Certified Semi-annual Shareholder Report for Management Investment Companies (n-csrs)

Table of Contents

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 811-03090

MFS SERIES TRUST VII

(Exact name of registrant as specified in charter)

111 Huntington Avenue, Boston, Massachusetts 02199

(Address of principal executive offices) (Zip code)

Susan S. Newton

Massachusetts Financial Services Company

111 Huntington Avenue

Boston, Massachusetts 02199

(Name and address of agents for service)

Registrant’s telephone number, including area code: [phone]

Date of fiscal year end: July 31

Date of reporting period: January 31, 2013

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Table of Contents

ITEM 1.

REPORTS TO STOCKHOLDERS.

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Table of Contents

SEMIANNUAL REPORT

January 31, 2013

 

 

MFS® ASIA PACIFIC EX-JAPAN FUND

 

 

AJX-SEM

 

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Table of Contents

MFS® ASIA PACIFIC EX-JAPAN FUND

 

CONTENTS

 

Letter from the Chairman and CEO			1
Portfolio composition			2
Expense table			4
Portfolio of investments			6
Statement of assets and liabilities			11
Statement of operations			12
Statements of changes in net assets			13
Financial highlights			14
Notes to financial statements			18
Board review of investment advisory agreement			28
Proxy voting policies and information			28
Quarterly portfolio disclosure			28
Further information			28
Provision of financial reports and summary prospectuses			28
Contact information     back cover

 

The report is prepared for the general information of shareholders.

It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.

 

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE

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Table of Contents

 

LETTER FROM THE CHAIRMAN AND CEO

 

Dear Shareholders:

Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic

slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.

Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central

Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.

As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.

We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.

Respectfully,

 

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

March 18, 2013

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

1

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Table of Contents

PORTFOLIO COMPOSITION

 

Portfolio structure

 

 

Top ten holdings
Taiwan Semiconductor Manufacturing Co. Ltd.			4.6%
Sands China Ltd.			4.1%
Westpac Banking Corp.			4.0%
China Unicom (Hong Kong) Ltd.			3.4%
Rio Tinto PLC			3.2%
National Australia Bank Ltd.			2.8%
AIA Group Ltd.			2.5%
Samsung Electronics Co. Ltd.			2.2%
Reliance Industries Ltd.			2.1%
China Construction Bank			2.1%
Equity sectors (a)
Financial Services			35.6%
Basic Materials			12.5%
Technology			10.1%
Utilities & Communications			8.4%
Energy			6.4%
Leisure			4.9%
Retailing			4.3%
Autos & Housing			3.8%
Special Products & Services			3.7%
Consumer Staples			2.4%
Industrial Goods & Services			1.7%
Health Care			1.1%

Issuer country weightings (x)
China			18.8%
Australia			18.4%
Hong Kong			17.9%
India			8.1%
Taiwan			7.9%
United States			6.9%
South Korea			6.7%
United Kingdom			4.0%
Thailand			3.8%
Other Countries			7.5%
Currency exposure weightings (y)
Hong Kong Dollar			36.9%
Australian Dollar			18.4%
United States Dollar			11.5%
Taiwan Dollar			7.9%
South Korean Won			6.7%
Indian Rupee			4.1%
Thailand Baht			3.8%
Indonesian Rupiah			3.6%
British Pound Sterling			3.2%
Other Currencies			3.9%

 

 

2

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Table of Contents

Portfolio Composition – continued

 

(a)

The sectors depicted are economic aggregates made up of several underlying industry categories. The fund may invest between 25% and 35% of its total assets in any industry that represents 20% or more of the Asia Pacific market excluding Japan as a whole, as measured by an index determined by the adviser to be an appropriate measure of the Asia Pacific market excluding Japan. As of January 31, 2013, the fund did not have more than 25% of its total assets invested in any one industry.

(x)	Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets.

(y)	Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets.

Percentages are based on net assets as of 1/31/13.

The portfolio is actively managed and current holdings may be different.

 

3

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Table of Contents

EXPENSE TABLE

Fund expenses borne by the shareholders during the period,

August 1, 2012 through January 31, 2013

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 August 1, 2012 through January 31, 2013.

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.

 

4

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Table of Contents

Expense Table – continued

 

Share Class				Annualized Expense Ratio				Beginning Account Value 8/01/12				Ending Account Value 1/31/13				Expenses Paid During Period (p) 8/01/12-1/31/13
A		Actual			1.70%				$1,000.00				$1,150.31				$9.21
		Hypothetical (h)			1.70%				$1,000.00				$1,016.64				$8.64
B		Actual			2.45%				$1,000.00				$1,145.88				$13.25
		Hypothetical (h)			2.45%				$1,000.00				$1,012.85				$12.43
C		Actual			2.45%				$1,000.00				$1,146.14				$13.25
		Hypothetical (h)			2.45%				$1,000.00				$1,012.85				$12.43
I		Actual			1.45%				$1,000.00				$1,151.62				$7.86
		Hypothetical (h)			1.45%				$1,000.00				$1,017.90				$7.38

 

(h)	5% class return per year before expenses.

(p)

Expenses paid are equal to each class’s 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.

 

5

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Table of Contents

PORTFOLIO OF INVESTMENTS

1/31/13 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Common Stocks - 90.9%
Issuer		Shares/Par				Value ($)
Apparel Manufacturers - 2.6%
Li & Fung Ltd.			44,000			$	61,839
Samsonite International S.A.			6,900				15,036
Stella International Holdings Ltd.			4,500				12,939
						$	89,814
Automotive - 3.8%
Exide Industries Ltd.			6,315			$	14,579
Guangzhou Automobile Group Co. Ltd., “H”			58,000				48,537
Kia Motors Corp.			920				43,680
Mando Corp.			215				23,891
						$	130,687
Brokerage & Asset Managers - 1.5%
Computershare Ltd.			4,680			$	51,097
Business Services - 1.8%
Cognizant Technology Solutions Corp., “A” (a)			802			$	62,700
Cable TV - 0.8%
Astro Malaysia Holdings Bhd.			15,800			$	14,188
Dish TV India Ltd. (a)			10,715				14,494
						$	28,682
Chemicals - 0.5%
Nufarm Ltd.			3,134			$	18,171
Computer Software - Systems - 3.3%
Asustek Computer, Inc.			4,660			$	53,345
Hon Hai Precision Industry Co. Ltd.			21,680				61,971
						$	115,316
Conglomerates - 1.9%
Hutchison Whampoa Ltd.			6,000			$	67,076
Containers - 1.3%
Brambles Ltd.			5,242			$	44,332

 

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Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Electronics - 6.8%
Samsung Electronics Co. Ltd.			57			$	75,796
Taiwan Semiconductor Manufacturing Co. Ltd.			46,000				158,129
						$	233,925
Energy - Independent - 5.2%
CNOOC Ltd.			23,000			$	47,510
Oil Search Ltd.			7,917				60,268
Reliance Industries Ltd.			4,309				71,829
						$	179,607
Energy - Integrated - 1.2%
PetroChina Co. Ltd., “H”			28,000			$	39,931
Engineering - Construction - 0.4%
Keppel Corp. Ltd.			1,300			$	12,079
Food & Beverages - 1.7%
Tingyi (Cayman Islands) Holdings Corp.			8,000			$	22,488
Want Want China Holdings Ltd.			26,000				34,531
						$	57,019
Food & Drug Stores - 1.7%
CP All PLC			12,800			$	20,067
Dairy Farm International Holdings Ltd.			1,800				21,960
Wumart Stores, Inc.			9,000				17,918
						$	59,945
Gaming & Lodging - 4.1%
Sands China Ltd.			28,000			$	141,166
Insurance - 5.7%
AIA Group Ltd.			21,600			$	85,922
Austbrokers Holdings Ltd.			3,817				33,435
China Pacific Insurance (Group) Co. Ltd.			9,200				35,944
QBE Insurance Group Ltd.			3,450				42,884
						$	198,185
Machinery & Tools - 1.3%
Sinotruk (Hong Kong) Ltd.			29,000			$	19,407
T.K. Corp. (a)			1,201				23,989
						$	43,396
Major Banks - 10.3%
BOC Hong Kong Holdings Ltd.			9,500			$	32,767
Industrial & Commercial Bank Of China Ltd.			80,000				60,242

 

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Major Banks - continued
National Australia Bank Ltd.			3,421			$	97,605
Standard Chartered PLC			1,050				27,674
Westpac Banking Corp.			4,690				137,136
						$	355,424
Medical Equipment - 1.1%
Fisher & Paykel Healthcare Corp. Ltd.			19,177			$	38,302
Metals & Mining - 5.8%
Iluka Resources Ltd.			5,997			$	60,786
Maanshan Iron & Steel Co. Ltd. (a)			84,000				26,103
Rio Tinto PLC			1,978				111,681
						$	198,570
Natural Gas - Distribution - 1.2%
China Resources Gas Group Ltd.			12,000			$	26,614
Hong Kong & China Gas Co. Ltd.			5,500				15,602
						$	42,216
Other Banks & Diversified Financials - 10.2%
China Construction Bank			82,500			$	71,167
DBS Group Holdings Ltd.			4,000				48,350
Federal Bank Ltd.			1,025				9,742
Hana Financial Group, Inc.			590				21,131
ICICI Bank Ltd., ADR			709				32,472
Kasikornbank PLC			3,600				24,145
PT Bank Negara Indonesia Tbk			81,697				32,922
PT Bank Rakyat Indonesia (Persero) Tbk			48,000				39,179
Siam Commercial Bank Public Co. Ltd.			8,500				51,023
Wing Hang Bank			2,000				20,966
						$	351,097
Precious Metals & Minerals - 1.3%
Newcrest Mining Ltd.			1,838			$	44,850
Real Estate - 6.3%
Asian Property Development Public Co. Ltd.			39,200			$	12,423
BWP Trust, REIT			17,696				43,181
China Overseas Land & Investment Ltd.			12,000				37,213
Hang Lung Properties Ltd.			15,000				56,573
IGB Trust, REIT (a)			42,500				18,603
Sun Hung Kai Properties Ltd.			3,000				49,243
						$	217,236

 

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Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Specialty Chemicals - 1.9%
LG Chem Ltd.			150			$	41,945
PTT Global Chemical PLC			8,538				22,905
						$	64,850
Telecommunications - Wireless - 0.7%
PT Indosat Tbk			37,000			$	25,832
Telephone Services - 4.2%
China Unicom (Hong Kong) Ltd.			74,000			$	118,890
PT XL Axiata Tbk			52,500				26,951
						$	145,841
Utilities - Electric Power - 2.3%
Cheung Kong Infrastructure Holdings Ltd.			6,000			$	38,064
China Longyuan Electric Power Group Corp.			51,000				42,744
						$	80,808
Total Common Stocks (Identified Cost, $2,697,537)						$	3,138,154

				First Exercise
Warrants - 4.0%
Metals & Mining - 1.7%
Deutsche Bank (MOIL Limited - Zero Strike Warrant (1 share for 1 warrant)) (a)(n)					7/05/11				5,750			$	27,267
Deutsche Bank (Steel Authority of India - Zero Strike Warrant (1 share for 1 warrant)) (a)(z)					7/25/11				19,375				31,525
												$	58,792
Other Banks & Diversified Financials - 1.6%
Deutsche Bank (Federal Bank LTD - Zero Strike Warrant (1 share for 1 warrant)) (a)(n)					7/22/11				1,680			$	15,957
Deutsche Bank (Housing Development Finance Authority - Zero Strike Warrant (1 share for 1 warrant)) (a)(n)					9/15//10				3,163				38,214
												$	54,171
Tobacco - 0.7%
Deutsche Bank (ITC Limited - Zero Strike Warrant (1share for 1 warrant)) (a)(n)					7/11/11				4,234			$	24,473
Total Warrants (Identified Cost, $135,858)												$	137,436

 

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Portfolio of Investments (unaudited) – continued

 

Money Market Funds - 3.8%
Issuer		Shares/Par				Value ($)
MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v)			130,983			$	130,983
Total Investments (Identified Cost, $2,964,378)						$	3,406,573
Other Assets, Less Liabilities - 1.3%							44,945
Net Assets - 100.0%						$	3,451,518

 

(a)	Non-income producing security.

(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 $105,911 representing 3.1% of net assets.

(v)	Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end.

(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:

 

Restricted Securities		Acquisition Date		Cost				Value
Deutsche Bank (Steel Authority of India - Zero Strike Warrant)		7/25/11-1/30/13			$41,100				$31,525
% of Net assets									0.9%

The following abbreviations are used in this report and are defined:

 

ADR

American Depositary Receipt

PLC

Public Limited Company

REIT

Real Estate Investment Trust

See Notes to Financial Statements

 

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Table of Contents

Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 1/31/13 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets
Investments-
Non-affiliated issuers, at value (identified cost, $2,833,395)			$3,275,590
Underlying affiliated funds, at cost and value			130,983
Total investments, at value (identified cost, $2,964,378)			$3,406,573
Cash			1,297
Foreign currency, at value (identified cost, $3,417)			3,417
Receivables for
Fund shares sold			128,938
Dividends			2,376
Receivable from investment adviser			21,181
Other assets			126
Total assets			$3,563,908
Liabilities
Payables for
Investments purchased			$30,421
Fund shares reacquired			1,019
Payable to affiliates
Shareholder servicing costs			2,833
Distribution and service fees			65
Payable for independent Trustees’ compensation			168
Deferred country tax expense payable			7,688
Accrued expenses and other liabilities			70,196
Total liabilities			$112,390
Net assets			$3,451,518
Net assets consist of
Paid-in capital			$3,204,766
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $1,689 deferred country tax)			440,496
Accumulated net realized gain (loss) on investments and foreign currency			(194,479	)
Undistributed net investment income			735
Net assets			$3,451,518
Shares of beneficial interest outstanding			307,125

 

		Net assets				Shares outstanding				Net asset value per share (a)
Class A			$1,893,105				168,406				$11.24
Class B			344,431				30,790				11.19
Class C			393,214				35,199				11.17
Class I			820,768				72,730				11.29

 

(a)

Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $11.93 [100 / 94.25 x $11.24]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Class I.

See Notes to Financial Statements

 

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Financial Statements

 

STATEMENT OF OPERATIONS

Six months ended 1/31/13 (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment income
Income
Dividends			$29,984
Interest			187
Dividends from underlying affiliated funds			70
Foreign taxes withheld			(1,324	)
Total investment income			$28,917
Expenses
Management fee			$15,841
Distribution and service fees			5,087
Shareholder servicing costs			4,576
Administrative services fee			8,823
Independent Trustees’ compensation			641
Custodian fee			35,486
Shareholder communications			5,756
Audit and tax fees			25,608
Legal fees			422
Registration fees			29,474
Miscellaneous			5,608
Total expenses			$137,322
Fees paid indirectly			(1	)
Reduction of expenses by investment adviser			(110,348	)
Net expenses			$26,973
Net investment income			$1,944
Realized and unrealized gain (loss) on investments and foreign currency
Realized gain (loss) (identified cost basis)
Investments (net of $1,571 country tax)			$9,218
Foreign currency			(426	)
Net realized gain (loss) on investments and foreign currency			$8,792
Change in unrealized appreciation (depreciation)
Investments (net of $1,013 decrease in deferred country tax)			$398,956
Translation of assets and liabilities in foreign currencies			(68	)
Net unrealized gain (loss) on investments and foreign currency translation			$398,888
Net realized and unrealized gain (loss) on investments and foreign currency			$407,680
Change in net assets from operations			$409,624

See Notes to Financial Statements

 

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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.

 

Change in net assets		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12
From operations
Net investment income			$1,944				$30,063
Net realized gain (loss) on investments and foreign currency			8,792				(195,365	)
Net unrealized gain (loss) on investments and foreign currency translation			398,888				(98,648	)
Change in net assets from operations			$409,624				$(263,950	)
Distributions declared to shareholders
From net investment income			$(32,000	)			$(13,001	)
From net realized gain on investments			—				(33,000	)
Total distributions declared to shareholders			$(32,000	)			$(46,001	)
Change in net assets from fund share transactions			$313,345				$1,019,059
Total change in net assets			$690,969				$709,108
Net assets
At beginning of period			2,760,549				2,051,441
At end of period (including undistributed net investment income of $735 and $30,791, respectively)			$3,451,518				$2,760,549

See Notes to Financial Statements

 

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Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

		Six months ended 1/31/13				Years ended 7/31
Class A						2012				2011 (c)
		(unaudited)
Net asset value, beginning of period			$9.88				$11.47				$10.00
Income (loss) from investment operations
Net investment income (d)(l)			$0.01				$0.13				$0.10
Net realized and unrealized gain (loss) on investments and foreign currency			1.47				(1.52	)			1.40
Total from investment operations			$1.48				$(1.39	)			$1.50
Less distributions declared to shareholders
From net investment income			$(0.12	)			$(0.06	)			$—
From net realized gain on investments			—				(0.14	)			(0.03	)
Total distributions declared to shareholders			$(0.12	)			$(0.20	)			$(0.03	)
Net asset value, end of period (x)			$11.24				$9.88				$11.47
Total return (%) (r)(s)(t)(x)			15.03	(n)			(11.97	)			15.02	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			9.01	(a)			10.84				13.12	(a)
Expenses after expense reductions (f)			1.70	(a)			1.70				1.70	(a)
Net investment income (l)			0.21	(a)			1.27				0.99	(a)
Portfolio turnover			16	(n)			86				76	(n)
Net assets at end of period (000 omitted)			$1,893				$1,461				$787

See Notes to Financial Statements

 

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Financial Highlights – continued

 

		Six months ended 1/31/13				Years ended 7/31
Class B						2012				2011 (c)
		(unaudited)
Net asset value, beginning of period			$9.80				$11.40				$10.00
Income (loss) from investment operations
Net investment income (loss) (d)(l)			$(0.03	)			$0.06				$0.02
Net realized and unrealized gain (loss) on investments and foreign currency			1.46				(1.51	)			1.41
Total from investment operations			$1.43				$(1.45	)			$1.43
Less distributions declared to shareholders
From net investment income			$(0.04	)			$(0.01	)			$—
From net realized gain on investments			—				(0.14	)			(0.03	)
Total distributions declared to shareholders			$(0.04	)			$(0.15	)			$(0.03	)
Net asset value, end of period (x)			$11.19				$9.80				$11.40
Total return (%) (r)(s)(t)(x)			14.59	(n)			(12.61	)			14.32	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			9.76	(a)			11.64				14.27	(a)
Expenses after expense reductions (f)			2.45	(a)			2.45				2.45	(a)
Net investment income (loss) (l)			(0.48	)(a)			0.61				0.18	(a)
Portfolio turnover			16	(n)			86				76	(n)
Net assets at end of period (000 omitted)			$344				$294				$258

See Notes to Financial Statements

 

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Financial Highlights – continued

 

		Six months ended 1/31/13				Years ended 7/31
Class C						2012				2011 (c)
		(unaudited)
Net asset value, beginning of period			$9.81				$11.40				$10.00
Income (loss) from investment operations
Net investment income (loss) (d)(l)			$(0.03	)			$0.08				$0.01
Net realized and unrealized gain (loss) on investments and foreign currency			1.46				(1.53	)			1.42
Total from investment operations			$1.43				$(1.45	)			$1.43
Less distributions declared to shareholders
From net investment income			$(0.07	)			$—				$—
From net realized gain on investments			—				(0.14	)			(0.03	)
Net asset value, end of period (x)			$11.17				$9.81				$11.40
Total return (%) (r)(s)(t)(x)			14.61	(n)			(12.63	)			14.32	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			9.76	(a)			11.69				14.87	(a)
Expenses after expense reductions (f)			2.45	(a)			2.45				2.45	(a)
Net investment income (loss) (l)			(0.54	)(a)			0.76				0.05	(a)
Portfolio turnover			16	(n)			86				76	(n)
Net assets at end of period (000 omitted)			$393				$292				$197

See Notes to Financial Statements

 

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		Six months ended 1/31/13				Years ended 7/31
Class I						2012				2011 (c)
		(unaudited)
Net asset value, beginning of period			$9.93				$11.50				$10.00
Income (loss) from investment operations
Net investment income (d)(l)			$0.02				$0.16				$0.08
Net realized and unrealized gain (loss) on investments and foreign currency			1.48				(1.52	)			1.45
Total from investment operations			$1.50				$(1.36	)			$1.53
Less distributions declared to shareholders
From net investment income			$(0.14	)			$(0.07	)			$—
From net realized gain on investments			—				(0.14	)			(0.03	)
Total distributions declared to shareholders			$(0.14	)			$(0.21	)			$(0.03	)
Net asset value, end of period (x)			$11.29				$9.93				$11.50
Total return (%) (r)(s)(x)			15.16	(n)			(11.67	)			15.32	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			8.77	(a)			10.75				15.22	(a)
Expenses after expense reductions (f)			1.45	(a)			1.45				1.45	(a)
Net investment income (l)			0.46	(a)			1.55				0.83	(a)
Portfolio turnover			16	(n)			86				76	(n)
Net assets at end of period (000 omitted)			$821				$713				$810

 

(a)	Annualized.

(c)	For the period from the commencement of the fund’s investment operations, September 15, 2010, through the stated period end.

(d)	Per share data is based on average shares outstanding.

(f)	Ratios do not reflect reductions from fees paid indirectly, if applicable.

(l)	Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fun invests and the actual annual net investment income ratio may differ.

(n)	Not annualized.

(r)	Certain expenses have been reduced without which performance would have been lower.

(s)	From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

(t)	Total returns do not include any applicable sales charges.

(x)	The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS

(unaudited)

(1) Business and Organization

MFS Asia Pacific ex-Japan Fund (the fund) is a series of MFS Series Trust VII (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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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. The fund’s performance could be closely tied to the market, currency, economic, political, regulatory, geopolitical, or other conditions in the countries or regions in which the fund invests and could be more volatile than the performance of more geographically-diversified funds.

The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the Asia Pacific market excluding Japan as a whole, as measured by an index determined by MFS to be an appropriate measure of the Asia Pacific market excluding Japan. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the

 

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last quoted daily bid quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as 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 provided by a third-party 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 most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 effect 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 generally relies on third-party 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 an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,

 

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an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:

 

Investments at Value		Level 1				Level 2				Level 3				Total
Equity Securities:
China			$649,237				$—				$—				$649,237
Australia			633,744				—				—				633,744
Hong Kong			619,156				—				—				619,156
India			143,117				137,437				—				280,554
Taiwan			273,445				—				—				273,445
South Korea			230,431				—				—				230,431
United Kingdom			139,355				—				—				139,355
Thailand			24,145				106,418				—				130,563
Indonesia			124,883				—				—				124,883
Other Countries			194,222				—				—				194,222
Mutual Funds			130,983				—				—				130,983
Total Investments			$3,162,718				$243,855				$—				$3,406,573

For further information regarding security characteristics, see the Portfolio of Investments.

Of the level 2 investments presented above, equity investments amounting to $51,023 would have been considered level 1 investments at the beginning of the period. Of the level 1 investments presented above, equity investments amounting to $2,519,624 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. Other reasons for changes in classifications between levels 1 and 2 relate to referencing trading activity outside of a primary exchange in assessing valuation in current or prior periods. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, income and expenses

 

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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.

Zero Strike Warrants – The fund invested in low exercise price call warrants (zero strike warrants). Zero strike warrants are issued by banks or broker-dealers and allow the fund to gain exposure to common stocks in markets that place restrictions on investments by foreign investors and may or may not be traded on an exchange. Income received from zero strike warrants is recorded as dividend income in the Statement of Operations. To the extent the fund invests in zero strike warrants whose returns correspond to the performance of a foreign stock, investing in zero strike warrants will involve risks similar to the risks of investing in foreign securities. Additional risks associated with zero strike warrants include the potential inability of the counterparty to fulfill their obligations under the warrant, inability to transfer or liquidate the warrants and potential delays or an inability to redeem before expiration under certain market conditions.

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. 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 may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended January 31, 2013, is shown as a reduction of total expenses in 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when

 

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filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes 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 and wash sale loss deferrals.

The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

		7/31/12
Ordinary income (including any short-term capital gains)			$46,001

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 1/31/13
Cost of investments			$3,089,144
Gross appreciation			403,736
Gross depreciation			(86,307	)
Net unrealized appreciation (depreciation)			$317,429
As of 7/31/12
Undistributed ordinary income			$31,129
Capital loss carryforwards			(75,805	)
Other temporary differences			(2,982	)
Net unrealized appreciation (depreciation)			(83,214	)

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of July 31, 2012, the fund had capital loss carryforwards available to offset future realized gains.

 

Such losses are characterized as follows:
Short-term losses			$(71,472	)
Long-term losses			(4,333	)
Total			$(75,805	)

 

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Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:

 

		From net investment income								From net realized gain on investments
		Six months ended 1/31/13				Year ended 7/31/12				Six months ended 1/31/13				Year ended 7/31/12
Class A			$18,636				$7,697				$—				$17,342
Class B			1,013				274				—				3,397
Class C			2,147				—				—				2,400
Class I			10,204				5,030				—				9,861
Total			$32,000				$13,001				$—				$33,000

(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			1.05	%
Next $1.5 billion of average daily net assets			0.95	%
Average daily net assets in excess of $2.5 billion			0.90	%

The management fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 1.05% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs and investment-related expenses, such that total fund operating expenses do not exceed the following rates annually of each class’ average daily net assets:

 

Class A				Class B				Class C				Class I
	1.70%				2.45	%			2.45	%			1.45	%

This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the six months ended January 31, 2013, this reduction amounted to $110,345 and is reflected as a reduction of total expenses in the Statement of Operations.

 

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Distributor – MFS Fund Distributors, Inc. (MFD), a wholly-owned subsidiary of MFS, as distributor, received $1,008 for the six months ended January 31, 2013, 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:

 

		Distribution Fee Rate (d)				Service Fee Rate (d)				Total Distribution Plan (d)				Annual Effective Rate (e)				Distribution and Service Fee
Class A			—				0.25%				0.25%				0.25%				$2,027
Class B			0.75%				0.25%				1.00%				1.00%				1,455
Class C			0.75%				0.25%				1.00%				1.00%				1,605
Total Distribution and Service Fees																			$5,087

 

(d)

In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’s average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period.

(e)	The annual effective rates represent actual fees incurred under the distribution plan for the six months ended January 31, 2013 based on each class’s average daily net assets.

Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase for shares purchased on or after August 1, 2012, and within 24 months of purchase for shares purchased prior to August 1, 2012. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD and during the six months ended January 31, 2013, were as follows:

 

		Amount
Class A			$315
Class B			—
Class C			19

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent calculated as a percentage of the average daily net assets of the fund as determined periodically under the supervision of the fund’s Board of Trustees. For the six months ended January 31, 2013, the fee was $891, which equated to 0.0591% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the six months ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $3,685.

 

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Notes to Financial Statements (unaudited) – continued

 

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 an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.5848% 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.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $9 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $3, 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 and Assistant ICCO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.

At January 31, 2013, MFS held 100% of the outstanding shares of Class I.

(4) Portfolio Securities

Purchases and sales of investments, other than short-term obligations, aggregated $595,375 and $461,325, respectively.

 

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(5) Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

		Six months ended 1/31/13								Year ended 7/31/12
		Shares				Amount				Shares				Amount
Shares sold
Class A			32,253				$353,136				99,156				$980,575
Class B			6,352				70,681				12,542				130,415
Class C			6,943				76,949				17,582				181,749
Class I			—				—				63,528				662,350
			45,548				$500,766				192,808				$1,955,089
Shares issued to shareholders in reinvestment of distributions
Class A			1,695				$18,608				2,697				$24,838
Class B			91				993				400				3,671
Class C			197				2,147				261				2,400
Class I			926				10,204				1,612				14,891
			2,909				$31,952				4,970				$45,800
Shares reacquired
Class A			(13,419	)			$(143,308	)			(22,552	)			$(230,855	)
Class B			(5,672	)			(58,020	)			(5,567	)			(53,246	)
Class C			(1,724	)			(18,045	)			(5,314	)			(53,468	)
Class I			—				—				(63,757	)			(644,261	)
			(20,815	)			$(219,373	)			(97,190	)			$(981,830	)
Net change
Class A			20,529				$228,436				79,301				$774,558
Class B			771				13,654				7,375				80,840
Class C			5,416				61,051				12,529				130,681
Class I			926				10,204				1,383				32,980
			27,642				$313,345				100,588				$1,019,059

(6) Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund,

 

26

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Table of Contents

Notes to Financial Statements (unaudited) – continued

 

based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended January 31, 2013, the fund’s commitment fee and interest expense were $9 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.

(7) Transactions in Underlying Affiliated 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 an affiliated issuer:

 

Underlying Affiliated Fund		Beginning Shares/Par Amount				Acquisitions Shares/Par Amount				Dispositions Shares/Par Amount				Ending Shares/Par Amount
MFS Institutional Money Market Portfolio			64,084				632,379				(565,480	)			130,983
Underlying Affiliated Fund		Realized Gain (Loss)				Capital Gain Distributions				Dividend Income				Ending Value
MFS Institutional Money Market Portfolio			$—				$—				$70				$130,983

 

27

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Table of Contents

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of 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. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and 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. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: [e-mail], or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site ( mfs.com ). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.

PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES

The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.

 

28

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Save paper with eDelivery.

 

MFS® will send you prospectuses,

reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.

To sign up :

1. Go to mfs.com.

2. Log in via MFS® Access.

3. Select eDelivery.

If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.

 

CONTACT

WEB SITE

mfs.com

MFS TALK

1-800-637-8255

24 hours a day

ACCOUNT SERVICE AND LITERATURE

Shareholders

1-800-225-2606

Financial advisors

1-800-343-2829

Retirement plan services

1-800-637-1255

MAILING ADDRESS

MFS Service Center, Inc.

P.O. Box 55824

Boston, MA 02205-5824

OVERNIGHT MAIL

MFS Service Center, Inc.

c/o Boston Financial Data Services

30 Dan Road

Canton, MA 02021-2809

 

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Table of Contents

SEMIANNUAL REPORT

January 31, 2013

 

 

MFS® EUROPEAN EQUITY FUND

 

 

EEQ-SEM

 

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Table of Contents

MFS® EUROPEAN EQUITY FUND

 

CONTENTS

 

Letter from the Chairman and CEO			1
Portfolio composition			2
Expense table			4
Portfolio of investments			6
Statement of assets and liabilities			11
Statement of operations			12
Statements of changes in net assets			13
Financial highlights			14
Notes to financial statements			18
Board review of investment advisory agreement			27
Proxy voting policies and information			27
Quarterly portfolio disclosure			27
Further information			27
Provision of financial reports and summary prospectuses			27
Contact information     back cover

 

The report is prepared for the general information of shareholders.

It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.

 

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE

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Table of Contents

 

LETTER FROM THE CHAIRMAN AND CEO

 

Dear Shareholders:

Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic

slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.

Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central

Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.

As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.

We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.

Respectfully,

 

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

March 18, 2013

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

1

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Table of Contents

PORTFOLIO COMPOSITION

 

Portfolio structure

 

 

Top ten holdings
Nestle S.A.			3.1%
Royal Dutch Shell PLC, “A”			2.6%
Groupe Danone			2.2%
Novartis AG			2.2%
Roche Holding AG			2.2%
Linde AG			2.1%
Akzo Nobel N.V.			2.0%
HSBC Holdings PLC			1.9%
Vodafone Group PLC			1.7%
BP PLC			1.6%
Equity sectors (a)
Financial Services			12.9%
Consumer Staples			9.1%
Basic Materials			7.5%
Health Care			7.3%
Industrial Goods & Services			5.4%
Utilities & Communications			5.4%
Energy			5.4%
Retailing			4.0%
Leisure			3.8%
Special Products & Services			3.6%
Technology			3.5%
Autos & Housing			2.0%
Transportation			0.5%

Issuer country weightings (x)
United States			30.0%
United Kingdom			22.4%
Switzerland			13.5%
France			9.8%
Germany			8.4%
Netherlands			5.6%
Sweden			2.4%
Denmark			1.5%
Spain			1.5%
Other Countries			4.9%
Currency exposure weightings (y)
United States Dollar			30.0%
Euro			29.4%
British Pound Sterling			22.4%
Swiss Franc			13.5%
Swedish Krona			2.4%
Danish Krone			1.5%
Turkish Lira			0.3%
Hong Kong Dollar			0.3%
Canadian Dollar			0.1%
Other Currencies			0.1%

 

 

2

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Table of Contents

Portfolio Composition – continued

 

(a)

The sectors depicted are economic aggregates made up of several underlying industry categories. The fund may invest between 25% and 35% of its total assets in any industry that represents 20% or more of the European market as a whole, as measured by an index determined by the adviser to be an appropriate measure of the European market. As of January 31, 2013, the fund did not have more than 25% of its total assets invested in any one industry.

(x)	Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets.

(y)	Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets.

Percentages are based on net assets as of 1/31/13.

The portfolio is actively managed and current holdings may be different.

 

3

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Table of Contents

EXPENSE TABLE

Fund expenses borne by the shareholders during the period,

August 1, 2012 through January 31, 2013

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 August 1, 2012 through January 31, 2013.

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.

 

4

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Table of Contents

Expense Table – continued

 

 

Share Class				Annualized Expense Ratio				Beginning Account Value 8/01/12				Ending Account Value 1/31/13				Expenses Paid During Period (p) 8/01/12-1/31/13
A		Actual			1.55%				$1,000.00				$1,225.75				$8.70
		Hypothetical (h)			1.55%				$1,000.00				$1,017.39				$7.88
B		Actual			2.30%				$1,000.00				$1,220.17				$12.87
		Hypothetical (h)			2.30%				$1,000.00				$1,013.61				$11.67
C		Actual			2.30%				$1,000.00				$1,220.77				$12.87
		Hypothetical (h)			2.30%				$1,000.00				$1,013.61				$11.67
I		Actual			1.30%				$1,000.00				$1,226.42				$7.30
		Hypothetical (h)			1.30%				$1,000.00				$1,018.65				$6.61

 

(h)	5% class return per year before expenses.

(p)

Expenses paid are equal to each class’s 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.

 

5

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Table of Contents

PORTFOLIO OF INVESTMENTS

1/31/13 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Common Stocks - 70.4%
Issuer		Shares/Par				Value ($)
Alcoholic Beverages - 2.2%
Heineken N.V.			654			$	45,988
Pernod Ricard S.A.			219				27,416
						$	73,404
Apparel Manufacturers - 2.0%
Compagnie Financiere Richemont S.A.			265			$	21,796
LVMH Moet Hennessy Louis Vuitton S.A.			238				44,870
						$	66,666
Automotive - 0.9%
D’Ieteren S.A.			470			$	20,798
GKN PLC			2,867				10,949
						$	31,747
Broadcasting - 1.1%
Publicis Groupe			552			$	36,167
Brokerage & Asset Managers - 0.5%
IG Group Holdings PLC			2,409			$	17,040
Business Services - 3.6%
Adecco S.A.			254			$	14,597
Amadeus Holdings AG			1,149				28,823
Brenntag AG			140				19,950
Compass Group PLC			2,469				29,917
Experian Group Ltd.			797				13,664
MITIE Group PLC			3,377				15,098
						$	122,049
Cable TV - 0.7%
Virgin Media, Inc.			344			$	13,550
Ziggo N.V.			360				11,485
						$	25,035
Computer Software - 0.8%
Dassault Systemes S.A.			132			$	14,675
Fidessa Group PLC			500				12,204
						$	26,879

 

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Construction - 1.1%
Bellway PLC			1,142			$	20,104
BUZZI UNICEM S.p.A			1,064				15,487
						$	35,591
Consumer Products - 1.2%
Reckitt Benckiser Group PLC			630			$	41,986
Electrical Equipment - 4.0%
IMI PLC			910			$	16,886
Legrand S.A.			701				31,815
Pfeiffer Vacuum Technology AG			150				18,703
Schneider Electric S.A.			322				24,528
Siemens AG			400				43,906
						$	135,838
Electronics - 1.2%
ASM International N.V.			331			$	13,195
Infineon Technologies AG			3,080				27,790
						$	40,985
Energy - Independent - 0.4%
Bankers Petroleum Ltd. (a)			1,405			$	4,325
Cairn Energy PLC			1,894				8,621
						$	12,946
Energy - Integrated - 5.0%
BG Group PLC			1,422			$	25,259
BP PLC			7,204				53,329
Royal Dutch Shell PLC, “A”			2,514				89,353
						$	167,941
Food & Beverages - 5.7%
Groupe Danone			1,062			$	73,599
Nestle S.A.			1,483				104,130
Tate & Lyle PLC			1,050				13,531
						$	191,260
Food & Drug Stores - 0.8%
Jeronimo Martins SGPS S.A.			1,210			$	25,720
Gaming & Lodging - 0.6%
Betfair Group PLC			840			$	8,866
Paddy Power PLC			148				12,168
						$	21,034

 

7

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
General Merchandise - 0.3%
BIM Birlesik Magazalar A.S.			240			$	11,633
Insurance - 4.4%
Delta Lloyd N.V.			1,410			$	27,741
Hiscox Ltd.			3,241				24,365
ING Groep N.V. (a)			2,311				23,374
Swiss Re Ltd.			402				29,927
Zurich Insurance Group AG			144				41,425
						$	146,832
Machinery & Tools - 1.4%
Atlas Copco AB, “A”			1,083			$	30,883
Schindler Holding AG			114				16,911
						$	47,794
Major Banks - 4.4%
Barclays PLC			10,095			$	48,192
BNP Paribas			590				37,019
HSBC Holdings PLC			5,503				62,552
						$	147,763
Medical Equipment - 0.4%
Sonova Holding AG			118			$	13,654
Metals & Mining - 1.3%
Rio Tinto PLC			797			$	45,000
Natural Gas - Distribution - 0.8%
GDF SUEZ			1,374			$	28,189
Network & Telecom - 1.5%
Ericsson, Inc., “B”			4,351			$	50,642
Other Banks & Diversified Financials - 3.2%
Erste Group Bank AG (a)			543			$	18,274
Julius Baer Group Ltd.			310				12,689
Jyske Bank (a)			599				19,514
KBC Group N.V.			517				20,382
Sydbank A/S (a)			319				6,293
UBS AG			1,788				31,003
						$	108,155

 

8

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Pharmaceuticals - 6.9%
Bayer AG			440			$	43,421
GlaxoSmithKline PLC			1,942				44,522
Novartis AG			1,069				72,829
Roche Holding AG			329				72,810
						$	233,582
Railroad & Shipping - 0.5%
Kuehne & Nagel International AG			140			$	16,445
Real Estate - 0.4%
GSW Immobilien AG			348			$	14,851
Restaurants - 1.4%
Domino’s Pizza UK & IRL PLC			2,867			$	23,395
Whitbread PLC			600				24,456
						$	47,851
Specialty Chemicals - 6.2%
Akzo Nobel N.V.			967			$	66,162
Croda International PLC			567				21,798
Fuchs Petrolub AG, IPS			145				11,104
Linde AG			393				71,718
Sika AG			3				7,569
Symrise AG			868				30,708
						$	209,059
Specialty Stores - 0.9%
Esprit Holdings Ltd.			6,748			$	9,380
Industria de Diseno Textil S.A.			151				21,159
						$	30,539
Telecommunications - Wireless - 1.7%
Vodafone Group PLC			20,977			$	57,257
Telephone Services - 2.1%
British Telecom Group, PLC			7,010			$	27,639
TDC A.S.			3,233				24,742
Telecom Italia S.p.A.			21,835				18,678
						$	71,059
Utilities - Electric Power - 0.4%
CEZ A.S.			87			$	2,818
Fortum Oyj			481				9,019
						$	11,837

 

9

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Utilities - Water - 0.4%
Suez Environnement			1,042			$	13,796
Total Common Stocks (Identified Cost, $1,950,627)						$	2,378,226
Money Market Funds - 4.4%
MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v)			146,877			$	146,877
Total Investments (Identified Cost, $2,097,504)						$	2,525,103
Other Assets, Less Liabilities - 25.2%							852,942
Net Assets - 100.0%						$	3,378,045

 

(a)	Non-income producing security.

(v)	Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end.

The following abbreviations are used in this report and are defined:

 

IPS

International Preference Stock

PLC

Public Limited Company

See Notes to Financial Statements

 

10

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Table of Contents

Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 1/31/13 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets
Investments-
Non-affiliated issuers, at value (identified cost, $1,950,627)			$2,378,226
Underlying affiliated funds, at cost and value			146,877
Total investments, at value (identified cost, $2,097,504)			$2,525,103
Receivables for
Investments sold			42,556
Fund shares sold			962,917
Interest and dividends			6,637
Receivable from investment adviser			17,836
Other assets			96
Total assets			$3,555,145
Liabilities
Payables for
Investments purchased			$93,381
Fund shares reacquired			10,471
Payable to affiliates
Shareholder servicing costs			318
Distribution and service fees			50
Payable for independent Trustees’ compensation			170
Accrued expenses and other liabilities			72,710
Total liabilities			$177,100
Net assets			$3,378,045
Net assets consist of
Paid-in capital			$3,127,065
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies			427,700
Accumulated net realized gain (loss) on investments and foreign currency			(175,401	)
Accumulated distributions in excess of net investment income			(1,319	)
Net assets			$3,378,045
Shares of beneficial interest outstanding			278,273

 

		Net assets				Shares outstanding				Net asset value per share (a)
Class A			$1,604,258				132,088				$12.15
Class B			206,064				17,027				12.10
Class C			451,450				37,443				12.06
Class I			1,116,273				91,715				12.17

 

(a)

Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $12.89 [100 / 94.25 x $12.15]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Class I.

See Notes to Financial Statements

 

11

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Table of Contents

Financial Statements

 

STATEMENT OF OPERATIONS

Six months ended 1/31/13 (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment loss
Income
Dividends			$15,896
Dividends from underlying affiliated funds			53
Foreign taxes withheld			(302	)
Total investment income			$15,647
Expenses
Management fee			$9,541
Distribution and service fees			2,937
Shareholder servicing costs			1,369
Administrative services fee			8,823
Independent Trustees’ compensation			638
Custodian fee			30,511
Shareholder communications			4,810
Audit and tax fees			25,999
Legal fees			255
Registration fees			28,475
Miscellaneous			5,615
Total expenses			$118,973
Reduction of expenses by investment adviser			(102,228	)
Net expenses			$16,745
Net investment loss			$(1,098	)
Realized and unrealized gain (loss) on investments and foreign currency
Realized gain (loss) (identified cost basis)
Investments			$(36,995	)
Foreign currency			(69	)
Net realized gain (loss) on investments and foreign currency			$(37,064	)
Change in unrealized appreciation (depreciation)
Investments			$439,998
Translation of assets and liabilities in foreign currencies			334
Net unrealized gain (loss) on investments and foreign currency translation			$440,332
Net realized and unrealized gain (loss) on investments and foreign currency			$403,268
Change in net assets from operations			$402,170

See Notes to Financial Statements

 

12

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Table of Contents

Financial Statements

 

STATEMENTS OF CHANGES IN NET ASSETS

These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.

 

		Six months ended 1/31/13				Year ended 7/31/12
Change in net assets		(unaudited)
From operations
Net investment income (loss)			$(1,098	)			$27,079
Net realized gain (loss) on investments and foreign currency			(37,064	)			(132,758	)
Net unrealized gain (loss) on investments and foreign currency translation			440,332				(115,771	)
Change in net assets from operations			$402,170				$(221,450	)
Distributions declared to shareholders
From net investment income			$(26,201	)			$(22,701	)
From net realized gain on investments			—				(20,351	)
Total distributions declared to shareholders			$(26,201	)			$(43,052	)
Change in net assets from fund share transactions			$1,285,843				$3,064
Total change in net assets			$1,661,812				$(261,438	)
Net assets
At beginning of period			1,716,233				1,977,671
At end of period (including accumulated distributions in excess of net investment income of $1,319 and undistributed net investment income of $25,980, respectively)			$3,378,045				$1,716,233

See Notes to Financial Statements

 

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Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Class A		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$10.03				$11.48				$10.00
Income (loss) from investment operations
Net investment income (d)			$(0.00	)(w)			$0.16				$0.25
Net realized and unrealized gain (loss) on investments and foreign currency			2.26				(1.35	)			1.23
Total from investment operations			$2.26				$(1.19	)			$1.48
Less distributions declared to shareholders
From net investment income			$(0.14	)			$(0.14	)			$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.14	)			$(0.26	)			$—
Net asset value, end of period (x)			$12.15				$10.03				$11.48
Total return (%) (r)(s)(t)(x)			22.58	(n)			(10.18	)			14.80	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			11.14	(a)			13.52				13.74	(a)
Expenses after expense reductions (f)			1.55	(a)			1.55				1.55	(a)
Net investment income (loss)			(0.08	)(a)			1.57				2.50	(a)
Portfolio turnover			45	(n)			56				26	(n)
Net assets at end of period (000 omitted)			$1,604				$596				$790

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class B		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$9.98				$11.40				$10.00
Income (loss) from investment operations
Net investment income (loss) (d)			$(0.05	)			$0.08				$0.15
Net realized and unrealized gain (loss) on investments and foreign currency			2.24				(1.33	)			1.25
Total from investment operations			$2.19				$(1.25	)			$1.40
Less distributions declared to shareholders
From net investment income			$(0.07	)			$(0.05	)			$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.07	)			$(0.17	)			$—
Net asset value, end of period (x)			$12.10				$9.98				$11.40
Total return (%) (r)(s)(t)(x)			22.02	(n)			(10.84	)			14.00	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			12.00	(a)			14.36				14.34	(a)
Expenses after expense reductions (f)			2.30	(a)			2.30				2.30	(a)
Net investment income (loss)			(0.83	)(a)			0.81				1.54	(a)
Portfolio turnover			45	(n)			56				26	(n)
Net assets at end of period (000 omitted)			$206				$148				$166

See Notes to Financial Statements

 

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Class C		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$9.96				$11.40				$10.00
Income (loss) from investment operations
Net investment income (loss) (d)			$(0.05	)			$0.08				$0.11
Net realized and unrealized gain (loss) on investments and foreign currency			2.24				(1.33	)			1.29
Total from investment operations			$2.19				$(1.25	)			$1.40
Less distributions declared to shareholders
From net investment income			$(0.09	)			$(0.07	)			$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.09	)			$(0.19	)			$—
Net asset value, end of period (x)			$12.06				$9.96				$11.40
Total return (%) (r)(s)(t)(x)			22.08	(n)			(10.84	)			14.00	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			11.82	(a)			14.31				14.71	(a)
Expenses after expense reductions (f)			2.30	(a)			2.30				2.30	(a)
Net investment income (loss)			(0.89	)(a)			0.83				1.08	(a)
Portfolio turnover			45	(n)			56				26	(n)
Net assets at end of period (000 omitted)			$451				$141				$180

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class I		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$10.06				$11.50				$10.00
Income (loss) from investment operations
Net investment income (d)			$0.01				$0.19				$0.18
Net realized and unrealized gain (loss) on investments and foreign currency			2.26				(1.36	)			1.32
Total from investment operations			$2.27				$(1.17	)			$1.50
Less distributions declared to shareholders
From net investment income			$(0.16	)			$(0.15	)			$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.16	)			$(0.27	)			$—
Net asset value, end of period (x)			$12.17				$10.06				$11.50
Total return (%) (r)(s)(x)			22.64	(n)			(9.96	)			15.00	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			11.01	(a)			13.29				13.90	(a)
Expenses after expense reductions (f)			1.30	(a)			1.30				1.30	(a)
Net investment income			0.19	(a)			1.88				1.83	(a)
Portfolio turnover			45	(n)			56				26	(n)
Net assets at end of period (000 omitted)			$1,116				$832				$842

 

(a)	Annualized.

(c)	For the period from the commencement of the fund’s investment operations, September 15, 2010, through the stated period end.

(d)	Per share data is based on average shares outstanding.

(f)	Ratios do not reflect reductions from fees paid indirectly, if applicable.

(n)	Not annualized.

(r)	Certain expenses have been reduced without which performance would have been lower.

(s)	From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

(t)	Total returns do not include any applicable sales charges.

(w)	Per share amount was less than $0.01.

(x)	The net asset values per share and total returns have been calculated on net asset values which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS

(unaudited)

(1) Business and Organization

MFS European Equity Fund (the fund) is a series of MFS Series Trust VII (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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment. The fund’s performance could be closely tied to the market, currency, economic, political, regulatory, geopolitical, or other conditions in the countries or regions in which the fund invests and could be more volatile than the performance of more geographically-diversified funds.

The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the European market as a whole, as measured by an index determined by MFS to be an appropriate measure of the European market. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally

 

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valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as 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 provided by a third-party 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 most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 effect 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 generally relies on third-party 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 an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other

 

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significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:

 

Investments at Value		Level 1				Level 2				Level 3				Total
Equity Securities			$2,378,226				$—				$—				$2,378,226
Mutual Funds			146,877				—				—				146,877
Total Investments			$2,525,103				$—				$—				$2,525,103

For further information regarding security characteristics, see the Portfolio of Investments.

Of the level 1 investments presented above, equity investments amounting to $1,857,886 would have been considered level 2 investments at the beginning of the period. The primary reason for changes in the classifications between levels 1 and 2 occurs when foreign equity securities are fair valued using other observable market-based inputs in place of the closing exchange price due to events occurring after the close of the exchange or market on which the investment is principally traded. The fund’s foreign equity securities may often be valued at fair value. Other reasons for changes in classifications between levels 1 and 2 relate to referencing trading activity outside of a primary exchange in assessing valuation in current or prior periods. The fund’s policy is to recognize transfers between the levels as of the end of the period.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

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. 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.

 

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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 may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the six months ended January 31, 2013, custody fees were not reduced.

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. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes 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 wash sale loss deferrals.

The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

		7/31/12
Ordinary income (including any short-term capital gains)			$43,052

 

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The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 1/31/13
Cost of investments			$2,172,462
Gross appreciation			439,878
Gross depreciation			(87,237	)
Net unrealized appreciation (depreciation)			$352,641
As of 7/31/12
Undistributed ordinary income			26,105
Capital loss carryforwards			(7,662	)
Post-October capital loss deferral			(55,716	)
Other temporary differences			(358	)
Net unrealized appreciation (depreciation)			(87,358	)

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

As of July 31, 2012, the fund had capital loss carryforwards available to offset future realized gains.

 

Such losses are characterized as follows:
Short-Term Losses			$(6,512	)
Long-Term Losses			(1,150	)
Total			$(7,662	)

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:

 

		From net investment income								From net realized gain on investments
		Six months ended 1/31/13				Year ended 7/31/12				Six months ended 1/31/13				Year ended 7/31/12
Class A			$9,546				$8,861				$—				$7,557
Class B			1,170				657				—				1,519
Class C			2,024				1,000				—				1,713
Class I			13,461				12,183				—				9,562
Total			$26,201				$22,701				$—				$20,351

 

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(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 $1.5 billion of average daily net assets			0.80%
Average daily net assets in excess of $2.5 million			0.75%

The management fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.90% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total fund operating expenses do not exceed the following rates annually of each class’ average daily net assets.

 

Class A				Class B				Class C				Class I
	1.55%				2.30	%			2.30	%			1.30	%

This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the six months ended January 31, 2013, this reduction amounted to $102,226 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 $989 for the six months ended January 31, 2013, 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:

 

		Distribution Fee Rate (d)				Service Fee Rate (d)				Total Distribution Plan (d)				Annual Effective Rate (e)				Distribution and Service Fee
Class A			—				0.25%				0.25%				0.25%				$980
Class B			0.75%				0.25%				1.00%				1.00%				873
Class C			0.75%				0.25%				1.00%				1.00%				1,084
Total Distribution and Service Fees																			$2,937

 

(d)

In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’ average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period.

 

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(e)	The annual effective rates represent actual fees incurred under the distribution plan for the six months ended January 31, 2013 based on each class’s average daily net assets.

Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase for shares purchased on or after August 1, 2012, and within 24 months of purchase for shares purchased prior to August 1, 2012. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. There were no contingent deferred sales charges imposed during the six months ended January 31, 2013.

Shareholder Servicing Agent – MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of MFS, receives a fee from the fund for its services as shareholder servicing agent calculated as a percentage of the average daily net assets of the fund as determined periodically under the supervision of the fund’s Board of Trustees. For the six months ended January 31, 2013, the fee was $508, which equated to 0.0479% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the six months ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $861.

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 an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.8323% 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.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $6 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in

 

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the amount of $2, 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 and Assistant ICCO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.

At January 31, 2013, MFS held 58% and 76% of Class B and Class I, respectively.

(4) Portfolio Securities

Purchases and sales of investments, other than short-term obligations, aggregated $1,200,684 and $907,676, respectively.

(5) Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

		Six months ended 1/31/13								Year ended 7/31/12
		Shares				Amount				Shares				Amount
Shares sold
Class A			130,649				$1,517,652				49,537				$505,615
Class B			2,179				24,842				8,601				82,822
Class C			24,019				280,320				2,424				24,924
Class I			11,454				133,842				15,832				163,329
			168,301				$1,956,656				76,394				$776,690
Shares issued to shareholders in reinvestment of distributions
Class A			826				$9,546				1,771				$16,149
Class B			101				1,170				238				2,176
Class C			176				2,024				298				2,713
Class I			1,163				13,461				2,343				21,406
			2,266				$26,201				4,650				$42,444
Shares reacquired
Class A			(58,827	)			$(645,479	)			(60,692	)			$(606,310	)
Class B			(64	)			(732	)			(8,594	)			(78,641	)
Class C			(870	)			(9,944	)			(4,414	)			(43,372	)
Class I			(3,617	)			(40,859	)			(8,651	)			(87,747	)
			(63,378	)			$(697,014	)			(82,351	)			$(816,070	)

 

25

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Table of Contents

Notes to Financial Statements (unaudited) – continued

 

		Six months ended 1/31/13								Year ended 7/31/12
		Shares				Amount				Shares				Amount
Net change
Class A			72,648				$881,719				(9,384	)			$(84,546	)
Class B			2,216				25,280				245				6,357
Class C			23,325				272,400				(1,692	)			(15,735	)
Class I			9,000				106,444				9,524				96,988
			107,189				$1,285,843				(1,307	)			$3,064

(6) Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended January 31, 2013, the fund’s commitment fee and interest expense were $4 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.

(7) Transactions in Underlying Affiliated 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 an affiliated issuer:

 

Underlying Affiliated Fund		Beginning Shares/Par Amount				Acquisitions Shares/Par Amount				Dispositions Shares/Par Amount				Ending Shares/Par Amount
MFS Institutional Money Market Portfolio			88,648				757,837				(699,608	)			146,877
Underlying Affiliated Fund		Realized Gain (Loss)				Capital Gain Distributions				Dividend Income				Ending Value
MFS Institutional Money Market Portfolio			$—				$—				$53				$146,877

 

26

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of 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. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and 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. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: [e-mail] , or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site ( mfs.com ). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.

PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES

The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.

 

27

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Table of Contents

 

Save paper with eDelivery.

 

MFS® will send you prospectuses,

reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.

To sign up :

1. Go to mfs.com.

2. Log in via MFS® Access.

3. Select eDelivery.

If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.

 

CONTACT

WEB SITE

mfs.com

MFS TALK

1-800-637-8255

24 hours a day

ACCOUNT SERVICE AND LITERATURE

Shareholders

1-800-225-2606

Financial advisors

1-800-343-2829

Retirement plan services

1-800-637-1255

MAILING ADDRESS

MFS Service Center, Inc.

P.O. Box 55824

Boston, MA 02205-5824

OVERNIGHT MAIL

MFS Service Center, Inc.

c/o Boston Financial Data Services

30 Dan Road

Canton, MA 02021-2809

 

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Table of Contents

SEMIANNUAL REPORT

January 31, 2013

 

 

MFS® LATIN AMERICAN EQUITY FUND

 

 

LEQ-SEM

 

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Table of Contents

MFS® LATIN AMERICAN EQUITY FUND

 

CONTENTS

 

Letter from the Chairman and CEO			1
Portfolio composition			2
Expense table			4
Portfolio of investments			6
Statement of assets and liabilities			10
Statement of operations			11
Statements of changes in net assets			12
Financial highlights			13
Notes to financial statements			16
Board review of investment advisory agreement			25
Proxy voting policies and information			25
Quarterly portfolio disclosure			25
Further information			25
Provision of financial reports and summary prospectuses			25
Contact information     back cover

 

The report is prepared for the general information of shareholders.

It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.

 

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE

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Table of Contents

 

LETTER FROM THE CHAIRMAN AND CEO

 

Dear Shareholders:

Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic

slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.

Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central

Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.

As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.

We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.

Respectfully,

 

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

March 18, 2013

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

1

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Table of Contents

PORTFOLIO COMPOSITION

 

Portfolio structure

 

 

Top ten holdings
Vale S.A., ADR			6.8%
America Movil S.A.B. de C.V., “L”, ADR			4.1%
Credicorp Ltd.			4.0%
BM&F Bovespa S.A.			3.8%
Itau Unibanco Holding S.A., ADR			3.4%
Companhia de Bebidas das Americas, ADR			3.2%
M. Dias Branco S.A. Industria e Comercio de Alimentos			3.1%
Gerdau S.A., ADR			3.0%
Anhanguera Educacional Participacoes S.A.			2.9%
Petroleo Brasileiro S.A., ADR			2.7%

Equity sectors (a)
Financial Services			26.2%
Basic Materials			14.4%
Utilities & Communications			12.6%
Special Products & Services			10.2%
Consumer Staples			10.1%
Energy			6.6%
Health Care			4.7%
Retailing			3.3%
Transportation			2.5%
Industrial Goods & Services			1.9%
Autos & Housing			1.7%
Leisure			1.7%
Technology			0.9%
Issuer country weightings (x)
Brazil			60.5%
Mexico			20.9%
Peru			3.9%
Chile			3.9%
United States			3.3%
Argentina			2.7%
Luxembourg			1.7%
Panama			1.6%
British Virgin Islands			0.9%
Colombia			0.6%
Currency exposure weightings (y)
Brazilian Real			60.5%
Mexican Peso			20.9%
United States Dollar			9.7%
Euro			4.4%
Chilean Peso			3.9%
Colombian Peso			0.6%

 

 

2

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Table of Contents

Portfolio Composition – continued

 

(a)

The sectors depicted are economic aggregates made up of several underlying industry categories. The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the Latin American market as a whole, as measured by an index determined by MFS to be an appropriate measure of the Latin American market. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.

(x)	Represents the portfolio’s exposure to issuer countries as a percentage of a portfolio’s net assets.

(y)	Represents the portfolio’s exposure to a particular currency as a percentage of a portfolio’s net assets.

Percentages are based on net assets as of 1/31/13.

The portfolio is actively managed and current holdings may be different.

 

3

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Table of Contents

EXPENSE TABLE

Fund expenses borne by the shareholders during the period,

August 1, 2012 through January 31, 2013

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 August 1, 2012 through January 31, 2013.

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.

 

4

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Table of Contents

Expense Table – continued

 

Share Class				Annualized Expense Ratio				Beginning Account Value 8/01/12				Ending Account Value 1/31/13				Expenses Paid During Period (p) 8/01/12-1/31/13
A		Actual			1.65%				$1,000.00				$1,159.54				$8.98
		Hypothetical (h)			1.65%				$1,000.00				$1,016.89				$8.39
B		Actual			2.40%				$1,000.00				$1,155.15				$13.04
		Hypothetical (h)			2.40%				$1,000.00				$1,013.11				$12.18
C		Actual			2.40%				$1,000.00				$1,155.42				$13.04
		Hypothetical (h)			2.40%				$1,000.00				$1,013.11				$12.18
I		Actual			1.40%				$1,000.00				$1,160.00				$7.62
		Hypothetical (h)			1.40%				$1,000.00				$1,018.15				$7.12

 

(h)	5% class return per year before expenses.

(p)

Expenses paid are equal to each class’s 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.

 

5

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Table of Contents

PORTFOLIO OF INVESTMENTS

1/31/13 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Common Stocks - 96.8%
Issuer		Shares/Par				Value ($)
Aerospace - 1.3%
Embraer S.A., ADR			2,006			$	66,133
Airlines - 2.5%
Copa Holdings S.A., “A”			712			$	78,035
Grupo Aeroportuario del Sureste S.A. de C.V., ADR			399				47,645
						$	125,680
Alcoholic Beverages - 4.3%
Companhia de Bebidas das Americas, ADR			3,349			$	157,604
Compania Cervecerias Unidas S.A., ADR			1,645				52,558
						$	210,162
Apparel Manufacturers - 1.8%
Arezzo Industria e Comercio S.A.			2,328			$	43,840
Cia.Hering S.A.			2,300				43,751
						$	87,591
Broadcasting - 0.8%
Grupo Televisa S.A., ADR			1,453			$	40,699
Brokerage & Asset Managers - 7.1%
BM&F Bovespa S.A.			26,700			$	186,907
Bolsa Mexicana de Valores S.A. de C.V.			38,500				97,775
CETIP S.A. - Balcao Organizado de Ativos e Derivativos			5,202				65,438
						$	350,120
Business Services - 1.2%
LPS Brasil - Consultoria de Imoveis S.A.			3,300			$	58,664
Computer Software - 0.9%
Totvs S.A.			2,100			$	45,736
Conglomerates - 0.7%
Alfa S.A de C.V., “A”			14,870			$	35,706
Construction - 1.7%
Corporacion GEO S.A.B. de C.V., “B” (a)			15,510			$	18,127
PDG Realty S.A.			18,000				28,564
Urbi Desarrollos Urbanos S.A. de C.V. (a)			68,230				39,603
						$	86,294

 

6

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Consumer Products - 1.2%
Kimberly-Clark de Mexico S.A. de C.V., “A”			20,950			$	58,642
Consumer Services - 8.3%
Abril Educacao S.A., IEU			2,840			$	62,480
Anhanguera Educacional Participacoes S.A.			7,300				142,052
Estacio Participacoes S.A.			4,250				94,120
Kroton Educacional S.A. (a)			4,517				110,920
						$	409,572
Containers - 0.7%
Industria Klabin de Papel e Celulose, IPS			5,300			$	36,330
Energy - Independent - 1.2%
Ultrapar Participacoes S.A.			2,400			$	57,935
Energy - Integrated - 2.7%
Petroleo Brasileiro S.A., ADR			7,334			$	134,066
Engineering - Construction - 0.6%
Promotora y Operadora de Infraestructura S.A.B. de C.V. (a)			3,800			$	27,194
Food & Beverages - 4.6%
Arca Continental S.A.B de C.V.			10,095			$	76,983
M. Dias Branco S.A. Industria e Comercio de Alimentos			3,800				150,771
						$	227,754
Food & Drug Stores - 0.9%
Brazil Pharma S.A.			3,000			$	22,146
Raia Drogasil S.A.			2,000				22,347
						$	44,493
General Merchandise - 0.6%
Lojas Renner S.A.			800			$	32,023
Health Maintenance Organizations - 0.5%
OdontoPrev S.A.			5,100			$	25,995
Insurance - 2.6%
Brasil Insurance Participacoes e Administracao S.A.			11,700			$	126,321
Medical & Health Technology & Services - 1.8%
Diagnosticos da America S.A.			6,800			$	48,319
Fleury S.A.			3,600				40,224
						$	88,543

 

7

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Metals & Mining - 13.0%
Gerdau S.A., ADR			16,991			$	150,031
Grupo Mexico S.A.B. de C.V., “B”			19,837				73,921
Ternium S.A., ADR			3,488				82,421
Vale S.A., ADR			16,626				335,346
						$	641,719
Oil Services - 2.7%
Tenaris S.A., ADR			3,179			$	133,741
Other Banks & Diversified Financials - 12.6%
Banco Santander Chile, ADR			689			$	20,808
Banco Santander S.A., IEU			14,600				107,410
Bancolombia S.A., ADR			425				29,542
Credicorp Ltd.			1,246				195,286
Grupo Financiero Banorte S.A. de C.V.			8,700				59,988
Grupo Financiero Santander Mexico S.A.B. de C.V., ADR (a)			2,440				37,942
Itau Unibanco Holding S.A., ADR			9,752				168,027
						$	619,003
Pharmaceuticals - 2.4%
Genomma Lab Internacional S.A., “B” (a)			52,400			$	119,640
Real Estate - 3.9%
Brasil Brokers Participacoes			31,400			$	99,655
Macquarie Mexico Real Estate S.A. de C.V., REIT (a)			27,200				63,665
Multiplan Empreendimentos Imobiliarios S.A.			1,000				28,900
						$	192,220
Restaurants - 0.9%
Arcos Dorados Holdings, Inc.			3,260			$	44,792
Specialty Chemicals - 0.7%
Mexichem S.A.B de C.V.			5,800			$	32,808
Telecommunications - Wireless - 6.0%
America Movil S.A.B. de C.V., “L”, ADR			7,992			$	201,079
TIM Participacoes S.A., ADR			4,314				94,908
						$	295,987
Telephone Services - 0.5%
Empresa Nacional de Telecomunicaciones S.A.			1,035			$	22,510

 

8

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Utilities - Electric Power - 4.1%
Energias do Brasil S.A.			16,000			$	97,944
Terna Participacoes S.A., IEU			2,940				34,695
Tractebel Energia S.A.			3,830				68,066
						$	200,705
Utilities - Water - 2.0%
Aguas Andinas S.A.			130,175			$	96,392
Total Common Stocks (Identified Cost, $4,201,337)						$	4,775,170
Money Market Funds - 1.3%
MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v)			62,683			$	62,683
Total Investments (Identified Cost, $4,264,020)						$	4,837,853
Other Assets, Less Liabilities - 1.9%							93,893
Net Assets - 100.0%						$	4,931,746

 

(a)	Non-income producing security.

(v)	Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt

IEU

International Equity Unit

IPS

International Preference Stock

See Notes to Financial Statements

 

9

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Table of Contents

Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 1/31/13 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets
Investments-
Non-affiliated issuers, at value (identified cost, $4,201,337)			$4,775,170
Underlying affiliated funds, at cost and value			62,683
Total investments, at value (identified cost, $4,264,020)			$4,837,853
Foreign currency, at value (identified cost, $243)			243
Receivables for
Fund shares sold			151,649
Interest and dividends			7,841
Receivable from investment adviser			13,769
Other assets			132
Total assets			$5,011,487
Liabilities
Payable to custodian			$9
Payable to affiliates
Shareholder servicing costs			1,227
Distribution and service fees			96
Payable for independent Trustees’ compensation			166
Deferred country tax expense payable			7,073
Accrued expenses and other liabilities			71,170
Total liabilities			$79,741
Net assets			$4,931,746
Net assets consist of
Paid-in capital			$4,828,853
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies (net of $4,885 deferred country tax)			569,141
Accumulated net realized gain (loss) on investments and foreign currency			(462,013	)
Accumulated distributions in excess of net investment income			(4,235	)
Net assets			$4,931,746
Shares of beneficial interest outstanding			467,059

 

		Net assets				Shares outstanding				Net asset value per share (a)
Class A			$2,829,659				267,485				$10.58
Class B			615,345				58,777				10.47
Class C			453,630				43,397				10.45
Class I			1,033,112				97,400				10.61

 

(a)

Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $11.23 [100 / 94.25 x $10.58]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Class I.

See Notes to Financial Statements

 

10

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Table of Contents

Financial Statements

 

STATEMENT OF OPERATIONS

Six months ended 1/31/13 (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment loss
Income
Dividends			$37,336
Dividends from underlying affiliated funds			52
Foreign taxes withheld			(1,948	)
Total investment income			$35,440
Expenses
Management fee			$22,308
Distribution and service fees			7,988
Shareholder servicing costs			3,966
Administrative services fee			8,823
Independent Trustees’ compensation			643
Custodian fee			32,919
Shareholder communications			5,255
Audit and tax fees			25,999
Legal fees			557
Registration fees			30,425
Miscellaneous			5,592
Total expenses			$144,475
Fees paid indirectly			(1	)
Reduction of expenses by investment adviser			(106,724	)
Net expenses			$37,750
Net investment loss			$(2,310	)
Realized and unrealized gain (loss) on investments and foreign currency
Realized gain (loss) (identified cost basis)
Investments (net of $2,188 country tax)			$(79,117	)
Foreign currency			(1,317	)
Net realized gain (loss) on investments and foreign currency			$(80,434	)
Change in unrealized appreciation (depreciation)
Investments (net of $4,885 increase in deferred country tax)			$704,195
Translation of assets and liabilities in foreign currencies			687
Net unrealized gain (loss) on investments and foreign currency translation			$704,882
Net realized and unrealized gain (loss) on investments and foreign currency			$624,448
Change in net assets from operations			$622,138

See Notes to Financial Statements

 

11

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Table of Contents

Financial Statements

 

STATEMENTS OF CHANGES IN NET ASSETS

These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.

 

		Six months ended 1/31/13				Year ended 7/31/12
Change in net assets		(unaudited)
From operations
Net investment income (loss)			$(2,310	)			$51,949
Net realized gain (loss) on investments and foreign currency			(80,434	)			(360,874	)
Net unrealized gain (loss) on investments and foreign currency translation			704,882				(200,292	)
Change in net assets from operations			$622,138				$(509,217	)
Distributions declared to shareholders
From net investment income			$(41,001	)			$(2,610	)
From net realized gain on investments			—				(39,702	)
Total distributions declared to shareholders			$(41,001	)			$(42,312	)
Change in net assets from fund share transactions			$419,120				$1,381,090
Total change in net assets			$1,000,257				$829,561
Net assets
At beginning of period			3,931,489				3,101,928
At end of period (including accumulated distributions in excess of net investment income of $4,235 and undistributed net investment income of $39,076, respectively)			$4,931,746				$3,931,489

See Notes to Financial Statements

 

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Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Class A		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$9.23				$10.77				$10.00
Income (loss) from investment operations
Net investment income (d)			$0.00	(w)			$0.15				$0.18
Net realized and unrealized gain (loss) on investments and foreign currency			1.46				(1.56	)			0.59	(g)
Total from investment operations			$1.46				$(1.41	)			$0.77
Less distributions declared to shareholders
From net investment income			$(0.11	)			$(0.01	)			$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.11	)			$(0.13	)			$—
Net asset value, end of period (x)			$10.58				$9.23				$10.77
Total return (%) (r)(s)(t)(x)			15.84	(n)			(13.02	)			7.70	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			6.66	(a)			8.56				9.38	(a)
Expenses after expense reductions (f)			1.65	(a)			1.65				1.65	(a)
Net investment income			0.01	(a)(l)			1.55				1.83	(a)
Portfolio turnover			20	(n)			56				30	(n)
Net assets at end of period (000 omitted)			$2,830				$2,132				$1,490

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class B		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$9.11				$10.71				$10.00
Income (loss) from investment operations
Net investment income (loss) (d)			$(0.04	)			$0.07				$0.12
Net realized and unrealized gain (loss) on investments and foreign currency			1.43				(1.55	)			0.59	(g)
Total from investment operations			$1.39				$(1.48	)			$0.71
Less distributions declared to shareholders
From net investment income			$(0.03	)			$—				$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.03	)			$(0.12	)			$—
Net asset value, end of period (x)			$10.47				$9.11				$10.71
Total return (%) (r)(s)(t)(x)			15.30	(n)			(13.72	)			7.10	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			7.44	(a)			9.37				9.76	(a)
Expenses after expense reductions (f)			2.40	(a)			2.40				2.40	(a)
Net investment income (loss)			(0.72	)(a)(l)			0.80				1.26	(a)
Portfolio turnover			20	(n)			56				30	(n)
Net assets at end of period (000 omitted)			$615				$562				$542
Class C		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$9.12				$10.71				$10.00
Income (loss) from investment operations
Net investment income (loss) (d)			$(0.04	)			$0.08				$0.12
Net realized and unrealized gain (loss) on investments and foreign currency			1.43				(1.55	)			0.59	(g)
Total from investment operations			$1.39				$(1.47	)			$0.71
Less distributions declared to shareholders
From net investment income			$(0.06	)			$—				$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.06	)			$(0.12	)			$—
Net asset value, end of period (x)			$10.45				$9.12				$10.71
Total return (%) (r)(s)(t)(x)			15.32	(n)			(13.63	)			7.10	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			7.41	(a)			9.33				10.51	(a)
Expenses after expense reductions (f)			2.40	(a)			2.40				2.40	(a)
Net investment income (loss)			(0.73	)(a)(l)			0.82				1.25	(a)
Portfolio turnover			20	(n)			56				30	(n)
Net assets at end of period (000 omitted)			$454				$355				$263

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class I		Six months ended 1/31/13 (unaudited)				Year ended 7/31/12				Period ended 7/31/11 (c)
Net asset value, beginning of period			$9.27				$10.80				$10.00
Income (loss) from investment operations
Net investment income (d)			$0.01				$0.19				$0.18
Net realized and unrealized gain (loss) on investments and foreign currency			1.46				(1.58	)			0.62	(g)
Total from investment operations			$1.47				$(1.39	)			$0.80
Less distributions declared to shareholders
From net investment income			$(0.13	)			$(0.02	)			$—
From net realized gain on investments			—				(0.12	)			—
Total distributions declared to shareholders			$(0.13	)			$(0.14	)			$—
Net asset value, end of period (x)			$10.61				$9.27				$10.80
Total return (%) (r)(s)(x)			15.89	(n)			(12.74	)			8.00	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			6.46	(a)			8.31				10.71	(a)
Expenses after expense reductions (f)			1.40	(a)			1.40				1.40	(a)
Net investment income			0.27	(a)(l)			1.98				1.93	(a)
Portfolio turnover			20	(n)			56				30	(n)
Net assets at end of period (000 omitted)			$1,033				$883				$807

 

(a)	Annualized.

(c)	For the period from the commencement of the fund’s investment operations, September 15, 2010, through the stated period end.

(d)	Per share data is based on average shares outstanding.

(f)	Ratios do not reflect reductions from fees paid indirectly, if applicable.

(g)	The per share amount varies from 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.

(l)	Recognition of net investment income by the fund may be affected by the timing of the declaration of dividends by companies in which the fund invests and the actual annual net investment income ratio may differ.

(n)	Not annualized.

(r)	Certain expenses have been reduced without which performance would have been lower.

(s)	From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

(t)	Total returns do not include any applicable sales charges.

(w)	Per share amount was less than $0.01.

(x)	The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS

(unaudited)

(1) Business and Organization

MFS Latin American Equity Fund (the fund) is a series of MFS Series Trust VII (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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests 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. The fund’s performance could be closely tied to the market, currency, economic, political, regulatory, geopolitical, or other conditions in the countries or regions in which the fund invests and could be more volatile than the performance of more geographically-diversified funds.

The fund may invest between 25% and 35% of its total assets in the securities of issuers in any particular industry if, at the time of investment, that industry represents 20% or more of the Latin American market as a whole, as measured by an index determined by MFS to be an appropriate measure of the Latin American market. At January 31, 2013, the fund did not have more than 25% of its assets invested in any one industry.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party pricing service on the

 

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market or exchange on which such securities are primarily traded. Short-term instruments with a maturity at issuance of 60 days or less generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as 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 provided by a third-party 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 most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 effect 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 generally relies on third-party 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 an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of

 

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input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:

 

Investments at Value		Level 1				Level 2				Level 3				Total
Equity Securities			$4,775,170				$—				$—				$4,775,170
Mutual Funds			62,683				—				—				62,683
Total Investments			$4,837,853				$—				$—				$4,837,853

For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

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. 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 payments received in additional securities are recorded on the ex-dividend 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.

 

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Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the six months ended January 31, 2013, is shown as a reduction of total expenses in 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. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes 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 wash sale loss deferrals.

The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

		7/31/12
Ordinary income (including any short-term capital gains)			$42,312

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 1/31/13
Cost of investments			$4,491,847
Gross appreciation			844,775
Gross depreciation			(498,769	)
Net unrealized appreciation (depreciation)			$346,006
As of 7/31/12
Undistributed ordinary income			39,317
Capital loss carryforwards			(153,752	)
Other temporary differences			(735	)
Net unrealized appreciation (depreciation)			(363,074	)

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

 

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As of July 31, 2012, the fund had capital loss carryforwards available to offset future realized gains.

 

Such losses are characterized as follows:
Short-term losses			$(60,637	)
Long-term losses			(93,115	)
Total			$(153,752	)

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), the above net capital losses may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. Previously, net capital losses were carried forward for eight years and treated as short-term losses.

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statements of Changes in Net Assets are presented by class as follows:

 

		From net investment income								From net realized gain on investments
		Six months ended 1/31/13				Year ended 7/31/12				Six months ended 1/31/13				Year ended 7/31/12
Class A			$25,388				$1,064				$—				$20,008
Class B			1,943				—				—				7,490
Class C			2,981				—				—				3,161
Class I			10,689				1,546				—				9,043
Total			$41,001				$2,610				$—				$39,702

(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			1.05%
Next $1.5 billion of average daily net assets			0.95%
Average daily net assets in excess of $2.5 billion			0.90%

The management fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 1.05% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual fund

 

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operating expenses do not exceed the following rates annually of each class’s average daily net assets.

 

Class A				Class B				Class C				Class I
	1.65%				2.40	%			2.40	%			1.40	%

This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the six months ended January 31, 2013, this reduction amounted to $106,720 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 $1,376 for the six months ended January 31, 2013, 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:

 

		Distribution Fee Rate (d)				Service Fee Rate (d)				Total Distribution Plan (d)				Annual Effective Rate (e)				Distribution and Service Fee
Class A			—				0.25%				0.25%				0.25%				$2,940
Class B			0.75%				0.25%				1.00%				1.00%				2,984
Class C			0.75%				0.25%				1.00%				1.00%				2,064
Total Distribution and Service Fees																			$7,988

 

(d)

In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’s average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period.

(e)	The annual effective rates represent actual fees incurred under the distribution plan for the year ended January 31, 2013 based on each class’s average daily net assets.

Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase for shares purchased on or after August 1, 2012, and within 24 months of purchase for shares purchased prior to August 1, 2012. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD. There were no contingent deferred sales charges imposed during the six months ended January 31, 2013.

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

 

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determined periodically under the supervision of the fund’s Board of Trustees. For the six months ended January 31, 2013, the fee was $1,150, which equated to 0.0541% annually of the fund’s average daily net assets. MFSC also receives payment from the fund for out-of-pocket expenses, sub-accounting and other shareholder servicing costs which may be paid to affiliated and unaffiliated service providers. For the six months ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $2,816.

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 an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended January 31, 2013 was equivalent to an annual effective rate of 0.4152% 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.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any time under the terms of the Agreements. For the six months ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $13 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $4, 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 and Assistant ICCO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.

At January 31, 2013, MFS held 64% of the outstanding shares of Class I.

(4) Portfolio Securities

Purchases and sales of investments, other than short-term obligations, aggregated $1,051,521 and $815,357, respectively.

 

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(5) Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. Transactions in fund shares were as follows:

 

		Six months ended 1/31/13								Year ended 7/31/12
		Shares				Amount				Shares				Amount
Shares sold
Class A			76,055				$764,276				198,453				$1,933,009
Class B			7,623				76,923				38,932				372,147
Class C			11,367				110,128				21,053				205,609
Class I			14,846				154,374				58,806				576,584
			109,891				$1,105,701				317,244				$3,087,349
Shares issued to shareholders in reinvestment of distributions
Class A			2,500				$25,124				2,380				$20,350
Class B			195				1,943				786				6,657
Class C			300				2,981				373				3,161
Class I			1,061				10,689				1,237				10,589
			4,056				$40,737				4,776				$40,757
Shares reacquired
Class A			(41,919	)			$(413,654	)			(108,321	)			$(1,045,400	)
Class B			(10,729	)			(108,960	)			(28,648	)			(274,061	)
Class C			(7,181	)			(70,568	)			(7,086	)			(65,790	)
Class I			(13,772	)			(134,136	)			(39,456	)			(361,765	)
			(73,601	)			$(727,318	)			(183,511	)			$(1,747,016	)
Net change
Class A			36,636				$375,746				92,512				$907,959
Class B			(2,911	)			(30,094	)			11,070				104,743
Class C			4,486				42,541				14,340				142,980
Class I			2,135				30,927				20,587				225,408
			40,346				$419,120				138,509				$1,381,090

(6) Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund,

 

23

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Notes to Financial Statements (unaudited) – continued

 

based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an agreed upon spread. For the six months ended January 31, 2013, the fund’s commitment fee and interest expense were $13 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.

(7) Transactions in Underlying Affiliated 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 an affiliated issuer:

 

Underlying Affiliated Fund		Beginning Shares/Par Amount				Acquisitions Shares/Par Amount				Dispositions Shares/Par Amount				Ending Shares/Par Amount
MFS Institutional Money Market Portfolio			20,087				1,125,273				(1,082,677	)			62,683
Underlying Affiliated Fund		Realized Gain (Loss)				Capital Gain Distributions				Dividend Income				Ending Value
MFS Institutional Money Market Portfolio			$—				$—				$52				$62,683

 

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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

A discussion regarding the Board’s most recent review and renewal of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of 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. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and 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. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: [e-mail] , or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site ( mfs.com ). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.

PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES

The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.

 

25

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Save paper with eDelivery.

 

MFS® will send you prospectuses,

reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.

To sign up :

1. Go to mfs.com.

2. Log in via MFS® Access.

3. Select eDelivery.

If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.

 

CONTACT

WEB SITE

mfs.com

MFS TALK

1-800-637-8255

24 hours a day

ACCOUNT SERVICE AND LITERATURE

Shareholders

1-800-225-2606

Financial advisors

1-800-343-2829

Retirement plan services

1-800-637-1255

MAILING ADDRESS

MFS Service Center, Inc.

P.O. Box 55824

Boston, MA 02205-5824

OVERNIGHT MAIL

MFS Service Center, Inc.

c/o Boston Financial Data Services

30 Dan Road

Canton, MA 02021-2809

 

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Table of Contents

SEMIANNUAL REPORT

January 31, 2013

 

 

MFS® EQUITY INCOME FUND

 

 

EQI-SEM

 

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Table of Contents

MFS® EQUITY INCOME FUND

 

CONTENTS

 

Letter from the Chairman and CEO			1
Portfolio composition			2
Expense table			3
Portfolio of investments			5
Statement of assets and liabilities			10
Statement of operations			12
Statements of changes in net assets			13
Financial highlights			14
Notes to financial statements			20
Board approval of investment advisory agreement			29
Proxy voting policies and information			32
Quarterly portfolio disclosure			32
Further information			32
Provision of financial reports and summary prospectuses			32
Contact information     back cover

 

The report is prepared for the general information of shareholders.

It is authorized for distribution to prospective investors only when preceded or accompanied by a current prospectus.

 

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ NO BANK GUARANTEE

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Table of Contents

 

LETTER FROM THE CHAIRMAN AND CEO

 

Dear Shareholders:

Global financial markets began 2013 with greater optimism. U.S. and Asian economic trends have turned more positive. Europe continues to struggle through its economic

slump. However, even there, sentiment has improved. The U.S. Congress averted its year-end fiscal cliff, but a degree of uncertainty remains regarding upcoming negotiations over spending cuts and the debt ceiling. The U.S. Federal Reserve Board is continuing its accommodative monetary easing, while the U.S. housing and job markets have made steady gains. Corporate profits have been resilient, and investors have demonstrated increased tolerance for risk.

Overseas, the eurozone remains in a broad contraction, with economic output receding in France as well as Italy and Spain. However, large-scale early repayments of European Central

Bank loans by banks and Germany’s strong rebound in manufacturing activity are encouraging signs. In Asia, both China and Japan appear to be in the early stages of a turnaround. China’s economic activity has picked up from last year’s relative slowdown, and Japan’s sharp devaluation of the yen, an important anti-deflationary measure, seems to be having its desired impact: Japanese stocks have soared, corporate profits are rising and confidence is returning among consumers, businesses and investors.

As always, managing risk in the face of uncertainty remains a top priority for investors. At MFS®, our uniquely collaborative investment process employs global research and active risk management. Our global team of investment professionals shares ideas and evaluates opportunities across continents, investment disciplines and asset classes — all with a goal of building better insights, and ultimately better results, for our clients.

We remain mindful of the many economic challenges investors face today, and believe it is more important than ever to maintain a long-term view and employ time-tested principles, such as asset allocation and diversification. We also remain confident that our unique approach can serve investors well as they work with their financial advisors to identify and pursue the most suitable opportunities.

Respectfully,

 

Robert J. Manning

Chairman and Chief Executive Officer

MFS Investment Management®

March 18, 2013

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

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Table of Contents

PORTFOLIO COMPOSITION

 

Portfolio structure

 

 

Top ten holdings
Exxon Mobil Corp.			4.3%
Apple, Inc.			3.4%
Chevron Corp.			3.1%
Pfizer, Inc.			3.1%
JPMorgan Chase & Co.			3.0%
Johnson & Johnson			3.0%
Philip Morris International, Inc.			2.5%
Microsoft Corp.			2.4%
Merck & Co., Inc.			2.3%
Eli Lilly & Co.			1.8%

Equity sectors
Financial Services			18.2%
Technology			12.3%
Health Care			12.3%
Utilities & Communications			11.4%
Energy			11.0%
Consumer Staples			8.5%
Leisure			7.2%
Retailing			6.5%
Autos & Housing			3.4%
Basic Materials			3.3%
Industrial Goods & Services			2.9%
Transportation			0.9%

 

 

Percentages are based on net assets as of 1/31/13.

The portfolio is actively managed and current holdings may be different.

 

2

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Table of Contents

EXPENSE TABLE

Fund expenses borne by the shareholders during the period,

September 27, 2012 through January 31, 2013

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 September 27, 2012 through January 31, 2013.

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.

 

3

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Table of Contents

Expense Table – continued

 

Share Class				Annualized Expense Ratio				Beginning Account Value 9/27/12				Ending Account Value 1/31/13				Expenses Paid During Period (p) 9/27/12-1/31/13
A		Actual			1.25%				$1,000.00				$1,036.34				$4.43
		Hypothetical (h)			1.25%				$1,000.00				$1,018.90				$6.36
B		Actual			2.00%				$1,000.00				$1,034.44				$7.08
		Hypothetical (h)			2.00%				$1,000.00				$1,015.12				$10.16
C		Actual			2.00%				$1,000.00				$1,034.69				$7.08
		Hypothetical (h)			2.00%				$1,000.00				$1,015.12				$10.16
I		Actual			1.00%				$1,000.00				$1,037.81				$3.55
		Hypothetical (h)			1.00%				$1,000.00				$1,020.16				$5.09
R1		Actual			2.00%				$1,000.00				$1,034.10				$7.08
		Hypothetical (h)			2.00%				$1,000.00				$1,015.12				$10.16
R2		Actual			1.50%				$1,000.00				$1,036.45				$5.31
		Hypothetical (h)			1.50%				$1,000.00				$1,017.64				$7.63
R3		Actual			1.25%				$1,000.00				$1,037.13				$4.43
		Hypothetical (h)			1.25%				$1,000.00				$1,018.90				$6.36
R4		Actual			1.00%				$1,000.00				$1,037.81				$3.55
		Hypothetical (h)			1.00%				$1,000.00				$1,020.16				$5.09
R5		Actual			0.97%				$1,000.00				$1,037.81				$3.44
		Hypothetical (h)			0.97%				$1,000.00				$1,020.32				$4.94

 

(h)	5% class return per year before expenses.

(p)

Expenses paid are equal to each class’s 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. For hypothetical expenses paid, it is assumed that the fund was in existence for the entire six month period ended January 31, 2013. For actual expenses paid, the calculation is based on the period from the commencement of the fund’s investment operations, September 27, 2012, through January 31, 2013.

 

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Table of Contents

PORTFOLIO OF INVESTMENTS

1/31/13 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Common Stocks - 97.5%
Issuer		Shares/Par				Value ($)
Aerospace - 1.6%
Lockheed Martin Corp.			990			$	86,001
Airlines - 0.9%
Copa Holdings S.A., “A”			460			$	50,416
Automotive - 3.4%
Delphi Automotive PLC (a)			2,200			$	85,052
General Motors Co. (a)			1,300				36,517
Magna International, Inc.			1,170				61,151
						$	182,720
Brokerage & Asset Managers - 0.2%
Prospect Capital Corp.			900			$	10,152
Cable TV - 3.7%
Comcast Corp., “Special A”			2,230			$	81,908
Time Warner Cable, Inc.			970				86,660
Virgin Media, Inc.			770				30,330
						$	198,898
Computer Software - 3.8%
CA, Inc.			740			$	18,367
Microsoft Corp.			4,800				131,856
SolarWinds, Inc. (a)			1,050				57,141
						$	207,364
Computer Software - Systems - 6.0%
Apple, Inc.			400			$	182,124
Canon, Inc.			1,400				51,517
Hewlett-Packard Co.			3,790				62,573
Western Digital Corp.			640				30,080
						$	326,294
Consumer Products - 2.3%
Nu Skin Enterprises, Inc., “A”			1,450			$	61,422
Procter & Gamble Co.			830				62,383
						$	123,805
Containers - 0.3%
Packaging Corp. of America			450			$	17,294

 

5

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Electronics - 2.2%
Hoya Corp.			1,200			$	23,161
Microchip Technology, Inc.			2,290				76,601
Taiwan Semiconductor Manufacturing Co. Ltd., ADR			1,170				20,756
						$	120,518
Energy - Independent - 2.7%
HollyFrontier Corp.			850			$	44,387
Marathon Petroleum Corp.			630				46,752
Valero Energy Corp.			1,240				54,225
						$	145,364
Energy - Integrated - 8.3%
Chevron Corp.			1,450			$	166,968
Exxon Mobil Corp.			2,580				232,123
Royal Dutch Shell PLC, “A”			1,502				53,384
						$	452,475
Food & Beverages - 2.2%
General Mills, Inc.			550			$	23,067
Ingredion, Inc.			550				36,339
Tyson Foods, Inc., “A”			2,630				58,176
						$	117,582
Food & Drug Stores - 3.2%
CVS Caremark Corp.			800			$	40,960
Kroger Co.			2,290				63,433
Walgreen Co.			1,740				69,530
						$	173,923
Gaming & Lodging - 0.5%
Wynn Resorts Ltd.			230			$	28,801
General Merchandise - 2.4%
Macy’s, Inc.			1,960			$	77,440
Target Corp.			870				52,557
						$	129,997
Health Maintenance Organizations - 0.2%
Aetna, Inc.			210			$	10,128
Insurance - 8.0%
Aflac, Inc.			360			$	19,102
American International Group, Inc. (a)			2,370				89,657
Delta Lloyd N.V.			3,110				61,188

 

6

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Insurance - continued
MetLife, Inc.			2,610			$	97,457
Prudential Financial, Inc.			1,090				63,089
Validus Holdings Ltd.			2,280				83,015
Zurich Insurance Group AG			72				20,713
						$	434,221
Internet - 0.3%
Google, Inc., “A” (a)			20			$	15,114
Leisure & Toys - 3.0%
Activision Blizzard, Inc.			5,420			$	61,734
Mattel, Inc.			2,290				86,173
Polaris Industries, Inc.			200				17,418
						$	165,325
Machinery & Tools - 1.3%
Cummins, Inc.			630			$	72,343
Major Banks - 7.8%
Banco Santander S.A.			4,112			$	34,499
BOC Hong Kong Holdings Ltd.			7,000				24,144
JPMorgan Chase & Co.			3,460				162,793
Mizuho Financial Group, Inc.			27,700				55,433
Sumitomo Mitsui Financial Group, Inc.			600				24,080
Wells Fargo & Co.			2,020				70,357
Westpac Banking Corp.			1,800				52,632
						$	423,938
Medical Equipment - 0.7%
Abbott Laboratories			1,040			$	35,235
Metals & Mining - 3.0%
Iluka Resources Ltd.			5,217			$	52,880
Rio Tinto Ltd.			910				51,380
Vale S.A., ADR			2,820				56,879
						$	161,139
Natural Gas - Distribution - 0.9%
GDF SUEZ			2,501			$	51,311
Other Banks & Diversified Financials - 0.3%
Fifth Third Bancorp			1,040			$	16,942

 

7

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer		Shares/Par				Value ($)
Common Stocks - continued
Pharmaceuticals - 11.4%
AbbVie, Inc.			1,040			$	38,158
Eli Lilly & Co.			1,830				98,253
Johnson & Johnson			2,180				161,146
Merck & Co., Inc.			2,910				125,858
Pfizer, Inc.			6,100				166,408
Teva Pharmaceutical Industries Ltd., ADR			740				28,113
						$	617,936
Real Estate - 1.9%
Annaly Mortgage Management, Inc., REIT			2,910			$	43,272
Corio N.V., REIT			466				22,630
EPR Properties, REIT			830				38,894
						$	104,796
Specialty Stores - 0.9%
Gap, Inc.			1,460			$	47,713
Telephone Services - 5.9%
Bezeq - The Israel Telecommunication Corp. Ltd.			8,530			$	10,011
CenturyLink, Inc.			2,230				90,204
Frontier Communications Corp.			13,270				60,644
TDC A.S.			5,922				45,320
Telecom Italia S.p.A.			11,441				9,781
Telefonica Brasil S.A., ADR			1,470				37,015
Verizon Communications, Inc.			1,510				65,851
						$	318,826
Tobacco - 4.0%
Lorillard, Inc.			2,210			$	86,345
Philip Morris International, Inc.			1,510				133,122
						$	219,467
Utilities - Electric Power - 4.2%
American Electric Power Co., Inc.			1,990			$	90,127
NRG Energy, Inc.			2,410				57,840
PG&E Corp.			1,040				44,346
PPL Corp.			1,090				33,016
						$	225,329
Total Common Stocks (Identified Cost, $5,121,211)						$	5,291,367

 

8

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Table of Contents

Portfolio of Investments (unaudited) – continued

 

Convertible Preferred Stocks - 0.4%
Issuer		Shares/Par				Value ($)
Utilities - Electric Power - 0.4%
PPL Corp., 8.75%			180			$	9,844
PPL Corp., 9.5%			180				9,731
Total Convertible Preferred Stocks (Identified Cost, $19,607)						$	19,575
Money Market Funds - 2.8%
MFS Institutional Money Market Portfolio, 0.14%, at Cost and Net Asset Value (v)			154,802			$	154,802
Total Investments (Identified Cost, $5,295,620)						$	5,465,744
Other Assets, Less Liabilities - (0.7)%							(39,940	)
Net Assets - 100.0%						$	5,425,804

 

(a)	Non-income producing security.

(v)	Underlying affiliated fund that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio 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 Depositary Receipt

PLC

Public Limited Company

REIT

Real Estate Investment Trust

See Notes to Financial Statements

 

9

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Table of Contents

Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 1/31/13 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets
Investments-
Non-affiliated issuers, at value (identified cost, $5,140,818)			$5,310,942
Underlying affiliated funds, at cost and value			154,802
Total investments, at value (identified cost, $5,295,620)			$5,465,744
Receivables for
Fund shares sold			381,430
Dividends			5,076
Receivable from investment adviser			13,322
Other assets			144
Total assets			$5,865,716
Liabilities
Payable to custodian			$9
Payables for
Investments purchased			385,839
Fund shares reacquired			19,787
Payable to affiliates
Shareholder servicing costs			581
Distribution and service fees			84
Payable for independent Trustees’ compensation			413
Accrued expenses and other liabilities			33,199
Total liabilities			$439,912
Net assets			$5,425,804
Net assets consist of
Paid-in capital			$5,273,849
Unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies			170,094
Accumulated net realized gain (loss) on investments and foreign currency			(18,749	)
Undistributed net investment income			610
Net assets			$5,425,804
Shares of beneficial interest outstanding			526,492

 

10

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Table of Contents

Statement of Assets and Liabilities (unaudited) – continued

 

 

		Net assets				Shares outstanding				Net asset value per share (a)
Class A			$2,700,207				262,049				$10.30
Class B			151,079				14,671				10.30
Class C			592,512				57,504				10.30
Class I			114,568				11,114				10.31
Class R1			103,412				10,040				10.30
Class R2			103,593				10,053				10.30
Class R3			103,680				10,059				10.31
Class R4			103,772				10,066				10.31
Class R5			1,452,981				140,936				10.31

 

(a)

Maximum offering price per share was equal to the net asset value per share for all share classes, except for Class A, for which the maximum offering price per share was $10.93 [100 / 94.25 x $10.30]. On sales of $50,000 or more, the maximum 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. Redemption price per share was equal to the net asset value per share for Classes I, R1, R2, R3, R4, and R5.

See Notes to Financial Statements

 

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Financial Statements

 

STATEMENT OF OPERATIONS

Period ended 1/31/13 (c) (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment income
Income
Dividends			$29,065
Dividends from underlying affiliated funds			87
Foreign taxes withheld			(240	)
Total investment income			$28,912
Expenses
Management fee			$7,867
Distribution and service fees			2,320
Shareholder servicing costs			712
Administrative services fee			6,090
Independent Trustees’ compensation			413
Custodian fee			3,306
Shareholder communications			1,237
Audit and tax fees			7,577
Legal fees			556
Registration fees			24,849
Miscellaneous			2,724
Total expenses			$57,651
Reduction of expenses by investment adviser			(44,985	)
Net expenses			$12,666
Net investment income			$16,246
Realized and unrealized gain (loss) on investments and foreign currency
Realized gain (loss) (identified cost basis)
Investments			$(19,091	)
Foreign currency			342
Net realized gain (loss) on investments and foreign currency			$(18,749	)
Change in unrealized appreciation (depreciation)
Investments			$170,124
Translation of assets and liabilities in foreign currencies			(30	)
Net unrealized gain (loss) on investments and foreign currency translation			$170,094
Net realized and unrealized gain (loss) on investments and foreign currency			$151,345
Change in net assets from operations			$167,591

 

(c)	For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end.

See Notes to Financial Statements

 

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Financial Statements

 

STATEMENT OF CHANGES IN NET ASSETS

This statement describes the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.

 

Change in net assets		Period ended 1/31/13 (c) (unaudited)
From operations
Net investment income			$16,246
Net realized gain (loss) on investments and foreign currency			(18,749	)
Net unrealized gain (loss) on investments and foreign currency translation			170,094
Change in net assets from operations			$167,591
Distributions declared to shareholders
From net investment income			$(15,636	)
Change in net assets from fund share transactions			$5,273,849
Total change in net assets			$5,425,804
Net assets
At beginning of period			—
At end of period (including undistributed net investment income of $610)			$5,425,804

 

(c)	For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end.

See Notes to Financial Statements

 

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Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years (or life of a particular share class, if shorter). Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

Class A		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.04
Net realized and unrealized gain (loss) on investments and foreign currency			0.32
Total from investment operations			$0.36
Less distributions declared to shareholders
From net investment income			$(0.06	)
Net asset value, end of period (x)			$10.30
Total return (%) (r)(s)(t)(x)			3.63	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			5.00	(a)
Expenses after expense reductions (f)			1.25	(a)
Net investment income			1.19	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$2,700

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class B		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.03
Net realized and unrealized gain (loss) on investments and foreign currency			0.31
Total from investment operations			$0.34
Less distributions declared to shareholders
From net investment income			$(0.04	)
Net asset value, end of period (x)			$10.30
Total return (%) (r)(s)(t)(x)			3.44	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			6.44	(a)
Expenses after expense reductions (f)			2.00	(a)
Net investment income			0.85	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$151
Class C		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.02
Net realized and unrealized gain (loss) on investments and foreign currency			0.33
Total from investment operations			$0.35
Less distributions declared to shareholders
From net investment income			$(0.05	)
Net asset value, end of period (x)			$10.30
Total return (%) (r)(s)(t)(x)			3.47	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			5.96	(a)
Expenses after expense reductions (f)			2.00	(a)
Net investment income			0.52	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$593

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class I		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.05
Net realized and unrealized gain (loss) on investments and foreign currency			0.33
Total from investment operations			$0.38
Less distributions declared to shareholders
From net investment income			$(0.07	)
Net asset value, end of period (x)			$10.31
Total return (%) (r)(s)(x)			3.78	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			5.21	(a)
Expenses after expense reductions (f)			1.00	(a)
Net investment income			1.49	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$115
Class R1		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.03
Net realized and unrealized gain (loss) on investments and foreign currency			0.31
Total from investment operations			$0.34
Less distributions declared to shareholders
From net investment income			$(0.04	)
Net asset value, end of period (x)			$10.30
Total return (%) (r)(s)(x)			3.41	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			6.56	(a)
Expenses after expense reductions (f)			2.00	(a)
Net investment income			0.93	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$103

See Notes to Financial Statements

 

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Financial Highlights – continued

 

Class R2		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.05
Net realized and unrealized gain (loss) on investments and foreign currency			0.30
Total from investment operations			$0.35
Less distributions declared to shareholders
From net investment income			$(0.05	)
Net asset value, end of period (x)			$10.30
Total return (%) (r)(s)(x)			3.54	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			6.06	(a)
Expenses after expense reductions (f)			1.50	(a)
Net investment income			1.43	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$104
Class R3		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.06
Net realized and unrealized gain (loss) on investments and foreign currency			0.31
Total from investment operations			$0.37
Less distributions declared to shareholders
From net investment income			$(0.06	)
Net asset value, end of period (x)			$10.31
Total return (%) (r)(s)(x)			3.71	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			5.81	(a)
Expenses after expense reductions (f)			1.25	(a)
Net investment income			1.68	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$104

See Notes to Financial Statements

 

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Class R4		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.07
Net realized and unrealized gain (loss) on investments and foreign currency			0.31
Total from investment operations			$0.38
Less distributions declared to shareholders
From net investment income			$(0.07	)
Net asset value, end of period (x)			$10.31
Total return (%) (r)(s)(x)			3.78	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			5.56	(a)
Expenses after expense reductions (f)			1.00	(a)
Net investment income			1.93	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$104
Class R5		Period ended 1/31/13 (c) (unaudited)
Net asset value, beginning of period			$10.00
Income (loss) from investment operations
Net investment income (d)			$0.07
Net realized and unrealized gain (loss) on investments and foreign currency			0.31
Total from investment operations			$0.38
Less distributions declared to shareholders
From net investment income			$(0.07	)
Net asset value, end of period (x)			$10.31
Total return (%) (r)(s)(x)			3.79	(n)
Ratios (%) (to average net assets) and Supplemental data:
Expenses before expense reductions (f)			5.52	(a)
Expenses after expense reductions (f)			0.97	(a)
Net investment income			1.96	(a)
Portfolio turnover			25	(n)
Net assets at end of period (000 omitted)			$1,453

See Notes to Financial Statements

 

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(a)	Annualized.

(c)	For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end.

(d)	Per share data is based on average shares outstanding.

(f)	Ratios do not reflect reductions from fees paid indirectly, if applicable.

(n)	Not annualized.

(r)	Certain expenses have been reduced without which performance would have been lower.

(s)	From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

(t)	Total returns do not include any applicable sales charges.

(x)	The net asset values per share and total returns have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS

(unaudited)

(1) Business and Organization

MFS Equity Income Fund (the fund) is a series of MFS Series Trust VII (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. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s legal, political, and economic environment.

In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-11, Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods, ASU 2011-11 is intended to enhance disclosure requirements on the offsetting of financial assets and liabilities. Although still evaluating the potential impacts of ASU 2011-11 to the fund, management expects that the impact of the fund’s adoption will be limited to additional financial statement disclosures.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price as provided by a third-party pricing service on the market or exchange on which they are primarily traded. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation as provided by a third-party 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 generally are valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. Values obtained from third-party pricing services can utilize both transaction data and market information such as 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 provided by a third-party 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

 

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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 most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party 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 effect 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 generally relies on third-party 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 an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of January 31, 2013 in valuing the fund’s assets or liabilities:

 

Investments at Value		Level 1				Level 2				Level 3				Total
Equity Securities			$5,310,942				$—				$—				$5,310,942
Mutual Funds			154,802				—				—				154,802
Total Investments			$5,465,744				$—				$—				$5,465,744

 

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For further information regarding security characteristics, see the Portfolio of Investments.

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 or on the reporting date for foreign denominated receivables and payables. 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 receivables, payables, 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.

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. 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 payments received in additional securities are recorded on ex-dividend 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 may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. For the period ended January 31, 2013, custody fees were not reduced.

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. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Foreign taxes 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

 

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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.

The tax character of distributions made during the current period will be determined at fiscal year end.

The federal tax cost of securities held were as follows:

 

As of 1/31/13
Cost of investments			$5,295,620
Gross appreciation			233,508
Gross depreciation			(63,384	)
Net unrealized appreciation (depreciation)			$170,124

Multiple Classes of Shares of Beneficial Interest – The fund offers multiple classes of shares, which differ in their respective distribution and service fees. The fund’s income, realized and unrealized gain (loss), and common expenses are allocated to shareholders based on the daily net assets of each class. 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. The fund’s distributions declared to shareholders as reported in the Statement of Changes in Net Assets are presented by class as follows:

 

		From net investment income
		Period  ended 1/31/13 (c)
Class A			$2,544
Class B			514
Class C			452
Class I			671
Class R1			395
Class R2			525
Class R3			590
Class R4			655
Class R5			9,290
Total			$15,636

 

(c)	For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end.

 

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(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			0.75	%
Next $1.5 billion of average daily net assets			0.65	%
Average daily net assets in excess of $2.5 billion			0.60	%

The management fee incurred for the period ended January 31, 2013 was equivalent to an annual effective rate of 0.75% of the fund’s average daily net assets.

The investment adviser has agreed in writing to pay a portion of the fund’s total annual operating expenses, exclusive of interest, taxes, extraordinary expenses, brokerage and transaction costs, and investment-related expenses, such that total annual fund operating expenses do not exceed the following rates annually of each class’s average daily net assets.

 

Classes
A				B				C				I				R1				R2				R3				R4				R5
	1.25%				2.00%				2.00%				1.00%				2.00%				1.50%				1.25%				1.00%				0.97%

This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until November 30, 2013. For the period ended January 31, 2013, this reduction amounted to $44,984 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 $8,179 for the period ended January 31, 2013, 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:

 

		Distribution Fee Rate (d)				Service Fee Rate (d)				Total Distribution Plan (d)				Annual Effective Rate (e)				Distribution and Service Fee
Class A			—				0.25%				0.25%				0.25%				$672
Class B			0.75%				0.25%				1.00%				1.00%				395
Class C			0.75%				0.25%				1.00%				1.00%				645
Class R1			0.75%				0.25%				1.00%				1.00%				347
Class R2			0.25%				0.25%				0.50%				0.50%				174
Class R3			—				0.25%				0.25%				0.25%				87
Total Distribution and Service Fees																			$2,320

 

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(d)

In accordance with the distribution plan for certain classes, the fund pays distribution and/or service fees equal to these annual percentage rates of each class’s average daily net assets. The distribution and service fee rates disclosed by class represent the current rates in effect at the end of the reporting period.

(e)	The annual effective rates represent actual fees incurred under the distribution plan for the period ended January 31, 2013 based on each class’s average daily net assets.

Certain Class A shares are subject to a contingent deferred sales charge (CDSC) in the event of a shareholder redemption within 18 months of purchase. Class C shares are subject to a CDSC in the event of a shareholder redemption within 12 months of purchase. Class B shares are subject to a CDSC in the event of a shareholder redemption within six years of purchase. All contingent deferred sales charges are paid to MFD. There were no contingent deferred sales charges imposed during the period ended January 31, 2013.

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 period ended January 31, 2013, the fee was $132, which equated to 0.0126% 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. Class R5 shares do not incur sub-accounting fees. For the period ended January 31, 2013, these out-of-pocket expenses, sub-accounting and other shareholder servicing costs amounted to $580.

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 an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the period ended January 31, 2013 was equivalent to an annual effective rate of 0.5807% 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.

Other – This fund and certain other funds managed by MFS (the funds) have entered into services agreements (the Agreements) which provide for payment of fees by the funds to Tarantino LLC and Griffin Compliance LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) and Assistant ICCO, respectively, for the funds. The ICCO and Assistant ICCO are officers of the funds and the sole members of Tarantino LLC and Griffin Compliance LLC, respectively. The funds can terminate the Agreements with Tarantino LLC and Griffin Compliance LLC at any

 

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time under the terms of the Agreements. For the period ended January 31, 2013, the aggregate fees paid by the fund to Tarantino LLC and Griffin Compliance LLC were $56 and are included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to reimburse the fund for a portion of the payments made by the fund in the amount of $1, 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 and Assistant ICCO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. Income earned on this investment is included in “Dividends from underlying affiliated funds” in the Statement of Operations. This money market fund does not pay a management fee to MFS.

On September 26, 2012, MFS purchased 10,000 shares each of Class A, Class B, Class C, Class I, Class R1, Class R2, Class R3, and Class R4 and 140,000 shares of Class R5 for an aggregate amount of $2,200,000.

At January 31, 2013, MFS held 68%, 91%, 100%, 100%, 100%, 100%, and 100% of the outstanding shares of Class B, Class I, Class R1, Class R2, Class R3, Class R4, and Class R5, respectively.

(4) Portfolio Securities

Purchases and sales of investments, other than short-term obligations, aggregated $5,956,099 and $805,861, 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:

 

		Period ended 1/31/13 (c)
		Shares				Amount
Shares sold
Class A			264,078				$2,664,235
Class B			14,619				146,167
Class C			57,458				578,367
Class I			66,799				657,179
Class R1			10,000				100,000
Class R2			10,000				100,000
Class R3			10,000				100,000
Class R4			10,000				100,000
Class R5			140,000				1,400,000
			582,954				$5,845,948

 

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Notes to Financial Statements (unaudited) – continued

 

		Period ended 1/31/13 (c)
		Shares				Amount
Shares issued to shareholders in reinvestment of distributions
Class A			180				$1,786
Class B			52				514
Class C			46				452
Class I			66				671
Class R1			40				395
Class R2			53				525
Class R3			59				590
Class R4			66				655
Class R5			936				9,290
			1,498				$14,878
Shares reacquired
Class A			(2,209	)			$(22,621	)
Class I			(55,751	)			(564,356	)
			(57,960	)			$(586,977	)
Net change
Class A			262,049				$2,643,400
Class B			14,671				146,681
Class C			57,504				578,819
Class I			11,114				93,494
Class R1			10,040				100,395
Class R2			10,053				100,525
Class R3			10,059				100,590
Class R4			10,066				100,655
Class R5			140,936				1,409,290
			526,492				$5,273,849

 

(c)	For the period from the commencement of the fund’s investment operations, September 27, 2012, through the stated period end.

(6) Line of Credit

The fund and certain other funds managed by MFS participate in a $1.1 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Federal Reserve funds rate or one month LIBOR plus an agreed upon spread. 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. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Federal Reserve funds rate plus an

 

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Notes to Financial Statements (unaudited) – continued

 

agreed upon spread. For the period ended January 31, 2013, the fund’s commitment fee and interest expense were $20 and $0, respectively, and are included in “Miscellaneous expense” in the Statement of Operations.

(7) Transactions in Underlying Affiliated 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 an affiliated issuer:

 

Underlying Affiliated Fund		Beginning Shares/Par Amount				Acquisitions Shares/Par Amount				Dispositions Shares/Par Amount				Ending Shares/Par Amount
MFS Institutional Money Market Portfolio			—				3,955,341				(3,800,539	)			154,802
Underlying Affiliated Fund		Realized Gain (Loss)				Capital Gain Distributions				Dividend Income				Ending Value
MFS Institutional Money Market Portfolio			$—				$—				$87				$154,802

 

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BOARD APPROVAL 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, initially approve the Fund’s investment advisory agreement with MFS (the “Agreement”) and, beginning on the second anniversary of the initial effective date of the Agreement, annually approve the continuation of the Agreement. In June 2012 and July 2012, the Board met to consider the initial approval of the Agreement (“the initial review meetings”). The independent Trustees were assisted in their evaluation of the Agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from MFS. 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 initial approval of the 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. As described below, the Trustees considered the nature, quality, and extent of the various investment advisory, administrative, and shareholder services to be performed by MFS under the Agreement and other arrangements with the Fund.

In connection with their initial review meetings, the Trustees received and relied upon materials that included, among other items: (i) information provided by Lipper Inc., an independent third party, on the Fund’s proposed advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Lipper Inc. (the “Lipper expense group”), (ii) information provided by MFS on the fees it charges to other registered funds managed in a similar style to the Fund, and (iii) information as to whether and to what extent applicable expense waivers, reimbursements or fee “breakpoints” would be observed for the Fund. In addition, in connection with the independent Trustees’ meetings in May, June and July, 2012 (the “contract review meetings”) for the purpose of considering whether to approve the continuation of the investment advisory agreements for the other investment companies that the Board oversees (the “MFS Funds”), the independent Trustees received: (i) information provided by MFS on fees it charges to institutional accounts managed in styles similar to other MFS Funds, (ii) information regarding MFS’ financial results and financial condition, including MFS’ and certain of its affiliates’ estimated profitability from services performed for the MFS Funds as a whole, and compared to MFS’ institutional business (iii) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (iv) descriptions of various functions performed by MFS for the Funds, such as compliance monitoring and portfolio trading practices, and (v) information regarding the overall organization of MFS, including information about MFS’ senior management and other personnel that would provide investment advisory, administrative and other services to the Fund and the other MFS Funds. The comparative 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.

 

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Board Approval of Investment Advisory Agreement – continued

 

The Trustees’ conclusion as to the initial approval of the 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. Because the Fund is newly organized and had not yet commenced investment operations at the time of the initial review meetings, the Fund had no investment performance for the Trustees to review. The Trustees also considered that MFS will observe an expense limitation for the Fund, which may not be changed without the Trustees’ approval.

In assessing the reasonableness of the Fund’s advisory fee, the Trustees considered, among other information, the Fund’s proposed advisory fee and the estimated 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. The Trustees considered that, according to the Lipper data (which takes into account any proposed fee reductions or expense limitations for the Fund), the Fund’s effective advisory fee rate would be lower than the Lipper expense group median and the Fund’s total expense ratio would be approximately at the Lipper expense group median.

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 proposed advisory fee rate schedule is subject to contractual breakpoints that reduce the Fund’s advisory fee rate on average daily net assets over $1 billion and $2.5 billion. The Trustees concluded that the proposed breakpoints were sufficient to allow the Fund to benefit from economies of scale as its assets grow.

The Trustees did not consider MFS’ costs and profits with respect to the Fund because the Fund had not yet commenced operations. The Trustees considered information prepared by MFS relating to MFS’ costs and profits with respect to the MFS Funds considered as a group, and other investment companies and institutional accounts advised by MFS, as well as MFS’ methodologies used to determine and allocate its costs to the MFS Funds 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 Agreement, that the advisory fee to be charged to the Fund represents reasonable compensation in light of the services to be 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 presence 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

 

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Board Approval of Investment Advisory Agreement – continued

 

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 to be provided to the Fund by MFS and its affiliates under agreements and plans other than the Agreement, including any 12b-1 fees the Fund will pay to MFS Fund Distributors, Inc., an affiliate of MFS. The Trustees also considered the nature, extent and quality of certain other services MFS may perform or arrange 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 to be provided by MFS and its affiliates on behalf of the Fund 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 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 the independent Trustees, concluded that the Fund’s Agreement with MFS should be approved for an initial two-year period, commencing upon its effective date, as set forth in the Agreement.

A discussion regarding the Board’s approval of the fund’s Investment Advisory Agreement with MFS is available by clicking on the fund’s name under “Mutual Funds” in the “Products” section of the MFS Web site (mfs.com) .

 

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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. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and 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. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: [e-mail] , or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site ( mfs.com ). This information is available by visiting the “News & Commentary” section of mfs.com or by clicking on the fund’s name under “Mutual Funds” in the “Products” section of mfs.com.

PROVISION OF FINANCIAL REPORTS AND SUMMARY PROSPECTUSES

The fund produces financial reports every six months and updates its summary prospectus and prospectus annually. To avoid sending duplicate copies of materials to households, only one copy of the fund’s annual and semiannual report and summary prospectus may be mailed to shareholders having the same last name and residential address on the fund’s records. However, any shareholder may contact MFSC (please see back cover for address and telephone number) to request that copies of these reports and summary prospectuses be sent personally to that shareholder.

 

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Save paper with eDelivery.

 

MFS® will send you prospectuses,

reports, and proxies directly via e-mail so you will get information faster with less mailbox clutter.

To sign up :

1. Go to mfs.com.

2. Log in via MFS® Access.

3. Select eDelivery.

If you own your MFS fund shares through a financial institution or a retirement plan, MFS® TALK, MFS® Access, or eDelivery may not be available to you.

 

CONTACT

WEB SITE

mfs.com

MFS TALK

1-800-637-8255

24 hours a day

ACCOUNT SERVICE AND LITERATURE

Shareholders

1-800-225-2606

Financial advisors

1-800-343-2829

Retirement plan services

1-800-637-1255

MAILING ADDRESS

MFS Service Center, Inc.

P.O. Box 55824

Boston, MA 02205-5824

OVERNIGHT MAIL

MFS Service Center, Inc.

c/o Boston Financial Data Services

30 Dan Road

Canton, MA 02021-2809

 

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ITEM 2.

CODE OF ETHICS.

During the period covered by this report, 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. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable for semi-annual reports.

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable for semi-annual reports.

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable to the Registrant.

 

ITEM 6.

INVESTMENTS

A schedule of investments for each series of the Registrant is included as part of the report to shareholders of such series under Item 1 of this Form N-CSR.

 

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable to the Registrant.

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable to the Registrant.

 

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable to the Registrant.

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.

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ITEM 11.

CONTROLS AND PROCEDURES.

 

(a)

Based upon their evaluation of the effectiveness of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this report on Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b)

There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12.

EXHIBITS.

 

(a)	File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated.

 

(1)

Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.

 

(2)

A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2): Attached hereto.

 

(b)

If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto.

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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.

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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 VII

 

By (Signature and Title)*		JOHN M. CORCORAN
		John M. Corcoran, President

Date: March 18, 2013

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)*		JOHN M. CORCORAN
		John M. Corcoran, President (Principal Executive Officer)

Date: March 18, 2013

 

By (Signature and Title)*		DAVID L. DILORENZO
		David L. DiLorenzo, Treasurer (Principal Financial Officer and Accounting Officer)

Date: March 18, 2013

 

*	Print name and title of each signing officer under his or her signature.