 178,660 3,358,808
SAP AG 73,470 3,543,051
------------
$ 8,792,423
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.8%
- -----------------------------------------------------------------------------------------------------
Fujitsu Ltd. (l) 504,000 $ 3,164,397
HCL Technologies Ltd. 508,030 4,038,936
------------
$ 7,203,333
- -----------------------------------------------------------------------------------------------------
Conglomerates - 1.4%
- -----------------------------------------------------------------------------------------------------
Siemens AG 27,270 $ 3,294,167
Smiths Group PLC 111,670 2,412,789
------------
$ 5,706,956
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 7.4%
- -----------------------------------------------------------------------------------------------------
Alberto-Culver Co. 127,530 $ 3,097,704
Avon Products, Inc. 71,270 2,836,546
Estee Lauder Cos., Inc., "A" (l) 62,160 3,196,267
Kao Corp. (l) 112,000 3,073,559
Kimberly-Clark de Mexico S.A. de C.V., "A" 813,330 3,606,069
L'Oreal S.A. (l) 25,880 3,102,527
Procter & Gamble Co. 83,640 5,378,888
Reckitt Benckiser PLC 103,010 5,643,480
------------
$ 29,935,040
- -----------------------------------------------------------------------------------------------------
Electrical Equipment - 1.6%
- -----------------------------------------------------------------------------------------------------
OMRON Corp. 85,000 $ 2,274,901
Schneider Electric S.A. (l) 30,607 4,312,964
------------
$ 6,587,865
- -----------------------------------------------------------------------------------------------------
Electronics - 8.9%
- -----------------------------------------------------------------------------------------------------
Applied Materials, Inc. (l) 132,330 $ 2,543,383
ASML Holding N.V. (a) 71,510 1,930,174
Canon, Inc. 59,000 3,296,786
Hirose Electric Co., Ltd. (l) 45,900 5,581,512
Intel Corp. 282,120 6,065,580
Marvell Technology Group Ltd. (a) 112,360 1,812,367
Nippon Electric Glass Co. Ltd. 134,000 2,295,414
Royal Philips Electronics N.V. (l) 138,030 5,646,447
Samsung Electronics Co. Ltd. 5,175 3,169,229
Taiwan Semiconductor Manufacturing Co. Ltd., ADR 341,386 3,598,208
------------
$ 35,939,100
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 1.4%
- -----------------------------------------------------------------------------------------------------
CNOOC Ltd. 3,936,000 $ 3,380,006
Talisman Energy, Inc. 111,130 2,109,797
------------
$ 5,489,803
- -----------------------------------------------------------------------------------------------------
Energy - Integrated - 3.0%
- -----------------------------------------------------------------------------------------------------
Petroleo Brasileiro S.A., ADR 35,840 $ 3,628,083
TOTAL S.A. (l) 112,890 8,337,292
------------
$ 11,965,375
- -----------------------------------------------------------------------------------------------------
Food & Beverages - 2.2%
- -----------------------------------------------------------------------------------------------------
Nestle S.A. 14,599 $ 5,784,047
PepsiCo, Inc. (l) 46,410 3,067,237
------------
$ 8,851,284
- -----------------------------------------------------------------------------------------------------
Food & Drug Stores - 1.6%
- -----------------------------------------------------------------------------------------------------
Tesco PLC 686,509 $ 6,307,352
- -----------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.7%
- -----------------------------------------------------------------------------------------------------
Aracruz Celulose S.A., ADR (l) 51,990 $ 2,858,930
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.4%
- -----------------------------------------------------------------------------------------------------
International Game Technology 44,870 $ 1,711,342
- -----------------------------------------------------------------------------------------------------
Insurance - 1.4%
- -----------------------------------------------------------------------------------------------------
Aflac, Inc. 73,150 $ 3,755,521
Genworth Financial, Inc., "A" 55,450 2,023,371
------------
$ 5,778,892
- -----------------------------------------------------------------------------------------------------
Internet - 0.8%
- -----------------------------------------------------------------------------------------------------
Google, Inc., "A" (a) 6,800 $ 3,205,384
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 0.5%
- -----------------------------------------------------------------------------------------------------
Fanuc Ltd. 21,600 $ 2,112,447
- -----------------------------------------------------------------------------------------------------
Major Banks - 4.2%
- -----------------------------------------------------------------------------------------------------
Chiba Bank Ltd. 257,000 $ 2,124,320
Erste Bank der Oesterreichischen Sparkassen AG 45,420 3,643,816
Standard Chartered PLC 123,690 3,833,656
State Street Corp. 37,760 2,600,531
UniCredito Italiano S.p.A. (l) 458,920 4,705,417
------------
$ 16,907,740
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 3.3%
- -----------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (a)(l) 36,830 $ 1,489,037
Boston Scientific Corp. (a) 164,750 2,543,740
Medtronic, Inc. 65,930 3,489,675
ResMed, Inc. (a)(l) 50,180 2,120,607
Straumann Holding AG (l) 6,310 1,844,145
Synthes, Inc. 14,230 1,862,425
------------
$ 13,349,629
- -----------------------------------------------------------------------------------------------------
Metals & Mining - 2.8%
- -----------------------------------------------------------------------------------------------------
BHP Billiton Ltd. 279,730 $ 6,832,071
Companhia Vale do Rio Doce, ADR 108,030 4,387,098
------------
$ 11,219,169
- -----------------------------------------------------------------------------------------------------
Network & Telecom - 1.5%
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (a) 139,260 $ 3,723,812
NICE Systems Ltd., ADR (a) 58,200 2,133,030
------------
$ 5,856,842
- -----------------------------------------------------------------------------------------------------
Oil Services - 1.7%
- -----------------------------------------------------------------------------------------------------
Dresser-Rand Group, Inc. (a)(l) 84,970 $ 2,711,393
Schlumberger Ltd. (a) 56,530 4,173,610
------------
$ 6,885,003
- -----------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 8.4%
- -----------------------------------------------------------------------------------------------------
ABSA Group Ltd. 187,630 $ 3,856,870
Aeon Credit Service Co. Ltd. 205,100 3,417,333
American Express Co. 77,980 4,731,047
Bank of Cyprus Public Co. Ltd. 146,110 2,300,504
HSBC Holdings PLC 691,191 12,763,013
UBS AG (l) 103,689 6,720,567
------------
$ 33,789,334
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 0.8%
- -----------------------------------------------------------------------------------------------------
EMC Corp. (a) 202,940 $ 3,080,629
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.4%
- -----------------------------------------------------------------------------------------------------
Eli Lilly & Co. 48,820 $ 2,886,727
GlaxoSmithKline PLC 136,570 3,950,677
Hisamitsu Pharmaceutical Co., Inc. 64,800 1,931,769
Johnson & Johnson 77,790 4,995,674
Roche Holding AG 40,860 7,708,154
Teva Pharmaceutical Industries Ltd., ADR 111,370 4,266,585
------------
$ 25,739,586
- -----------------------------------------------------------------------------------------------------
Specialty Chemicals - 3.5%
- -----------------------------------------------------------------------------------------------------
L'Air Liquide S.A., Bearer Shares (l) 15,250 $ 3,781,283
Linde AG (l) 37,190 4,171,068
Praxair, Inc. 56,990 3,678,705
Symrise AG (a)(l) 85,894 2,507,969
------------
$ 14,139,025
- -----------------------------------------------------------------------------------------------------
Specialty Stores - 1.9%
- -----------------------------------------------------------------------------------------------------
Lowe's Cos., Inc. 96,020 $ 2,934,371
PetSmart, Inc. 61,510 2,041,517
Staples, Inc. 102,890 2,551,672
------------
$ 7,527,560
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.9%
- -----------------------------------------------------------------------------------------------------
China Mobile Ltd. 398,000 $ 3,595,061
Orascom Telecom Holding (S.A.E.) 309,693 4,265,429
------------
$ 7,860,490
- -----------------------------------------------------------------------------------------------------
Telephone Services - 1.4%
- -----------------------------------------------------------------------------------------------------
Telenor A.S.A. (l) 191,080 $ 3,574,937
TELUS Corp. 35,850 1,988,830
------------
$ 5,563,767
- -----------------------------------------------------------------------------------------------------
Trucking - 0.5%
- -----------------------------------------------------------------------------------------------------
FedEx Corp. (l) 20,150 $ 2,124,616
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.0%
- -----------------------------------------------------------------------------------------------------
CEZ AS 82,810 $ 4,052,538
- -----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $328,012,016) $397,881,967
- -----------------------------------------------------------------------------------------------------
Short-Term Obligations - 1.3%
- -----------------------------------------------------------------------------------------------------
American Express Credit Corp., 5.29%, due 5/01/07,
at Amortized Cost and Value (y) $ 5,261,000 $ 5,261,000
- -----------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 19.6%
- -----------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio,
at Cost and Net Asset Value 78,798,871 $ 78,798,871
- -----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $412,071,887) $481,941,838
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (19.8)% (79,613,172)
- -----------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $402,328,666
- -----------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(l) All or a portion of this security is on loan.
(y) The rate shown represents an annualized yield at time of purchase.
The following abbreviation is used in this report and is defined:
ADR American Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 4/30/07 (unaudited)
This statement represents your fund's balance sheet, which details the assets and liabilities comprising
the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value, including $75,385,899 of securities
on loan (identified cost, $412,071,887) $481,941,838
Cash 31,659
Foreign currency, at value (identified cost, $70,519) 70,621
Receivable for investments sold 499,074
Receivable for fund shares sold 106,168
Interest and dividends receivable 1,063,294
Other assets 5,771
- -------------------------------------------------------------------------------------------------------
Total assets $483,718,425
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $650,630
Payable for fund shares reacquired 1,472,009
Collateral for securities loaned, at value 78,798,871
Payable to affiliates
Management fee 40,223
Shareholder servicing costs 219,603
Distribution and service fees 18,687
Administrative services fee 878
Retirement plan administration and services fees 70
Payable for independent trustees' compensation 49,992
Accrued expenses and other liabilities 138,796
- -------------------------------------------------------------------------------------------------------
Total liabilities $81,389,759
- -------------------------------------------------------------------------------------------------------
Net assets $402,328,666
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
- -------------------------------------------------------------------------------------------------------
Paid-in capital $376,180,692
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies
(net of $1,790 deferred country tax) 69,867,172
Accumulated net realized gain (loss) on investments and
foreign currency transactions (44,626,176)
Undistributed net investment income 906,978
- -------------------------------------------------------------------------------------------------------
Net assets $402,328,666
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 15,465,765
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $296,333,468
Shares outstanding 11,227,033
Net asset value per share $26.39
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $28.00
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $70,608,603
Shares outstanding 2,843,710
Net asset value and offering price per share $24.83
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $20,366,103
Shares outstanding 828,392
Net asset value and offering price per share $24.59
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $7,707,881
Shares outstanding 286,427
Net asset value, offering price, and redemption price per share $26.91
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,536,309
Shares outstanding 135,142
Net asset value, offering price, and redemption price per share $26.17
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $139,744
Shares outstanding 5,650
Net asset value, offering price, and redemption price per share $24.73
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $288,216
Shares outstanding 11,597
Net asset value, offering price, and redemption price per share $24.85
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) - continued
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,327,575
Shares outstanding 51,041
Net asset value, offering price, and redemption price per share $26.01
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,950,794
Shares outstanding 74,126
Net asset value, offering price, and redemption price per share $26.32
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $69,973
Shares outstanding 2,647
Net asset value, offering price, and redemption price per share $26.43
- -------------------------------------------------------------------------------------------------------
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
Six months ended 4/30/07 (unaudited)
This statement describes how much your fund earned in investment income and accrued in expenses.
It also describes any gains and/or losses generated by fund operations.
NET INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------------
Income
Dividends $5,449,785
Interest 200,278
Other 43,259
Foreign taxes withheld (214,239)
- ------------------------------------------------------------------------------------------------------
Total investment income $5,479,083
- ------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,789,277
Distribution and service fees 989,705
Shareholder servicing costs 386,907
Administrative services fee 39,131
Retirement plan administration and services fees 3,120
Independent trustees' compensation 9,520
Custodian fee 133,765
Shareholder communications 34,613
Auditing fees 27,685
Legal fees 4,331
Miscellaneous 82,662
- ------------------------------------------------------------------------------------------------------
Total expenses $3,500,716
- ------------------------------------------------------------------------------------------------------
Fees paid indirectly (8,284)
Reduction of expenses by investment adviser and distributor (146,453)
- ------------------------------------------------------------------------------------------------------
Net expenses $3,345,979
- ------------------------------------------------------------------------------------------------------
Net investment income $2,133,104
- ------------------------------------------------------------------------------------------------------
Statement of Operations (unaudited) - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- ------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $27,560,822
Foreign currency transactions (52,730)
- ------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $27,508,092
- ------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments (net of $1,790 increase in deferred country tax) $12,570,694
Translation of assets and liabilities in foreign currencies (4,863)
- ------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $12,565,831
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $40,073,923
- ------------------------------------------------------------------------------------------------------
Change in net assets from operations $42,207,027
- ------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
SIX MONTHS ENDED YEAR ENDED
4/30/07 10/31/06
(UNAUDITED)
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $2,133,104 $1,257,590
Net realized gain (loss) on investments and foreign
currency transactions 27,508,092 64,559,569
Net unrealized gain (loss) on investments and foreign
currency translation 12,565,831 6,077,759
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $42,207,027 $71,894,918
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(2,861,072) $--
Class B (164,047) --
Class C (60,897) --
Class I (88,085) --
Class R (27,079) --
Class R1 (526) --
Class R2 (1,478) --
Class R3 (3,363) --
Class R4 (17,370) --
Class R5 (727) --
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(3,224,644) $--
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(37,629,794) $(81,629,537)
- -------------------------------------------------------------------------------------------------------
Total change in net assets $1,352,589 $(9,734,619)
- -------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 400,976,077 410,710,696
At end of period (including undistributed net investment
income of $906,978 and $1,998,518, respectively) $402,328,666 $400,976,077
- -------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years (or 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.
SIX MONTHS YEARS ENDED 10/31
ENDED ----------------------------------------------------------------------------------
CLASS A 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $23.97 $20.10 $17.76 $15.91 $12.73 $14.60
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) (d) $0.16 $0.11 $0.01 $(0.01) $0.04 $(0.01)
Net realized and
unrealized gain
(loss) on investments
and foreign currency 2.50 3.76 2.33 1.86 3.14 (1.86)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations $2.66 $3.87 $2.34 $1.85 $3.18 $(1.87)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment
income $(0.24) $-- $-- $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $26.39 $23.97 $20.10 $17.76 $15.91 $12.73
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%)(r)(s)(t) 11.16(n) 19.25 13.18 11.70(b)(q) 24.90(j) (12.81)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions (f) 1.61(a) 1.61 1.69 1.70 1.69 1.67
Expenses after expense
reductions (f) 1.51(a) 1.51 1.59 1.60 1.59 1.57
Net investment income (loss) 1.25(a) 0.49 0.07 (0.04) 0.30 (0.08)
Portfolio turnover 27 96 92 163 93 130
Net assets at end of
period (000 omitted) $296,333 $290,952 $290,256 $304,348 $306,333 $269,893
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED ------------------------------------------------------------------------------
CLASS B 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $22.46 $18.98 $16.90 $15.25 $12.29 $14.21
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) (d) $0.06 $(0.05) $(0.13) $(0.13) $(0.06) $(0.13)
Net realized and
unrealized gain (loss) on
investments and foreign
currency 2.36 3.53 2.21 1.78 3.02 (1.79)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations $2.42 $3.48 $2.08 $1.65 $2.96 $(1.92)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment
income $(0.05) $-- $-- $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $24.83 $22.46 $18.98 $16.90 $15.25 $12.29
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 10.79(n) 18.34 12.31 10.82(b)(q) 24.08(j) (13.51)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions (f) 2.26(a) 2.26 2.34 2.35 2.34 2.32
Expenses after expense
reductions (f) 2.26(a) 2.26 2.34 2.35 N/A N/A
Net investment income (loss) 0.50(a) (0.26) (0.70) (0.81) (0.47) (0.89)
Portfolio turnover 27 96 92 163 93 130
Net assets at end of period
(000 omitted) $70,609 $75,573 $87,769 $108,750 $129,229 $133,525
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED ----------------------------------------------------------------------------
CLASS C 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $22.26 $18.80 $16.74 $15.11 $12.18 $14.08
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income
(loss) (d) $0.06 $(0.06) $(0.13) $(0.13) $(0.06) $(0.13)
Net realized and unrealized
gain (loss) on investments
and foreign currency 2.34 3.52 2.19 1.76 2.99 (1.77)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
operations $2.40 $3.46 $2.06 $1.63 $2.93 $(1.90)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.07) $-- $-- $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $24.59 $22.26 $18.80 $16.74 $15.11 $12.18
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 10.79(n) 18.40 12.31 10.79(b)(q) 24.06(j) (13.49)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense
reductions (f) 2.26(a) 2.26 2.34 2.35 2.34 2.32
Expenses after expense
reductions (f) 2.26(a) 2.26 2.34 2.35 N/A N/A
Net investment income (loss) 0.49(a) (0.27) (0.69) (0.81) (0.47) (0.91)
Portfolio turnover 27 96 92 163 93 130
Net assets at end of period
(000 omitted) $20,366 $20,450 $20,924 $21,945 $24,777 $24,035
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED --------------------------------------------------------------------
CLASS I 4/30/07 2006 2005 2004 2003 2002
(UNAUDITED)
Net asset value,
beginning of period $24.46 $20.46 $18.04 $16.11 $12.86 $14.71
- -----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.19 $0.17 $0.06 $0.04 $0.07 $0.02
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.56 3.83 2.36 1.89 3.18 (1.87)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.75 $4.00 $2.42 $1.93 $3.25 $(1.85)
- -----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.30) $-- $-- $-- $-- $--
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.91 $24.46 $20.46 $18.04 $16.11 $12.86
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 11.32(n) 19.55 13.41 11.98(b)(q) 25.27(j) (12.64)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.26(a) 1.26 1.34 1.34 1.33 1.32
Expenses after expense reductions (f) 1.26(a) 1.26 1.34 1.34 N/A N/A
Net investment income 1.49(a) 0.74 0.31 0.21 0.53 0.16
Portfolio turnover 27 96 92 163 93 130
Net assets at end of period
(000 omitted) $7,708 $7,368 $7,233 $7,011 $6,249 $5,207
- -----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED ------------------------------------------------------------
CLASS R 4/30/07 2006 2005 2004 2003(i)
(UNAUDITED)
Net asset value, beginning of period $23.73 $19.95 $17.68 $15.87 $12.63
- ----------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.12 $0.06 $(0.03) $(0.02) $0.03
Net realized and unrealized gain (loss) on
investments and foreign currency 2.49 3.72 2.30 1.83 3.21
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.61 $3.78 $2.27 $1.81 $3.24
- ----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.17) $-- $-- $-- $--
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.17 $23.73 $19.95 $17.68 $15.87
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 11.06(n) 18.95 12.84 11.41(b)(q) 25.65(j)(n)
- ----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ----------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.76(a) 1.76 1.85 1.83 1.78(a)
Expenses after expense reductions (f) 1.76(a) 1.76 1.85 1.83 1.78(a)
Net investment income (loss) 0.99(a) 0.28 (0.16) (0.10) 0.21(a)
Portfolio turnover 27 96 92 163 93
Net assets at end of period (000 omitted) $3,536 $3,721 $3,641 $1,194 $385
- ----------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -----------------------------
CLASS R1 4/30/07 2006 2005(i)
(UNAUDITED)
Net asset value, beginning of period $22.42 $18.96 $18.12
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.04 $(0.07) $(0.08)
Net realized and unrealized gain (loss) on investments and
foreign currency 2.36 3.53 0.92(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.40 $3.46 $0.84
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net investment income $(0.09) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.73 $22.42 $18.96
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 10.71(n) 18.25 4.64(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.44(a) 2.45 2.54(a)
Expenses after expense reductions (f) 2.36(a) 2.35 2.52(a)
Net investment income (loss) 0.36(a) (0.35) (0.77)(a)
Portfolio turnover 27 96 92
Net assets at end of period (000 omitted) $140 $127 $104
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED ------------------------------
CLASS R2 4/30/07 2006 2005(i)
(UNAUDITED)
Net asset value, beginning of period $22.54 $18.99 $18.12
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.08 $(0.00)(w) $(0.08)
Net realized and unrealized gain (loss) on investments and
foreign currency 2.36 3.55 0.95(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.44 $3.55 $0.87
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $24.85 $22.54 $18.99
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 10.88(n) 18.69 4.80(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.13(a) 2.16 2.24(a)
Expenses after expense reductions (f) 2.01(a) 2.00 2.20(a)
Net investment income (loss) 0.70(a) (0.02) (0.71)(a)
Portfolio turnover 27 96 92
Net assets at end of period (000 omitted) $288 $246 $213
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -----------------------------------------------
CLASS R3 4/30/07 2006 2005 2004
(UNAUDITED)
Net asset value, beginning of period $23.58 $19.85 $17.63 $15.87
- ---------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.09 $0.03 $(0.06) $(0.07)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.48 3.70 2.28 1.83
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.57 $3.73 $2.22 $1.76
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.01 $23.58 $19.85 $17.63
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 10.96(n) 18.79 12.59 11.09(b)(q)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.99(a) 2.00 2.10 2.08
Expenses after expense reductions (f) 1.92(a) 1.90 2.09 2.08
Net investment income (loss) 0.72(a) 0.15 (0.29) (0.45)
Portfolio turnover 27 96 92 163
Net assets at end of period (000 omitted) $1,328 $619 $466 $239
- ---------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -----------------------------
CLASS R4 4/30/07 2006 2005(i)
(UNAUDITED)
Net asset value, beginning of period $23.91 $20.08 $19.10
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.14 $0.11 $0.02
Net realized and unrealized gain (loss) on investments and
foreign currency 2.50 3.72 0.96(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.64 $3.83 $0.98
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net investment income $(0.23) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.32 $23.91 $20.08
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 11.11(n) 19.07 5.13(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.66(a) 1.64 1.75(a)
Expenses after expense reductions (f) 1.66(a) 1.64 1.75(a)
Net investment income 1.13(a) 0.48 0.20(a)
Portfolio turnover 27 96 92
Net assets at end of period (000 omitted) $1,951 $1,857 $53
- -------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
SIX MONTHS YEARS ENDED 10/31
ENDED -----------------------------
CLASS R5 4/30/07 2006 2005(i)
(UNAUDITED)
Net asset value, beginning of period $24.02 $20.11 $19.10
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.17 $0.14 $0.06
Net realized and unrealized gain (loss) on investments and
foreign currency 2.52 3.77 0.95(g)
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $2.69 $3.91 $1.01
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $-- $--
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $26.43 $24.02 $20.11
- -------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 11.26(n) 19.44 5.29(n)
- -------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.36(a) 1.35 1.45(a)
Expenses after expense reductions (f) 1.36(a) 1.35 1.45(a)
Net investment income 1.37(a) 0.65 0.50(a)
Portfolio turnover 27 96 92
Net assets at end of period (000 omitted) $70 $63 $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.
(a) Annualized
(b) The fund's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund
sales. The non-recurring accrual did not have a material impact on the net asset value per share based on the
shares outstanding on the day the proceeds were recorded.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(g) 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 per share amount of realized and unrealized gains and losses at
such time.
(i) 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.
(j) 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 would have been 0.47%, 0.56%, 0.58%, 0.54%, and 0.55% lower,
respectively.
(n) Not annualized
(q) 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.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be
lower.
(t) Total returns do not include any applicable sales charges.
(w) Per share amount was less than $0.01.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Global Growth Fund (the fund) is a 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, including securities of emerging market issuers.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the effects
of changes in each country's legal, political, and economic environment. The
markets of emerging markets countries are generally more volatile than the
markets of developed countries with more mature economies. All of the risks of
investing in foreign securities previously described are heightened when
investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales reported
that day, equity securities are generally valued at the last quoted daily bid
quotation as reported by an independent pricing service on the market or
exchange on which they are primarily traded. For securities held short for which
there were no sales reported for the day, the position is generally valued at
the last quoted daily ask quotation as reported by an independent pricing
service on the market or exchange on which such securities are primarily traded.
Short-term instruments with a maturity at issuance of 60 days or less may be
valued at amortized cost, which approximates market value. Open-end investment
companies are generally valued at their net asset value per share. Securities
and other assets generally valued on the basis of information from an
independent pricing service may also be valued at a broker-dealer bid quotation.
The values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and asked
prices for rates reported by an independent pricing service.
The Board of Trustees has delegated primary responsibility for determining or
causing to be determined the value of the fund's investments (including any fair
valuation) to the adviser pursuant to valuation policies and procedures approved
by the Board. If the adviser determines that reliable market quotations are not
readily available, investments are valued at fair value as determined in good
faith by the adviser in accordance with such procedures under the oversight of
the Board of Trustees. Under the fund's valuation policies and procedures,
market quotations are not considered to be readily available for many types of
debt instruments and certain types of derivatives. These investments are
generally valued at fair value based on information from independent pricing
services. In addition, investments may be valued at fair value if the adviser
determines that an investment's value has been materially affected by events
occurring after the close of the exchange or market on which the investment is
principally traded (such as foreign exchange or market) and prior to the
determination of the fund's net asset value, or after the halting of trading of
a specific security where trading does not resume prior to the close of the
exchange or market on which the security is principally traded. Events that
occur on a frequent basis after foreign markets close (such as developments in
foreign markets and significant movements in the U.S. markets) and prior to the
determination of the fund's net asset value may be deemed to have a material
affect on the value of securities traded in foreign markets. Accordingly, the
fund's foreign equity securities may often be valued at fair value. The adviser
may rely on independent pricing services or other information (such as the
correlation with price movements of similar securities in the same or other
markets; the type, cost and investment characteristics of the security; the
business and financial condition of the issuer; and trading and other market
data) to assist in determining whether to fair value and at what value to fair
value an investment. The value of an investment for purposes of calculating the
fund's net asset value can differ depending on the source and method used to
determine value. When fair valuation is used, the value of investments used to
determine the fund's net asset value may differ from quoted or published prices
for the same investments.
In September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management is
evaluating the application of the Statement to the fund, and believes the impact
will be limited to expanded disclosures resulting from the adoption of this
Statement in the fund's financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159 (FAS 159) "The Fair Value Option for Financial Assets and Financial
Liabilities - including an amendment of FASB Statement No. 115." FAS 159 permits
entities to elect to measure certain financial assets and liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected will be reported in earnings at each subsequent reporting date. FAS
159 is effective for fiscal years beginning after November 15, 2007. Management
is evaluating the application of the Statement to the fund and its impact on the
fund's financial statements, if any, has not been determined.
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 and other funds managed by 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. Net income from securities lending is included in
interest income on the Statement of Operations. The dividend and interest income
earned on the securities loaned is accounted for in the same manner as other
dividend and interest income.
INDEMNIFICATIONS - Under the fund's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising out
of the performance of their duties to the fund. Additionally, in the normal
course of business, the fund enters into agreements with service providers that
may contain indemnification clauses. The fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the fund that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with U.S. generally accepted accounting principles. 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.
Certain dividends from foreign securities will be recorded when the fund is
informed of the dividend if such information is obtained subsequent to the ex-
dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
The fund may receive proceeds from litigation settlements. Any proceeds received
from litigation involving portfolio holdings are reflected in realized gain/loss
in the Statement of Operations, or in unrealized gain/loss if the security is
still held by the fund. Any other proceeds from litigation not related to
portfolio holdings are reflected as other income in the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the six months ended April 30, 2007, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the fund in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. Income and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from U.S. generally accepted accounting
principles. Certain capital accounts in the financial statements are
periodically adjusted for permanent differences in order to reflect their tax
character. These adjustments have no impact on net assets or net asset value per
share. Temporary differences which arise from recognizing certain items of
income, expense, gain or loss in different periods for financial statement and
tax purposes will reverse at some time in the future. Distributions in excess of
net investment income or net realized gains are temporary overdistributions for
financial statement purposes resulting from differences in the recognition or
classification of income or distributions for financial statement and tax
purposes.
Book/tax differences primarily relate to passive foreign investment companies,
wash sale loss deferrals, foreign currency transactions and foreign taxes.
The tax character of distributions made during the current period will be
determined at fiscal year end.
The fund declared no distributions for the year ended October 31, 2006.
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 4/30/07
Cost of investments $ 412,933,352
----------------------------------------------------------
Gross appreciation 74,529,780
Gross depreciation (5,521,294)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $69,008,486
AS OF 10/31/06
Undistributed ordinary income 2,053,435
Capital loss carryforwards (71,272,611)
Other temporary differences (51,043)
Net unrealized appreciation (depreciation) 56,435,810
The aggregate cost above includes prior fiscal year end tax adjustments.
As of October 31, 2006, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/10 $(58,115,846)
10/31/11 (13,156,765)
----------------------------------------------------------
$(71,272,611)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. On December 22, 2006, the SEC delayed the implementation
of the Interpretation for regulated investment companies for an additional six
months. This Interpretation prescribes a minimum threshold for financial
statement recognition of the benefit of a tax position taken or expected to be
taken in a tax return, and requires certain expanded disclosures. Management has
evaluated the application of the Interpretation to the fund, and has determined
that there is no impact resulting from the adoption of this Interpretation on
the fund's financial statements.
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 management and related administrative services and
facilities to the fund. The management fee is computed daily and paid monthly
at the following annual rates:
First $1 billion of average daily net assets 0.90%
Next $1 billion of average daily net assets 0.75%
Average daily net assets in excess of $2 billion 0.65%
The management fee incurred for the six months ended April 30, 2007 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 $8,813 for the six months ended April 30, 2007, as
its portion of the initial sales charge on sales of Class A shares of the fund.
The Board of Trustees has adopted a distribution plan for certain class shares
pursuant to Rule 12b-1 of the Investment Company Act of 1940.
The fund's distribution plan provides that the fund will pay MFD for services
provided by MFD and financial intermediaries in connection with the
distribution and servicing of certain share classes. One component of the plan
is a distribution fee paid to MFD and another component of the plan is a
service fee paid to MFD. MFD may subsequently pay all, or a portion, of the
distribution and/or service fees to financial intermediaries.
Distribution Fee Plan Table:
TOTAL ANNUAL DISTRIBUTION
DISTRIBUTION SERVICE DISTRIBUTION EFFECTIVE AND SERVICE
FEE RATE FEE RATE PLAN(d) RATE(e) FEE
Class A 0.10% 0.25% 0.35% 0.25% $507,201
Class B 0.75% 0.25% 1.00% 1.00% 366,520
Class C 0.75% 0.25% 1.00% 1.00% 101,253
Class R 0.25% 0.25% 0.50% 0.50% 9,212
Class R1 0.50% 0.25% 0.75% 0.75% 531
Class R2 0.25% 0.25% 0.50% 0.50% 662
Class R3 0.25% 0.25% 0.50% 0.50% 2,074
Class R4 -- 0.25% 0.25% 0.25% 2,252
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $989,705
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up
to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the six months ended
April 30, 2007 based on each class' average daily net assets. 0.10% of the Class A distribution fee is currently
being waived under a written waiver arrangement through February 28, 2008. For the six months ended April 30,
2007, this waiver amounted to $144,915 and is reflected as a reduction of total expenses in the Statement of
Operations.
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. All contingent
deferred sales charges are paid to MFD and during the six months ended April
30, 2007, were as follows:
AMOUNT
Class A $5,656
Class B $27,184
Class C $848
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average daily net assets of
the fund as determined periodically under the supervision of the fund's Board of
Trustees. For the six months ended April 30, 2007, the fee was $126,952, which
equated to 0.0638% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the six months ended April 30, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $226,057. The fund may also pay shareholder servicing related costs
directly to non-related parties.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the fund. Under
an administrative services agreement, the fund partially reimburses MFS the
costs incurred to provide these services. The fund is charged a fixed amount
plus a fee based on calendar year average net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the six months ended April 30, 2007
was equivalent to an annual effective rate of 0.0197% 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 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. MFS may subsequently pay
all, or a portion, of the retirement plan administration and services fee to
affiliated or unaffiliated third parties. For the six months ended April 30,
2007, the fund paid MFS an annual retirement plan administration and services
fee up to the following annual percentage rates of each class' average daily net
assets:
BEGINNING OF ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/1/07 RATE(g) AMOUNT
Class R1 0.45% 0.35% 0.35% $307
Class R2 0.40% 0.25% 0.25% 494
Class R3 0.25% 0.15% 0.15% 935
Class R4 0.15% 0.15% 0.15% 1,351
Class R5 0.10% 0.10% 0.10% 33
- -----------------------------------------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $3,120
(g) Prior to April 1, 2007, MFS had agreed in writing to waive a portion of the retirement plan administration and
services fee equal to 0.10% for Class R1 shares, 0.15% for Class R2 shares, and 0.10% for Class R3 shares. This
agreement was discontinued on March 31, 2007. On April 1, 2007, the annual retirement plan administration and
service fee for Class R1, Class R2 and Class R3 shares was lowered to 0.35%, 0.25%, and 0.15% respectively. For
the six months ended April 30, 2007, the waiver amounted to $536 and is reflected as a reduction of total
expenses in the Statement of Operations.
TRUSTEES' AND OFFICERS' COMPENSATION - The fund pays compensation to
independent trustees in the form of a retainer, attendance fees, and
additional compensation to Board and Committee chairpersons. The fund does not
pay compensation directly to trustees or officers of the fund who are also
officers of the investment adviser, all of whom receive remuneration for their
services to the fund from MFS. Certain officers and trustees of the fund are
officers or directors of MFS, MFD, and MFSC. The fund has an unfunded, defined
benefit plan for certain retired independent trustees which resulted in a
pension expense of $829. The fund also has an unfunded retirement benefit
deferral plan for certain independent trustees which resulted in an expense of
$2,823. Both amounts are included in independent trustees' compensation for
the six months ended April 30, 2007. The liability for deferred retirement
benefits payable to certain independent trustees under both plans amounted to
$48,068 at April 30, 2007, and is included in payable for independent
trustees' compensation.
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. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement. For the six months ended April 30, 2007, the fee paid to Tarantino
LLC was $1,553. MFS has agreed to reimburse the fund for a portion of the
payments made by the funds to Tarantino LLC in the amount of $1,002, 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.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$108,833,557 and $150,292,118, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
SIX MONTHS ENDED YEAR ENDED
4/30/07 10/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 623,304 $15,696,376 1,766,316 $39,375,857
Class B 126,987 2,999,382 442,728 9,297,151
Class C 49,661 1,157,204 89,968 1,882,302
Class I 12,793 327,513 44,205 1,015,969
Class R 18,589 465,489 43,856 970,152
Class R1 3,933 94,223 601 12,629
Class R2 9,512 230,602 2,286 47,881
Class R3 52,307 1,310,546 14,779 323,456
Class R4 103,656 2,614,284 86,591 1,930,001
Class R5 -- -- 4 75
- -----------------------------------------------------------------------------------------------------------
1,000,742 $24,895,619 2,491,334 $54,855,473
Shares issued to shareholders in
reinvestment of distributions
Class A 104,834 $2,600,940 -- $--
Class B 6,688 156,489 -- --
Class C 2,211 51,239 -- --
Class I 3,486 88,085 -- --
Class R 1,100 27,079 -- --
Class R1 23 526 -- --
Class R2 63 1,478 -- --
Class R3 137 3,363 -- --
Class R4 702 17,370 -- --
Class R5 29 727 -- --
- -----------------------------------------------------------------------------------------------------------
119,273 $2,947,296 -- $--
Shares reacquired
Class A (1,640,351) $(41,101,092) (4,070,717) $(90,508,663)
Class B (654,183) (15,509,165) (1,703,399) (35,750,510)
Class C (142,178) (3,322,674) (283,968) (5,884,539)
Class I (31,078) (794,844) (96,540) (2,227,850)
Class R (41,360) (1,030,982) (69,569) (1,528,088)
Class R1 (3,971) (95,480) (397) (8,270)
Class R2 (8,906) (216,278) (2,591) (56,583)
Class R3 (27,665) (685,809) (11,978) (261,148)
Class R4 (107,911) (2,716,385) (11,530) (259,282)
Class R5 -- -- (4) (77)
- -----------------------------------------------------------------------------------------------------------
(2,657,603) $(65,472,709) (6,250,693) $(136,485,010)
Net change
Class A (912,213) $(22,803,776) (2,304,401) $(51,132,806)
Class B (520,508) (12,353,294) (1,260,671) (26,453,359)
Class C (90,306) (2,114,231) (194,000) (4,002,237)
Class I (14,799) (379,246) (52,335) (1,211,881)
Class R (21,671) (538,414) (25,713) (557,936)
Class R1 (15) (731) 204 4,359
Class R2 669 15,802 (305) (8,702)
Class R3 24,779 628,100 2,801 62,308
Class R4 (3,553) (84,731) 75,061 1,670,719
Class R5 29 727 -- (2)
- -----------------------------------------------------------------------------------------------------------
(1,537,588) $(37,629,794) (3,759,359) $(81,629,537)
(6) LINE OF CREDIT
The fund and other funds managed by MFS participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the fund and other funds managed by MFS have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally at a rate equal to the Federal Reserve funds rate plus
0.30% for the committed line of credit and 0.35% for the uncommitted line of
credit. In addition, a commitment fee, based on the average daily, unused
portion of the committed line of credit, is allocated among the participating
funds at the end of each calendar quarter. For the six months ended April 30,
2007, the fund's commitment fee and interest expense were $1,216 and $7,028,
respectively, and are included in miscellaneous expense on the Statement of
Operations.
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
A discussion regarding the Board's most recent review and renewal of the
Fund's investment advisory agreement is available 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
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. 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.
CONTACT US
WEB SITE MAILING ADDRESS
mfs.com MFS Service Center, Inc.
P.O. Box 55824
MFS TALK Boston, MA
1-800-637-8255 02205-5824
24 hours a day
OVERNIGHT MAIL
ACCOUNT SERVICE AND MFS Service Center, Inc.
LITERATURE 500 Boylston Street
Boston, MA 02116-3741
SHAREHOLDERS
1-800-225-2606
8 a.m. to 8 p.m. ET
INVESTMENT PROFESSIONALS
1-800-343-2829
8 a.m. to 8 p.m. ET
RETIREMENT PLAN SERVICES
1-800-637-1255
8 a.m. to 8 p.m. ET
- -------------------------------------------------------------------------------
Go paperless with eDELIVERY: Arrange to have MFS(R) send prospectuses, reports,
and proxies directly to your e-mail inbox. You'll get timely information and
less clutter in your mailbox (not to mention help your fund save printing and
postage costs).
SIGN UP: If your account is registered with us, simply go to mfs.com, log in to
your account via MFS(R) Access, and select the eDelivery sign up options.
If you own your MFS fund shares through a financial institution or a retirement
plan, MFS(R) TALK, MFS Access, and eDelivery may not be available to you.
- -------------------------------------------------------------------------------
M F S(R)
INVESTMENT MANAGEMENT
ITEM 2. CODE OF ETHICS.
The Registrant has not amended any provision in its Code of Ethics (the "Code")
that relates to any element of the Code's definition enumerated in paragraph
(b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments for each series of the Registrant is included as part
of the report to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 407(c)(2)(iv) of Regulation S-K (as required by Item
22(b)(15) of Schedule 14A), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the effectiveness of the registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as conducted within 90 days of
the filing date of this report on Form N-CSR, the registrant's principal
financial officer and principal executive officer have concluded that
those disclosure controls and procedures provide reasonable assurance that
the material information required to be disclosed by the registrant on
this report is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules
and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by the report that have
materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
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.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and the obligations of or arising out of this instrument are not binding upon
any of the Trustees or shareholders individually, but are binding only upon the
assets and property of the respective constituent series of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST VIII
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: June 13, 2007
-------------
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: June 13, 2007
-------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: June 13, 2007
-------------
* Print name and title of each signing officer under his or her signature.