UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5262
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MFS SERIES TRUST VIII
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
Annual report
MFS(R) STRATEGIC INCOME FUND
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 4
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PERFORMANCE SUMMARY 6
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EXPENSE TABLE 9
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PORTFOLIO OF INVESTMENTS 11
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STATEMENT OF ASSETS AND LIABILITIES 30
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STATEMENT OF OPERATIONS 32
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STATEMENTS OF CHANGES IN NET ASSETS 34
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FINANCIAL HIGHLIGHTS 35
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NOTES TO FINANCIAL STATEMENTS 39
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 51
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TRUSTEES AND OFFICERS 52
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 58
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PROXY VOTING POLICIES AND INFORMATION 62
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QUARTERLY PORTFOLIO DISCLOSURE 62
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FEDERAL TAX INFORMATION 62
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MFS(R) PRIVACY NOTICE 63
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CONTACT INFORMATION BACK COVER
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SIPC CONTACT INFORMATION:
You may obtain information about the Securities Investor Protection Corporation
("SIPC"), including the SIPC Brochure, by contacting SIPC either by telephone
(202-371-8300) or by accessing SIPC's website address (www.sipc.org).
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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10/31/07
MFO-ANN
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% and was fairly stable.
This year we have seen a greater level of volatility than has been experienced
in recent years. The Dow hit several new highs but also experienced swift
drops as a global credit crisis swept through markets, spurred by defaults on
U.S. subprime loans and a liquidity crunch. Still, even with this volatility,
the Dow ended the first three quarters of 2007 with a return near 13%.
U.S. Treasury bonds gained ground, especially in the third quarter as investors
sought less risky asset classes. The spreads of many lower quality debt
investments widened.
In 2007 the U.S. dollar fell against the euro, oil prices have hit their highest
levels yet, and gold has spiked to its steepest price in 28 years. Around the
globe, stocks sold off as risk aversion mounted. As we have said before, markets
can be 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. In our view, investors who remain committed to a long-term plan are more
likely to achieve their financial goals.
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)
December 14, 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 92.7%
Floating Rate Loans 1.6%
Preferred Stocks 0.0%(o)
Cash & Other Net Asets 5.7%
FIXED INCOME SECTORS (i)
High Yield Corporates 33.4%
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High Grade Corporates 23.1%
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Non-U.S. Government Bonds 13.2%
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Emerging Market Bonds 12.4%
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Commercial Mortgage-Backed Securities 6.0%
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Mortgage-Backed Securities 4.8%
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Floating Rate Loans 1.6%
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Collateralized Debt Obligations 0.8%
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Asset-Backed Securities 0.6%
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U.S. Government Agencies 0.4%
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U.S. Treasury Securities (2.0)%
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CREDIT QUALITY OF BONDS (r)
AAA 19.5%
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AA 5.8%
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A 10.2%
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BBB 20.3%
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BB 18.7%
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B 19.7%
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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) 4.8
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Average Life (i)(m) 7.7 yrs.
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Average Maturity (i)(m) 11.7 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 65.0%
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Japan 3.6%
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Germany 3.3%
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Russia 3.1%
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France 2.2%
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Netherlands 2.1%
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Canada 2.0%
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United Kingdom 1.8%
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Brazil 1.6%
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Other Countries 15.3%
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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.
(o) Less than 0.1%.
(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 10/31/07.
Percentages are based on net assets as of 10/31/07, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2007, Class A shares of the MFS
Strategic Income Fund provided a total return of 5.41%, at net asset value.
This compares with returns of 5.38%, 6.75%, 8.07%, and 3.94%, respectively,
for the fund's benchmarks, the Lehman Brothers U.S. Aggregate Bond Index, the
Lehman Brothers U.S. High-Yield Corporate Bond Index, the JPMorgan Emerging
Markets Bond Index Global, and the Citigroup World Government Bond Non-Dollar
Hedged Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world. Despite
seemingly robust growth rates during the second and third quarters of 2007,
underlying economic activity in the U.S. remains muted relative to other major
economies. Overall, global economies have seen moderate to strong growth over
the last twelve months as domestic demand improves and world trade accelerates.
With the strong global growth, however, has come increased concern about
rising global inflation, especially as capacity becomes more constrained,
wages rise, and energy and food prices advance. During the reporting period,
global central banks tightened monetary conditions which in turn pushed global
bond yields to their highest levels during this economic expansion.
However, beginning in late July, heightened uncertainty and distress concerning
the subprime mortgage market caused several global credit markets to seize up,
forcing central banks to inject liquidity and to reassess their tightening
biases as sovereign bond yields declined and credit spreads widened. While
credit conditions improved somewhat by late October as the Federal Reserve Board
cut interest rates, the level of market turbulence remains significant.
Increased market volatility has also been exacerbated by U.S. home foreclosures,
falling housing prices, and a weakening trend in the labor market. Despite
increased volatility across all asset classes and the widening in credit
spreads, global equity markets remained elevated, generally having erased losses
incurred earlier in the summer.
DETRACTORS FROM PERFORMANCE
The fund's exposure to the financial sector held back performance as holdings
of some finance companies suffered from the recent turmoil in the subprime
market. Our exposure to the industrial sector was another negative.
Credit quality, particularly holdings of "BBB" rated(s) securities, detracted
from performance as credit spreads widened.
CONTRIBUTORS TO PERFORMANCE
During the reporting period, the fund generated a high level of income which
had a positive impact on performance. The fund's exposure to Euro currency
also contributed to results.
Holdings of some sovereign bonds, particularly those of the Netherlands,
Spain, Germany, and Ireland helped performance.
The fund's higher exposure to the long end of the credit curve also benefited
results and helped offset some of the negative impact that came from the
fund's sector and quality exposure.
Respectfully,
John Addeo James Calmas Robert Persons
Portfolio Manager Portfolio Manager Portfolio Manager
Matthew Ryan Erik Weisman
Portfolio Manager Portfolio Manager
(s) Bonds rated "BBB", "Baa", or higher are considered investment grade; bonds
rated "BB", "Ba", or below are considered non-investment grade. The primary
source for bond quality ratings is Moody's Investors Service. If not
available, ratings by Standard & Poor's are used, else ratings by Fitch,
Inc. For securities which are not rated by any of the three agencies, the
security is considered Not Rated.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific securities
are not recommendations of such securities, and may not be representative of any
MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 10/31/07
The following chart illustrates a representative class of the fund's historical
performance in comparison to its benchmark. Performance results include the
deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including reinvestment of dividends and capital gains
distributions. The performance of other share classes will be greater than or
less than that of the class depicted below. Benchmark comparisons are unmanaged;
do not reflect sales charges, commissions or expenses; and cannot be invested in
directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR
SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN QUOTED. THE PERFORMANCE SHOWN DOES NOT
REFLECT THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS JP Morgan Lehman Citigroup Lehman
Strategic Emerging Brothers World Brothers
Income Markets Bond High-Yield Goverment US Aggregate
Fund Index Corporate Bond Non-Dollar Bond
- Class A Global Bond Index Hedged Index Index
10/97 $ 9.525 $10,000 $10,000 $10,000 $10,000
10/98 9,314 9,014 10,932 11,298 9,951
10/99 10,220 10,919 10,990 11,584 10,383
10/00 10,217 12,905 11,792 12,462 10,215
10/01 10,783 13,616 13,508 13,756 10,199
10/02 11,148 14,515 14,304 14,298 9,644
10/03 12,688 18,554 15,006 14,667 12,900
10/04 13,902 20,928 15,837 15,344 14,489
10/05 14,275 23,133 16,017 16,238 15,082
10/06 15,215 25,782 16,847 16,935 16,639
10/07 16,038 27,863 17,752 17,602 17,762
TOTAL RETURNS THROUGH 10/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
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A 10/29/87 5.41% 7.55% 5.35%
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B 9/07/93 4.57% 6.80% 4.66%
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C 9/01/94 4.56% 6.81% 4.65%
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I 1/08/97 5.46% 7.85% 5.69%
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AVERAGE ANNUAL
Comparative benchmarks
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JPMorgan Emerging Markets Bond Index Global (f) 8.07% 13.93% 10.79%
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Lehman Brothers U.S. Aggregate Bond Index (f) 5.38% 4.41% 5.91%
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Citigroup World Government Bond Non-Dollar
Hedged Index (f) 3.94% 4.25% 5.82%
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Lehman Brothers U.S. High-Yield Corporate
Bond Index (f) 6.75% 12.99% 5.91%
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AVERAGE ANNUAL WITH SALES CHARGE
Share class
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A 0.40% 6.50% 4.84%
With Initial Sales Charge (4.75%)
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B 0.59% 6.49% 4.66%
With CDSC (Declining over six years from 4% to 0%)(x)
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C 3.57% 6.81% 4.65%
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With CDSC (1% for 12 months) (x)
Class I shares do not have a sales charge.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITIONS
Citigroup World Government Bond Non-Dollar Hedged Index - a market
capitalization-weighted index that is designed to represent the currency-
hedged performance of the international developed government bond markets,
excluding the United States.
JPMorgan Emerging Markets Bond Index Global (EMBI Global) - measures the
performance of U.S.-dollar-denominated debt instruments issued by emerging
market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds.
Lehman Brothers U.S. Aggregate Bond Index - measures the U.S. investment
grade, fixed rate bond market, with index components for government and
corporate securities, mortgage pass-through securities, and asset-backed
securities with at least one year to final maturity.
Lehman Brothers U.S. High-Yield Corporate Bond Index - measures the universe
of non-investment grade, fixed rate debt. Eurobonds and debt issues from
countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela,
etc.) are excluded.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
EXPENSE TABLE
Fund Expenses Borne by the Shareholders During the Period, May 1, 2007 through
October 31, 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 (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to help
you understand your ongoing costs (in dollars) of investing in the fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period May 1, 2007 through October 31, 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). 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 5/01/07-
Class Ratio 5/01/07 10/31/07 10/31/07
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Actual 0.83% $1,000.00 $1,008.10 $4.20
A ---------------------------------------------------------------------------
Hypothetical (h) 0.83% $1,000.00 $1,021.02 $4.23
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Actual 1.48% $1,000.00 $1,004.60 $7.48
B ---------------------------------------------------------------------------
Hypothetical (h) 1.48% $1,000.00 $1,017.74 $7.53
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Actual 1.48% $1,000.00 $1,004.50 $7.48
C ---------------------------------------------------------------------------
Hypothetical (h) 1.48% $1,000.00 $1,017.74 $7.53
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Actual 0.48% $1,000.00 $1,008.40 $2.43
I ---------------------------------------------------------------------------
Hypothetical (h) 0.48% $1,000.00 $1,022.79 $2.45
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(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
10/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Bonds - 92.9%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 0.5%
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Bombardier, Inc., 8%, 2014 (n) $ 540,000 $ 561,600
Hawker Beechcraft Acquisition Co. LLC, 9.75%, 2017 (n) 450,000 457,875
Vought Aircraft Industries, Inc., 8%, 2011 505,000 501,844
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$ 1,521,319
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Airlines - 0.2%
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Continental Airlines, Inc., 7.566%, 2020 $ 624,284 $ 602,434
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Asset Backed & Securitized - 7.4%
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Anthracite Ltd., CDO, 6%, 2037 (z) $ 1,200,000 $ 780,094
ARCap REIT, Inc., CDO, "H", 6.1%, 2045 (n) 900,000 450,000
Asset Securitization Corp., FRN, 7.865%, 2026 1,161,341 1,240,956
Asset Securitization Corp., FRN, 8.355%, 2029 (z) 790,000 816,662
Bayview Financial Revolving Mortgage Loan Trust, FRN, 5.618%, 2040 (z) 674,286 674,283
Brazilian Merchant Voucher Receivables Ltd., 5.911%, 2011 (z) 1,071,543 1,063,506
Chase Commercial Mortgage Securities Corp., 6.6%, 2029 (z) 3,640,000 3,721,989
Countrywide Asset-Backed Certificates, FRN, 4.575%, 2035 50,337 49,967
Crest Ltd., CDO, 7%, 2040 400,000 344,460
Deutsche Mortgage & Asset Receiving Corp., FRN, 7.5%, 2031 1,050,000 1,139,096
DLJ Commercial Mortgage Corp., 6.04%, 2031 (z) 550,000 554,165
Falcon Franchise Loan LLC, 6.5%, 2014 (z) 700,000 490,000
Falcon Franchise Loan LLC, FRN, 3.095%, 2023 (i)(n) 5,130,758 466,078
Falcon Franchise Loan LLC, FRN, 3.689%, 2023 (i)(z) 3,755,512 484,236
First Union-Lehman Brothers Bank of America, FRN, 0.491%, 2028 (i) 39,349,771 479,532
First Union-Lehman Brothers Commercial Mortgage Trust, 7%, 2029 (n) 491,125 517,790
GMAC Commercial Mortgage Securities, Inc., FRN, 6.02%, 2033 (z) 1,758,000 1,724,275
JPMorgan Chase Commercial Mortgage Securities Corp., FRN, 5.354%, 2043 1,789,097 1,721,763
KKR Financial CLO Ltd., "C", CDO, FRN, 6.82%, 2021 (n) 523,730 468,215
Morgan Stanley Capital I, Inc., FRN, 1.434%, 2014 (i)(n) 10,951,115 515,469
Prudential Securities Secured Financing Corp., FRN, 7.268%, 2013 (z) 875,000 892,821
Salomon Brothers Mortgage Securities, Inc., FRN, 7.075%, 2012 (z) 1,800,000 1,901,533
------------
$ 20,496,890
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Automotive - 2.0%
- ----------------------------------------------------------------------------------------------------------------
Allison Transmission, Inc., 11%, 2015 (z) $ 495,000 $ 504,281
Ford Motor Credit Co. LLC, 9.75%, 2010 1,885,000 1,877,100
Ford Motor Credit Co. LLC, 7%, 2013 424,000 380,592
Ford Motor Credit Co. LLC, 8%, 2016 475,000 439,752
Ford Motor Credit Co. LLC., FRN, 7.992%, 2012 315,000 291,619
General Motors Corp., 8.375%, 2033 990,000 900,900
Goodyear Tire & Rubber Co., 9%, 2015 303,000 331,406
Johnson Controls, Inc., 5.25%, 2011 290,000 291,258
TRW Automotive, Inc., 7%, 2014 (n) 495,000 482,625
------------
$ 5,499,533
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Broadcasting - 2.3%
- ----------------------------------------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%, 2012 $ 658,000 $ 667,870
CanWest MediaWorks LP, 9.25%, 2015 (n) 310,000 314,650
Clear Channel Communications, Inc., 5.5%, 2014 590,000 469,885
Grupo Televisa S.A., 8.5%, 2032 589,000 739,195
Intelsat Bermuda Ltd., 11.25%, 2016 455,000 489,125
Intelsat Ltd., FRN, 11.409%, 2013 185,000 192,863
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 500,000 507,500
ION Media Networks, Inc., FRN, 11.492%, 2013 (n) 900,000 915,750
LBI Media, Inc., 8.5%, 2017 (n) 300,000 303,000
Liberty Media Corp., 5.7%, 2013 520,000 487,445
News America, Inc., 6.4%, 2035 890,000 884,180
Univision Communications, Inc., 9.75%, 2015 (n)(p) 520,000 509,600
------------
$ 6,481,063
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Brokerage & Asset Managers - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc., 6.5%, 2017 $ 740,000 $ 745,268
Merrill Lynch & Co., Inc., 6.4%, 2017 400,000 403,482
Nuveen Investments, Inc., 10.5%, 2015 (z) 295,000 295,000
------------
$ 1,443,750
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Building - 1.3%
- ----------------------------------------------------------------------------------------------------------------
American Standard Cos., Inc., 7.375%, 2008 $ 735,000 $ 737,377
Lafarge S.A., 6.15%, 2011 1,320,000 1,356,097
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 97,000 63,535
Nortek Holdings, Inc., 8.5%, 2014 480,000 424,800
Owens Corning, Inc., 6.5%, 2016 720,000 697,531
Ply Gem Industries, Inc., 9%, 2012 435,000 354,525
------------
$ 3,633,865
- ----------------------------------------------------------------------------------------------------------------
Business Services - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Nortel Networks Corp., 10.75%, 2016 (n) $ 275,000 $ 286,688
SunGard Data Systems, Inc., 10.25%, 2015 945,000 985,163
------------
$ 1,271,851
- ----------------------------------------------------------------------------------------------------------------
Cable TV - 1.2%
- ----------------------------------------------------------------------------------------------------------------
CCH I Holdings LLC, 11%, 2015 $ 557,000 $ 540,290
CCO Holdings LLC, 8.75%, 2013 650,000 650,000
CSC Holdings, Inc., 6.75%, 2012 1,065,000 1,030,387
TCI Communications, Inc., 9.8%, 2012 841,000 974,043
Videotron Ltee, 6.875%, 2014 270,000 269,325
------------
$ 3,464,045
- ----------------------------------------------------------------------------------------------------------------
Chemicals - 1.6%
- ----------------------------------------------------------------------------------------------------------------
Innophos, Inc., 8.875%, 2014 $ 405,000 $ 408,038
Koppers, Inc., 9.875%, 2013 355,000 375,413
Momentive Performance Materials, Inc., 9.75%, 2014 (z) 450,000 438,750
Momentive Performance Materials, Inc., 11.5%, 2016 (n) 85,000 82,025
Mosaic Co., 7.625%, 2016 (n) 715,000 770,413
Nalco Co., 7.75%, 2011 140,000 142,450
Nalco Co., 8.875%, 2013 595,000 626,238
Nalco Finance Holdings, Inc., 0% to 2009, 9% to 2014 450,000 409,500
Yara International A.S.A., 5.25%, 2014 (n) 1,300,000 1,250,025
------------
$ 4,502,852
- ----------------------------------------------------------------------------------------------------------------
Computer Software - 0.1%
- ----------------------------------------------------------------------------------------------------------------
First Data Corp., 9.875%, 2015 (z) $ 375,000 $ 359,062
- ----------------------------------------------------------------------------------------------------------------
Construction - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Lennar Corp., 5.125%, 2010 $ 1,110,000 $ 1,003,115
Pulte Homes, Inc., 7.875%, 2011 330,000 317,351
------------
$ 1,320,466
- ----------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 2.3%
- ----------------------------------------------------------------------------------------------------------------
ACCO Brands Corp., 7.625%, 2015 $ 340,000 $ 323,000
Corrections Corp. of America, 6.25%, 2013 340,000 337,892
Fortune Brands, Inc., 5.125%, 2011 1,025,000 1,020,053
Jarden Corp., 7.5%, 2017 425,000 403,750
Kar Holdings, Inc., 10%, 2015 (n) 330,000 315,150
Realogy Corp., 10.5%, 2014 (n) 190,000 157,938
Service Corp. International, 6.75%, 2015 135,000 134,663
Service Corp. International, 7%, 2017 435,000 425,213
Service Corp. International, 7.625%, 2018 740,000 758,500
Visant Holding Corp., 8.75%, 2013 605,000 620,125
Western Union Co., 5.4%, 2011 1,800,000 1,800,605
------------
$ 6,296,889
- ----------------------------------------------------------------------------------------------------------------
Containers - 1.7%
- ----------------------------------------------------------------------------------------------------------------
Crown Americas, 7.625%, 2013 $ 175,000 $ 178,062
Crown Americas LLC, 7.75%, 2015 610,000 628,300
Graham Packaging Co. LP, 9.875%, 2014 310,000 306,900
Greif, Inc., 6.75%, 2017 1,790,000 1,776,575
Owens-Brockway Glass Container, Inc., 8.875%, 2009 343,000 345,573
Owens-Brockway Glass Container, Inc., 8.25%, 2013 1,355,000 1,409,200
------------
$ 4,644,610
- ----------------------------------------------------------------------------------------------------------------
Defense Electronics - 0.8%
- ----------------------------------------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 5.2%, 2015 (n) $ 1,297,000 $ 1,246,203
L-3 Communications Corp., 6.125%, 2014 1,120,000 1,108,800
------------
$ 2,355,003
- ----------------------------------------------------------------------------------------------------------------
Electronics - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Avago Technologies Finance, 11.875%, 2015 $ 160,000 $ 179,200
Flextronics International Ltd., 6.25%, 2014 335,000 316,575
Freescale Semiconductor, Inc., 10.125%, 2016 735,000 666,094
Spansion LLC, 11.25%, 2016 (n) 355,000 341,244
------------
$ 1,503,113
- ----------------------------------------------------------------------------------------------------------------
Emerging Market Quasi-Sovereign - 2.1%
- ----------------------------------------------------------------------------------------------------------------
Banco do Brasil S.A., 7.95%, 2049 (n) $ 153,000 $ 157,406
Gazprom International S.A., 6.51%, 2022 (n) 800,000 784,000
Majapahit Holding B.V., 7.25%, 2017 (n) 745,000 738,481
OAO Gazprom, 6.212%, 2016 2,696,000 2,649,359
OAO Gazprom, 7.288%, 2037 (n) 100,000 106,220
Pemex Project Funding Master Trust, 5.75%, 2018 (z) 516,000 520,386
Ras Laffan Liquefied Natural Gas Co. Ltd., 5.832%, 2016 (n) 890,000 892,866
------------
$ 5,848,718
- ----------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 4.3%
- ----------------------------------------------------------------------------------------------------------------
Federative Republic of Brazil, 8%, 2018 $ 222,000 $ 248,640
Republic of Argentina, 7%, 2013 630,420 562,089
Republic of Argentina, FRN, 5.389%, 2012 2,030,000 1,842,675
Republic of Colombia, FRN, 7.33%, 2015 1,146,000 1,203,300
Republic of El Salvador, 7.65%, 2035 472,000 547,520
Republic of Ghana, 8.5%, 2017 (z) 100,000 102,583
Republic of Indonesia, 6.625%, 2037 796,000 783,065
Republic of Panama, 9.375%, 2029 932,000 1,267,520
Republic of Panama, 6.7%, 2036 372,000 390,600
Republic of Peru, 6.55%, 2037 289,000 304,173
Republic of Philippines, 9.375%, 2017 272,000 336,600
Republic of South Africa, 5.875%, 2022 917,000 921,952
Republic of Turkey, 6.75%, 2018 447,000 453,705
Republic of Uruguay, 8%, 2022 535,000 609,900
Republic of Venezuela, 7%, 2018 184,000 168,360
United Mexican States, 6.75%, 2034 1,951,000 2,182,194
------------
$ 11,924,876
- ----------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.9%
- ----------------------------------------------------------------------------------------------------------------
Chaparral Energy, Inc., 8.875%, 2017 (n) $ 450,000 $ 420,750
Chesapeake Energy Corp., 6.375%, 2015 615,000 596,550
Forest Oil Corp., 7.25%, 2019 (n) 290,000 290,000
Hilcorp Energy I LP, 7.75%, 2015 (n) 195,000 191,831
Hilcorp Energy I LP, 9%, 2016 (n) 520,000 539,500
Mariner Energy, Inc., 8%, 2017 360,000 355,500
Newfield Exploration Co., 6.625%, 2014 365,000 358,613
Nexen, Inc., 6.4%, 2037 1,100,000 1,094,478
OPTI Canada, Inc., 8.25%, 2014 (n) 200,000 200,500
Plains Exploration & Production Co., 7%, 2017 830,000 788,500
Quicksilver Resources, Inc., 7.125%, 2016 500,000 492,500
------------
$ 5,328,722
- ----------------------------------------------------------------------------------------------------------------
Energy - Integrated - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Petroleum Co. of Trinidad & Tobago Ltd., 6%, 2022 (n) $ 264,000 $ 264,000
TNK-BP Finance S.A., 7.5%, 2016 (n) 615,000 599,625
------------
$ 863,625
- ----------------------------------------------------------------------------------------------------------------
Entertainment - 0.5%
- ----------------------------------------------------------------------------------------------------------------
AMC Entertainment, Inc., 11%, 2016 $ 435,000 $ 470,887
Time Warner, Inc., 6.5%, 2036 110,000 108,611
Turner Broadcasting System, Inc., 8.375%, 2013 653,000 734,050
------------
$ 1,313,548
- ----------------------------------------------------------------------------------------------------------------
Financial Institutions - 2.5%
- ----------------------------------------------------------------------------------------------------------------
Capmark Financial Group, Inc., 6.3%, 2017 (n) $ 1,050,000 $ 858,690
CIT Group, Inc., 6.1% to 2017, FRN to 2067 80,000 65,435
Countrywide Financial Corp., 6.25%, 2016 1,130,000 899,376
General Motors Acceptance Corp., 5.85%, 2009 1,179,000 1,137,647
General Motors Acceptance Corp., 6.875%, 2011 355,000 327,172
General Motors Acceptance Corp., 6.75%, 2014 621,000 550,264
ILFC E-Capital Trust I, 5.9% to 2010, FRN to 2065 (n) 1,400,000 1,399,530
ORIX Corp., 5.48%, 2011 1,580,000 1,542,960
Residential Capital LLC, 7.125%, 2008 265,000 223,263
Residential Capital LLC, 7.5%, 2012 58,000 42,340
------------
$ 7,046,677
- ----------------------------------------------------------------------------------------------------------------
Food & Beverages - 1.0%
- ----------------------------------------------------------------------------------------------------------------
Del Monte Corp., 6.75%, 2015 $ 360,000 $ 350,100
Michael Foods, Inc., 8%, 2013 495,000 495,000
Miller Brewing Co., 5.5%, 2013 (n) 1,370,000 1,366,278
Tyson Foods, Inc., 6.85%, 2016 660,000 686,454
------------
$ 2,897,832
- ----------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.2%
- ----------------------------------------------------------------------------------------------------------------
CVS Caremark Corp., 5.75%, 2017 $ 680,000 $ 676,507
- ----------------------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.3%
- ----------------------------------------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8%, 2010 $ 104,000 $ 103,480
Buckeye Technologies, Inc., 8.5%, 2013 1,145,000 1,179,350
Canada Paper Corp., 8.625%, 2011 85,000 67,150
Jefferson Smurfit Corp., 8.25%, 2012 304,000 304,000
JSG Funding PLC, 7.75%, 2015 EUR 530,000 766,711
Millar Western Forest Products, Ltd., 7.75%, 2013 $ 510,000 395,250
Stora Enso Oyj, 6.404%, 2016 (n) 690,000 682,675
------------
$ 3,498,616
- ----------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.5%
- ----------------------------------------------------------------------------------------------------------------
Fontainebleau Las Vegas Holdings LLC, 10.25%, 2015 (n) $ 405,000 $ 378,675
Harrah's Entertainment, Inc., 5.75%, 2017 1,245,000 918,188
Isle of Capri Casinos, Inc., 7%, 2014 575,000 510,313
MGM Mirage, Inc., 8.375%, 2011 960,000 1,003,200
MGM Mirage, Inc., 6.75%, 2013 365,000 355,875
MGM Mirage, Inc., 7.5%, 2016 745,000 740,344
Scientific Games Corp., 6.25%, 2012 750,000 720,000
Station Casinos, Inc., 6.5%, 2014 840,000 701,400
Wimar Opco LLC, 9.625%, 2014 (n) 960,000 720,000
Wyndham Worldwide Corp., 6%, 2016 380,000 371,679
Wynn Las Vegas LLC, 6.625%, 2014 560,000 550,200
------------
$ 6,969,874
- ----------------------------------------------------------------------------------------------------------------
Industrial - 0.8%
- ----------------------------------------------------------------------------------------------------------------
Blount, Inc., 8.875%, 2012 $ 730,000 $ 740,950
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 775,000 804,063
Steelcase, Inc., 6.5%, 2011 618,000 635,947
Wesco Distribution, Inc., 7.5%, 2017 70,000 65,450
------------
$ 2,246,410
- ----------------------------------------------------------------------------------------------------------------
Insurance - 1.6%
- ----------------------------------------------------------------------------------------------------------------
Allianz AG, 5.5% to 2014, FRN to 2049 EUR 947,000 $ 1,359,653
American International Group, Inc., 6.25%, 2037 $ 930,000 865,464
ING Groep N.V., 5.775% to 2015, FRN to 2049 2,160,000 2,086,307
------------
$ 4,311,424
- ----------------------------------------------------------------------------------------------------------------
Insurance - Health - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Centene Corp., 7.25%, 2014 $ 270,000 $ 269,325
- ----------------------------------------------------------------------------------------------------------------
Insurance - Property & Casualty - 1.3%
- ----------------------------------------------------------------------------------------------------------------
AXIS Capital Holdings Ltd., 5.75%, 2014 $ 1,555,000 $ 1,539,912
Chubb Corp., 6.375% to 2017, FRN to 2037 630,000 620,160
USI Holdings Corp., 9.75%, 2015 (n) 365,000 322,113
ZFS Finance USA Trust V, FRN, 6.5%, 2037 (n) 1,080,000 1,039,395
------------
$ 3,521,580
- ----------------------------------------------------------------------------------------------------------------
International Market Quasi-Sovereign - 4.3%
- ----------------------------------------------------------------------------------------------------------------
Canada Housing Trust, 4.6%, 2011 CAD 266,000 $ 282,818
Development Bank of Japan, 1.75%, 2010 JPY 125,000,000 1,107,259
Development Bank of Japan, 1.4%, 2012 JPY 184,000,000 1,611,841
Development Bank of Japan, 1.05%, 2023 JPY 199,000,000 1,500,996
Development Bank of Japan, 2.3%, 2026 JPY 80,000,000 704,343
Eksportfinans A.S.A., 1.6%, 2014 JPY 107,000,000 940,917
Japan Finance Corp. for Municipal Enterprises, 2%, 2016 JPY 270,000,000 2,437,418
KfW Bankengruppe, 1.35%, 2014 JPY 295,000,000 2,571,333
KfW Bankengruppe, 2.05%, 2026 JPY 90,000,000 759,993
------------
$ 11,916,918
- ----------------------------------------------------------------------------------------------------------------
International Market Sovereign - 8.7%
- ----------------------------------------------------------------------------------------------------------------
Federal Republic of Germany, 5.25%, 2010 EUR 1,278,000 $ 1,904,890
Federal Republic of Germany, 3.75%, 2015 EUR 337,000 475,304
Federal Republic of Germany, 6.25%, 2030 EUR 795,000 1,425,564
Government of Canada, 5.5%, 2009 CAD 568,000 612,299
Government of Canada, 4.5%, 2015 CAD 450,000 482,708
Government of Canada, 5.75%, 2033 CAD 157,000 200,482
Kingdom of Belgium, 5.5%, 2017 EUR 561,000 886,049
Kingdom of Denmark, 4%, 2015 DKK 2,740,000 523,142
Kingdom of Netherlands, 3.75%, 2009 EUR 1,682,000 2,423,185
Kingdom of Netherlands, 3.75%, 2014 EUR 288,000 406,621
Kingdom of Spain, 5.35%, 2011 EUR 1,939,000 2,929,776
Kingdom of Sweden, 4.5%, 2015 SEK 1,650,000 263,858
Republic of Austria, 4.65%, 2018 EUR 1,393,000 2,068,138
Republic of France, 4.75%, 2012 EUR 412,000 612,100
Republic of France, 5%, 2016 EUR 669,000 1,019,029
Republic of France, 6%, 2025 EUR 356,000 609,448
Republic of France, 4.75%, 2035 EUR 1,488,000 2,218,892
Republic of Ireland, 4.6%, 2016 EUR 1,450,000 2,145,278
United Kingdom Treasury, 8%, 2015 GBP 528,000 1,316,717
United Kingdom Treasury, 8%, 2021 GBP 217,000 588,365
United Kingdom Treasury, 4.25%, 2036 GBP 547,000 1,086,091
------------
$ 24,197,936
- ----------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.7%
- ----------------------------------------------------------------------------------------------------------------
Atlas Copco AB, 5.6%, 2017 (n) $ 1,470,000 $ 1,467,910
Case New Holland, Inc., 7.125%, 2014 510,000 527,850
------------
$ 1,995,760
- ----------------------------------------------------------------------------------------------------------------
Major Banks - 2.3%
- ----------------------------------------------------------------------------------------------------------------
BAC Capital Trust XIV, 5.63% to 2012, FRN to 2049 $ 1,840,000 $ 1,735,808
BNP Paribas, 5.186% to 2015, FRN to 2049 (n) 962,000 891,092
BNP Paribas, 7.195% to 2037, FRN to 2049 (n) 600,000 596,789
Royal Bank of Scotland Group PLC, 9.118%, 2049 857,000 916,633
UniCredito Italiano Capital Trust II, 9.2% to 2010, FRN to 2049 (n) 1,187,000 1,278,648
Wachovia Capital Trust III, 5.8% to 2011, FRN to 2042 920,000 912,689
------------
$ 6,331,659
- ----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 3.5%
- ----------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc., 7.5%, 2017 $ 180,000 $ 169,650
Cardinal Health, Inc., 6.3%, 2016 (n) 840,000 867,769
Community Health Systems, Inc., 8.875%, 2015 (n) 745,000 754,312
Cooper Cos., Inc., 7.125%, 2015 410,000 405,900
DaVita, Inc., 6.625%, 2013 270,000 268,650
DaVita, Inc., 7.25%, 2015 1,115,000 1,127,544
HCA, Inc., 6.375%, 2015 770,000 657,388
HCA, Inc., 9.25%, 2016 945,000 994,612
HealthSouth Corp., 10.75%, 2016 405,000 427,275
Hospira, Inc., 5.55%, 2012 450,000 450,495
Hospira, Inc., 6.05%, 2017 410,000 409,390
LVB Acquisition Merger Sub, Inc., 10%, 2017 (z) 290,000 297,975
LVB Acquisition Merger Sub, Inc., 11.625%, 2017 (z) 115,000 117,156
McKesson Corp., 5.7%, 2017 370,000 368,118
Owens & Minor, Inc., 6.35%, 2016 710,000 713,647
Psychiatric Solutions, Inc., 7.75%, 2015 515,000 524,013
U.S. Oncology, Inc., 10.75%, 2014 495,000 514,800
Universal Hospital Services, Inc., 8.5%, 2015 (n)(p) 305,000 310,338
Universal Hospital Services, Inc., FRN, 8.759%, 2015 (n) 90,000 90,225
VWR Funding, Inc., 10.25%, 2015 (n) 265,000 259,700
------------
$ 9,728,957
- ----------------------------------------------------------------------------------------------------------------
Metals & Mining - 2.2%
- ----------------------------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 790,000 $ 770,250
FMG Finance Ltd., 10.625%, 2016 (n) 720,000 853,200
Foundation PA Coal Co., 7.25%, 2014 270,000 265,275
Freeport-McMoRan Copper & Gold, Inc., 8.25%, 2015 455,000 491,400
Freeport-McMoRan Copper & Gold, Inc., 8.375%, 2017 1,015,000 1,111,425
GTL Trade Finance, Inc., 7.25%, 2017 (z) 132,000 133,681
Peabody Energy Corp., 7.375%, 2016 155,000 161,200
Peabody Energy Corp., "B", 6.875%, 2013 860,000 864,300
PNA Group, Inc., 10.75%, 2016 405,000 414,113
Ryerson, Inc., 12%, 2015 (z) 190,000 195,225
Vale Overseas Ltd., 6.25%, 2017 723,000 731,035
------------
$ 5,991,104
- ----------------------------------------------------------------------------------------------------------------
Mortgage Backed - 4.8%
- ----------------------------------------------------------------------------------------------------------------
Fannie Mae, 5.5%, 2019 - 2035 $ 9,415,282 $ 9,337,091
Fannie Mae, 6.5%, 2031 298,386 308,897
Fannie Mae, 6%, 2034 (f) 3,519,774 3,558,631
------------
$ 13,204,619
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.3%
- ----------------------------------------------------------------------------------------------------------------
AmeriGas Partners LP, 7.125%, 2016 $ 560,000 $ 547,400
Inergy LP, 6.875%, 2014 335,000 328,300
------------
$ 875,700
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 3.2%
- ----------------------------------------------------------------------------------------------------------------
Atlas Pipeline Partners LP, 8.125%, 2015 $ 520,000 $ 517,400
CenterPoint Energy Resources Corp., 7.875%, 2013 1,826,000 2,002,269
Deutsche Bank (El Paso Performance-Linked Trust, CLN), 7.75%, 2011 (n) 940,000 969,157
Intergas Finance B.V., 6.375%, 2017 (n) 349,000 326,315
Kinder Morgan Energy Partners LP, 6%, 2017 830,000 831,074
Kinder Morgan Finance, 5.35%, 2011 1,516,000 1,480,933
Spectra Energy Capital LLC, 8%, 2019 679,000 773,985
Williams Cos., Inc., 7.125%, 2011 1,140,000 1,182,750
Williams Cos., Inc., 8.75%, 2032 415,000 483,475
Williams Partners LP, 7.25%, 2017 405,000 417,656
------------
$ 8,985,014
- ----------------------------------------------------------------------------------------------------------------
Network & Telecom - 2.1%
- ----------------------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 485,000 $ 486,212
Citizens Communications Co., 9.25%, 2011 863,000 942,827
Citizens Communications Co., 9%, 2031 630,000 648,112
Deutsche Telekom International Finance B.V., 8%, 2010 543,000 582,246
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 465,000 491,738
Qwest Corp., 8.875%, 2012 290,000 317,550
Qwest Corp., 7.5%, 2014 560,000 584,500
Telecom Italia Capital, 4.875%, 2010 248,000 246,440
Telefonica Europe B.V., 7.75%, 2010 1,090,000 1,167,122
Time Warner Telecom Holdings, Inc., 9.25%, 2014 195,000 202,556
Windstream Corp., 7%, 2019 125,000 123,125
------------
$ 5,792,428
- ----------------------------------------------------------------------------------------------------------------
Oil Services - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 595,000 $ 572,687
Weatherford International, Inc., 6.35%, 2017 (n) 340,000 348,570
------------
$ 921,257
- ----------------------------------------------------------------------------------------------------------------
Oils - 0.7%
- ----------------------------------------------------------------------------------------------------------------
Petroleos de Venezuela S.A., 5.25%, 2017 $ 765,000 $ 577,958
Premcor Refining Group, Inc., 7.5%, 2015 1,290,000 1,344,198
------------
$ 1,922,156
- ----------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 2.8%
- ----------------------------------------------------------------------------------------------------------------
Alfa Diversified Payment Rights Finance Co., FRN, 7.594%, 2011 (n) $ 790,500 $ 766,785
Banco BMG S.A., 9.15%, 2016 (n) 429,000 455,298
Banco do Estado de Sao Paulo S.A., 8.7%, 2049 (n) 700,000 730,625
Banco Mercantil del Norte S.A., 5.875% to 2009, FRN to 2014 (n) 841,000 834,692
Bosphorus Financial Services Ltd., FRN, 7.357%, 2012 (z) 800,000 791,982
CenterCredit International B.V., 8.625%, 2014 (n) 508,000 441,960
Mizuho Capital Investment 1 Ltd., 6.686% to 2016, FRN to 2049 (n) 660,000 625,403
Resona Bank Ltd., 5.85% to 2016, FRN to 2049 (n) 246,000 227,901
RSHB Capital S.A., 7.175%, 2013 (n) 100,000 103,140
Russian Standard Finance S.A., 8.625%, 2011 (n) 526,000 486,550
UBS Preferred Funding Trust V, 6.243% to 2016, FRN to 2049 1,120,000 1,107,151
UFJ Finance Aruba AEC, 6.75%, 2013 648,000 682,890
VTB Capital S.A., 6.609%, 2012 (z) 396,000 392,938
------------
$ 7,647,315
- ----------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Teva Pharmaceutical Finance LLC, 5.55%, 2016 $ 359,000 $ 355,023
Warner Chilcott Corp., 8.75%, 2015 572,000 592,020
------------
$ 947,043
- ----------------------------------------------------------------------------------------------------------------
Precious Metals & Minerals - 0.6%
- ----------------------------------------------------------------------------------------------------------------
Alrosa Finance S.A., 8.875%, 2014 $ 1,393,000 $ 1,532,551
- ----------------------------------------------------------------------------------------------------------------
Printing & Publishing - 1.8%
- ----------------------------------------------------------------------------------------------------------------
American Media Operations, Inc., 10.25%, 2009 $ 358,000 $ 342,785
Dex Media West LLC, 9.875%, 2013 986,000 1,051,322
Idearc, Inc., 8%, 2016 1,900,000 1,904,750
Nielsen Finance LLC, 10%, 2014 295,000 310,488
Nielsen Finance LLC, 0% to 2011, 12.5% to 2016 1,120,000 809,200
R.H. Donnelley Corp., 8.875%, 2016 575,000 575,000
------------
$ 4,993,545
- ----------------------------------------------------------------------------------------------------------------
Railroad & Shipping - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Panama Canal Railway Co., 7%, 2026 (z) $ 337,000 $ 337,674
- ----------------------------------------------------------------------------------------------------------------
Real Estate - 0.9%
- ----------------------------------------------------------------------------------------------------------------
ERP Operating LP, REIT, 5.75%, 2017 $ 630,000 $ 609,951
Simon Property Group LP, REIT, 6.1%, 2016 1,790,000 1,798,213
------------
$ 2,408,164
- ----------------------------------------------------------------------------------------------------------------
Restaurants - 0.7%
- ----------------------------------------------------------------------------------------------------------------
McDonalds Corp., 5.8%, 2017 $ 1,810,000 $ 1,827,649
- ----------------------------------------------------------------------------------------------------------------
Retailers - 0.7%
- ----------------------------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $ 625,000 $ 632,812
Limited Brands, Inc., 5.25%, 2014 898,000 830,955
Rite Aid Corp., 7.5%, 2017 145,000 134,850
Rite Aid Corp., 9.5%, 2017 (n) 210,000 194,250
Target Corp., 6.5%, 2037 250,000 253,289
------------
$ 2,046,156
- ----------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Claire's Stores, Inc., 9.25%, 2015 (n) $ 395,000 $ 336,737
Claire's Stores, Inc., 10.5%, 2017 (n) 60,000 45,600
Michaels Stores, Inc., 10%, 2014 290,000 292,175
Payless ShoeSource, Inc., 8.25%, 2013 405,000 400,444
------------
$ 1,074,956
- ----------------------------------------------------------------------------------------------------------------
Supermarkets - 0.5%
- ----------------------------------------------------------------------------------------------------------------
Safeway, Inc., 4.95%, 2010 $ 470,000 $ 467,923
Safeway, Inc., 6.5%, 2011 650,000 672,640
SUPERVALU, Inc., 7.5%, 2014 355,000 364,763
------------
$ 1,505,326
- ----------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.8%
- ----------------------------------------------------------------------------------------------------------------
American Tower Corp., 7%, 2017 (z) $ 210,000 $ 214,725
Centennial Communications Corp., 10.125%, 2013 430,000 456,875
MetroPCS Wireless, Inc., 9.25%, 2014 (n) 100,000 99,250
MetroPCS Wireless, Inc., 9.25%, 2014 (n) 225,000 223,313
Nextel Communications, Inc., 5.95%, 2014 1,545,000 1,475,475
OJSC Vimpel-Communications, 8.25%, 2016 836,000 865,260
Rogers Cable, Inc., 5.5%, 2014 659,000 644,145
Vodafone Group PLC, 5.375%, 2015 1,080,000 1,064,407
------------
$ 5,043,450
- ----------------------------------------------------------------------------------------------------------------
Tobacco - 0.4%
- ----------------------------------------------------------------------------------------------------------------
Reynolds American, Inc., 6.75%, 2017 $ 1,100,000 $ 1,150,875
- ----------------------------------------------------------------------------------------------------------------
Transportation - 0.3%
- ----------------------------------------------------------------------------------------------------------------
IIRSA Norte Finance Ltd., 8.75%, 2024 $ 534,133 $ 622,265
Peru Enhanced Pass-Through Trust, 0%, 2018 (n) 250,000 171,250
------------
$ 793,515
- ----------------------------------------------------------------------------------------------------------------
Transportation - Services - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Hertz Corp., 8.875%, 2014 $ 540,000 $ 556,200
- ----------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 4.3%
- ----------------------------------------------------------------------------------------------------------------
AES Corp., 9.375%, 2010 $ 1,025,000 $ 1,083,937
Beaver Valley Funding Corp., 9%, 2017 1,672,000 1,881,769
Edison Mission Energy, 7%, 2017 (n) 1,215,000 1,187,662
EEB International Ltd., 8.75%, 2014 (z) 338,000 348,985
Empresa Nacional de Electricidad S.A., 8.35%, 2013 66,000 74,100
Enersis S.A., 7.375%, 2014 1,296,000 1,376,660
FirstEnergy Corp., 6.45%, 2011 857,000 884,418
HQI Transelec Chile S.A., 7.875%, 2011 1,200,000 1,279,292
Intergen N.V., 9%, 2017 (n) 255,000 269,663
ISA Capital do Brasil S.A., 7.875%, 2012 (n) 315,000 322,875
ISA Capital do Brasil S.A., 8.8%, 2017 (n) 442,000 459,680
Mirant Americas Generation LLC, 8.3%, 2011 100,000 101,125
Mirant North American LLC, 7.375%, 2013 585,000 593,044
NRG Energy, Inc., 7.375%, 2016 830,000 827,925
Reliant Energy, Inc., 7.875%, 2017 700,000 706,125
Waterford 3 Funding Corp., 8.09%, 2017 535,106 540,933
------------
$ 11,938,193
- ----------------------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
- ----------------------------------------------------------------------------------------------------------------
TGI International Ltd., 9.5%, 2017 (z) $ 436,000 $ 456,143
- ----------------------------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $257,126,701) $258,236,742
- ----------------------------------------------------------------------------------------------------------------
Floating Rate Loans - 1.6% (g)(r)
- ----------------------------------------------------------------------------------------------------------------
Aerospace - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Hawker Beechcraft Acquisition Co., Letter of Credit, 7.2%, 2014 $ 12,088 $ 11,793
Hawker Beechcraft Acquisition Co., Term Loan, 7.16%, 2014 292,505 285,375
------------
$ 297,168
- ----------------------------------------------------------------------------------------------------------------
Automotive - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Allison Transmission, Inc., Term Loan B, 8.17%, 2014 $ 170,808 $ 166,484
Goodyear Tire & Rubber Co., Term Loan, 6.43%, 2014 314,939 305,590
------------
$ 472,074
- ----------------------------------------------------------------------------------------------------------------
Broadcasting - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Gray Television, Inc., Term Loan, 6.73%, 2014 $ 196,338 $ 188,893
Univision Communications, Inc., Term Loan B, 7.20%, 2014 288,558 273,084
------------
$ 461,977
- ----------------------------------------------------------------------------------------------------------------
Building - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Building Materials Holding Corp., Second Lien Term Loan, 11.31%, 2014 $ 191,172 $ 158,354
- ----------------------------------------------------------------------------------------------------------------
Cable TV - 0.3%
- ----------------------------------------------------------------------------------------------------------------
Charter Communications Operating LLC, Term Loan, 6.99%, 2014 $ 275,569 $ 264,466
CSC Holdings, Inc., Incremental Term Loan, 6.88%, 2013 372,764 363,552
Mediacom Illinois LLC, Term Loan A, 6.69%, 2012 337,404 323,233
------------
$ 951,251
- ----------------------------------------------------------------------------------------------------------------
Chemicals - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Celanese AG, Term Loan B, 6.98%, 2014 $ 344,553 $ 338,277
- ----------------------------------------------------------------------------------------------------------------
Computer Software - 0.1%
- ----------------------------------------------------------------------------------------------------------------
First Data Corp., Term Loan B1, 7.96%, 2014 $ 202,542 $ 194,862
- ----------------------------------------------------------------------------------------------------------------
Food & Beverages - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Dean Foods Co., Term Loan B, 6.7%, 2014 $ 276,730 $ 267,736
- ----------------------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.2%
- ----------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc., Term Loan, 7.03%, 2014 $ 195,490 $ 187,670
Community Health Systems, Inc., Term Loan B, 7.76%, 2014 228,262 223,055
HCA, Inc., Term Loan B, 7.45%, 2012 177,062 172,768
------------
$ 583,493
- ----------------------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 0.0%
- ----------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc., Term Loan, 6.3%, 2014 $ 94,652 $ 92,215
- ----------------------------------------------------------------------------------------------------------------
Pollution Control - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Allied Waste North America, Inc., Term Loan, 6.54%, 2012 $ 261,902 $ 256,893
Allied Waste North America, Inc., Term Loan A, Credit Linked
Deposit, 6.62%, 2012 148,319 145,482
------------
$ 402,375
- ----------------------------------------------------------------------------------------------------------------
Specialty Stores - 0.1%
- ----------------------------------------------------------------------------------------------------------------
Michaels Stores, Inc., Term Loan B, 7.62%, 2013 $ 384,203 $ 366,594
- ----------------------------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $4,660,182) $ 4,586,376
- ----------------------------------------------------------------------------------------------------------------
Preferred Stocks - 0.0%
- ----------------------------------------------------------------------------------------------------------------
Real Estate - 0.0%
- ----------------------------------------------------------------------------------------------------------------
HRPT Properties Trust, "B", REIT, 8.75%
(Identified Cost, $74,529) 2,725 $ 68,125
- ----------------------------------------------------------------------------------------------------------------
Short-Term Obligations - 4.0%
- ----------------------------------------------------------------------------------------------------------------
Falcon Asset Securitization Co. LLC, 4.95%, due 11/01/07,
at Amortized Cost and Value (t)(y) $ 11,048,000 $ 11,048,000
- ----------------------------------------------------------------------------------------------------------------
Rights - 0.0%
- ----------------------------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.0%
- ----------------------------------------------------------------------------------------------------------------
Banco Central del Uruguay, Value Recovery Rights, Expiring
January 2021 (Identified Cost, $0) (a) 1,250,000 $ 0
- ----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $272,909,412) (k) $273,939,243
- ----------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.5% 4,140,791
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $278,080,034
- ----------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(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 October 31, 2007, the fund held securities fair valued in accordance with the policies adopted by
the Board of Trustees, aggregating $250,177,673 and 91.33% of market value. An independent pricing service
provided an evaluated bid for 89.65% 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 $40,337,511, representing
14.5% of net assets.
(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.
(t) Security exempt from registration with the U.S. Securities and Exchange Commission under Section 4(2) of
the Securities Act of 1933.
(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:
ACQUISITION ACQUISITION CURRENT TOTAL % OF
RESTRICTED SECURITIES DATE COST MARKET VALUE NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Allison Transmission, Inc., 11%, 2015 10/11/07 $ 495,425 $ 504,281
American Tower Corp., 7%, 2017 9/24/07 210,000 214,725
Anthracite Ltd., CDO, 6%, 2037 5/14/02 809,943 780,094
Asset Securitization Corp., FRN,
8.355%, 2029 1/25/05 681,838 816,662
Bayview Financial Revolving Mortgage
Loan Trust, FRN, 5.618%, 2040 3/01/06 674,286 674,283
Bosphorus Financial Services Ltd.,
FRN, 7.357%, 2012 3/08/05 800,000 791,982
Brazilian Merchant Voucher Receivables
Ltd., 5.911%, 2011 3/08/07 1,076,901 1,063,506
Chase Commercial Mortgage Securities
Corp., 6.6%, 2029 6/07/00 2,970,648 3,721,989
DLJ Commercial Mortgage Corp.,
6.04%, 2031 7/23/04 541,600 554,165
EEB International Ltd.,
8.75%, 2014 10/24/07 338,000 348,985
Falcon Franchise Loan LLC,
6.5%, 2014 7/15/05 607,195 490,000
Falcon Franchise Loan LLC, FRN,
3.689%, 2023 1/29/03 713,409 484,236
First Data Corp., 9.875%, 2015 10/16/07 355,720 359,062
GMAC Commercial Mortgage Securities,
Inc., FRN, 6.02%, 2033 11/17/00 1,368,979 1,724,275
GTL Trade Finance, Inc.,
7.25%, 2017 10/17/07 130,849 133,681
LVB Acquisition Merger Sub, Inc.,
10%, 2017 9/24/07 289,913 297,975
LVB Acquisition Merger Sub, Inc.,
11.625%, 2017 10/18/07 116,725 117,156
Momentive Performance Materials, Inc.,
9.75%, 2014 9/10/07 - 10/18/07 439,263 438,750
Nuveen Investments, Inc., 10.5%, 2015 10/31/07 295,000 295,000
Panama Canal Railway Co., 7%, 2026 10/29/07 337,000 337,674
Pemex Project Funding Master Trust,
5.75%, 2018 10/17/07 512,471 520,386
Prudential Securities Secured
Financing Corp., FRN, 7.268%, 2013 12/06/04 971,421 892,821
Republic of Ghana, 8.5%, 2017 9/27/07 100,000 102,583
Ryerson, Inc., 12%, 2015 10/03/07 - 10/30/07 195,975 195,225
Salomon Brothers Mortgage Securities,
Inc., FRN, 7.075%, 2012 1/07/05 2,067,961 1,901,533
TGI International Ltd., 9.5%, 2017 9/26/07 436,000 456,143
VTB Capital S.A., 6.609%, 2012 10/25/07 396,000 392,938
---------------------------
Total Restricted Securities $18,610,110 6.7%
===========================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AT 10/31/07
NET
IN UNREALIZED
CONTRACTS TO SETTLEMENT EXCHANGE CONTRACTS APPRECIATION
TYPE CURRENCY DELIVER/RECEIVE DATE RANGE FOR AT VALUE (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------
APPRECIATION
- ----------------------------------------------------------------------------------------------------------------------------
BUY BRL 983,950 11/01/07 - 11/30/07 $ 553,629 $ 565,552 $ 11,923
BUY EUR 3,456,322 12/14/07 - 12/19/07 4,809,320 5,015,739 206,419
SELL JPY 426,012,308 11/13/07 3,715,440 3,700,162 15,278
BUY MXN 3,111,529 11/30/07 283,790 290,709 6,919
BUY PLN 1,349,934 11/30/07 505,196 540,320 35,124
BUY SGD 868 11/23/07 594 601 7
---------
$ 275,670
=========
DEPRECIATION
- ----------------------------------------------------------------------------------------------------------------------------
SELL BRL 491,975 11/01/07 $279,531 $283,295 $ (3,764)
SELL CAD 1,450,395 11/13/07 1,397,500 1,533,251 (135,751)
SELL DKK 2,771,029 12/10/07 526,161 539,467 (13,306)
SELL EUR 6,100,394 11/19/07 - 12/14/07 8,485,823 8,850,375 (364,552)
SELL GBP 1,400,565 12/14/07 - 12/19/07 2,811,353 2,910,813 (99,460)
BUY JPY 257,851,751 11/13/07 2,264,658 2,239,591 (25,067)
SELL SEK 1,682,571 11/13/07 258,515 265,070 (6,555)
---------
$(648,455)
---------
FUTURES CONTRACTS OUTSTANDING AT 10/31/07
UNREALIZED
EXPIRATION APPRECIATION
DESCRIPTION CONTRACTS VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bond (Short) 42 $4,728,938 Dec-07 $(48,053)
U.S. Treasury Note 5 yr (Long) 29 3,112,969 Dec-07 12,586
U.S. Treasury Note 10 yr (Short) 36 3,960,563 Dec-07 (53,845)
- --------------------------------------------------------------------------------------------------------------------
$(89,312)
========
SWAP AGREEMENTS AT 10/31/07
UNREALIZED
NOTIONAL CASH FLOWS CASH FLOWS APPRECIATION
EXPIRATION AMOUNT COUNTERPARTY TO RECEIVE TO PAY (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------
CREDIT DEFAULT SWAPS
6/20/09 USD 300,000 JPMorgan Chase Bank 4.1% (fixed rate) (1) $(12,898)
6/20/09 USD 100,000 JPMorgan Chase Bank 4.8% (fixed rate) (1) (3,200)
9/20/10 USD 1,130,000 Merrill Lynch (2) 0.68% (fixed rate) 87,400
International
9/20/12 USD 1,180,000 JPMorgan Chase Bank 0.36% (fixed rate) (3) 4,934
--------
$ 76,236
========
(1) Fund to pay notional amount upon a defined credit event by Abitibi-Consolidated, 8.375%, 4/01/15.
(2) Fund to receive notional amount upon a defined credit event by Lennar Corp., 5.95%, 3/1/ 2013.
(3) Fund to pay notional amount upon a defined credit event by Fannie Mae, 5.5%, 6/09/33.
At October 31, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments
under these derivative contracts.
UNFUNDED LOAN COMMITMENTS
As of October 31, 2007, the portfolio had the following unfunded loan commitments of $25,073, which could be
extended at the option of the borrower:
UNFUNDED UNREALIZED
LOAN APPRECIATION
BORROWER COMMITMENT (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------
Community Health Systems, Inc. $15,054 $(343)
Univision Communications, Delayed Draw Term Loan 10,019 173
-------------------------------
$25,073 $(170)
===============================
At October 31, 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
CLN Credit-Linked Note
CLO Collateralized Loan Obligation
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
REIT Real Estate Investment Trust
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:
BRL Brazilian Real
CAD Canadian Dollar
DKK Danish Krone
EUR Euro
GBP British Pound
JPY Japanese Yen
MXN Mexican Peso
PLN Polish Zloty
SEK Swedish Krona
SGD Singapore Dollar
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/07
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, $272,909,412) $273,939,243
Cash 732,937
Receivable for forward foreign currency exchange contracts 275,670
Receivable for daily variation margin on open
futures contracts 51,016
Receivable for investments sold 965,005
Receivable for fund shares sold 377,312
Interest and dividends receivable 4,662,397
Receivable from investment adviser 20,373
Unrealized appreciation on credit default swaps 92,334
Other assets 35
- -------------------------------------------------------------------------------------------------------
Total assets $281,116,322
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Distributions payable $329,584
Payable for forward foreign currency exchange contracts 648,455
Payable for investments purchased 1,402,857
Payable for fund shares reacquired 302,770
Unrealized depreciation on credit default swaps 16,098
Unrealized depreciation on unfunded loan commitments 170
Payable to affiliates
Management fee 6,091
Shareholder servicing costs 89,017
Distribution and service fees 8,501
Administrative services fee 289
Payable for independent trustees' compensation 47,315
Accrued expenses and other liabilities 185,141
- -------------------------------------------------------------------------------------------------------
Total liabilities $3,036,288
- -------------------------------------------------------------------------------------------------------
Net assets $278,080,034
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $331,401,382
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 684,319
Accumulated net realized gain (loss) on investments and
foreign currency transactions (53,981,586)
Accumulated distributions in excess of net investment income (24,081)
- -------------------------------------------------------------------------------------------------------
Net assets $278,080,034
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 41,884,229
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $185,193,141
Shares outstanding 27,780,652
- -------------------------------------------------------------------------------------------------------
Net asset value per share $6.67
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/95.25Xnet asset value per share) $7.00
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $60,044,115
Shares outstanding 9,105,169
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.59
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $30,385,201
Shares outstanding 4,629,533
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $6.56
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,457,577
Shares outstanding 368,875
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $6.66
- -------------------------------------------------------------------------------------------------------
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
Year ended 10/31/07
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 $20,003,357
Dividends 5,961
- -------------------------------------------------------------------------------------------------------
Total investment income $20,009,318
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $1,968,608
Distribution and service fees 1,662,328
Shareholder servicing costs 416,743
Administrative services fee 60,566
Independent trustees' compensation 15,773
Custodian fee 182,418
Shareholder communications 54,783
Auditing fees 52,424
Legal fees 5,527
Miscellaneous 89,931
- -------------------------------------------------------------------------------------------------------
Total expenses $4,509,101
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (19,671)
Reduction of expenses by investment adviser (1,392,093)
- -------------------------------------------------------------------------------------------------------
Net expenses $3,097,337
- -------------------------------------------------------------------------------------------------------
Net investment income $16,911,981
- -------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- --------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $3,301,873
Futures contracts (343,975)
Swap transactions 76,758
Foreign currency transactions (1,482,859)
- -------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $1,551,797
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $(3,489,763)
Futures contracts (22,262)
Swap transactions 94,443
Translation of assets and liabilities in foreign currencies 118,308
Unfunded loan commitments (170)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $(3,299,444)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $(1,747,647)
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $15,164,334
- -------------------------------------------------------------------------------------------------------
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.
YEARS ENDED 10/31
---------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income $16,911,981 $17,422,229
Net realized gain (loss) on investments and foreign
currency transactions 1,551,797 (263,244)
Net unrealized gain (loss) on investments and foreign
currency translation (3,299,444) 3,024,875
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $15,164,334 $20,183,860
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(10,847,144) $(11,497,120)
Class B (3,511,831) (4,796,016)
Class C (1,569,001) (1,612,849)
Class I (823,261) (848,322)
- -------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(16,751,237) $(18,754,307)
- -------------------------------------------------------------------------------------------------------
Change in net assets from fund share transactions $(36,860,144) $(32,158,271)
- -------------------------------------------------------------------------------------------------------
Total change in net assets $(38,447,047) $(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 $24,081 and
$1,028,584, respectively) $278,080,034 $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 past 5 years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by
which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all
distributions) held for the entire period.
CLASS A YEARS ENDED 10/31
-------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.70 $6.67 $6.90 $6.69 $6.24
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.39 $0.37 $0.38 $0.40 $0.38
Net realized and unrealized gain (loss)
on investments and foreign currency (0.04) 0.05 (0.20) 0.22 0.46
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.35 $0.42 $0.18 $0.62 $0.84
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.38) $(0.39) $(0.41) $(0.41) $(0.39)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.67 $6.70 $6.67 $6.90 $6.69
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 5.41 6.59 2.68 9.57 13.81
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.29 1.33 1.34 1.32 1.32
Expenses after expense reductions (f) 0.83 0.83 0.83 0.87 0.93
Net investment income 5.79 5.55 5.51 5.92 5.89
Portfolio turnover 55 66 63 64 136
Net assets at end of period (000 Omitted) $185,193 $194,376 $196,672 $190,165 $190,926
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 10/31
---------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.63 $6.59 $6.83 $6.62 $6.18
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.34 $0.32 $0.33 $0.35 $0.34
Net realized and unrealized gain (loss)
on investments and foreign currency (0.04) 0.07 (0.21) 0.22 0.45
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.30 $0.39 $0.12 $0.57 $0.79
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.34) $(0.35) $(0.36) $(0.36) $(0.35)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.59 $6.63 $6.59 $6.83 $6.62
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.57 6.06 1.83 8.90 13.00
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.94 1.97 1.99 1.97 1.97
Expenses after expense reductions (f) 1.48 1.48 1.48 1.52 1.58
Net investment income 5.13 4.90 4.89 5.27 5.25
Portfolio turnover 55 66 63 64 136
Net assets at end of period (000 Omitted) $60,044 $77,822 $105,223 $130,075 $146,903
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS C YEARS ENDED 10/31
---------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.60 $6.56 $6.80 $6.59 $6.15
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.34 $0.32 $0.33 $0.35 $0.33
Net realized and unrealized gain (loss)
on investments and foreign currency (0.04) 0.07 (0.21) 0.22 0.45
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.30 $0.39 $0.12 $0.57 $0.78
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.34) $(0.35) $(0.36) $(0.36) $(0.34)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.56 $6.60 $6.56 $6.80 $6.59
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 4.56 6.07 1.81 8.91 13.04
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.94 1.98 1.99 1.98 1.97
Expenses after expense reductions (f) 1.48 1.48 1.48 1.53 1.58
Net investment income 5.14 4.90 4.87 5.26 5.23
Portfolio turnover 55 66 63 64 136
Net assets at end of period (000 Omitted) $30,385 $29,892 $32,413 $36,537 $40,703
- ------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 10/31
--------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $6.71 $6.67 $6.91 $6.70 $6.25
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.42 $0.39 $0.40 $0.42 $0.40
Net realized and unrealized gain (loss)
on investments and foreign currency (0.06) 0.07 (0.20) 0.22 0.46
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.36 $0.46 $0.20 $0.64 $0.86
- ------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.41) $(0.42) $(0.44) $(0.43) $(0.41)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $6.66 $6.71 $6.67 $6.91 $6.70
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 5.46 7.11 2.90 9.95 14.19
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 0.95 0.98 0.99 0.97 0.97
Expenses after expense reductions (f) 0.48 0.48 0.48 0.52 0.58
Net investment income 6.08 5.89 5.86 6.28 6.23
Portfolio turnover 55 66 63 64 136
Net assets at end of period (000 Omitted) $2,458 $14,437 $12,947 $11,965 $9,764
- ------------------------------------------------------------------------------------------------------------------------------
Any redemption fees charged by the fund during the 2004 and 2005 fiscal years resulted in a per share impact of less than $0.01.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(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
(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.
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.
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 October 31,
2007, the portfolio had unfunded loan commitments of $25,073, 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.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount, for the year ended October 31, 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, straddle loss
deferrals, and foreign currency transactions.
The tax character of distributions declared to shareholders is as follows:
10/31/07 10/31/06
Ordinary income (including any
short-term capital gains) $16,751,237 $18,754,307
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 10/31/07
Cost of investments $274,094,370
---------------------------------------------------------
Gross appreciation $5,834,125
Gross depreciation (5,989,252)
---------------------------------------------------------
Net unrealized appreciation (depreciation) $(155,127)
Undistributed ordinary income 1,871,951
Capital loss carryforwards (52,898,424)
Other temporary differences (2,139,748)
As of October 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/08 $(3,849,634)
10/31/09 (17,590,678)
10/31/10 (28,105,973)
10/31/14 (3,352,139)
----------------------------------------------
$(52,898,424)
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 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 year ended October 31, 2007, this waiver
amounted to $757,157 and is reflected as a reduction of total expenses in the
Statement of Operations. The management fee incurred for the year ended October
31, 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 year ended October 31, 2007, this reduction
amounted to $633,440 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 $31,511 for the year ended October 31, 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 Plan Fee 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% $662,635
Class B 0.75% 0.25% 1.00% 1.00% 690,971
Class C 0.75% 0.25% 1.00% 1.00% 308,722
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,662,328
(d) In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees up
to these annual percentage rates of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the distribution plan for the year ended October
31, 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 year ended October 31,
2007, were as follows:
AMOUNT
Class A $2,315
Class B 86,643
Class C 2,307
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as shareholder
servicing agent calculated as a percentage of the average daily net assets of
the fund as determined periodically under the supervision of the fund's Board
of Trustees. For the year ended October 31, 2007, the fee was $162,421, which
equated to 0.0536% annually of the fund's average daily net assets. MFSC also
receives payment from the fund for out-of-pocket expenses, sub-accounting and
other shareholder servicing costs which may be paid to affiliated and
unaffiliated service providers. For the year ended October 31, 2007, these
out-of-pocket expenses, sub-accounting and other shareholder servicing costs
amounted to $235,918. 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 average daily net assets. The fund's annual fixed
amount is $17,500. The administrative services fee incurred for the year ended
October 31, 2007 was equivalent to an annual effective rate of 0.0200% 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 $2,934. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $1,173. Both amounts are included in
independent trustees' compensation for the year ended October 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $45,814 at October 31, 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 year ended October 31, 2007, the fee paid to Tarantino LLC
was $1,940. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,496, 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 $-- $19,729,544
- -------------------------------------------------------------------------------
Investments (non-U.S. government securities) $162,639,234 $189,540,994
- -------------------------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
10/31/07 10/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 6,784,277 $45,519,352 7,712,553 $51,176,438
Class B 1,657,912 11,002,247 1,928,316 12,657,467
Class C 1,143,624 7,569,074 877,466 5,731,384
Class I 1,311,765 8,809,457 598,513 3,977,143
- -----------------------------------------------------------------------------------------------------------
10,897,578 $72,900,130 11,116,848 $73,542,432
Shares issued to shareholders in
reinvestment of distributions
Class A 1,225,746 $8,216,066 1,324,781 $8,804,098
Class B 348,575 2,311,745 474,951 3,123,983
Class C 159,119 1,049,920 167,284 1,095,071
Class I 114,102 765,954 124,268 827,038
- -----------------------------------------------------------------------------------------------------------
1,847,542 $12,343,685 2,091,284 $13,850,190
Shares reacquired
Class A (9,248,229) $(62,024,583) (9,521,478) $(63,205,306)
Class B (4,645,331) (30,814,004) (6,615,439) (43,457,070)
Class C (1,205,471) (7,936,261) (1,450,661) (9,496,718)
Class I (3,209,631) (21,329,111) (510,060) (3,391,799)
- -----------------------------------------------------------------------------------------------------------
(18,308,662) $(122,103,959) (18,097,638) $(119,550,893)
Net change
Class A (1,238,206) $(8,289,165) (484,144) $(3,224,770)
Class B (2,638,844) (17,500,012) (4,212,172) (27,675,620)
Class C 97,272 682,733 (405,911) (2,670,263)
Class I (1,783,764) (11,753,700) 212,721 1,412,382
- -----------------------------------------------------------------------------------------------------------
(5,563,542) $(36,860,144) (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%. In addition, a commitment fee, based on the average daily,
unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the year ended
October 31, 2007, the fund's commitment fee and interest expense were $1,557
and $0, respectively, and are included in miscellaneous expense on the
Statement of Operations.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust VIII
and Shareholders of MFS Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Strategic Income Fund (the Fund), (one of the portfolios comprising MFS Series
Trust VIII), including the portfolio of investments, as of October 31, 2007,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. We were not engaged to perform an audit of the Fund's internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of October 31, 2007, by correspondence with
the Fund's custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Strategic Income Fund at October 31, 2007, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the five years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 14, 2007
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2007, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(s) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ---------------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); MIT Sloan School
(education), Senior Lecturer
(since 2006); Secretary of
Economic Affairs, The Commonwealth
of Massachusetts (January 2002 to
December 2002); Fidelity
Investments, Vice Chairman (June
2000 to December 2001); Fidelity
Management & Research Company
(investment adviser), President
(March 1997 to July 2001); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
Encinitos Ventures (private
investment company), Principal
(1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding
equipment manufacturer), Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
Travelers Companies (commercial
property liability insurance),
Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004) Chief
Compliance Officer (since December
2006); Fidelity Management &
Research Company, Vice President
(prior to March 2004); Fidelity
Group of Funds, President and
Treasurer (prior to March 2004)
Tracy Atkinson(k) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred to
as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a
result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters.
The terms of that settlement required that compensation and expenses related to the independent
compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services
he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of
$351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) has been elected by shareholders and each Trustee and officer
holds office until his or her successor is chosen and qualified or until his or her earlier death,
resignation, retirement or removal. Messrs. Butler, Gutow, Sherratt and Uek and Ms. Thomsen are members of
the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS
or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain
affiliates of MFS. As of January 1, 2007, the Trustees served as board members of 97 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
Effective November 1, 2007, the
DISTRIBUTOR custodian changed to:
MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA JPMorgan Chase Bank
02116-3741 One Chase Manhattan Plaza
New York, NY 10081
PORTFOLIO MANAGERS
John Addeo INDEPENDENT REGISTERED PUBLIC
James Calmas ACCOUNTING FIRM
Robert Persons Ernst & Young LLP
Matthew Ryan 200 Clarendon Street, Boston, MA 02116
Erik Weisman
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2007 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to
the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable funds
identified by Lipper (the "Lipper expense group"), as well as the advisory fees
and other expenses of MFS peer funds, (iii) information provided by MFS on the
advisory fees of comparable portfolios of other clients of MFS, including
institutional separate accounts and other clients, (iv) information as to
whether and to what extent applicable expense waivers, reimbursements or fee
"breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance monitoring
and portfolio trading practices, and (viii) information regarding the overall
organization of MFS, including information about MFS' senior management and
other personnel providing investment advisory, administrative and other
services to the Fund and the other MFS Funds. The comparative performance, fee
and expense information prepared and provided by Lipper Inc. was not
independently verified and the independent Trustees did not independently
verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than in others, and
that the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 3rd quintile relative to
the other funds in the universe for this three-year period (the 1st quintile
being the best performers and the 5th quintile being the worst performers). The
total return performance of the Fund's Class A shares was in the 3rd quintile
for the one-year period and the 4th quintile for the five-year period ended
December 31, 2006 relative to the Lipper performance universe. Because of the
passage of time, these performance results may differ from the performance
results for more recent periods, including those shown elsewhere in this
report.
In addition to considering the performance information provided in connection
with the contract review meetings, the independent Trustees noted that, in
light of the Fund's substandard relative performance at the time of their
contract review meetings in 2006, they had met at each of their regular
meetings since then with MFS' senior investment management personnel to discuss
the Fund's performance and MFS' efforts to improve the Fund's performance. The
independent Trustees further noted that the Fund's relative performance for the
three-year period ended December 31, 2006 had improved in comparison to the
prior year. Taking this information into account, the Trustees concluded,
within the context of their overall conclusions regarding the investment
advisory agreement, that they were satisfied with MFS' responses and efforts
relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average daily net
assets and the advisory fee and total expense ratios of peer groups of funds
based on information provided by Lipper Inc. and MFS. The Trustees considered
that MFS observes an advisory fee reduction that will remain in effect for the
Fund through February 28, 2009 as part of MFS' settlement with the New York
Attorney General concerning market timing and related matters, and that MFS
currently observes an expense limitation for the Fund. The Trustees also
considered that, according to the Lipper data (which takes into account the
advisory fee reduction and expense limitation), the Fund's effective advisory
fee rate and total expense ratio were each lower than the Lipper expense group
median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts, the higher demands placed on MFS'
investment personnel and trading infrastructure as a result of the daily cash
in-flows and out-flows of the Fund, and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
not currently subject to any breakpoints. Taking into account the advisory fee
reduction and expense limitation noted above, the Trustees determined not to
recommend any advisory fee breakpoints for the Fund at this time.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser that also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the Fund
by MFS and its affiliates under agreements and plans other than the investment
advisory agreement, including any 12b-1 fees the Fund pays to MFS Fund
Distributors, Inc., an affiliate of MFS. The Trustees also considered the
nature, extent and quality of certain other services MFS performs or arranges
for on the Fund's behalf, which may include securities lending programs,
directed expense payment programs, class action recovery programs, and MFS'
interaction with third-party service providers, principally custodians and
sub-custodians. The Trustees concluded that the various non-advisory services
provided by MFS and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions, if applicable, to pay for investment research
and other similar services (excluding third-party research, for which MFS pays
directly), and various other factors. Additionally, the Trustees considered
so-called "fall-out benefits" to MFS such as reputational value derived from
serving as investment manager to the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2007.
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 1-800-SEC-0330. The fund's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2007 income
tax forms in January 2008.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information.
We maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
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]
Annual report
MFS(R) GLOBAL GROWTH FUND
LETTER FROM THE CEO 1
- ------------------------------------------------------------
PORTFOLIO COMPOSITION 2
- ------------------------------------------------------------
MANAGEMENT REVIEW 3
- ------------------------------------------------------------
PERFORMANCE SUMMARY 6
- ------------------------------------------------------------
EXPENSE TABLE 9
- ------------------------------------------------------------
PORTFOLIO OF INVESTMENTS 11
- ------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 17
- ------------------------------------------------------------
STATEMENT OF OPERATIONS 20
- ------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 22
- ------------------------------------------------------------
FINANCIAL HIGHLIGHTS 23
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 30
- ------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 41
- ------------------------------------------------------------
TRUSTEES AND OFFICERS 42
- ------------------------------------------------------------
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 48
- ------------------------------------------------------------
PROXY VOTING POLICIES AND INFORMATION 52
- ------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE 52
- ------------------------------------------------------------
FEDERAL TAX INFORMATION 52
- ------------------------------------------------------------
MFS(R) PRIVACY NOTICE 53
- ------------------------------------------------------------
CONTACT INFORMATION BACK COVER
- ------------------------------------------------------------
SIPC CONTACT INFORMATION:
You may obtain information about the Securities Investor Protection Corporation
("SIPC"), including the SIPC Brochure, by contacting SIPC either by telephone
(202-371-8300) or by accessing SIPC's website address (www.sipc.org).
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
- ------------------------------------------------------------------------------
10/31/07
WGF-ANN
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% and was fairly stable.
This year we have seen a greater level of volatility than has been experienced
in recent years. The Dow hit several new highs but also experienced swift
drops as a global credit crisis swept through markets, spurred by defaults on
U.S. subprime loans and a liquidity crunch. Still, even with this volatility,
the Dow ended the first three quarters of 2007 with a return near 13%.
U.S. Treasury bonds gained ground, especially in the third quarter as
investors sought less risky asset classes. The spreads of many lower quality
debt investments widened.
In 2007 the U.S. dollar fell against the euro, oil prices have hit their
highest levels yet, and gold has spiked to its steepest price in 28 years.
Around the globe, stocks sold off as risk aversion mounted. As we have said
before, markets can be 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. In our view, investors who remain committed to a long-term plan are more
likely to achieve their financial goals.
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)
December 14, 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
Common Stocks 100.2%
Cash & Other Net Assets (0.2)%
TOP TEN HOLDINGS
BHP Billiton Ltd. 2.5%
-------------------------------------------------------
LVMH Moet Hennessy Louis Vuitton S.A. 2.0%
-------------------------------------------------------
Telefonica S.A. 1.9%
-------------------------------------------------------
Nestle S.A. 1.9%
-------------------------------------------------------
TOTAL S.A. 1.8%
-------------------------------------------------------
HSBC Holdings PLC 1.8%
-------------------------------------------------------
Intel Corp. 1.6%
-------------------------------------------------------
Roche Holding AG 1.4%
-------------------------------------------------------
Novartis AG 1.3%
-------------------------------------------------------
Companhia Vale do Rio Doce, ADR 1.3%
-------------------------------------------------------
EQUITY SECTORS
Financial Services 17.2%
-------------------------------------------------------
Technology 15.6%
-------------------------------------------------------
Health Care 11.5%
-------------------------------------------------------
Basic Materials 10.8%
-------------------------------------------------------
Consumer Staples 8.5%
-------------------------------------------------------
Utilities & Communications 7.5%
-------------------------------------------------------
Energy 7.0%
-------------------------------------------------------
Retailing 7.0%
-------------------------------------------------------
Special Products & Services 4.4%
-------------------------------------------------------
Industrial Goods & Services 3.9%
-------------------------------------------------------
Autos & Housing 3.3%
-------------------------------------------------------
Leisure 2.9%
-------------------------------------------------------
Transportation 0.6%
-------------------------------------------------------
COUNTRY WEIGHTINGS
United States 31.0%
-------------------------------------------------------
Japan 10.3%
-------------------------------------------------------
United Kingdom 9.3%
-------------------------------------------------------
France 8.7%
-------------------------------------------------------
Switzerland 7.7%
-------------------------------------------------------
Germany 5.7%
-------------------------------------------------------
Australia 3.1%
-------------------------------------------------------
Brazil 2.6%
-------------------------------------------------------
Russia 2.2%
-------------------------------------------------------
Other Countries 19.4%
-------------------------------------------------------
From time to time "Cash & Other Net Assets" may be negative due to timing of
cash receipts and/or equivalent exposure from any derivative holdings.
Percentages are based on net assets as of 10/31/07.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
For the twelve months ended October 31, 2007, Class A shares of the MFS Global
Growth Fund provided a total return of 23.24%, at net asset value. This
compares with a return of 27.83% for the fund's benchmark, the MSCI All
Country World Growth Index, and a return of 24.44% for the fund's other
benchmark, the MSCI World Growth Index.
MARKET ENVIRONMENT
The U.S. economy continues to decouple from the rest of the world. Despite
seemingly robust growth rates during the second and third quarters of 2007,
underlying economic activity in the U.S. remains muted relative to other major
economies. Overall, global economies have seen moderate to strong growth over
the last twelve months as domestic demand improves and world trade accelerates.
With the strong global growth, however, has come increased concern about rising
global inflation, especially as capacity becomes more constrained, wages rise,
and energy and food prices advance. During the reporting period, global central
banks tightened monetary conditions, which in turn pushed global bond yields to
their highest levels during this economic expansion.
However, beginning in late July, heightened uncertainty and distress
concerning the subprime mortgage market caused several global credit markets
to seize up, forcing central banks to inject liquidity and to reassess their
tightening biases as sovereign bond yields declined and credit spreads
widened. While credit conditions improved somewhat by late October as the
Federal Reserve Board cut interest rates, the level of market turbulence
remains significant. Increased market volatility has also been exacerbated by
U.S. home foreclosures, falling housing prices, and a weakening trend in the
labor market. Despite increased volatility across all asset classes and the
widening in credit spreads, global equity markets remained elevated, generally
having erased losses incurred earlier in the summer.
DETRACTORS FROM PERFORMANCE
For the MFS Global Growth Fund, stock selection in the financial services sector
hurt performance relative to the MSCI All Country World Growth Index. Consumer
finance firm Aeon Credit Service (Japan) and financial services firms UBS
(Switzerland) and HSBC(aa) (U.K.) lagged the benchmark over the reporting
period. Aeon Credit Services was hit by regulatory changes that limited the
interest rate credit card companies could charge customers along with changes to
reserve requirements. We continue to hold Aeon Credit Services given its
attractive valuation, strong position in the Japanese market, and its exposure
to faster emerging economies through its subsidiaries in Hong Kong, Thailand,
Taiwan, and Malaysia.
Stock selection in the technology sector also held back relative returns.
Holdings of electronic products maker Hirose Electric (Japan) was one of the
portfolio's top detractors. Not owning computer and electronics company Apple
detracted from relative performance. Additionally, not holding mobile phone
manufacturer Nokia (Finland) for the greater part of the reporting period had a
negative impact on results.
Although the combination of stock selection and an underweighted position in the
industrial goods and services sector dampened relative returns, no individual
securities within this sector were among the portfolio's top detractors.
Stock selection in the health care and special products and services sectors
also hindered results. In the health care sector, holdings of medical devices
maker Advanced Medical Optics(aa) and Swiss pharmaceutical and diagnostic
company Roche hurt relative performance. No individual securities in the special
products and services sector were among the top detractors.
Elsewhere in the portfolio, Japanese automobiles manufacturer Toyota
Industries(aa) held back results as the company's performance trailed that of
the MSCI All Country World Growth Index.
During the reporting period, currency exposure was a detractor from relative
performance. All of MFS' investment decisions are driven by the fundamentals
of each individual opportunity and, as such, it is common for our portfolios
to have different currency exposure than the benchmark.
CONTRIBUTORS TO PERFORMANCE
Stock selection in the retailing sector was the principal contributor to
relative performance. Consumer products trading company Li & Fung (Hong Kong)
was among the top performers. Not owning weak-performing discount retailer
Wal-Mart also helped.
Stock selection in the energy sector produced strong relative returns. Oil and
gas company Petroleo Brasileiro(aa) (Brazil) and energy equipment solutions
company Dresser-Rand Group(aa)(g) were significant contributors in this sector.
The combination of stock selection and an overweighted position in the basic
materials sector was another positive factor for relative results. Mining
giant BHP Billiton (U.K.), chemical producer Wacker Chemie(aa) (Germany), and
iron ore miner Companhia Vale do Rio Doce (Brazil) posted impressive returns.
BHP Billiton reported strong quarterly results in the later part of the
reporting period, citing robust demand from Asia and surging commodities
prices as profit drivers.
Stocks in other sectors that contributed to relative performance included
electric utility company CEZ (Czech Republic), automaker Astra International
(aa)(g) (Indonesia), and wealth management firm Julius Baer(aa) (Switzerland).
Respectfully,
Barry Dargan Nicholas Smithie
Portfolio Manager Portfolio Manager
(aa) Security is not a benchmark constituent.
(g) Security was not held in the portfolio at period end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market or
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or an indication of
trading intent on behalf of any MFS portfolio. References to specific securities
are not recommendations of such securities, and may not be representative of any
MFS portfolio's current or future investments.
PERFORMANCE SUMMARY THROUGH 10/31/07
The following chart illustrates a representative class of the fund's historical
performance in comparison to its benchmark. Performance results include the
deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including reinvestment of dividends and capital gains
distributions. The performance of other share classes will be greater than or
less than that of the class depicted below. Benchmark comparisons are unmanaged;
do not reflect sales charges, commissions or expenses; and cannot be invested in
directly. (See Notes to Performance Summary.)
PERFORMANCE DATA SHOWN REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE FLUCTUATE SO YOUR SHARES, WHEN
SOLD, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST; CURRENT PERFORMANCE MAY
BE LOWER OR HIGHER THAN QUOTED. THE PERFORMANCE SHOWN DOES NOT REFLECT THE
DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS
OR THE REDEMPTION OF FUND SHARES.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
MFS Global MSCI All Country MSCI
Growth Fund World Growth World Growth
-- Class A Index Index
10/97 $ 9,425 $10,000 $10,000
10/98 9,238 11,854 12,124
10/99 12,760 15,364 15,612
10/00 16,233 14,893 15,145
10/01 11,216 10,111 10,250
10/02 9,780 8,915 8,941
10/03 12,215 10,824 10,774
10/04 13,644 11,757 11,681
10/05 15,441 13,459 13,246
10/06 18,414 15,949 15,537
10/07 22,695 20,388 19,333
TOTAL RETURNS THROUGH 10/31/07
AVERAGE ANNUAL WITHOUT SALES CHARGE
Share class Class inception date 1-yr 5-yr 10-yr
- -------------------------------------------------------------------------------
A 11/18/93 23.24% 18.34% 9.19%
- -------------------------------------------------------------------------------
B 11/18/93 22.35% 17.46% 8.37%
- -------------------------------------------------------------------------------
C 1/03/94 22.33% 17.46% 8.37%
- -------------------------------------------------------------------------------
I 1/02/97 23.57% 18.64% 9.47%
- -------------------------------------------------------------------------------
R 12/31/02 22.94% 18.04% 9.05%
- -------------------------------------------------------------------------------
R1 4/01/05 22.17% 17.38% 8.34%
- -------------------------------------------------------------------------------
R2 4/01/05 22.62% 17.60% 8.44%
- -------------------------------------------------------------------------------
R3 10/31/03 22.73% 17.75% 8.51%
- -------------------------------------------------------------------------------
R4 4/01/05 23.10% 18.25% 9.15%
- -------------------------------------------------------------------------------
R5 4/01/05 23.47% 18.43% 9.23%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL
Comparative benchmarks
- -------------------------------------------------------------------------------
MSCI All Country World Growth Index (f) 27.83% 17.99% 7.38%
- -------------------------------------------------------------------------------
MSCI World Growth Index (f) 24.44% 16.68% 6.81%
- -------------------------------------------------------------------------------
AVERAGE ANNUAL WITH SALES CHARGE
Share class
- -------------------------------------------------------------------------------
A 16.16% 16.94% 8.54%
With Initial Sales Charge (5.75%)
- -------------------------------------------------------------------------------
B 18.35% 17.25% 8.37%
With CDSC (Declining over six years from 4%
to 0%)(x)
- -------------------------------------------------------------------------------
C 21.33% 17.46% 8.37%
With CDSC (1% for 12 months) (x)
- -------------------------------------------------------------------------------
Class I, R, R1, R2, R3, R4, and R5 shares do not have a sales charge.
CDSC - Contingent Deferred Sales Charge.
(f) Source: FactSet Research Systems Inc.
(x) Assuming redemption at the end of the applicable period.
INDEX DEFINITIONS
Morgan Stanley Capital International (MSCI) World Growth Index - a market
capitalization index that is designed to measure equity market performance for
growth securities in the global developed markets.
Morgan Stanley Capital International (MSCI) All Country World Growth Index - a
market capitalization index that is designed to measure equity market
performance for growth securities in the global developed and emerging markets.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Performance for Classes R, R4, and R5 shares includes the performance of the
fund's Class A shares for periods prior to their offering. Performance for
Classes R1, R2, and R3 shares includes the performance of the fund's Class B
shares for periods prior to their offering. This blended class performance has
been adjusted to take into account differences in sales loads, if any,
applicable to these share classes, but has not been adjusted to take into
account differences in class specific operating expenses (such as Rule 12b-1
fees). Compared to performance these share classes would have experienced had
they been offered for the entire period, the use of blended performance
generally results in higher performance for share classes with higher operating
expenses than the share class to which it is blended, and lower performance for
share classes with lower operating expenses than the share class to which it is
blended.
Performance results reflect any applicable expense subsidies and waivers in
effect during the periods shown. Without such subsidies and waivers the fund's
performance results would be less favorable. Please see the prospectus and
financial statements for complete details.
From time to time the fund may receive proceeds from litigation settlements,
without which performance would be lower.
EXPENSE TABLE
Fund Expenses Borne by the Shareholders During the Period,
May 1, 2007 through October 31, 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 (2) ongoing costs, including management fees; distribution and
service (12b-1) fees; and other fund expenses. This example is intended to
help you understand your ongoing costs (in dollars) of investing in the fund
and to compare these costs with the ongoing costs of investing in other mutual
funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period May 1, 2007 through October 31, 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). 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 5/01/07-
Class Ratio 5/01/07 10/31/07 10/31/07
- -----------------------------------------------------------------------------
Actual 1.45% $1,000.00 $1,108.75 $7.71
A -----------------------------------------------------------------------
Hypothetical (h) 1.45% $1,000.00 $1,017.90 $7.38
- -----------------------------------------------------------------------------
Actual 2.21% $1,000.00 $1,104.31 $11.72
B -----------------------------------------------------------------------
Hypothetical (h) 2.21% $1,000.00 $1,014.06 $11.22
- -----------------------------------------------------------------------------
Actual 2.20% $1,000.00 $1,104.11 $11.67
C -----------------------------------------------------------------------
Hypothetical (h) 2.20% $1,000.00 $1,014.12 $11.17
- -----------------------------------------------------------------------------
Actual 1.20% $1,000.00 $1,110.00 $6.38
I -----------------------------------------------------------------------
Hypothetical (h) 1.20% $1,000.00 $1,019.16 $6.11
- -----------------------------------------------------------------------------
Actual 1.71% $1,000.00 $1,106.99 $9.08
R -----------------------------------------------------------------------
Hypothetical (h) 1.71% $1,000.00 $1,016.59 $8.69
- -----------------------------------------------------------------------------
Actual 2.32% $1,000.00 $1,103.50 $12.30
R1 -----------------------------------------------------------------------
Hypothetical (h) 2.32% $1,000.00 $1,013.51 $11.77
- -----------------------------------------------------------------------------
Actual 1.93% $1,000.00 $1,105.84 $10.24
R2 -----------------------------------------------------------------------
Hypothetical (h) 1.93% $1,000.00 $1,015.48 $9.80
- -----------------------------------------------------------------------------
Actual 1.87% $1,000.00 $1,106.11 $9.93
R3 -----------------------------------------------------------------------
Hypothetical (h) 1.87% $1,000.00 $1,015.78 $9.50
- -----------------------------------------------------------------------------
Actual 1.59% $1,000.00 $1,107.90 $8.45
R4 -----------------------------------------------------------------------
Hypothetical (h) 1.59% $1,000.00 $1,017.19 $8.08
- -----------------------------------------------------------------------------
Actual 1.30% $1,000.00 $1,109.70 $6.91
R5 -----------------------------------------------------------------------
Hypothetical (h) 1.30% $1,000.00 $1,018.65 $6.61
- -----------------------------------------------------------------------------
(h) 5% class return per year before expenses.
(p) Expenses paid is equal to each class' annualized expense ratio, as shown
above, multiplied by the average account value over the period, multiplied
by the number of days in the period, divided by the number of days in the
year. Expenses paid do not include any applicable sales charges (loads).
If these transaction costs had been included, your costs would have been
higher.
PORTFOLIO OF INVESTMENTS
10/31/07
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by
broad-based asset classes.
Common Stocks - 100.2%
- ------------------------------------------------------------------------------------------------------------------
ISSUER SHARES/PAR VALUE ($)
- ------------------------------------------------------------------------------------------------------------------
Aerospace - 0.9%
- ------------------------------------------------------------------------------------------------------------------
United Technologies Corp. 47,270 $ 3,620,412
- ------------------------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.7%
- ------------------------------------------------------------------------------------------------------------------
Pernod Ricard S.A. 11,418 $ 2,641,153
- ------------------------------------------------------------------------------------------------------------------
Apparel Manufacturers - 4.5%
- ------------------------------------------------------------------------------------------------------------------
Billabong International (l) 164,353 $ 2,326,334
Li & Fung Ltd. 966,200 4,574,697
LVMH Moet Hennessy Louis Vuitton S.A. 61,520 7,929,818
NIKE, Inc., "B" 51,370 3,403,776
---------------
$ 18,234,625
- ------------------------------------------------------------------------------------------------------------------
Automotive - 3.3%
- ------------------------------------------------------------------------------------------------------------------
Continental AG 18,307 $ 2,771,526
PT Astra International Tbk. 1,744,500 4,954,113
Toyota Industries Corp. 80,000 3,418,834
Yamaha Motor Co. Ltd. 71,800 2,044,724
---------------
$ 13,189,197
- ------------------------------------------------------------------------------------------------------------------
Biotechnology - 1.4%
- ------------------------------------------------------------------------------------------------------------------
Genzyme Corp. (a) 48,460 $ 3,681,506
Millipore Corp. (a) 23,080 1,792,162
---------------
$ 5,473,668
- ------------------------------------------------------------------------------------------------------------------
Broadcasting - 2.4%
- ------------------------------------------------------------------------------------------------------------------
Societe Television Francaise 1 (l) 78,921 $ 2,184,949
Walt Disney Co. 90,030 3,117,739
WPP Group PLC 334,590 4,572,188
---------------
$ 9,874,876
- ------------------------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 4.8%
- ------------------------------------------------------------------------------------------------------------------
Daiwa Securities Group, Inc. 405,000 $ 3,902,836
Franklin Resources, Inc. 24,050 3,118,804
Goldman Sachs Group, Inc. 18,720 4,641,062
Julius Baer Holding Ltd. 53,578 4,642,238
Morgan Stanley 43,410 2,919,757
---------------
$ 19,224,697
- ------------------------------------------------------------------------------------------------------------------
Business Services - 3.1%
- ------------------------------------------------------------------------------------------------------------------
Accenture Ltd., "A" 84,130 $ 3,285,277
Amdocs Ltd. (a) 57,820 1,989,008
Capita Group PLC 114,601 1,786,679
Fidelity National Information Services, Inc. 62,500 2,882,500
Intertek Group PLC 121,770 2,608,147
---------------
$ 12,551,611
- ------------------------------------------------------------------------------------------------------------------
Chemicals - 2.1%
- ------------------------------------------------------------------------------------------------------------------
3M Co. 35,800 $ 3,091,688
Makhteshim-Agan Industries (a) 291,500 2,807,264
Wacker Chemie AG 9,710 2,386,887
---------------
$ 8,285,839
- ------------------------------------------------------------------------------------------------------------------
Computer Software - 1.4%
- ------------------------------------------------------------------------------------------------------------------
Adobe Systems, Inc. (a) 52,250 $ 2,502,775
SAP AG 56,450 3,056,899
---------------
$ 5,559,674
- ------------------------------------------------------------------------------------------------------------------
Computer Software - Systems - 2.4%
- ------------------------------------------------------------------------------------------------------------------
Fujitsu Ltd. 421,000 $ 3,320,529
HCL Technologies Ltd. 367,480 2,963,256
Network Appliance, Inc. (a) 107,110 3,372,894
---------------
$ 9,656,679
- ------------------------------------------------------------------------------------------------------------------
Conglomerates - 1.3%
- ------------------------------------------------------------------------------------------------------------------
Siemens AG 22,730 $ 3,089,403
Smiths Group PLC 90,051 2,114,336
---------------
$ 5,203,739
- ------------------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 5.2%
- ------------------------------------------------------------------------------------------------------------------
Alberto-Culver Co. 106,040 $ 2,755,980
Colgate-Palmolive Co. 38,180 2,911,989
Kao Corp. 96,000 2,754,995
L'Oreal S.A. 21,620 2,841,963
Procter & Gamble Co. 69,520 4,833,030
Reckitt Benckiser Group PLC 85,740 4,977,467
---------------
$ 21,075,424
- ------------------------------------------------------------------------------------------------------------------
Electrical Equipment - 2.3%
- ------------------------------------------------------------------------------------------------------------------
Keyence Corp. 9,800 $ 2,257,800
OMRON Corp. 100,900 2,471,422
Schneider Electric S.A. 34,497 4,755,283
---------------
$ 9,484,505
- ------------------------------------------------------------------------------------------------------------------
Electronics - 7.8%
- ------------------------------------------------------------------------------------------------------------------
ARM Holdings PLC 721,830 $ 2,231,196
Canon, Inc. 63,200 3,194,891
Hirose Electric Co. Ltd. (l) 38,200 4,569,945
Intel Corp. 234,270 6,301,863
Marvell Technology Group Ltd. (a) 131,140 2,364,454
National Semiconductor Corp. 107,760 2,709,086
Nippon Electric Glass Co. Ltd. 111,000 1,876,151
Royal Philips Electronics N.V. 115,150 4,767,744
Sumco Corp. 95,000 3,457,895
---------------
$ 31,473,225
- ------------------------------------------------------------------------------------------------------------------
Energy - Independent - 1.0%
- ------------------------------------------------------------------------------------------------------------------
INPEX Holdings, Inc. 369 $ 3,999,660
- ------------------------------------------------------------------------------------------------------------------
Energy - Integrated - 4.1%
- ------------------------------------------------------------------------------------------------------------------
OAO Gazprom, ADR 85,390 $ 4,252,422
Petroleo Brasileiro S.A., ADR 52,900 5,058,827
TOTAL S.A. 91,460 7,381,408
---------------
$ 16,692,657
- ------------------------------------------------------------------------------------------------------------------
Food & Beverages - 2.6%
- ------------------------------------------------------------------------------------------------------------------
Nestle S.A. 16,305 $ 7,536,013
PepsiCo, Inc. 38,700 2,852,964
---------------
$ 10,388,977
- ------------------------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.9%
- ------------------------------------------------------------------------------------------------------------------
Tesco PLC 365,229 $ 3,709,894
- ------------------------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.5%
- ------------------------------------------------------------------------------------------------------------------
International Game Technology 43,850 $ 1,912,299
- ------------------------------------------------------------------------------------------------------------------
Insurance - 0.3%
- ------------------------------------------------------------------------------------------------------------------
Genworth Financial, Inc., "A" 46,000 $ 1,255,800
- ------------------------------------------------------------------------------------------------------------------
Internet - 0.9%
- ------------------------------------------------------------------------------------------------------------------
Google, Inc., "A" (a) 4,930 $ 3,485,510
- ------------------------------------------------------------------------------------------------------------------
Machinery & Tools - 0.7%
- ------------------------------------------------------------------------------------------------------------------
Bucyrus International, Inc. 35,800 $ 2,953,500
- ------------------------------------------------------------------------------------------------------------------
Major Banks - 5.4%
- ------------------------------------------------------------------------------------------------------------------
Bank of New York Mellon Corp. 72,480 $ 3,540,648
Erste Bank der oesterreichischen Sparkassen AG (l) 58,650 4,763,201
Societe Generale (l) 21,430 3,600,796
Standard Chartered PLC 102,610 3,985,453
State Street Corp. 31,520 2,514,350
UniCredito Italiano S.p.A. 381,780 3,266,691
---------------
$ 21,671,139
- ------------------------------------------------------------------------------------------------------------------
Medical Equipment - 3.4%
- ------------------------------------------------------------------------------------------------------------------
Advanced Medical Optics, Inc. (a) 50,140 $ 1,376,343
Boston Scientific Corp. (a) 137,260 1,903,796
Medtronic, Inc. 72,880 3,457,427
ResMed, Inc. (a) 61,580 2,551,259
Synthes, Inc. 17,630 2,204,417
Zimmer Holdings, Inc. (a) 29,300 2,036,057
---------------
$ 13,529,299
- ------------------------------------------------------------------------------------------------------------------
Metals & Mining - 4.9%
- ------------------------------------------------------------------------------------------------------------------
Anglo American PLC 63,680 $ 4,392,704
BHP Billiton Ltd. 229,840 10,029,356
Companhia Vale do Rio Doce, ADR 143,280 5,398,790
---------------
$ 19,820,850
- ------------------------------------------------------------------------------------------------------------------
Network & Telecom - 3.1%
- ------------------------------------------------------------------------------------------------------------------
Cisco Systems, Inc. (a) 118,970 $ 3,933,148
NICE Systems Ltd., ADR (a) 48,100 1,896,583
Nokia Corp. 101,200 4,014,031
Research In Motion Ltd. (a) 20,600 2,564,906
---------------
$ 12,408,668
- ------------------------------------------------------------------------------------------------------------------
Oil Services - 1.9%
- ------------------------------------------------------------------------------------------------------------------
Halliburton Co. 96,710 $ 3,812,308
Tenaris S.A., ADR 72,300 3,889,740
---------------
$ 7,702,048
- ------------------------------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 6.7%
- ------------------------------------------------------------------------------------------------------------------
ABSA Group Ltd. 156,120 $ 3,123,121
Aeon Credit Service Co. Ltd. 170,700 2,625,357
American Express Co. 79,170 4,825,412
Bank of Cyprus Public Co. Ltd. 121,550 2,362,124
Chiba Bank Ltd. 215,000 1,722,100
HSBC Holdings PLC 363,151 7,188,598
UBS AG 99,306 5,319,734
---------------
$ 27,166,446
- ------------------------------------------------------------------------------------------------------------------
Pharmaceuticals - 6.7%
- ------------------------------------------------------------------------------------------------------------------
Bayer AG (l) 46,170 $ 3,852,766
Merck & Co., Inc. 69,160 4,029,262
Novartis AG 101,440 5,403,350
Novo Nordisk A/S, "B" 33,940 4,213,360
Roche Holding AG 34,050 5,818,047
Teva Pharmaceutical Industries Ltd., ADR 84,290 3,709,603
---------------
$ 27,026,388
- ------------------------------------------------------------------------------------------------------------------
Specialty Chemicals - 3.8%
- ------------------------------------------------------------------------------------------------------------------
L'Air Liquide S.A. 25,470 $ 3,508,728
Linde AG (l) 29,020 3,675,813
Praxair, Inc. 47,520 4,062,010
Symrise AG (a) 133,568 3,984,553
---------------
$ 15,231,104
- ------------------------------------------------------------------------------------------------------------------
Specialty Stores - 1.6%
- ------------------------------------------------------------------------------------------------------------------
Lowe's Cos., Inc. 79,740 $ 2,144,209
PetSmart, Inc. 76,910 2,303,455
Staples, Inc. 85,270 1,990,202
---------------
$ 6,437,866
- ------------------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.9%
- ------------------------------------------------------------------------------------------------------------------
America Movil S.A.B. de C.V., "L", ADR 58,450 $ 3,822,046
Orascom Telecom Holding (S.A.E.) 257,808 3,675,429
---------------
$ 7,497,475
- ------------------------------------------------------------------------------------------------------------------
Telephone Services - 4.5%
- ------------------------------------------------------------------------------------------------------------------
Sistema JSFC, GDR 119,260 $ 4,758,474
Telefonica S.A. (l) 232,350 7,679,446
Telenor A.S.A. 159,310 3,742,600
TELUS Corp. 29,890 1,815,201
---------------
$ 17,995,721
- ------------------------------------------------------------------------------------------------------------------
Trucking - 0.6%
- ------------------------------------------------------------------------------------------------------------------
FedEx Corp. 23,760 $ 2,455,358
- ------------------------------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.1%
- ------------------------------------------------------------------------------------------------------------------
CEZ AS 63,960 $ 4,625,841
- ------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $328,867,698) $ 403,515,824
- ------------------------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 4.4%
- ------------------------------------------------------------------------------------------------------------------
Citigroup Global Markets, Inc. Repurchase Agreement, 5.29%,
dated 10/31/07, due 11/01/07, total to be received $17,699,396
(secured by U.S. Treasury and Federal Agency obligations and
Mortgage Backed securities in an individually traded account),
at Cost and Net Asset Value 17,696,831 $ 17,696,831
- ------------------------------------------------------------------------------------------------------------------
Money Market Funds (v) - 1.3%
- ------------------------------------------------------------------------------------------------------------------
MFS Institutional Money Market Portfolio, 5.30%,
at Cost and Net Asset Value 5,217,288 $ 5,217,288
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $351,781,817) $ 426,429,943
- ------------------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (5.9)% (23,756,736)
- ------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 402,673,207
- ------------------------------------------------------------------------------------------------------------------
(a) Non-income producing security.
(l) All or a portion of this security is on loan.
(v) Underlying fund that is available only to investment companies managed by MFS. The rate quoted is the annualized
seven-day yield of the fund at period end.
The following abbreviations are used in this report and are defined:
ADR American Depository Receipt
GDR Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/07
This statement represents your fund's balance sheet, which details the assets and liabilities comprising
the total value of the fund.
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments in non-affiliated issuers, at value including
$16,907,874 of securities on loan (identified cost,
$346,564,529) $421,212,655
Investments in underlying funds, at cost and value 5,217,288
- -------------------------------------------------------------------------------------------------------
Total investments, at value, including $16,907,874 of
securities on loan (identified cost, $351,781,817) $426,429,943
- -------------------------------------------------------------------------------------------------------
Cash 30
Foreign currency, at value (identified cost, $1,289,013) 1,289,017
Receivable for investments sold 4,411,009
Receivable for fund shares sold 498,913
Interest and dividends receivable 503,277
- -------------------------------------------------------------------------------------------------------
Total assets $433,132,189
- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased $7,056,850
Payable for fund shares reacquired 5,109,484
Collateral for securities loaned, at value 17,696,831
Payable to affiliates
Management fee 19,773
Shareholder servicing costs 178,990
Distribution and service fees 8,968
Administrative services fee 394
Retirement plan administration and services fees 92
Payable for independent trustees' compensation 51,904
Accrued expenses and other liabilities 335,696
- -------------------------------------------------------------------------------------------------------
Total liabilities $30,458,982
- -------------------------------------------------------------------------------------------------------
Net assets $402,673,207
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------------
Paid-in capital $336,378,661
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies
(net of $81,167 deferred country tax) 74,584,329
Accumulated net realized gain (loss) on investments and
foreign currency transactions (10,068,062)
Undistributed net investment income 1,778,279
- -------------------------------------------------------------------------------------------------------
Net assets $402,673,207
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 13,966,952
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class A shares
- -------------------------------------------------------------------------------------------------------
Net assets $297,955,976
Shares outstanding 10,184,389
- -------------------------------------------------------------------------------------------------------
Net asset value per share $29.26
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25Xnet asset value per share) $31.05
- -------------------------------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------------------------------
Net assets $64,415,863
Shares outstanding 2,349,040
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $27.42
- -------------------------------------------------------------------------------------------------------
Class C shares
- -------------------------------------------------------------------------------------------------------
Net assets $20,249,477
Shares outstanding 745,809
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per share $27.15
- -------------------------------------------------------------------------------------------------------
Class I shares
- -------------------------------------------------------------------------------------------------------
Net assets $7,739,043
Shares outstanding 259,056
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $29.87
- -------------------------------------------------------------------------------------------------------
Class R shares
- -------------------------------------------------------------------------------------------------------
Net assets $2,766,924
Shares outstanding 95,494
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.97
- -------------------------------------------------------------------------------------------------------
Class R1 shares
- -------------------------------------------------------------------------------------------------------
Net assets $1,009,055
Shares outstanding 36,970
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $27.29
- -------------------------------------------------------------------------------------------------------
Class R2 shares
- -------------------------------------------------------------------------------------------------------
Net assets $727,967
Shares outstanding 26,488
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $27.48
- -------------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class R3 shares
- -------------------------------------------------------------------------------------------------------
Net assets $4,167,809
Shares outstanding 144,852
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $28.77
- -------------------------------------------------------------------------------------------------------
Class R4 shares
- -------------------------------------------------------------------------------------------------------
Net assets $3,563,462
Shares outstanding 122,207
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $29.16
- -------------------------------------------------------------------------------------------------------
Class R5 shares
- -------------------------------------------------------------------------------------------------------
Net assets $77,631
Shares outstanding 2,647
- -------------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price per share $29.33
- -------------------------------------------------------------------------------------------------------
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
Year ended 10/31/07
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 $9,826,487
Dividends from underlying funds 50,778
Interest 262,336
Other 43,259
Foreign taxes withheld (454,586)
- -------------------------------------------------------------------------------------------------------
Total investment income $9,728,274
- -------------------------------------------------------------------------------------------------------
Expenses
Management fee $3,572,104
Distribution and service fees 1,955,327
Shareholder servicing costs 700,615
Administrative services fee 76,523
Retirement plan administration and services fees 8,207
Independent trustees' compensation 19,609
Custodian fee 264,950
Shareholder communications 41,534
Auditing fees 58,031
Legal fees 5,750
Miscellaneous 157,304
- -------------------------------------------------------------------------------------------------------
Total expenses $6,859,954
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (5,127)
Reduction of expenses by investment adviser and distributor (293,701)
- -------------------------------------------------------------------------------------------------------
Net expenses $6,561,126
- -------------------------------------------------------------------------------------------------------
Net investment income $3,167,148
- -------------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
- -------------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions
Non-affiliated issuers $61,965,517
Foreign currency transactions (62,056)
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Net realized gain (loss) on investments and foreign
currency transactions $61,903,461
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments (net of $81,167 deferred country tax) $17,269,492
Translation of assets and liabilities in foreign currencies 13,496
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Net unrealized gain (loss) on investments and foreign
currency translation $17,282,988
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $79,186,449
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $82,353,597
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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.
YEARS ENDED 10/31
----------------------------------------
2007 2006
CHANGE IN NET ASSETS
FROM OPERATIONS
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Net investment income $3,167,148 $1,257,590
Net realized gain (loss) on investments and foreign
currency transactions 61,903,461 64,559,569
Net unrealized gain (loss) on investments and foreign
currency translation 17,282,988 6,077,759
- -------------------------------------------------------------------------------------------------------
Change in net assets from operations $82,353,597 $71,894,918
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A $(2,861,070) $--
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) --
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Total distributions declared to shareholders $(3,224,642) $--
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Change in net assets from fund share transactions $(77,431,825) $(81,629,537)
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Total change in net assets $1,697,130 $(9,734,619)
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NET ASSETS
- -------------------------------------------------------------------------------------------------------
At beginning of period 400,976,077 410,710,696
At end of period (including undistributed net investment
income of $1,778,279 and $1,998,518, respectively) $402,673,207 $400,976,077
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years (or
life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The
total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund
share class (assuming reinvestment of all distributions) held for the entire period.
CLASS A YEARS ENDED 10/31
-------------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $23.97 $20.10 $17.76 $15.91 $12.73
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INCOME (LOSS) FROM
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.25 $0.11 $0.01 $(0.01) $0.04
Net realized and unrealized
gain (loss) on investments and
foreign currency 5.28 3.76 2.33 1.86 3.14
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Total from investment operations $5.53 $3.87 $2.34 $1.85 $3.18
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LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.24) $-- $-- $-- $--
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.26 $23.97 $20.10 $17.76 $15.91
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 23.24 19.25 13.18 11.70(b)(q) 24.90(j)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.58 1.61 1.69 1.70 1.69
Expenses after expense reductions (f) 1.48 1.51 1.59 1.60 1.59
Net investment income (loss) 0.97 0.49 0.07 (0.04) 0.30
Portfolio turnover 68 96 92 163 93
Net assets at end of period
(000 Omitted) $297,956 $290,952 $290,256 $304,348 $306,333
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS B YEARS ENDED 10/31
---------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $22.46 $18.98 $16.90 $15.25 $12.29
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.06 $(0.05) $(0.13) $(0.13) $(0.06)
Net realized and unrealized gain (loss)
on investments and foreign currency 4.95 3.53 2.21 1.78 3.02
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.01 $3.48 $2.08 $1.65 $2.96
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.05) $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.42 $22.46 $18.98 $16.90 $15.25
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 22.35 18.34 12.31 10.82(b)(q) 24.08(j)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.23 2.26 2.34 2.35 2.34
Expenses after expense reductions (f) 2.23 2.26 2.34 2.35 N/A
Net investment income (loss) 0.25 (0.26) (0.70) (0.81) (0.47)
Portfolio turnover 68 96 92 163 93
Net assets at end of period
(000 Omitted) $64,416 $75,573 $87,769 $108,750 $129,229
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CLASS C YEARS ENDED 10/31
---------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $22.26 $18.80 $16.74 $15.11 $12.18
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.05 $(0.06) $(0.13) $(0.13) $(0.06)
Net realized and unrealized gain (loss)
on investments and foreign currency 4.91 3.52 2.19 1.76 2.99
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.96 $3.46 $2.06 $1.63 $2.93
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.07) $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.15 $22.26 $18.80 $16.74 $15.11
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s)(t) 22.33 18.40 12.31 10.79(b)(q) 24.06(j)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.23 2.26 2.34 2.35 2.34
Expenses after expense reductions (f) 2.23 2.26 2.34 2.35 N/A
Net investment income (loss) 0.21 (0.27) (0.69) (0.81) (0.47)
Portfolio turnover 68 96 92 163 93
Net assets at end of period
(000 Omitted) $20,249 $20,450 $20,924 $21,945 $24,777
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS I YEARS ENDED 10/31
---------------------------------------------------------------------------------
2007 2006 2005 2004 2003
Net asset value, beginning of period $24.46 $20.46 $18.04 $16.11 $12.86
- ------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.32 $0.17 $0.06 $0.04 $0.07
Net realized and unrealized gain (loss)
on investments and foreign currency 5.39 3.83 2.36 1.89 3.18
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.71 $4.00 $2.42 $1.93 $3.25
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LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.30) $-- $-- $-- $--
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.87 $24.46 $20.46 $18.04 $16.11
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 23.57 19.55 13.41 11.98(b)(q) 25.27(j)
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.23 1.26 1.34 1.34 1.33
Expenses after expense reductions (f) 1.23 1.26 1.34 1.34 N/A
Net investment income 1.22 0.74 0.31 0.21 0.53
Portfolio turnover 68 96 92 163 93
Net assets at end of period (000 Omitted) $7,739 $7,368 $7,233 $7,011 $6,249
- ------------------------------------------------------------------------------------------------------------------------------
CLASS R YEARS ENDED 10/31
---------------------------------------------------------------------------------
2007 2006 2005 2004 2003(i)
Net asset value, beginning of period $23.73 $19.95 $17.68 $15.87 $12.63
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.20 $0.06 $(0.03) $(0.02) $0.03
Net realized and unrealized gain (loss)
on investments and foreign currency 5.21 3.72 2.30 1.83 3.21
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.41 $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 $28.97 $23.73 $19.95 $17.68 $15.87
- ----------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 22.94 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) 1.74 1.76 1.85 1.83 1.78(a)
Expenses after expense reductions (f) 1.74 1.76 1.85 1.83 1.78(a)
Net investment income (loss) 0.75 0.28 (0.16) (0.10) 0.21(a)
Portfolio turnover 68 96 92 163 93
Net assets at end of period (000 Omitted) $2,767 $3,721 $3,641 $1,194 $385
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SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R1 YEARS ENDED 10/31
---------------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $22.42 $18.96 $18.12
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (d) $(0.10) $(0.07) $(0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency 5.06 3.53 0.92(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $4.96 $3.46 $0.84
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.09) $-- $--
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.29 $22.42 $18.96
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 22.17 18.25 4.64(n)
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RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.35 2.45 2.54(a)
Expenses after expense reductions (f) 2.33 2.35 2.52(a)
Net investment loss (0.43) (0.35) (0.77)(a)
Portfolio turnover 68 96 92
Net assets at end of period (000 Omitted) $1,009 $127 $104
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CLASS R2 YEARS ENDED 10/31
--------------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $22.54 $18.99 $18.12
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INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.06 $(0.00)(w) $(0.08)
Net realized and unrealized gain (loss) on investments
and foreign currency 5.01 3.55 0.95(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.07 $3.55 $0.87
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.13) $-- $--
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $27.48 $22.54 $18.99
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 22.62 18.69 4.80(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 2.00 2.16 2.24(a)
Expenses after expense reductions (f) 1.96 2.00 2.20(a)
Net investment income (loss) 0.26 (0.02) (0.71)(a)
Portfolio turnover 68 96 92
Net assets at end of period (000 Omitted) $728 $246 $213
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R3 YEARS ENDED 10/31
---------------------------------------------------------------------
2007 2006 2005 2004
Net asset value, beginning of period $23.58 $19.85 $17.63 $15.87
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (d) $0.04 $0.03 $(0.06) $(0.07)
Net realized and unrealized gain (loss)
on investments and foreign currency 5.29 3.70 2.28 1.83
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.33 $3.73 $2.22 $1.76
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.14) $-- $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $28.77 $23.58 $19.85 $17.63
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 22.73 18.79 12.59 11.09(b)(q)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.90 2.00 2.10 2.08
Expenses after expense reductions (f) 1.88 1.90 2.09 2.08
Net investment income (loss) 0.16 0.15 (0.29) (0.45)
Portfolio turnover 68 96 92 163
Net assets at end of period (000 Omitted) $4,168 $619 $466 $239
- --------------------------------------------------------------------------------------------------------------------------
CLASS R4 YEARS ENDED 10/31
----------------------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $23.91 $20.08 $19.10
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.15 $0.11 $0.02
Net realized and unrealized gain (loss) on investments
and foreign currency 5.33 3.72 0.96(g)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.48 $3.83 $0.98
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
From net investment income $(0.23) $-- $--
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.16 $23.91 $20.08
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 23.10 19.07 5.13(n)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.62 1.64 1.75(a)
Expenses after expense reductions (f) 1.62 1.64 1.75(a)
Net investment income 0.58 0.48 0.20(a)
Portfolio turnover 68 96 92
Net assets at end of period (000 Omitted) $3,563 $1,857 $53
- --------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Highlights - continued
CLASS R5 YEARS ENDED 10/31
---------------------------------------------------
2007 2006 2005(i)
Net asset value, beginning of period $24.02 $20.11 $19.10
- --------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.28 $0.14 $0.06
Net realized and unrealized gain (loss) on investments
and foreign currency 5.31 3.77 0.95(g)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $5.59 $3.91 $1.01
- --------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------
From net investment income $(0.28) $-- $--
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $29.33 $24.02 $20.11
- --------------------------------------------------------------------------------------------------------------------
Total return (%) (r)(s) 23.47 19.44 5.29(n)
- --------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.33 1.35 1.45(a)
Expenses after expense reductions (f) 1.33 1.35 1.45(a)
Net investment income 1.07 0.65 0.50(a)
Portfolio turnover 68 96 92
Net assets at end of period (000 Omitted) $78 $63 $53
- --------------------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
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 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
(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.
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.
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 - JPMorgan Chase and Co. ("Chase"), as lending agent, may loan
the securities of the fund to certain qualified institutions (the "Borrowers")
approved by the fund. The loans are collateralized 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. Chase provides the fund with indemnification against
Borrower default. The fund bears the risk of loss with respect to the
investment of cash collateral. On loans collateralized by cash, the cash
collateral is invested in 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 the Statement of Operations in realized
gain/loss if the security has been disposed of by the fund or in unrealized
gain/loss if the security is still held by the fund. Any other proceeds from
litigation not related to portfolio holdings are reflected as other income in
the Statement of Operations.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the fund. This amount, for the year ended October 31, 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 and foreign taxes.
The tax character of distributions declared to shareholders is as follows:
10/31/07
Ordinary income (including any
short-term capital gains) $3,224,642
The federal tax cost and the tax basis components of distributable earnings
were as follows:
AS OF 10/31/07
Cost of investments $352,174,820
----------------------------------------------------------
Gross appreciation $82,563,897
Gross depreciation (8,308,774)
----------------------------------------------------------
Net unrealized appreciation (depreciation) $74,255,123
Undistributed ordinary income 1,845,962
Capital loss carryforwards (9,675,059)
Other temporary differences (131,480)
As of October 31, 2007, the fund had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/11 $(9,675,059)
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 year ended October 31, 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 $17,938 for the year ended October 31, 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 Plan Fee 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% $1,019,249
Class B 0.75% 0.25% 1.00% 1.00% 699,951
Class C 0.75% 0.25% 1.00% 1.00% 201,575
Class R 0.25% 0.25% 0.50% 0.50% 17,626
Class R1 0.50% 0.25% 0.75% 0.75% 1,905
Class R2 0.25% 0.25% 0.50% 0.50% 1,744
Class R3 0.25% 0.25% 0.50% 0.50% 7,080
Class R4 -- 0.25% 0.25% 0.25% 6,197
- ---------------------------------------------------------------------------------------------------------------------
Total Distribution and Service Fees $1,955,327
(d) In accordance with the distribution plan for certain classes, the fund
pays distribution and/or service fees up to these annual percentage rates
of each class' average daily net assets.
(e) The annual effective rates represent actual fees incurred under the
distribution plan for the year ended October 31, 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
29, 2008. For the year ended October 31, 2007, this waiver amounted to
$291,214 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 year ended October 31,
2007, were as follows:
AMOUNT
Class A $8,892
Class B 47,902
Class C 1,230
SHAREHOLDER SERVICING AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned
subsidiary of MFS, receives a fee from the fund for its services as
shareholder servicing agent calculated as a percentage of the average daily
net assets of the fund as determined periodically under the supervision of the
fund's Board of Trustees. For the year ended October 31, 2007, the fee was
$211,836, which equated to 0.0533% annually of the fund's average daily
net assets. MFSC also receives payment from the fund for out-of-pocket
expenses, sub-accounting and other shareholder servicing costs which may be
paid to affiliated and unaffiliated service providers. For the year ended
October 31, 2007, these out-of-pocket expenses, sub-accounting and other
shareholder servicing costs amounted to $454,924. 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 average daily net assets. The fund's annual fixed
amount is $17,500.
The administrative services fee incurred for the year ended October 31, 2007
was equivalent to an annual effective rate of 0.0193% 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 year ended October 31, 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 ANNUAL
PERIOD THROUGH EFFECTIVE EFFECTIVE TOTAL
3/31/07 4/01/07 RATE (g) AMOUNT
Class R1 0.45% 0.35% 0.35% $948
Class R2 0.40% 0.25% 0.25% 1,035
Class R3 0.25% 0.15% 0.15% 2,437
Class R4 0.15% 0.15% 0.15% 3,718
Class R5 0.10% 0.10% 0.10% 69
- -----------------------------------------------------------------------------------------------------------------
Total Retirement Plan Administration and Services Fees $8,207
(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, 0.15% for Class R2, 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 services fee for Class R1, Class R2,
and Class R3 shares was lowered to 0.35%, 0.25%, and 0.15%, respectively.
For the year ended October 31, 2007, the waiver amounted to $535 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 $1,668. The fund also has an
unfunded retirement benefit deferral plan for certain independent trustees
which resulted in an expense of $5,891. Both amounts are included in
independent trustees' compensation for the year ended October 31, 2007. The
liability for deferred retirement benefits payable to certain independent
trustees under both plans amounted to $50,415 at October 31, 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 year ended October 31, 2007, the fee paid to Tarantino LLC
was $2,521. MFS has agreed to reimburse the fund for a portion of the payments
made by the funds to Tarantino LLC in the amount of $1,952, which is shown as
a reduction of total expenses in the Statement of Operations. Additionally,
MFS has agreed to bear all expenses associated with office space, other
administrative support, and supplies provided to the ICCO.
The fund may invest in a money market fund managed by MFS which seeks
preservation of capital and current income. Income earned on this investment
is included in dividends from underlying funds on the Statement of Operations.
This money market fund does not pay a management fee to MFS.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$268,627,231 and $343,634,704, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
YEAR ENDED YEAR ENDED
10/31/07 10/31/06
SHARES AMOUNT SHARES AMOUNT
Shares sold
Class A 2,196,393 $58,788,397 1,766,316 $39,375,857
Class B 249,794 6,158,115 442,728 9,297,151
Class C 88,316 2,139,680 89,968 1,882,302
Class I 282,888 8,110,897 44,205 1,015,969
Class R 31,447 816,660 43,856 970,152
Class R1 36,580 922,708 601 12,629
Class R2 25,258 629,611 2,286 47,881
Class R3 168,169 4,449,783 14,779 323,456
Class R4 196,281 5,104,113 86,591 1,930,001
Class R5 -- -- 4 75
- ----------------------------------------------------------------------------------------------------------
3,275,126 $87,119,964 2,491,334 $54,855,473
Shares issued to shareholders in
reinvestment of distributions
Class A 104,834 $2,600,943 -- $--
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 $2,947,299 -- $--
Shares reacquired
Class A (4,256,084) $(112,509,795) (4,070,717) $(90,508,663)
Class B (1,271,659) (31,239,465) (1,703,399) (35,750,510)
Class C (263,416) (6,379,886) (283,968) (5,884,539)
Class I (328,544) (9,315,129) (96,540) (2,227,850)
Class R (93,866) (2,453,051) (69,569) (1,528,088)
Class R1 (5,298) (130,365) (397) (8,270)
Class R2 (9,761) (238,174) (2,591) (56,583)
Class R3 (49,716) (1,280,345) (11,978) (261,148)
Class R4 (152,454) (3,952,878) (11,530) (259,282)
Class R5 -- -- (4) (77)
- -----------------------------------------------------------------------------------------------------------
(6,430,798) $(167,499,088) (6,250,693) $(136,485,010)
Net change
Class A (1,954,857) $(51,120,455) (2,304,401) $(51,132,806)
Class B (1,015,177) (24,924,861) (1,260,671) (26,453,359)
Class C (172,889) (4,188,967) (194,000) (4,002,237)
Class I (42,170) (1,116,147) (52,335) (1,211,881)
Class R (61,319) (1,609,312) (25,713) (557,936)
Class R1 31,305 792,869 204 4,359
Class R2 15,560 392,915 (305) (8,702)
Class R3 118,590 3,172,801 2,801 62,308
Class R4 44,529 1,168,605 75,061 1,670,719
Class R5 29 727 -- (2)
- ----------------------------------------------------------------------------------------------------------
(3,036,399) $(77,431,825) (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%. In addition, a commitment fee, based on the average
daily, unused portion of the committed line of credit, is allocated among the
participating funds at the end of each calendar quarter. For the year ended
October 31, 2007, the fund's commitment fee and interest expense were $2,023
and $8,198, respectively, and are included in miscellaneous expense on the
Statement of Operations.
(7) TRANSACTIONS IN UNDERLYING FUNDS - AFFILIATED ISSUERS
An affiliated issuer may be considered one in which the fund owns 5% or more
of the outstanding voting securities, or a company which is under common
control. For the purposes of this report, the fund assumes the following to be
affiliated issuers:
BEGINNING ACQUISITIONS DISPOSITIONS ENDING
SHARES/PAR SHARES/PAR SHARES/PAR SHARES/PAR
UNDERLYING FUNDS AMOUNT AMOUNT AMOUNT AMOUNT
MFS Institutional Money Market Portfolio -- 41,208,835 (35,991,547) 5,217,288
CAPITAL GAIN
DISTRIBUTIONS
FROM
REALIZED UNDERLYING DIVIDEND ENDING
UNDERLYING FUNDS GAIN (LOSS) FUNDS INCOME VALUE
MFS Institutional Money Market Portfolio $-- $-- $50,778 $5,217,288
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees of MFS Series Trust VIII and the Shareholders of
MFS Global Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of MFS Global Growth Fund (one of the portfolios
comprising MFS Series Trust VIII) (the "Trust") as of October 31, 2007, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Trust is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of October 31, 2007,
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Global Growth
Fund as of October 31, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 14, 2007
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2007, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(S) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(h) OTHER DIRECTORSHIPS(j)
- ------------------- ---------------- --------------- ---------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); MIT Sloan School
(education), Senior Lecturer
(since 2006); Secretary of
Economic Affairs, The Commonwealth
of Massachusetts (January 2002 to
December 2002); Fidelity
Investments, Vice Chairman (June
2000 to December 2001); Fidelity
Management & Research Company
(investment adviser), President
(March 1997 to July 2001); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Chief of Cardiac Surgery (2005);
Harvard Medical School, Professor
of Cardiac Surgery; Physician
Director of Medical Device
Technology for Partners HealthCare
David H. Gunning Trustee January 2004 Retired; Cleveland-Cliffs Inc.
(born 5/30/42) (mining products and service
provider), Vice Chairman/Director
(until May 2007); Portman Limited
(mining), Director (since 2005);
Encinitos Ventures (private
investment company), Principal
(1997 to April 2001); Lincoln
Electric Holdings, Inc. (welding
equipment manufacturer), Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman;
Atlantic Coast Tan (tanning
salons), Vice Chairman (since
2002)
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Laurie J. Thomsen Trustee March 2005 New Profit, Inc. (venture
(born 8/05/57) philanthropy), Partner (since
2006); Private investor; Prism
Venture Partners (venture
capital), Co-founder and General
Partner (until June 2004); The
Travelers Companies (commercial
property liability insurance),
Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International
Funds (mutual fund complex),
Trustee (2000 until 2005);
Hillview Investment Trust II Funds
(mutual fund complex), Trustee
(2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004) Chief
Compliance Officer (since December
2006); Fidelity Management &
Research Company, Vice President
(prior to March 2004); Fidelity
Group of Funds, President and
Treasurer (prior to March 2004)
Tracy Atkinson(k) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 1/18/74) and Assistant Clerk Company, Vice President and Senior
Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/21/63) and Assistant Clerk Company, Special Counsel (since
December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 8/10/68) Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant Secretary September 2005 Massachusetts Financial Services
(born 7/10/68) and Assistant Clerk Company, Vice President and Senior
Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock
Group of Funds, Vice President and
Chief Compliance Officer
(September 2004 to December 2004)
Mark D. Fischer(k) Assistant Treasurer July 2005 Massachusetts Financial Services
(born 10/27/70) Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant Secretary June 2006 Massachusetts Financial Services
(born 3/07/73) and Assistant Clerk Company, Assistant Vice President
and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior to May
2005)
Ellen Moynihan(k) Assistant Treasurer April 1997 Massachusetts Financial Services
(born 11/13/57) Company, Senior Vice President
Susan S. Newton(k) Assistant Secretary May 2005 Massachusetts Financial Services
(born 3/07/50) and Assistant Clerk Company, Senior Vice President and
Associate General Counsel (since
April 2005); John Hancock
Advisers, LLC, Senior Vice
President, Secretary and Chief
Legal Officer (prior to April
2005); John Hancock Group of
Funds, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005)
Susan A. Pereira(k) Assistant Secretary July 2005 Massachusetts Financial Services
(born 11/05/70) and Assistant Clerk Company, Vice President and Senior
Counsel (since June 2004); Bingham
McCutchen LLP (law firm),
Associate (prior to June 2004)
Mark N. Polebaum(k) Secretary and Clerk January 2006 Massachusetts Financial Services
(born 5/01/52) Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance Officer compliance services), Principal
(since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant Treasurer September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
- ------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously
since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(k) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred to as
the 1940 Act), which is the principal federal law governing investment companies like the fund, as a
result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The
terms of that settlement required that compensation and expenses related to the independent compliance
consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to
the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.
The Trust held a shareholders' meeting in 2005 to elect Trustees, and will hold a shareholders' meeting at
least once every five years thereafter, to elect Trustees.
Each Trustee (except Mr. Butler and Mr. Uek) has been elected by shareholders and each Trustee and officer
holds office until his or her successor is chosen and qualified or until his or her earlier death,
resignation, retirement or removal. Messrs. Butler, Gutow, Sherratt and Uek and Ms. Thomsen are members of the
Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain
affiliates of MFS. As of January 1, 2007, the Trustees served as board members of 97 funds within the MFS
Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request by calling 1-800-225-2606.
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INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company JPMorgan Chase Bank
500 Boylston Street, Boston, MA 02116-3741 One Chase Manhattan Plaza
New York, NY 10081
DISTRIBUTOR
MFS Fund Distributors, Inc. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
500 Boylston Street, Boston, MA 02116-3741 Deloitte & Touche LLP
200 Berkeley Street, Boston, MA 02116
PORTFOLIO MANAGERS
Barry Dargan
Nicholas Smithie
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment
advisory agreement with MFS. The Trustees consider matters bearing on the Fund
and its advisory arrangements at their meetings throughout the year, including
a review of performance data at each regular meeting. In addition, the
independent Trustees met several times over the course of three months
beginning in May and ending in July, 2007 ("contract review meetings") for the
specific purpose of considering whether to approve the continuation of the
investment advisory agreement for the Fund and the other investment companies
that the Board oversees (the "MFS Funds"). The independent Trustees were
assisted in their evaluation of the Fund's investment advisory agreement by
independent legal counsel, from whom they received separate legal advice and
with whom they met separately from MFS during various contract review
meetings. The independent Trustees were also assisted in this process by the
MFS Funds' Independent Chief Compliance Officer, a full-time senior officer
appointed by and reporting to the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light
of the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials that included, among other items: (i) information
provided by Lipper Inc. on the investment performance of the Fund for various
time periods ended December 31, 2006 and the investment performance of a group
of funds with substantially similar investment classifications/objectives (the
"Lipper performance universe"), as well as the investment performance of a
group of funds identified by objective criteria suggested by MFS ("MFS peer
funds"), (ii) information provided by Lipper Inc. on the Fund's advisory fees
and other expenses and the advisory fees and other expenses of comparable
funds identified by Lipper (the "Lipper expense group"), as well as the
advisory fees and other expenses of MFS peer funds, (iii) information provided
by MFS on the advisory fees of comparable portfolios of other clients of MFS,
including institutional separate accounts and other clients, (iv) information
as to whether and to what extent applicable expense waivers, reimbursements or
fee "breakpoints" are observed for the Fund, (v) information regarding MFS'
financial results and financial condition, including MFS' and certain of its
affiliates' estimated profitability from services performed for the Fund and
the MFS Funds as a whole, (vi) MFS' views regarding the outlook for the mutual
fund industry and the strategic business plans of MFS, (vii) descriptions of
various functions performed by MFS for the Funds, such as compliance
monitoring and portfolio trading practices, and (viii) information regarding
the overall organization of MFS, including information about MFS' senior
management and other personnel providing investment advisory, administrative
and other services to the Fund and the other MFS Funds. The comparative
performance, fee and expense information prepared and provided by Lipper Inc.
was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than in others, and
that the Trustees' conclusions may be based, in part, on their consideration
of these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed
the Fund's total return investment performance as well as the performance of
peer groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's Class A shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2006, which the Trustees believed was
a long enough period to reflect differing market conditions. The total return
performance of the Fund's Class A shares was in the 3rd quintile relative to
the other funds in the universe for this three-year period (the 1st quintile
being the best performers and the 5th quintile being the worst performers).
The total return performance of the Fund's Class A shares was in the 3rd
quintile for the one-year period and the 1st quintile for the five-year period
ended December 31, 2006 relative to the Lipper performance universe. Because
of the passage of time, these performance results may differ from the
performance results for more recent periods, including those shown elsewhere
in this report.
In addition to considering the performance information provided in connection
with the contract review meetings, the independent Trustees noted that, in
light of the Fund's substandard relative performance at the time of their
contract review meetings in 2006, they had met at each of their regular
meetings since then with MFS' senior investment management personnel to
discuss the Fund's performance and MFS' efforts to improve the Fund's
performance. The independent Trustees further noted that the Fund's relative
performance for the three-year period ended December 31, 2006 had improved in
comparison to the prior year. Taking this information into account, the
Trustees concluded, within the context of their overall conclusions regarding
the investment advisory agreement, that they were satisfied with MFS'
responses and efforts relating to investment performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's Class A shares as a percentage of average daily
net assets and the advisory fee and total expense ratios of peer groups of
funds based on information provided by Lipper Inc. and MFS. The Trustees
considered that MFS Fund Distributors, Inc. ("MFD"), an affiliate of MFS,
currently observes a Class A 12b-1 fee waiver. The Trustees also considered
that, according to the Lipper data (which takes into account the Class A 12b-1
fee waiver), the Fund's effective advisory fee rate was higher than the Lipper
expense group median, and the Fund's total expense ratio was approximately at
the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information
provided by MFS as to the generally broader scope of services provided by MFS
to the Fund in comparison to institutional accounts, the higher demands placed
on MFS' investment personnel and trading infrastructure as a result of the
daily cash in-flows and out-flows of the Fund, and the impact on MFS and
expenses associated with the more extensive regulatory regime to which the
Fund is subject in comparison to institutional accounts.
The Trustees also considered whether the Fund is likely to benefit from any
economies of scale in the management of the Fund in the event of growth in
assets of the Fund. They noted that the Fund's advisory fee rate schedule is
currently subject to contractual breakpoints that reduce the Fund's advisory
fee rate on average daily net assets over $1 billion and $2 billion. The
Trustees concluded that the existing breakpoints were sufficient to allow the
Fund to benefit from economies of scale as its assets grow.
The Trustees also considered information prepared by MFS relating to MFS'
costs and profits with respect to the Fund, the MFS Funds considered as a
group, and other investment companies and accounts advised by MFS, as
well as MFS' methodologies used to determine and allocate its costs to the MFS
Funds, the Fund and other accounts and products for purposes of
estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the nature and quality of the
services being provided by MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the
financial services industry, including the entry into the industry of large
and well-capitalized companies which are spending, and appear to be prepared
to continue to spend, substantial sums to engage personnel and to provide
services to competing investment companies. In this regard, the Trustees also
considered the financial resources of MFS and its ultimate parent, Sun Life
Financial Inc. The Trustees also considered the advantages and possible
disadvantages to the Fund of having an adviser that also serves other
investment companies as well as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative, transfer agency, and distribution services provided to the
Fund by MFS and its affiliates under agreements and plans other than the
investment advisory agreement, including any 12b-1 fees the Fund pays to MFD.
The Trustees also considered the nature, extent and quality of certain other
services MFS performs or arranges for on the Fund's behalf, which may include
securities lending programs, directed expense payment programs, class action
recovery programs, and MFS' interaction with third-party service providers,
principally custodians and sub-custodians. The Trustees concluded that the
various non-advisory services provided by MFS and its affiliates on behalf of
the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly), and various
other factors. Additionally, the Trustees considered so-called "fall-out
benefits" to MFS such as reputational value derived from serving as investment
manager to the Fund.
Based on their evaluation of factors that they deemed to be material,
including those factors described above, the Board of Trustees, including a
majority of the independent Trustees, concluded that the Fund's investment
advisory agreement with MFS should be continued for an additional one-year
period, commencing August 1, 2007.
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 1-800-SEC-0330. The fund's Form N-Q is
available on the EDGAR database on the Commission's Internet Web site at
http://www.sec.gov, and copies of this information may be obtained, upon
payment of a duplicating fee, by electronic request at the following e-mail
address: publicinfo@sec.gov or by writing the Public Reference Section at the
above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2007 income
tax forms in January 2008. The following information is provided pursuant to
provisions of the Internal Revenue Code.
The fund designates the maximum amount allowable as qualified dividend income
eligible for the 15% tax rate.
For corporate shareholders, 67.87% of the ordinary income dividends paid
during the fiscal year qualify for the corporate dividends received deduction.
Income derived from foreign sources was $4,979,995. The fund intends to pass
through foreign tax credits of $234,875 for the fiscal year.
MFS(R) PRIVACY NOTICE
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about the investment products and services that we
offer, and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal
information. We maintain information and records about you, your investments,
and the services you use. Examples of the nonpublic personal information we
maintain include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or
others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except as permitted by law. We may share nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you.
We maintain physical, electronic, and procedural safeguards to help protect
the personal information we collect about you.
If you have any questions about the MFS privacy policy, please call
1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
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
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has not amended any provision in its Code of Ethics
(the "Code") that relates to an element of the Code's definitions enumerated in
paragraph (b) of Item 2 of this Form N-CSR.
A copy of the Code of Ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler and Robert W. Uek and Ms. Laurie J. Thomsen, members
of the Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Messrs.
Butler and Uek and Ms. Thomsen are "independent" members of the Audit Committee
(as such term has been defined by the Securities and Exchange Commission in
regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The
Securities and Exchange Commission has stated that the designation of a person
as an audit committee financial expert pursuant to this Item 3 on the Form
N-CSR does not impose on such a person any duties, obligations or liability
that are greater than the duties, obligations or liability imposed on such
person as a member of the Audit Committee and the Board of Trustees in the
absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Deloitte & Touche LLP ("Deloitte") to serve
as independent accountants to certain series of the Registrant and Ernst &
Young LLP ("E&Y") to serve in the same capacity to certain other series of the
Registrant (the series referred to collectively as the "Funds" and singularly
as a "Fund"). The tables below set forth the audit fees billed to the Funds as
well as fees for non-audit services provided to the Funds and/or to the Funds'
investment adviser, Massachusetts Financial Services Company ("MFS"), and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Funds ("MFS Related Entities").
For the fiscal years ended October 31, 2007 and 2006, audit fees billed to the
Funds by Deloitte and E&Y were as follows:
Audit Fees
FEES BILLED BY DELOITTE: 2007 2006
---- ----
MFS Global Growth Fund 50,674 45,880
Audit Fees
FEES BILLED BY E&Y: 2007 2006
---- ----
MFS Strategic Income Fund 44,010 40,565
For the fiscal years ended October 31, 2007 and 2006, fees billed by Deloitte
and E&Y for audit-related, tax and other services provided to the Funds and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY DELOITTE: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Global Growth Fund 0 0 5,690 8,100 0 0
To MFS and MFS Related 1,177,035 1,047,925 0 0 582,753 1,177,035
Entities of MFS Global
Growth Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Global Growth Fund, 1,942,853 1,461,286
MFS and MFS Related
Entities#
Audit-Related Fees(1) Tax Fees(2) All Other Fees(4)
FEES BILLED BY E&Y: 2007 2006 2007 2006 2007 2006
---- ---- ---- ---- ---- ----
To MFS Strategic Income 0 0 9,430 9,162 0 144
Fund
To MFS and MFS Related 0 0 0 15,500 0 0
Entities of MFS
Strategic Income Fund*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2007 2006
---- ----
To MFS Strategic Income 210,446 99,175
Fund, MFS and MFS
Related Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to
the operations and financial reporting of the Funds (portions of which services also related to the operations and
financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by Deloitte or E&Y, as the case may be, for non-audit services
rendered to the Funds and for non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are
reasonably related to the performance of the audit or review of financial statements, but not reported under
"Audit Fees," including accounting consultations, agreed-upon procedure reports, attestation reports, comfort
letters and internal control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning, including
services relating to the filing or amendment of federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by Deloitte other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for services related to sales tax
refunds, consultation on internal cost allocations, consultation on allocation of monies pursuant to an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales,
analysis of certain portfolio holdings versus investment styles, review of internal controls and review of Rule
38a-1 compliance program.
(4) The fees included under "All Other Fees" are fees for products and services provided by E&Y other than those
reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for the subscription to tax
treatise and for services related to analysis of fund administrative expenses, compliance program and records
management projects.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 in each period between regular meetings of the Audit Committee. Any
engagement pre-approved by the Chair between regular meetings of the Audit
Committee shall be presented for ratification by the entire Audit Committee at
its next regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(h): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services did not relate directly to the
operations and financial reporting of the Registrant) was compatible with
maintaining the independence of the independent registered public accounting
firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the Registrant.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report
to shareholders of such series under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the Registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the Registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 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: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C.
78r), or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference:
Attached hereto.
NOTICE
A copy of the Amended and Restated Declaration of Trust, as amended, of the
Registrant is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is executed on
behalf of the Registrant by an officer of the Registrant as an officer and not
individually and the obligations of or arising out of this instrument are not
binding upon any of the Trustees or shareholders individually, but are binding
only upon the assets and property of the respective constituent series of the
Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST VIII
------------------------------------------------------------------
By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: December 14, 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: December 14, 2007
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 14, 2007
-----------------
* Print name and title of each signing officer under his or her signature.