<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1997
1933 Act File No. 2-83616
1940 Act File No. 811-3732
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 20
AND
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24
MFS/SUN LIFE SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
500 Boylston, Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 954-5000
Stephen E. Cavan, Massachusetts Financial Services Company
500 Boylston Street, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on [date] pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[_] on [date] pursuant to paragraph (a)(i)
[_] 75 days after filing pursuant to paragraph (a)(ii)
[_] on [date] pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed
post-effective amendment
Pursuant to Rule 24f-2, Registrant has registered an indefinite number of its
Shares of Beneficial Interest (without par value), under the Securities Act of
1933. The Rule 24f-2 Notice for the Registrant's fiscal year ended December 31,
1996 was filed on February 27, 1997.
================================================================================
<PAGE>
MFS/SUN LIFE SERIES TRUST
-------------------------
CROSS REFERENCE SHEET
---------------------
(Pursuant to Rule 404 showing location in Prospectus and/or Statement of
Additional Information of the responses to the Items in Parts A and B of Form
N-1A)
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART A PROSPECTUS CAPTION INFORMATION CAPTION
- --------------------------- -------------------------- -----------------------
<S> <C> <C>
1 Front Cover Pages *
2 * *
3 Condensed Financial *
Information
4 The Series Fund; *
Investment Objectives
and Policies; Risk Factors
5 The Series Fund; *
Management of the
Series Fund; Investment
Objectives and
Policies; Back Cover Page
5(A) Information included in *
Registrant's
Annual Report to
Shareholders for
the year ended December
31, 1996
6 Additional Information *
with Respect to
Shares of each Series
7 Additional Information *
with Respect to
Shares of each Series
8 Additional Information *
with Respect to
Shares of each Series
9 * *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER STATEMENT OF ADDITIONAL
FORM N-1A, PART B PROSPECTUS CAPTION INFORMATION CAPTION
- ------------------- ------------------ -----------------------
<S> <C> <C>
10 * Front Cover Page
11 * Table of Contents
12 * *
13 * Investment Objectives, Policies
and Restrictions
14 * Management of the Series Fund
15 * *
16 * Management of the Series Fund
(also, see same caption in the
Prospectus); Independent
Accountants and Financial
Statements; Back Cover Page
17 * Portfolio Transactions and
Brokerage Commissions
18 * Additional Information with
Respect to Shares of each Series
19 * Additional Information with
Respect to Shares of each Series
20 * Additional Information with
Respect to Shares of each Series
21 * *
22 * *
23 * Independent Accountants and
Financial Statements
</TABLE>
- --------------------------
* Not Applicable
<PAGE>
MFS/SUN LIFE SERIES TRUST- RESEARCH GROWTH AND INCOME SERIES
Supplement to the Current Prospectus and Statement of Additional Information
The Research Growth and Income Series is not currently being offered for sale.
The date of this Supplement is May 1, 1997.
<PAGE>
PROSPECTUS
MFS/SUN LIFE SERIES TRUST MAY 1, 1997
- -------------------------------------------------------------------------------
MFS/Sun Life Series Trust (the "Series Fund"), 500 Boylston Street, Boston,
Massachusetts 02116, Telephone (617) 954-5000, is a no-load, open-end
management investment company which offers a choice of twenty separate series
of shares. The shares of each series will be sold only to variable accounts
(collectively, the "Variable Accounts") established by Sun Life Assurance
Company of Canada (U.S.) ("Sun Life of Canada (U.S.)"), Sun Life Insurance and
Annuity Company of New York ("Sun Life (N.Y.)") and their affiliated companies
to fund benefits under variable contracts (the "Contracts") issued by such
companies. The Variable Accounts will purchase shares of each series in
accordance with the allocation instructions received from owners of the
Contracts.
The twenty series and their investment objectives are as follows:
Capital Appreciation Series will seek capital appreciation by investing in
securities of all types, with major emphasis on common stocks (see page 14).
Conservative Growth Series will seek long-term growth of capital and future
income while providing more current dividend income than is normally
obtainable from a portfolio of only growth stocks by investing a substantial
proportion of its assets in the common stocks or securities convertible into
common stocks of companies believed to possess better than average prospects
for long-term growth and a smaller proportion of its assets in securities
whose principal characteristic is income production (see page 15).
Emerging Growth Series will seek long-term growth of capital by investing
primarily (i.e., at least 80% of its assets under normal circumstances) in
common stocks of emerging growth companies. Emerging growth companies include
companies that MFS believes are early in their life cycle but which have the
potential to become major enterprises. Dividend and interest income from
portfolio securities, if any, is incidental to its objective of long-term
growth of capital (see page 16).
Government Securities Series will seek current income and preservation of
capital by investing in U.S. Government and U.S. Government-related Securities
(see page 18).
High Yield Series will seek high current income and capital appreciation by
investing primarily in fixed income securities of United States and foreign
issuers which may be in the lower rated categories or unrated (commonly known
as "junk bonds") and may include equity features (see page 19). Securities
offering the high current income sought by the High Yield Series generally
involve greater volatility of price and risk of principal and income, and less
liquidity than securities in the higher rated categories of recognized rating
agencies.
Managed Sectors Series will seek capital appreciation by varying the
weighting of its portfolio of common stocks among certain industry sectors.
Dividend income, if any, is incidental to its objective of capital
appreciation (see page 21).
MFS/Foreign & Colonial Series. The following three series are currently
available for investment only under Regatta Gold contracts issued by Sun Life
of Canada (U.S.):
MFS/Foreign & Colonial International Growth Series will seek capital
appreciation by investing, under normal market conditions, at least 65% of its
total assets in equity securities of companies whose principal activities are
outside the U.S. growing at rates expected to be well above the growth rate of
the overall U.S. economy (see page 23).
MFS/Foreign & Colonial International Growth and Income Series will seek
capital appreciation and current income by investing, under normal market
conditions, at least 65% of its total assets in equity and fixed income
securities of issuers whose principal activities are outside the U.S. (see
page 23).
MFS/Foreign & Colonial Emerging Markets Equity Series will seek capital
appreciation by investing, under normal market conditions, at least 65% of its
total assets in equity securities of issuers whose principal activities are
located in emerging market countries (see page 24).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
Money Market Series will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in money
market instruments maturing in less than 13 months (see page 30). An
investment in this series is neither insured nor guaranteed by the U.S.
Government. There can be no assurance that the series will be able to maintain
a stable net asset value of $1.00 per share.
Research Growth and Income Series will seek to provide long-term growth of
capital, current income and growth of income (see page 30).
Research Series will seek to provide long-term growth of capital and future
income (see page 31).
Total Return Series will seek primarily to obtain above-average income
(compared to a portfolio entirely invested in equity securities) consistent
with prudent employment of capital; its secondary objective is to take
advantage of opportunities for growth of capital and income. Assets will be
allocated and reallocated from time to time between money market, fixed income
and equity securities. Under normal market conditions, at least 25% of the
series' assets will be invested in fixed income securities and at least 40%
and no more than 75% of its assets will be invested in equity securities (see
page 32).
Utilities Series will seek capital growth and current income (income above
that available from a portfolio invested entirely in equity securities) by
investing at least 65% of its assets under normal market conditions in equity
and debt securities issued by domestic and foreign utility companies (see page
33).
Value Series will seek capital appreciation (see page 36). This series is
currently available only in connection with Regatta Gold Contracts issued by
Sun Life of Canada (U.S.).
World Asset Allocation Series will seek total return over the long term
through investments in equity and fixed income securities and will also seek
to have low volatility of share price (i.e., net asset value per share) and
reduced risk (compared to an aggressive equity/fixed income portfolio) (see
page 38).
World Governments Series will seek moderate current income and preservation
and growth of capital by investing in a portfolio of U.S. and Foreign
Government Securities (see page 42).
World Growth Series will seek capital appreciation by investing in
securities of companies worldwide growing at rates expected to be well above
the growth rate of the overall U.S. economy (see page 44).
World Total Return Series will seek total return by investing in securities
which will provide above average current income (compared to a portfolio
invested entirely in equity securities) and opportunities for long-term growth
of capital and income. The series will invest primarily in global equity and
fixed income securities (i.e., those of U.S. and non-U.S. issuers) (see page
47).
Zero Coupon Series, Portfolio 2000--will seek the highest predictable
compounded investment return for a specific period of time, consistent with
the safety of invested capital, by investing primarily in debt obligations of
the United States Treasury that have been issued without interest coupons or
stripped of their unmatured interest coupons, interest coupons that have been
stripped from such debt obligations, and receipts and certificates for such
stripped debt obligations and stripped coupons. The liquidation date for the
Portfolio is November 15, 2000 (see page 50.) This series is currently
available only in connection with the purchase of variable life insurance
contracts issued by Sun Life of Canada (U.S.).
There can be no assurance that the investment objectives of any series will
be achieved. In addition, an investment in the Capital Appreciation Series,
Emerging Growth Series, High Yield Series, Managed Sectors Series, Research
Growth and Income Series, Research Series, Utilities Series, Value Series,
World Asset Allocation Series, World Governments Series, World Growth Series
or World Total Return Series and in the MFS/Foreign & Colonial Series may
involve certain additional risks, and may not be appropriate for all
purchasers.
The investment adviser of each series is Massachusetts Financial Services
Company ("MFS" or the "Adviser"), 500 Boylston Street, Boston, Massachusetts
02116. MFS has retained, as sub-advisers to each of the MFS/Foreign & Colonial
Series and the World Growth Series, Foreign & Colonial Management Limited
("FCM") and its subsidiary, Foreign & Colonial Emerging Markets Limited
("FCEM"), both located at Exchange House, Primrose Street, London EC2A 2NY,
United Kingdom (together, with respect to these series, the "Sub-Advisers").
This Prospectus sets forth concisely the information concerning each series
that a prospective investor ought to know before investing. The Series Fund
has filed with the Securities and Exchange Commission a Statement of
Additional Information dated May 1, 1997, as amended or supplemented from time
to time (the "SAI"), which contains more detailed information about each
series and is incorporated into this Prospectus by reference. See page 65 for
a further description of the information set forth in the SAI. A copy of the
SAI may be obtained without charge by contacting the Sun Life Annuity Service
Center, P.O. Box 1024, Boston, Massachusetts 02103, telephone (800) 752-7215.
The information contained in this Prospectus should be read together with
the prospectus for the Contracts.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- ---------------------------------------------------------------------
<S> <C>
1. The Series Fund 3
- ---------------------------------------------------------------------
2. Condensed Financial Information 4
- ---------------------------------------------------------------------
3. Investment Objectives and Policies 14
- ---------------------------------------------------------------------
4. Management of the Series Fund 52
- ---------------------------------------------------------------------
5. Additional Information with Respect to Shares of Each Series 62
Purchases 62
Net Asset Value, Dividends and Distributions 62
Tax Status 63
Redemptions 64
Exchange Privilege 64
Description of Shares, Voting Rights and Liabilities 64
Contents of SAI 65
- ---------------------------------------------------------------------
Appendix A 66
Appendix B 75
Appendix C 81
Appendix D 86
Appendix E 90
</TABLE>
- -------------------------------------------------------------------------------
1. THE SERIES FUND
The Series Fund is a no-load, open-end management investment company which
was organized under the laws of The Commonwealth of Massachusetts in 1983. The
Series Fund has twenty separate portfolios, each of which is represented by a
separate series of shares: (1) the "Capital Appreciation Series," (2) the
"Conservative Growth Series," (3) the "Emerging Growth Series," (4) the
"Government Securities Series," (5) the "High Yield Series," (6) the "Managed
Sectors Series," (7) the "MFS/Foreign & Colonial International Growth Series,"
(8) the "MFS/Foreign & Colonial International Growth and Income Series," (9)
the "MFS/Foreign & Colonial Emerging Markets Equity Series," (10) the "Money
Market Series," (11) the "Research Growth and Income Series," (12) the
"Research Series," (13) the "Total Return Series," (14) the "Utilities
Series," (15) the "Value Series," (16) the "World Asset Allocation Series,"
(17) the "World Governments Series," (18) the "World Growth Series," (19) the
"World Total Return Series" and (20) the "Zero Coupon Series". The High Yield
Series, Managed Sectors Series, Utilities Series, World Asset Allocation
Series, World Governments Series, World Growth Series and World Total Return
Series are non-diversified as that term is defined in the Investment Company
Act of 1940.
The shares of each series will be sold only to Variable Accounts established
by Sun Life of Canada (U.S.), Sun Life (N.Y.) and their affiliated companies
to fund benefits under variable contracts (the "Contracts") issued by such
companies. The Zero Coupon Series will be sold only for the purpose of funding
benefits under variable life insurance contracts issued by Sun Life of Canada
(U.S.). The Variable Accounts will purchase shares of each series in
accordance with the allocation instructions received from owners of the
Contracts. The Series Fund then uses the proceeds to buy securities for the
portfolio for which such shares were sold. The investment adviser manages each
portfolio from day to day in accordance with its investment objectives. The
kinds of investments and the way they are
3
<PAGE>
managed depend on the conditions and trends in the economy and the financial
marketplaces. The Series Fund also offers to redeem shares of each series from
the Variable Accounts at any time at net asset value.
2. CONDENSED FINANCIAL INFORMATION
The following information about each series (which commenced investment
operations prior to December 31, 1996) since its inception should be read in
conjunction with the financial statements included in the Series Fund's Annual
Report to shareholders for the year ended December 31, 1996, which are
incorporated by reference into the SAI. These financial statements have been
audited by Deloitte & Touche LLP, independent certified public accountants.
Additional information about the performance of the Series Fund is contained
in such Annual Report which may be obtained without charge from the Sun Life
Annuity Service Center, P.O. Box 1024, Boston, Massachusetts 02103, Telephone
(800) 752-7215.
4
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CAPITAL APPRECIATION SERIES
----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of
year............. $ 31.9878 $24.4076 $28.1892 $24.8989 $23.0886 $16.6242 $19.9804 $13.6006 $12.9601 $12.9025
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations#--
Net investment
income (loss)... $ (0.0200) 0.0933 $ 0.0523 $ 0.1036 $ 0.0909 $ 0.1809 $ 0.2737 $ 0.3809 $ 0.2925 $ 0.1560
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions.... 6.7422 8.1619 (1.1104) 4.2197 2.9238 6.5415 (2.1219) 5.9989 0.6500 0.1596
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 6.7222 $ 8.2552 $(1.0581) $ 4.3233 $ 3.0147 $ 6.7224 $(1.8482) $ 6.3798 $ 0.9425 $ 0.3156
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $ (0.0322) $(0.0568) $(0.1306) $(0.1095) $(0.1831) $(0.2580) $(0.3940) $ -- $(0.3020) $(0.2580)
From net realized
gain on
investments and
foreign currency
transactions..... (2.8462) (0.6182) (2.5929) (0.9235) (1.0213) -- (1.1140) -- -- --
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $ (2.8784) $(0.6750) $(2.7235) $(1.0330) $(1.2044) $(0.2580) $(1.5080) $ -- $(0.3020) $(0.2580)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of year...... $ 35.8316 $31.9878 $24.4076 $28.1892 $24.8989 $23.0886 $16.6242 $19.9804 $13.6006 $12.9601
========== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 21.48% 34.46% (3.60)% 18.00% 13.61% 40.95% (9.69)% 46.91% 7.27% 2.40%
Ratios (to average
net
assets)/Supplemental
data:
Expenses##........ 0.80% 0.83% 0.83% 0.83% 0.87% 0.85% 0.88% 0.81% 0.91% 0.89%
Net investment
income (loss).... (0.05)% 0.32% 0.24% 0.48% 0.50% 1.20% 1.99% 2.25% 1.86% 1.47%
Portfolio
turnover......... 67% 89% 52% 70% 69% 92% 84% 123% 128% 140%
Average commission
rate###.......... $ 0.0463 -- -- -- -- -- -- -- -- --
Net assets, end of
year (000
omitted)......... $1,061,631 $797,102 $476,508 $420,552 $262,645 $180,846 $ 77,746 $ 51,092 $ 35,492 $ 42,388
<CAPTION>
CONSERVATIVE GROWTH SERIES
----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of
year............. $ 22.0182 $16.4563 $16.9289 $16.0717 $16.8547 $12.6137 $13.4162 $ 9.8745 $ 9.6097 $ 9.9999
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations#--
Net investment
income.......... $ 0.4100 $ 0.4318 $ 0.2942 $ 0.2041 $ 0.1810 $ 0.1515 $ 0.3027 $ 0.3110 $ 0.4448 $ 0.2187
Net realized and
unrealized gain
(loss) on
investments..... 5.0415 5.6172 (0.4790) 1.1280 0.6747 4.4025 (0.7712) 3.2307 0.2720 (0.4209)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 5.4515 $ 6.0490 $(0.1848) $ 1.3321 $ 0.8557 $ 4.5540 $(0.4685) $ 3.5417 $ 0.7168 $(0.2022)
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income.......... $ (0.2936) $(0.3037) $(0.1996) $(0.1509) $(0.1387) $(0.3130) $(0.3340) $ -- $(0.4520) $(0.1880)
From net realized
gain on
investments and
foreign currency
transactions.... (0.6783) (0.1834) (0.0882) (0.3240) (1.5000) -- -- -- -- --
---------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $ (0.9719) $(0.4871) $(0.2878) $(0.4749) $(1.6387) $(0.3130) $(0.3340) $ -- $(0.4520) $(0.1880)
---------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of year...... $ 26.4978 $22.0182 $16.4563 $16.9289 $16.0717 $16.8547 $12.6137 $13.4162 $ 9.8745 $ 9.6097
========== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 25.41% 37.41% ( 1.10)% 8.43% 5.71% 36.74% (3.48)% 35.97% 7.41% (2.02)%
Ratios (to average
net
assets)/Supplemental
data:
Expenses##....... 0.61% 0.64% 0.64% 0.66% 0.80% 0.98% 1.00% 1.02% 0.87% 0.95%
Net investment
income
(expense)....... 1.71% 2.25% 2.42% 2.05% 1.84% 1.07% 2.29% 2.38% 3.71% 3.61%
Portfolio
turnover......... 51% 60% 146% 19% 40% 51% 82% 34% 78% 98%
Average commission
rate###.......... $ 0.0502 -- -- -- -- -- -- -- -- --
Net assets, end of
year (000
omitted)......... $ 571,008 $302,024 $150,318 $ 95,770 $ 44,455 $ 15,818 $ 11,680 $ 13,323 $ 11,646 $ 13,573
</TABLE>
- --------
# Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
### Average commission rate is calculated for Series with fiscal years
beginning on or after September 1, 1995.
+++The+total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
5
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
MANAGED SECTORS SERIES
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988+
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each
period):
Net asset value--
beginning of period.... $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213 $10.0000++
-------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations--
Net investment income
(expense)............. $ 0.0979 $ 0.0982 $ 0.0027 $(0.0565) $ 0.0337 $ 0.1163 $ 0.0831 $ 0.0653
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... 6.1880 (0.6610) 0.9050 1.4184 8.0287 (1.6919) 4.6323 0.4150
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 6.2859 $(0.5628) $ 0.9077 $ 1.3619 $ 8.0624 $(1.5756) $ 4.7154 $ 0.4803
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(0.0542) $(0.0239) $ -- $(0.0392) $(0.1240) $(0.0720) $ -- $(0.0590)
From net realized gain
on investments and
foreign currency
transactions.......... (0.6672) (2.7729) -- -- -- (0.4160) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(0.7214) $(2.7968) $ -- $(0.0392) $(0.1240) $(0.4880) $ -- $(0.0590)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
period................. $25.4468 $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213
======== ======== ======== ======== ======== ======== ======== ========
Total return++++........ 32.29% (1.94)% 4.08% 6.48% 62.15% (10.50)% 45.30% 7.32%*
Ratios (to average net
assets)/Supplemental
data:
Expenses............... 0.84% 0.87 % 0.84% 0.93 % 1.03% 1.25% 1.25 % 1.25%*
Net investment income
(expense)............. 0.42% 0.53 % 0.01% (0.35)% 0.34% 1.52% 1.51 % 1.90%*
Portfolio turnover...... 113% 103 % 116% 22% 45% 51% 75 % 122%
Net assets, end of
period (000 omitted)... $194,351 $118,987 $104,954 $ 83,413 $ 41,752 $ 15,290 $ 4.054 $ 507
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET SERIES
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for
a share
outstanding
throughout each
period):
Net asset value--
beginning of
period............ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations........ $ 0.0520 $ 0.0363 $ 0.0256 $ 0.0325 $ 0.0565 $ 0.0760 $ 0.0855 $ 0.0549 $ 0.0379 $ 0.0376
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
from net
investment income. $(0.0520) $(0.0363) $(0.0256) $(0.0325) $(0.0565) $(0.0760) $(0.0855) $(0.0549) $(0.0379) $(0.0376)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of period... $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++... 5.44% 3.69% 2.59% 3.30% 5.79% 7.81% 8.91% 7.13% 5.95% 5.54%
Ratios (to average
net
assets)/Supplemental
data:
Expenses........... 0.59% 0.58% 0.58% 0.60% 0.59% 0.62% 0.72% 0.72% 0.80% 1.25%
Net investment
income............ 5.30% 3.74% 2.60% 3.29% 5.64% 7.48% 8.60% 6.97% 6.26% 5.45%
Net assets, end of
period
(000 omitted)..... $282,754 $252,175 $142,464 $134,799 $129,683 $112,901 $ 40,015 $ 34,179 $ 23,711 $ 6,405
</TABLE>
- --------
* Annualized.
+ From May 2, 1988 (date of commencement of operations) to December 31, 1988.
++ Net asset value on date of commencement of operations.
++++ The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
6
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
MANAGED SECTORS SERIES
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988+
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each year):
Net asset value--
beginning of year...... $25.4468 $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213 $10.0000++
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations#--
Net investment income
(loss)................ $0.0200 $ 0.0979 $ 0.0982 $ 0.0027 $(0.0565) $ 0.0337 $ 0.1163 $ 0.0831 $ 0.0653
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... 4.2817 6.1880 (0.6610) 0.9050 1.4184 8.0287 (1.6919) 4.6323 0.4150
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $4.3017 $ 6.2859 $(0.5628) $ 0.9077 $ 1.3619 $ 8.0624 $(1.5756) $ 4.7154 $ 0.4803
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(0.0758) $(0.0542) $(0.0239) $ -- $(0.0392) $(0.1240) $(0.0720) $ -- $(0.0590)
From net realized gain
on investments and
foreign currency
transactions.......... (3.4224) (0.6672) (2.7729) -- -- -- (0.4160) -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(3.4982) $(0.7214) $(2.7968) $ -- $(0.0392) $(0.1240) $(0.4880) $ -- $(0.0590)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
year................... $26.2503 $25.4468 $19.8823 $23.2419 $22.3342 $21.0115 $13.0731 $15.1367 $10.4213
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++........ 17.58% 32.29% (1.94)% 4.08% 6.48% 62.15% (10.50)% 45.30% 7.32%*
Ratios (to average net
assets)/Supplemental
data:
Expenses##............. 0.82% 0.84% 0.87 % 0.84% 0.93 % 1.03% 1.25% 1.25 % 1.25%*
Net investment income
(loss)................ 0.09% 0.42% 0.53 % 0.01% (0.35)% 0.34% 1.52% 1.51 % 1.90%*
Portfolio turnover...... 121% 113% 103 % 116% 22% 45% 51% 75 % 122%
Average commission rate
###.................... $0.0475 -- -- -- -- -- -- -- --
Net assets, end of year
(000 omitted).......... $266,368 $194,351 $118,987 $104,954 $ 83,413 $ 41,752 $ 15,290 $ 4.054 $ 507
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET SERIES
--------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of
year............. $1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations....... $0.0483 $ 0.0520 $ 0.0363 $ 0.0256 $ 0.0325 $ 0.0565 $ 0.0760 $ 0.0855 $ 0.0549 $ 0.0379
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
from net
investment
income........... $(0.0483) $(0.0520) $(0.0363) $(0.0256) $(0.0325) $(0.0565) $(0.0760) $(0.0855) $(0.0549) $(0.0379)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset
value--end of
year........... $1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 4.95% 5.44% 3.69% 2.59% 3.30% 5.79% 7.81% 8.91% 7.13% 5.95%
Ratios (to average
net
assets)/Supplemental
data:
Expenses##........ 0.56% 0.59% 0.58% 0.58% 0.60% 0.59% 0.62% 0.72% 0.72% 0.80%
Net investment
income........... 4.82% 5.30% 3.74% 2.60% 3.29% 5.64% 7.48% 8.60% 6.97% 6.26%
Net assets, end of
year
(000 omitted).... $409,165 $282,754 $252,175 $142,464 $134,799 $129,683 $112,901 $ 40,015 $ 34,179 $ 23,711
</TABLE>
- --------
*Annualized.
+From May 2, 1988 (date of commencement of operations) to December 31, 1988.
++Net asset value on date of commencement of operations.
+++The+total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
# Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning
on or after September 1, 1995.
7
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
TOTAL RETURN SERIES
-------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988+
---------- ---------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each year):
Net asset value--
beginning of year..... $ 18.3848 $ 15.0862 $16.0946 $14.7219 $14.2209 $12.1220 $12.0912 $10.2903 $10.0000++
Income from investment
operations#--
Net investment income. $ 0.7677 $ 0.7824 $ 0.5639 $ 0.4319 $ 0.5389 $ 0.5646 $ 0.4091 $ 0.2898 $ 0.2445
Net realized and
unrealized gain
(loss) on investments
and foreign currency
transactions......... 1.6795 3.1527 (0.9310) 1.5044 0.6247 1.9793 (0.0993) 1.5111 0.3298
---------- ---------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.......... $ 2.4472 $ 3.9351 $(0.3671) $ 1.9363 $ 1.1636 $ 2.5439 $ 0.3098 $ 1.8009 $ 0.5743
---------- ---------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income............... $ (0.7189) $ (0.6365) $(0.4344) $(0.4798) $(0.5673) $(0.4450) $(0.2360) $ -- $(0.2410)
From net realized gain
on investments and
foreign currency
transactions......... $ (0.6734) -- (0.2069) (0.0838) (0.0953) -- (0.0430) -- (0.0430)
---------- ---------- -------- -------- -------- -------- -------- -------- --------
Total distributions.. $ (1.3923) $ (0.6365) $(0.6413) $(0.5636) $(0.6626) $(0.4450) $(0.2790) $ -- $(0.2840)
---------- ---------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
year.................. $ 19.4397 $ 18.3848 $15.0862 $16.0946 $14.7219 $14.2209 $12.1220 $12.0912 $10.2903
========== ========== ======== ======== ======== ======== ======== ======== ========
Total return++++....... 14.10% 26.71% (2.22)% 13.37% 8.57% 21.60% 2.69% 17.49% 8.77%*
Ratios (to average net
assets)/Supplemental
data:
Expenses##............ 0.72% 0.76% 0.76% 0.78% 0.85% 0.85% 0.91% 1.25% 1.25%*
Net investment income. 4.15% 4.70% 4.34% 4.06% 4.96% 5.83% 6.48% 6.49% 6.08%*
Portfolio turnover..... 134% 108% 66% 102% 71% 69% 42% 49% 31%
Average commission
rate###............... $ 0.0539 -- -- -- -- -- -- -- --
Net assets, end of year
(000 omitted)......... $1,335,022 $1,099,887 $839,614 $696,496 $397,385 $224,216 $103,658 $ 18,001 $ 3,288
</TABLE>
<TABLE>
<CAPTION>
WORLD GOVERNMENTS SERIES
---------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988+
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a
share outstanding
throughout each year):
Net asset value--
beginning of year...... $12.4866 $11.3769 $13.0212 $11.7966 $12.7397 $11.5967 $11.0195 $10.0259 $10.0000++
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations#--
Net investment income... $ 0.6882 $ 0.8031 $ 0.6095 $ 0.5352 $ 0.6429 $ 0.7024 $ 0.2649 $ 0.8680 $ 0.3595
Net realized and
unrealized gain (loss)
on investments and
foreign currency
transactions.......... (0.2081) 0.9511 (1.2295) 1.5819 (0.6141) 0.9616 1.0963 0.1256 0.0614
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... $ 0.4801 $ 1.7542 $(0.6200) $ 2.1171 $ 0.0288 $ 1.6640 $ 1.3612 $ 0.9936 $ 0.4209
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions--
From net investment
income................ $(1.7085) $(0.0058) $(0.8823) $(0.8925) $(0.6581) $(0.5210) $(0.7840) $ -- $(0.3590)
From net realized gain
on investments and
foreign currency
transactions.......... -- (0.6387) (0.1420) -- (0.3138) -- -- -- (0.0360)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions... $(1.7085) $(0.6445) $(1.0243) $(0.8925) $(0.9719) $(0.5210) $(0.7840) $ -- $(0.3950)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--end of
year................... $11.2582 $12.4866 $11.3769 $13.0212 $11.7966 $12.7397 $11.5967 $11.0195 $10.0259
======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++........ 4.66% 15.69% (4.46)% 18.84% 0.54% 14.83% 13.37% 9.87% 6.49%*
Ratios (to average net
assets)/Supplemental
data:
Expenses##............. 0.90% 0.89% 0.90% 0.95% 1.03% 1.12% 1.25% 1.25% 1.25%*
Net investment income.. 6.00% 6.67% 6.06% 6.01% 7.02% 7.50% 7.51% 8.10% 8.91%*
Portfolio turnover...... 390% 329% 269% 173% 147% 192% 165% 168% --
Net assets, end of year
(000 omitted).......... $141,764 $152,487 $139,155 $135,085 $ 73,540 $ 36,566 $ 11,506 $ 1,951 $ 2,057
</TABLE>
- --------
*Annualized.
+From May 2, 1988 (date of commencement of operations) to December 31, 1988.
++Net asset value on date of commencement of operations.
+++The+total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
# Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
## For the fiscal years ending after September 1, 1995, expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning
on or after September 1, 1995.
8
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
ZERO COUPON SERIES
----------------------------------------------------------------------------------------------------
2000 PORTFOLIO
----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of
year............. $ 9.0619 $ 7.9573 $11.1167 $11.0966 $11.3060 $10.2772 $10.6719 $ 8.8187 $ 8.4758 $ 9.7300
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
investment
operations#--
Net investment
income(S)........ $ 0.2094 $ 0.4340 $ 0.3807 $ 0.6921 $ 0.8970 $ 0.8217 $ 0.8473 $ 0.7145 $ 0.5361 $ 0.3011
Net realized and
unrealized gain
(loss) on
investments...... (0.0528) 1.1038 (1.1094) 0.8997 (0.0904)** 1.1301 (0.3340) 1.1387 0.4928 (1.2533)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations..... $ 0.1566 $ 1.5378 $(0.7287) $ 1.5918 $ 0.8066 $ 1.9518 $ 0.5133 $ 1.8532 $ 1.0289 $(0.9522)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less
distributions--
From net
investment
income........... $(0.3363) $(0.4332) $(0.6250) $(0.8915) $(0.8539) $(0.7990) $(0.7620) $ -- $(0.5350) $(0.3020)
From net realized
gain on
investments...... -- -- (1.8057) (0.6802) (0.1621) (0.1240) (0.1460) -- (0.1510) --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions.. $(0.3363) $(0.4332) $(2.4307) $(1.5717) $(1.0160) $(0.9230) $(0.9080) $ -- $(0.6860) $(0.3020)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value--
end of year...... $ 8.8822 $ 9.0619 $ 7.9573 $11.1167 $11.0966 $11.3060 $10.2772 $10.6719 $ 8.8187 $ 8.4758
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total return++++.. 1.91% 19.88% (6.99)% 15.03% 8.18% 20.54% 5.92% 20.98% 12.23% (9.85)%
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses##........ 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.48% 0.50%
Net investment
income........... 5.20% 5.16% 4.93% 5.48% 7.08% 7.63% 8.06% 7.88% 8.57% 8.62%
Portfolio
turnover......... 2% 27% 12% 65% 16% 8% 24% 15% 39% 31%
Net assets, end of
year (000
omitted)......... $ 4,337 $ 4,616 $ 3,280 $ 3,547 $ 3,713 $ 4,525 $ 4,381 $ 4,584 $ 3,050 $ 1,436
- -------
** The per share amount is not in accord with the net realized and unrealized
gain for the period because of the timing of sales of Trust shares and the
amount of per share realized and unrealized gains and losses at such time.
+++The+total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company of
Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
# Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses should be
calculated without reduction for fees paid indirectly, however, the
investment adviser has voluntarily agreed to maintain the net expenses of
the Zero Coupon Series 2000 Portfolio at not more than 0.50% of average
daily net assets.
(SThe)investment adviser assumed a portion of other expenses for the Zero
Coupon Series 2000 Portfolio for the period indicated. If the assumption
had not been in place, the net investment income per share and the ratios
would have been:
<CAPTION>
ZERO
COUPON
SERIES
2000
PORTFOLIO
---------
YEAR
ENDED
DECEMBER
31, 1996
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment
income.......... $ 0.2045
Ratios (to
average net
assets):
Expenses##....... 0.62%
Net investment
income.......... 5.08%
</TABLE>
9
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
MFS/FOREIGN
& COLONIAL MFS/FOREIGN
EMERGING & COLONIAL
MARKETS INTERNATIONAL
EQUITY SERIES GROWTH SERIES
------------- -------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996*** 1996**
------------- -------------
<S> <C> <C>
Per share data (for a share outstanding
throughout each year):
Net asset value--beginning of year............ $10.0000**** $10.0000****
--------- --------
Income from investment operations#--
Net investment income(S)...................... $ 0.0706 $ 0.0748
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions................................. (0.0693) (0.2535)
--------- --------
Total from investment operations............. $ 0.0013 $(0.1787)
--------- --------
Net asset value--end of year.................. $10.0013 $ 9.8213
========= ========
Total return++................................ 0.00%++ (1.70)%++
Ratios (to average net assets)/Supplemental
data(S):
Expenses##.................................... 1.50%* 1.50%*
Net investment income......................... 0.77%* 1.47%*
Portfolio turnover............................ 4% 3%
Average commission rate###.................... $ 0.0011 $ 0.0252
Net assets, end of year (000 omitted)......... $ 3,271 $ 5,525
- -------
* Annualized.
** From June 3, 1996 (commencement of investment operations) to December 31,
1996.
*** From June 5, 1996 (commencement of investment operations) to December 31,
1996.
**** Net asset value on date of commencement of operations.
++ Not annualized.
# Per share data is based on average shares outstanding.
## Expenses are calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for Series with fiscal years
beginning on or after September 1, 1995.
++The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.)
and Sun Life (N.Y.). Inclusion of these charges would reduce the total
return figures for all periods shown.
(SThe)investment adviser voluntarily agreed to maintain the expenses of the
MFS/Foreign & Colonial Emerging Markets Equity Series and MFS/Foreign &
Colonial International Growth Series at not more than 1.50% of average
daily net assets. In addition, the investment adviser voluntarily waived
all or a portion of its advisory fee for the periods indicated. To the
extent actual expenses were over these limitations, the net investment
income (loss) per share and the ratios would have been:
<CAPTION>
MFS/FOREIGN
& COLONIAL MFS/FOREIGN
EMERGING & COLONIAL
MARKETS INTERNATIONAL
EQUITY SERIES GROWTH SERIES
------------- -------------
PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1996*** 1996**
------------- -------------
<S> <C> <C>
Net investment income (loss)................. $(0.0975) $0.0265
Ratios (to average net assets):
Expenses##.................................. 3.38%* 2.50%*
Net investment income (loss)................ (1.12)%* 0.46%*
</TABLE>
10
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
VALUE SERIES
------------
PERIOD ENDED
DECEMBER 31,
1996***
------------
<S> <C>
Per share data (for a share outstanding throughout each year):
Net asset value--beginning of year............................ $10.0000****
--------
Income from investment operations#--
Net investment income(S)...................................... $ 0.0916
Net realized and unrealized gain (loss) on investments and
foreign currency transactions................................ 0.9139
--------
Total from investment operations............................. $ 1.0055
--------
Less distributions--
From net investment income.................................... $ --
From net realized gain on investments and foreign currency
transactions................................................. --
--------
Total distributions.......................................... $ --
--------
Net asset value--end of year.................................. $11.0055
========
Total return++................................................ 10.10%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##.................................................... 0.60%+
Net investment income......................................... 1.75%+
Portfolio turnover............................................ 52%
Average commission rate###.................................... $ 0.0228
Net assets, end of year (000 omitted)......................... $ 16,700
- -------
*** From June 3, 1996 (commencement of investment operations) to December 31,
1996.
**** Net asset value on date of commencement of operations.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## Expenses are calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for Series with fiscal years
beginning on or after September 1, 1995.
++The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.)
and Sun Life (N.Y.). Inclusion of these charges would reduce the total
return figures for all periods shown.
(SThe)investment adviser voluntarily waived all of its advisory fee for the
Value Series for the period indicated. In addition, the investment adviser
voluntarily agreed to maintain the expenses of the Value Series at not
more than 1.00% of average daily net assets. If the waiver had not been in
place and to the extent actual expenses were over these limitations, the
net investment income per share and the ratios would have been:
<CAPTION>
VALUE SERIES
------------
PERIOD ENDED
DECEMBER 31,
1996***
------------
<S> <C>
Net investment income........................................ $0.0537
Ratios (to average net assets):
Expenses##.................................................. 1.35%+
Net investment income....................................... 1.02%+
</TABLE>
11
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
MFS/FOREIGN
& COLONIAL
INTERNATIONAL
EMERGING GROWTH GROWTH AND
SERIES INCOME SERIES RESEARCH SERIES
------------------------- ------------------------- --------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995*** 1996 1995**** 1996 1995 1994**
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of year. $12.6867 $10.0000++ $10.1282 $10.0000++ $13.5777 $ 9.8761 $10.0000++
-------- -------- -------- -------- -------- -------- ---------
Income from
investment
operations#--
Net investment
income(S)........ $ 0.0175 $ 0.0788 $ 0.2326 $ 0.0295 $ 0.0797 $ 0.1401 $ 0.0131
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions..... 2.1506 2.6079 0.2639 0.0987 3.1330 3.5651 (0.1370)
-------- -------- -------- -------- -------- -------- ---------
Total from
investment
operations...... $ 2.1681 $ 2.6867 $ 0.4965 $ 0.1282 $ 3.2127 $ 3.7052 $ (0.1239)
-------- -------- -------- -------- -------- -------- ---------
Less distributions
from net
investment income. $(0.0243) $ -- $ -- $ -- $(0.0328) $(0.0036) $ --
Realized gain on
investments and
foreign currency
transactions...... -- -- -- -- (0.1841) -- --
-------- -------- -------- -------- -------- -------- ---------
Distributions..... $(0.0243) $ -- $ -- $ -- $(0.2169) $(0.0036) $ --
-------- -------- -------- -------- -------- -------- ---------
Net asset value--
end of year....... $14.8305 $12.6867 $10.6247 $10.1282 $16.5735 $13.5777 $ 9.8761
======== ======== ======== ======== ======== ======== =========
Total return++++.. 17.15% 26.80%++ 4.84% 1.30%++ 23.76% 37.50% (1.20)%++
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses##....... 0.70% 0.24%* 0.97% 1.50%* 0.84% 0.58% 1.50%*
Net investment
income........... 0.12% 1.13%* 2.21% 1.64%* 0.52% 1.16% 1.80%*
Portfolio
turnover.......... 88% 28% 51% -- 70% 81% 3%
Average commission
rate###........... $ 0.0346 -- $ 0.0173 -- $ 0.0280 -- --
Net assets, end of
year
<CAPTION>(000 omitted)..... $250,826 $ 67,255 $ 35,710 $ 7,179 $325,389 $ 71,828 $ 3,869
UTILITIES SERIES
---------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993+
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of year. $12.2598 $ 9.5209 $10.0164 $10.0000++
------------ ------------ ------------ ------------
Income from
investment
operations#--
Net investment
income(S)........ $ 0.5322 $ 0.4918 $ 0.2899 $ 0.0128
Net realized and
unrealized gain
(loss) on
investments and
foreign currency
transactions..... 1.8548 2.5197 (0.7817) 0.0036
------------ ------------ ------------ ------------
Total from
investment
operations...... $ 2.3870 $ 3.0115 $(0.4918) $ 0.0164
------------ ------------ ------------ ------------
Less distributions
from net
investment income. $(0.3160) $(0.2726) $(0.0037) $ --
Realized gain on
investments and
foreign currency
transactions...... (0.3434) -- -- --
------------ ------------ ------------ ------------
Distributions..... $(0.6594) $(0.2726) $(0.0037) $ --
------------ ------------ ------------ ------------
Net asset value--
end of year....... $13.9874 $12.2598 $ 9.5209 $10.0164
============ ============ ============ ============
Total return++++.. 20.37% 32.36% (4.96)% 1.59%*
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses##....... 0.88% 0.44% 0.39% 1.50%*
Net investment
income........... 4.23% 4.62% 4.59% 2.58%*
Portfolio
turnover.......... 131% 119% 103% --
Average commission
rate###........... $ 0.0435 -- -- --
Net assets, end of
year
(000 omitted)..... $ 70,680 $ 43,134 $ 21,448 $ 2,798
- ----
*Annualized.
**From November 7, 1994 (date of commencement of investment operations) to
December 31, 1994.
***From May 1, 1995 (date of commencement of investment operations) to
December 31, 1995.
****From October 2, 1995 (date of commencement of operations) to December 31,
1995.
+From November 16, 1993 (date of commencement of operations) to December 31,
1993.
++Not annualized.
++Net asset value on date of commencement of operations.
(SFor)the periods shown below the investment adviser voluntarily waived all
or a portion of its advisory fee for the Emerging Growth Series,
MFS/Foreign & Colonial International Growth and Income Series, Research
Series and Utilities Series. If the waiver had not been in place, the net
investment income (loss) per share and ratios would have been:
+++The+total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company
of Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
# Per share data is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
### Average Commission rate is calculated for series with fiscal years
beginning on or after September 1, 1995.
<CAPTION>
MFS/FOREIGN
& COLONIAL
INTERNATIONAL
EMERGING GROWTH GROWTH AND
SERIES INCOME SERIES RESEARCH SERIES
------------------------- ------------------------- -------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995*** 1996 1995**** 1995 1994**
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment
income (loss)..... $(0.0406) $ 0.0265 $ 0.2101 $ 0.0119 $ 0.0954 $(0.0145)
Ratios (to average
net assets):
Expenses##........ 0.84% 1.00%* 1.16% 2.48%* 0.95% 3.49%*
Net investment
income (loss)..... (0.02)% 0.38%* 2.02% 0.66%* 0.79% (0.19)%*
<CAPTION>
UTILITIES SERIES
--------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993+
------------ ------------ ------------
<S> <C> <C> <C> <C>
Net investment
income (loss)..... $0.4375 $ 0.2412 $ (0.0407)
Ratios (to average
net assets):
Expenses##........ 0.95% 1.14% 9.71%*
Net investment
income (loss)..... 4.12% 3.84% (5.63)%*
</TABLE>
12
<PAGE>
MFS/SUN LIFE SERIES TRUST
FINANCIAL HIGHLIGHTS--CONTINUED
<TABLE>
<CAPTION>
WORLD ASSET
ALLOCATION SERIES WORLD GROWTH SERIES
-------------------------------------- ---------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994** 1996 1995 1994 1993+
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of year. $12.2250 $10.0579 $10.0000++ $ 12.3464 $10.9425 $10.6366 $10.0000++
-------- -------- -------- --------- -------- -------- --------
Income from
investment
operations#--
Net investment
income(S)........ $ 0.3731 $0.4205 $ 0.0220 $ 0.0232 $0.0689 $ 0.1506 $ 0.0088
Net realized and
unrealized gain
on investments
and foreign
currency
transactions..... 1.5563 1.7540 0.0359 1.5878 1.6388 0.1590 0.6278
-------- -------- -------- --------- -------- -------- --------
Total from
investment
operations...... $ 1.9294 $2.1745 $ 0.0579 $ 1.6110 $ 1.7077 $ 0.3096 $ 0.6366
-------- -------- -------- --------- -------- -------- --------
Less distributions
from net
investment income. $(0.1300) $(0.0074) $ -- $ (0.0886) $(0.1361) $(0.0037) $ --
Realized gain on
investments and
foreign currency
transactions (0.2450) -- -- (0.8350) (0.1677) -- --
-------- -------- -------- --------- -------- -------- --------
Distributions..... $(0.3750) $(0.0074) $ -- $ (0.9236) $(0.3038) $(0.0037) $ --
-------- -------- -------- --------- -------- -------- --------
Net asset value--
end of year....... $13.7794 $12.2250 $10.0579 $ 13.0338 $12.3464 $10.9425 $10.6366
======== ======== ======== ========= ======== ======== ========
Total return++++.. 16.04% 21.56% 0.60%++ 13.02% 16.06% 2.86% 50.78%*
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses##....... 0.94% 0.67% 1.50%* 1.04% 1.07% 0.47% 1.02%*
Net investment
income........... 2.84% 3.70% 3.13%* 0.18% 0.60% 2.20% 1.23%*
Portfolio
turnover.......... 154% 146% 2% 81% 162% 231% 2%
Average commission
rate###........... $ 0.0233 -- -- $ 0.0142 -- -- --
Net assets, end of
year (000
omitted).......... $ 77,016 $ 25,863 $ 3,003 $ 203,106 $146,388 $100,045 $ 18,879
<CAPTION>
WORLD TOTAL RETURN SERIES
---------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994**
------------ ------------ -------------
<S> <C> <C> <C>
Per share data
(for a share
outstanding
throughout each
year):
Net asset value--
beginning of year. $11.8346 $10.0405 $ 10.0000++
------------ ------------ -------------
Income from
investment
operations#--
Net investment
income(S)........ $ 0.4131 $ 0.4437 $ 0.0247
Net realized and
unrealized gain
on investments
and foreign
currency
transactions..... 1.2480 1.3564 0.0158
------------ ------------ -------------
Total from
investment
operations...... $ 1.6611 $ 1.8001 $ 0.0405
------------ ------------ -------------
Less distributions
from net
investment income. $(0.2300) $(0.0060) $ --
Realized gain on
investments and
foreign currency
transactions -- -- --
------------ ------------ -------------
Distributions..... $(0.2300) $(0.0060) $ --
------------ ------------ -------------
Net asset value--
end of year....... $13.2657 $11.8346 $ 10.0405
============ ============ =============
Total return++++.. 14.33% 17.89% 0.40%++
Ratios (to average
net
assets)/Supplemental
data(S):
Expenses##....... 0.96% 0.77% 1.50%*
Net investment
income........... 3.33% 4.01% 3.31%*
Portfolio
turnover.......... 148% 146% 1%
Average commission
rate###........... $ 0.0229 -- --
Net assets, end of
year (000
omitted).......... $ 37,638 $ 13,786 $ 1,384
- ----
*Annualized.
**From November 7, 1994 (date of commencement of investment operations) to
December 31, 1994.
+From November 16, 1993 (date of commencement of investment operations) to
December 31, 1993.
++Not annualized.
++Net asset value on date of commencement of operations.
(SFor)the periods shown below the investment adviser voluntarily waived all
or a portion of its advisory fee for the World Asset Allocation Series,
World Growth Series and World Total Return Series. If the waiver had not
been in place, the net investment income (loss) per share and ratios would
have been:
+++The+total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life Assurance Company
of Canada (U.S.) and Sun Life Insurance and Annuity Company of New York.
Inclusion of these charges would reduce the total return figures for all
periods shown.
# Per share data is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years
beginning on or after September 1, 1995.
<CAPTION>
WORLD ASSET
ALLOCATION SERIES WORLD GROWTH SERIES
------------------------- -------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994** 1994 1993+
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment
income (loss).... $0.3716 $ 0.0041 $ 0.0989 $ 0.0022
Ratios (to
average net
assets):
Expenses##...... 1.11% 4.05%* 1.20% 1.92%*
Net investment
income (loss)... 3.27% 0.58%* 1.47% 0.33%*
<CAPTION>
WORLD TOTAL
RETURN SERIES
--------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1995 1994**
------------ -------------
<S> <C> <C> <C>
Net investment
income (loss).... $0.3972 $(0.0405)
Ratios (to
average net
assets):
Expenses##...... 1.19% 6.93%*
Net investment
income (loss)... 3.59% (2.12)%*
</TABLE>
13
<PAGE>
3. INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of all series of the Series Fund are
discussed below. Any investment involves risk and there can be no assurance
that the investment objectives of any series will be achieved. Shareholder
approval is not required to change the investment objectives of any series or
the manner in which each series seeks to achieve its objectives.
More than one series may invest in the same instruments and employ the same
investment techniques. For convenient reference and to avoid duplication,
descriptions of most of the instruments and techniques are centralized and
arranged in alphabetical order in Appendix A ("Description of Instruments")
and Appendix B ("Investment Techniques") to this Prospectus. A description of
ratings by Standard & Poor's Ratings Services ("S&P"), Fitch Investors
Service, Inc. ("Fitch") and Moody's Investors Service, Inc. ("Moody's") used
to evaluate commercial paper, bonds and debt is provided in Appendix C. More
information concerning instruments and investment techniques can be found in
the Appendix to the SAI (the "SAI Appendix"). THESE APPENDICES PROVIDE
IMPORTANT INFORMATION CONCERNING THE RISKS INVOLVED IN INVESTING IN A
PARTICULAR SERIES. WE URGE YOU TO REVIEW THEM BEFORE MAKING YOUR INVESTMENT
DECISION.
(1) CAPITAL APPRECIATION SERIES
The Capital Appreciation Series will seek to maximize capital appreciation
by investing in securities of all types with a major emphasis on common
stocks. The Capital Appreciation Series seeks to achieve this objective by
maintaining a flexible approach toward the type of securities and the relative
attractiveness of the various securities markets. Securities are selected
based upon their potential for capital appreciation. Income is not a
significant factor in portfolio selection.
While the Capital Appreciation Series usually will invest primarily in
common stocks, the series will also seek capital appreciation in other types
of securities, including fixed-income securities, convertible bonds, preferred
stocks and warrants when they appear attractive for capital appreciation. The
Capital Appreciation Series may hold part or all of its assets in cash or
short-term obligations or other forms of debt securities for temporary
defensive purposes or as a reserve for future purchases. The Capital
Appreciation Series may enter into futures contracts and options on futures
contracts for hedging purposes, and may write covered call and put options and
purchase call and put options on securities and stock indexes in an effort to
increase current income and for hedging purposes.
The Capital Appreciation Series may invest up to 50% of its total assets in
foreign securities, which may include emerging market securities, may invest
in American Depositary Receipts ("ADRs") and may enter into forward foreign
currency exchange contracts ("forward contracts") for the purchase or sale of
foreign currency for hedging purposes. The series may invest in restricted
securities, subject to the limitation on investing more than 10% of its net
assets in securities that are not readily marketable.
The Capital Appreciation Series is focused on growth companies and may be
subject to fluctuations in the value of its shares during periods of stock
market volatility. The series involves the assumption of a higher degree of
risk as compared to a conservative equity fund. While it is not the series'
policy generally to invest or trade for short-term profits, portfolio
securities may be disposed of without regard to the length of time held
whenever the Adviser is of the opinion that a security no
14
<PAGE>
longer has an appropriate appreciation potential or has reached its
anticipated level of performance, or when another security appears to offer
relatively greater appreciation potential or a relatively greater anticipated
level of performance. The rate of portfolio turnover is not a limiting factor
when changes are appropriate. Higher levels of portfolio activity result in
higher brokerage commissions.
See Appendix A for a discussion of restricted securities, foreign securities
and emerging market securities and the risks involved in these investments.
Options, futures contracts, options on futures contracts and forward contracts
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for further discussion of these techniques.
(2) CONSERVATIVE GROWTH SERIES
The Conservative Growth Series will seek long-term growth of capital and
future income, while providing more current dividend income than is normally
obtainable from a portfolio of only growth stocks. The Conservative Growth
Series seeks to achieve this objective by investing a substantial proportion
of its assets in the common stocks or securities convertible into common
stocks of companies believed to possess better than average prospects for
long-term growth. A smaller proportion of the assets may be invested in bonds,
short-term obligations, preferred stocks or common stocks whose principle
characteristic is income production rather than growth. Such securities may
also offer opportunities for growth of capital as well as income. In the case
of both growth stocks and income issues, emphasis is placed on the selection
of progressive, well-managed companies. Most of the non-convertible long-term
debt investments of the Conservative Growth Series, if any, will consist of
"investment grade" securities (rated Baa or better by Moody's or BBB or better
by S&P or Fitch). (See Appendix C.) The Conservative Growth Series may enter
into repurchase agreements for U.S. Government Securities, may seek to
increase its income by lending its portfolio securities, to the extent
consistent with present regulatory policies, and may invest up to 35% (and
generally expects to invest between 0% and 15%) of its total assets in foreign
securities, which may include emerging market securities. From time to time,
the Adviser will exercise its judgment with respect to the proportions
invested in growth stocks, income-producing securities or cash and cash
equivalents depending on its view of their relative attractiveness. The series
may invest in restricted securities, subject to the limitation on investing
more than 10% of its net assets in securities that are not readily marketable.
Since shares of the Conservative Growth Series represent an investment in
securities with fluctuating market prices, shareholders should understand that
the value of their shares will vary as the aggregate value of the portfolio
securities of the Conservative Growth Series increases or decreases. Moreover,
any dividend the Conservative Growth Series pays will increase or decrease in
relation to the income received from its investments. The Conservative Growth
Series does not intend to trade in securities for short-term profits. However,
the Conservative Growth Series will trade whenever it believes that changes
are appropriate.
See Appendix A for a discussion of restricted securities, repurchase
agreements, foreign securities and emerging market securities, and the risks
involved in these investments. Securities lending transactions and the
attendant risks are discussed in Appendix B.
15
<PAGE>
(3) EMERGING GROWTH SERIES
The Emerging Growth Series seeks to provide long-term growth of capital.
Dividend and interest income from portfolio securities, if any, is incidental
to the series' investment objective of long-term growth of capital.
The series' policy is to invest primarily (i.e., at least 80% of its assets
under normal circumstances) in common stocks of companies that MFS believes
are early in their life cycle but which have the potential to become major
enterprises ("emerging growth companies"). These companies generally would be
expected to show earnings growth over time that is well above the growth rate
of the overall economy and the rate of inflation, and would have the products,
technologies, management and market and other opportunities which are usually
necessary to become more widely recognized as growth companies. Emerging
growth companies can be of any size, and may include larger and more
established companies whose rates of earnings growth are expected to
accelerate because of special factors, such as rejuvenated management, new
products, changes in consumer demand, or basic changes in the economic
environment. Investments in emerging growth companies may include, to a
limited extent, restricted securities of companies which are believed to have
significant growth potential. These securities may be considered speculative
and may not be readily marketable.
While the Emerging Growth Series will invest primarily in common stocks, the
series may, to a limited extent, seek appreciation in other types of
securities such as fixed income securities, convertible securities and
warrants when relative values make such purchases appear attractive either as
individual issues or as types of securities in certain economic environments.
The series may invest in fixed income securities rate BBB by S&P or Fitch or
Baa by Moody's and may invest up to 25% of its net assets in lower rated fixed
income securities or comparable unrated securities (commonly known as "junk
bonds"). (See Appendix C; see also "Additional Risk Factors Regarding Lower
Rated Securities" under "High Yield Series" below.)
The series may invest up to 25% and generally expects to invest between 0%
and 10% of its total assets in foreign securities, and may invest in ADRs. The
series may also invest in corporate asset-backed securities, loan
participations, repurchase agreements and restricted securities.
The Emerging Growth Series may hold part or all of its assets in cash or
short-term obligations for temporary defensive purposes, as a reserve for
future purchases, or to meet liquidity needs. During periods of unusual market
conditions when the Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, a large
portion or all of the assets of the series may be invested in cash or cash
equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances and repurchase agreements) with
assets of $1 billion or more, commercial paper, short-term notes, obligations
issued or guaranteed by the U.S. Government or any of its agencies,
authorities or instrumentalities and related repurchase agreements. For these
purposes, U.S. Government securities also include interests in trusts or other
entities representing interests in obligations that are issued or guaranteed
by the U.S. Government, its agencies, authorities or instrumentalities.
In order to achieve its investment objective, the Emerging Growth Series may
employ the investment techniques described below: (1) lending portfolio
securities; (2) purchasing securities on a
16
<PAGE>
"when-issued" or on a "forward delivery" basis; (3) writing (selling) covered
put and call options on securities for the purpose of increasing its return
and/or to protect the value of its portfolio, and purchasing put and call
options on securities in anticipation of declines in the value of portfolio
securities or increases in the value of securities to be acquired (the series
may also write combinations of put and call options on the security, know as
"straddles," which transactions can generate additional income, but also
present increased risks); (4) writing covered call and put options and
purchasing call and put options on domestic and foreign stock indexes for the
purpose of increasing its current income and/or for hedging purposes and to
attempt to reduce the risk of missing a market or industry segment advance;
(5) entering into contracts for the purchase or sale for future delivery of
fixed income securities or foreign currencies or contracts based on indexes of
securities or currencies (including any index of U.S. or foreign securities)
as such instruments become available for trading ("futures contracts"), for
hedging purposes (to protect the series' current or intended investments from
the effects of changes in interest or exchange rates or declines in a
securities market) as well as for nonhedging purposes, to the extent permitted
by law (which involves greater risks and could result in losses which are not
offset by gains and other portfolio assets); (6) entering into forward foreign
currency exchange contracts ("forward contracts") for hedging purposes as well
as nonhedging purposes; and (7) purchasing and selling options on foreign
currencies for the purpose of protecting against declines in the dollar value
of foreign portfolio securities and against increases in the dollar cost of
securities to be acquired.
The portfolio of the series is aggressively managed and, therefore, the
value of its shares is subject to greater fluctuation and investments in its
shares involve the assumption of a higher degree of risk than would be the
case with an investment in a conservative equity fund or a growth fund
investing entirely in proven growth equities.
While it is not generally the series' policy to invest or trade for short-
term profits, the series may dispose of a portfolio security whenever the
Adviser is of the opinion that such security no longer has an appropriate
appreciation potential or when another security appears to offer relatively
greater appreciation potential.
See Appendix A for a discussion of foreign securities, U.S. Government
securities, corporate asset-backed securities, loan participations, repurchase
agreements and restricted securities and the risks involved in these
investments. The investment techniques set forth above and their attendant
risks are discussed in Appendix B. Please refer to the SAI Appendix for
further discussion of some of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE EMERGING GROWTH SERIES.
ADDITIONAL RISK FACTORS RELATING TO EMERGING GROWTH COMPANIES
The nature of investing in emerging growth companies involves greater risk
than is customarily associated with investments in more established companies.
Emerging growth companies often have limited product lines, markets or
financial resources, and they may be dependent on one-person
17
<PAGE>
management. In addition, there may be less research available on many
promising small and medium sized emerging growth companies, making it more
difficult to find and analyze these companies. The securities of emerging
growth companies may have limited marketability and may be subject to more
abrupt or erratic market movements than securities of larger, more established
growth companies or the market averages in general. Similarly, many of the
securities offering the capital appreciation sought in making these
investments will involve a higher degree of risk than would established growth
stocks. Shares of the series, therefore, are subject to greater fluctuation in
value than shares of a conservative equity fund or of a growth fund which
invests entirely in proven growth stocks.
(4) GOVERNMENT SECURITIES SERIES
The Government Securities Series will seek current income and preservation
of capital by investing in debt obligations that are issued or guaranteed as
to principal and interest by the U.S. Government, its agencies, authorities or
instrumentalities ("U.S. Government Securities") and obligations that are
fully collateralized or otherwise fully backed by U.S. Government securities
("U.S. Government-related Securities"), including collateralized mortgage
obligations ("CMOs") and government backed trust certificates ("GBTs"). The
series may invest a significant portion of its assets in Government National
Mortgage Association ("GNMA") certificates and other mortgage pass-through
securities. The series may also engage in transactions involving options,
futures contracts and options on futures contracts as a hedge against
anticipated future changes in interest rates that otherwise might adversely
affect the value of its portfolio of securities and may enter into mortgage
"dollar roll" transactions. The Government Securities Series may also hold
part or all of its assets in cash or in short-term U.S. Government debt
securities and related repurchase agreements for temporary defensive purposes
or as a buying reserve.
GBTs and certain CMOs and other U.S. Government-related Securities are
issued by private entities, are not U.S. Government Securities and are not
directly guaranteed by any government agency. They are secured by the
underlying collateral held by the private issuer. Certain of these securities
may have variable or floating interest rates and others may be stripped
(securities which provide only the principal or interest feature of the
underlying security). The series intends to invest in privately issued CMOs
only if they are rated at the time of purchase in the two highest ratings by
nationally recognized rating agencies (see Appendix C).
Some U.S. Government Securities and U.S. Government-related Securities do
not generally involve the credit risks associated with other types of interest
bearing securities, although, as a result, yields available from these
securities are generally lower than the yields available from corporate
interest bearing securities. Like other interest bearing securities, however,
the values of U.S. Government Securities and U.S. Government-related
Securities change as interest rates fluctuate. Therefore, when interest rates
decline the market value of a portfolio invested at higher yields can be
expected to rise. Conversely, when interest rates rise the market value of a
portfolio invested at lower yields can be expected to decline. Therefore,
the Government Securities Series will engage in portfolio trading to take
advantage of market developments and yield disparities, e.g., shortening the
average maturity of the portfolio in anticipation of a rise in interest rates
so as to minimize depreciation of principal or lengthening the average
maturity of the portfolio in anticipation of a decline in interest rates so as
to maximize the appreciation of principal.
18
<PAGE>
See Appendix A for a discussion of U.S. Government Securities, CMOs, GBTs,
mortgage pass- through securities, repurchase agreements, and other
instruments set forth above, and the risks involved in these investments.
Options, futures contracts, options on futures contracts, and mortgage "dollar
roll" transactions and their attendant risks are discussed in Appendix B.
Please refer to the SAI Appendix for further discussion of these techniques.
(5) HIGH YIELD SERIES
The High Yield Series will seek high current income and capital appreciation
by investing primarily in certain low-rated or unrated fixed-income securities
(possibly with equity features) of U.S. and foreign issuers. These securities
may be denominated in U.S. dollars or foreign currencies. Securities offering
the high current income sought by the High Yield Series are ordinarily in the
lower rated categories of recognized rating agencies (that is, rated BBB or
lower by S&P or Fitch or Baa or lower by Moody's) or are unrated and may
involve greater volatility of price and risk of principal and income than
securities in the higher rated categories (see Appendix C). In particular,
securities rated BBB by S&P or Fitch or Baa by Moody's (and comparable unrated
securities) are considered to have speculative characteristics while
securities rated lower than BBB by S&P or Fitch or Baa by Moody's (and
comparable unrated securities) (commonly known as "junk bonds") are considered
speculative. (See "Additional Risk Factors Regarding Lower Rated Securities"
below and Appendix C for a further description of the risks associated with
investing in these securities; see Appendix E for a chart indicating the
composition of the High Yield Series' portfolio for the fiscal year ended
December 31, 1996, with the debt securities separated into rating categories
and comparable unrated securities.)
Fixed-income securities include preferred and preference stocks and all
types of debt obligations of both domestic and foreign corporate and
government issuers, such as bonds, debentures, notes, repurchase agreements,
equipment lease contracts, loan participations, corporate asset-backed
securities, commercial paper, and obligations issued or guaranteed by the U.S.
Government, any foreign government or any of their respective political
subdivisions, agencies or instrumentalities (including obligations secured by
such instruments). The High Yield Series may also enter into mortgage "dollar
roll" transactions.
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest and may involve equity features, such as: conversion or
exchange rights or warrants for the acquisition of stock of the same or a
different issuer; participations based on revenues, sales or profits; or the
purchase of common stock in a unit transaction (where corporate debt
securities and common stock are offered as a unit). Under normal market
conditions, no more than 25% of the value of the High Yield Series' total
assets will be invested in equity securities, including common stock, warrants
and stock subscription rights, but excluding convertible debt securities.
The fixed-income securities in which the High Yield Series may invest also
include zero coupon bonds, deferred interest bonds, bonds on which the
interest is payable in kind ("PIK Bonds") and, to the extent permitted by its
investment restrictions (see "Investment Restrictions" in the SAI)
collateralized mortgage obligations, multi-class pass-through securities,
stripped mortgage-backed securities, and interests in trusts or other entities
representing interests in fixed-income securities or holding fixed income
securities in amounts sufficient to cover all payments due from such entities.
The High Yield Series may purchase securities on a "when-issued" basis. The
series may also invest up
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to 50% (and generally expects to invest between 0% and 25%) of its total
assets in foreign securities, which may include emerging market securities and
Brady Bonds, and may invest in ADRs. The series may invest in restricted
securities, subject to the limitation on investing more than 10% of its net
assets in securities that are not readily marketable.
In seeking to achieve its objectives and lessen risks, the High Yield Series
will engage in portfolio trading to take advantage of market developments and
yield disparities and will utilize credit analysis of the issues in which it
invests and evaluation of changes and trends in the world economies and
international financial markets. The High Yield Series is aggressively managed
and, thus, is subject to greater fluctuations in the value of its shares and
involves the assumption of a higher degree of risk as compared to a
conservative income fund.
See Appendix A for a discussion of foreign securities, emerging market
securities, Brady Bonds, loan participations, restricted securities and other
instruments set forth above, and the risks involved in these investments.
"When-issued" securities transactions and mortgage "dollar roll" transactions
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for a further discussion of some of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE HIGH YIELD SERIES.
ADDITIONAL RISK FACTORS REGARDING LOWER RATED SECURITIES--Investments in
lower rated fixed income securities, while generally providing greater income
and opportunity for gain than investments in higher rated securities, usually
entail greater risk of principal and income (including the possibility of
default or bankruptcy of the issuers of such securities), and may involve
greater volatility of price (especially during periods of economic uncertainty
or change) than investments in higher rated securities. In addition, since
yields may vary over time, no specific level of income or yield differential
can ever be assured.
Securities rated lower than Baa by Moody's or BBB by S&P or Fitch (or
comparable unrated securities) (commonly known as "junk bonds") are considered
speculative. These high yielding fixed income securities generally tend to
reflect economic changes and short-term corporate and industry developments to
a greater extent than higher rated securities which react primarily to
fluctuations in the general level of interest rates (although these lower
rated securities are also affected by changes in interest rates, as described
below). These fixed income securities will also be affected by the market's
perception of their credit quality (especially during times of adverse
publicity) and the outlook for economic growth. In the past, economic
downturns or a rise in interest rates have under certain circumstances caused
a higher incidence of default by the issuers of these securities and may do so
in the future, especially in the case of highly leveraged issuers. During
certain periods, the higher yields on the Series' lower rated high yielding
fixed income securities are paid primarily because of the increased risk of
loss of principal and income, arising from such factors as the heightened
possibility of default or bankruptcy of the issuers of such securities. Due to
the fixed income payments of these securities, the Series may continue to earn
the same level of interest income while its net asset value declines due to
portfolio losses, which could result in an increase in the Series' yield
despite the actual loss of principal. The prices for these securities may be
affected by legislative and regulatory
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developments. Change in the value of securities subsequent to their
acquisition will not affect cash income or yield to maturity to a series but
will be reflected in the net asset value of shares of the series. The market
for these lower rated fixed income securities may be less liquid than the
market for investment grade fixed income securities. Furthermore, the
liquidity of these lower rated securities may be affected by the market's
perception of their credit quality. Therefore, credit judgment may at times
play a greater role in valuing these securities than in the case of investment
grade fixed income securities, and it also may be more difficult during
certain adverse market conditions to sell these lower rated securities at
their fair value to meet redemption requests or to respond to changes in the
market.
Securities rated Baa by Moody's or BBB by S&P or Fitch (and comparable
unrated securities), while normally exhibiting adequate protection parameters,
have speculative characteristics and changes in economic conditions and other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade fixed income
securities.
While the Adviser may refer to ratings issued by established credit rating
agencies, it is not the policy of the series to rely exclusively on ratings
issued by these credit rating agencies, but rather to supplement such ratings
with the Adviser's own independent and ongoing review of credit quality. The
High Yield Series' achievement of its investment objectives may be more
dependent on the Adviser's own credit analysis than it would be in the case of
a fund or series investing primarily in higher quality bonds.
The net asset value of shares of the series changes as the general levels of
interest rates fluctuate; when interest rates decline, the value of a
portfolio invested at higher yields can be expected to rise, and conversely
when interest rates rise, the value of a portfolio invested at lower yields
can be expected to decline.
(6) MANAGED SECTORS SERIES
The Managed Sectors Series will seek capital appreciation by varying the
weighting of its portfolio among thirteen industry sectors. Dividend income,
if any, is incidental to the Managed Sectors Series' objective of capital
appreciation.
The thirteen sectors from among which the Managed Sectors Series chooses its
investments are: autos and housing; basic materials and consumer staples;
defense and aerospace; energy; financial services; health care; industrial
goods and services; leisure; retailing; technology; transportation; utilities;
and foreign. (See Appendix D for a description of the scope of and potential
risks associated with each of these industry sectors.) Certain sectors may
overlap; for example, the defense and aerospace sector and the technology
sector both include companies involved in the development of computer-related
products. Therefore, securities of certain companies or industries may
simultaneously be held in more than one industry sector.
In response to changes or anticipated changes in the general economy or
within one or more particular industry sectors, the Managed Sectors Series may
increase, decrease or eliminate entirely a particular sector's representation
in its portfolio; similarly, it may acquire securities of a sector not then
represented in its portfolio. A sector or stock of a particular company will
be added to or eliminated from the portfolio based upon such factors as such
sector's or company's economic cycle and sensitivity to interest rates. For
example, as interest rates rise and the performance of interest-sensitive
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stocks declines, the Managed Sectors Series expects to remove such stocks from
its portfolio. Any one sector may comprise up to 50% of the portfolio, as may
cash held as a temporary defensive measure or to meet anticipated redemption
requests. The Managed Sectors Series is "non-diversified" so that more than 5%
of the series' assets may be invested in the securities of each of one or more
issuers. As a result of such non-diversified status, the Managed Sectors
Series may be more susceptible to adverse changes in the value of securities
of a particular company than would be a diversified series. Similarly, due to
the series' ability to concentrate in as few as two industry sectors, the
Managed Sectors Series' assets may be more susceptible to any single economic,
political or regulatory occurrence than would be those of an investment
company without a policy of concentration in particular industry sectors.
While the Managed Sectors Series' policy is to invest primarily in common
stocks, it may seek appreciation in other types of securities, such as non-
convertible and convertible bonds, convertible preferred stocks, and in
warrants to purchase common stock, when relative values make such investments
appear attractive either as individual issues or as types of securities in
certain economic environments. The non-convertible bonds invested in by the
Managed Sectors Series will include (i) obligations issued or guaranteed by
the U.S. Treasury or U.S. Government agencies or instrumentalities, and (ii)
obligations of the U.S. Treasury that have been issued without interest
coupons or stripped of their unmatured interest coupons, interest coupons that
have been stripped from such debt obligations, and receipts and certificates
for such stripped debt obligations and stripped coupons. The Managed Sectors
Series may invest up to 20% of its total assets in foreign securities, which
may include emerging market securities, may invest in ADRs and may enter into
forward foreign currency exchange contracts ("forward contracts") for the
purchase or sale of foreign currency for hedging purposes. The Managed Sectors
Series may write covered put and call options and purchase put and call
options on securities and stock indexes in an effort to increase current
income and for hedging purposes. The Managed Sectors Series may also purchase
and sell stock index futures contracts and may write and purchase options
thereon for hedging purposes. The Managed Sectors Series may invest in
restricted securities, subject to the limitation on investing more than 10% of
its net assets in securities that are not readily marketable.
The Managed Sectors Series' portfolio is aggressively managed and the series
assumes above average risk of loss. Portfolio changes are made without regard
to the length of time a security has been held, or whether a sale would result
in a profit or loss. Therefore, the rate of portfolio turnover is not a
limiting factor when changes are believed by its investment adviser to be
appropriate.
See Appendix A for a discussion of foreign securities, emerging market
securities and other instruments set forth above and the risks involved in
these investments. Options, futures contracts, options on futures contracts
and forward contracts and their attendant risks are discussed in Appendix B.
Please refer to the SAI Appendix for further discussion of these techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE MANAGED SECTORS SERIES.
(7), (8) AND (9) MFS/FOREIGN & COLONIAL SERIES
The following three series, collectively referred to as the "MFS/Foreign &
Colonial Series," have separate investment objectives, but employ many of the
same investment policies, instruments and
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techniques. Those investment policies, instruments and techniques that are
common to all three of the MFS/Foreign & Colonial Series are set forth below,
following the separate statements of investment objectives and policies for
each series.
(7) MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH SERIES ("INTERNATIONAL GROWTH
SERIES")
The International Growth Series' investment objective is to seek capital
appreciation. The series seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity
securities of companies whose principal activities are outside the U.S.
growing at rates expected to be well above the growth rate of the overall U.S.
economy. The foreign growth securities in which the series may invest include
securities of more established companies which represent opportunities for
long-term growth. See "Investment Instruments and Techniques--Foreign Growth
Securities" below. The selection of securities is made solely on the basis of
potential for capital appreciation. Dividend and interest income from
portfolio securities, if any, is incidental to the series' investment
objective of capital appreciation.
The series may invest up to 25% of its net assets in securities of issuers
whose principal activities are located in emerging market countries. See
"Investment Instruments and Techniques--Emerging Market Securities" below.
While the series intends to invest primarily in equity securities, the
series may also invest up to 35% of its net assets (and generally expects to
invest not more than 20% of its net assets) in fixed income securities of
government, government-related, supranational and corporate issuers whose
principal activities are outside the U.S., including up to 10% of its net
assets in fixed income securities rated Ba or lower by Moody's or BB or lower
by S&P or Fitch and comparable unrated securities. See "Additional Risk
Factors--Lower Rated Fixed Income Securities" below. The Adviser and Sub-
Advisers consider a variety of factors in selecting fixed income securities to
achieve capital appreciation, including the creditworthiness of issuers,
interest rates and currency exchange rates.
(8) MFS/FOREIGN & COLONIAL INTERNATIONAL GROWTH AND INCOME SERIES
("INTERNATIONAL GROWTH AND INCOME SERIES")
The International Growth and Income Series' investment objective is to seek
capital appreciation and current income. The series seeks to achieve its
objective by investing primarily in equity and fixed income securities of
issuers whose principal activities are outside the U.S.
The series will invest, under normal market conditions, at least 65% of its
total assets (and generally expects to invest a substantial portion of its
total assets) in a combination of the following:
(a) equity securities of foreign "blue chip" companies and foreign growth
companies. See "Investment Instruments and Techniques--Foreign Growth
Securities" below. The series considers a security to be "blue chip" if the
total equity market capitalization of the issuer is at least U.S. $1
billion; and
(b) fixed income securities of government, government-related,
supranational and corporate issuers whose principal activities are outside
the U.S. The series may invest up to 50% (and generally expects to invest
from 20% to 30%) of its net assets in fixed income securities, including up
to 25% of its net assets in fixed income securities rated Ba or lower by
Moody's or BB or lower
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by S&P or Fitch and comparable unrated securities. See "Additional Risk
Factors--Lower Rated Fixed Income Securities" below.
The series may invest up to 10% of its net assets in securities of issuers
whose principal activities are located in emerging market countries. See
"Investment Instruments and Techniques--Emerging Market Securities" below.
(9) MFS/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES ("EMERGING MARKETS
EQUITY SERIES")
The Emerging Markets Equity Series' investment objective is to seek capital
appreciation. The series seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity
securities of issuers whose principal activities are located in emerging
market countries. The Adviser and the Sub-Advisers expect to take a global
approach to portfolio management by weighting the series' investments towards
countries in Latin America, Asia, Africa, the Middle East and the developing
countries of Europe, primarily in Eastern Europe. See "Investment Instruments
and Techniques--Emerging Market Securities" below. The selection of securities
is made solely on the basis of potential for capital appreciation. Dividend
and interest income from portfolio securities, if any, is incidental to the
series' investment objective of capital appreciation.
While the series intends to invest primarily in equity securities, the
series may also invest not more than 35% of its net assets in fixed income
securities of government, government-related, supranational and corporate
issuers whose principal activities are outside the U.S., rated Ba or lower by
Moody's or BB or lower by S&P or Fitch and comparable unrated securities. See
"Additional Risk Factors--Lower Rated Fixed Income Securities" below. The
Adviser and the Sub-Advisers consider a variety of factors in selecting fixed
income securities to achieve capital appreciation, including the
creditworthiness of issuers, interest rates and currency exchange rates.
POLICIES APPLICABLE TO THE MFS/FOREIGN & COLONIAL SERIES
The MFS/Foreign & Colonial Series do not intend to emphasize any particular
country or region in making their investments, but under normal market
conditions, each series will be invested in at least three countries (outside
the U.S.) and will not invest more than 50% of its net assets in issuers whose
principal activities are located in a single country. See "Additional Risk
Factors--Investments in One or a Limited Number of Countries" below. Currently
none of the series expect to invest more than 25% of its net assets in issuers
whose principal activities are located in a single country, except that the
International Growth Series and the International Growth and Income Series
generally expect to invest between 15% to 45% of their assets in issuers whose
principal activities are in Japan. Each series will seek to reduce risk by
investing its assets in a number of markets and issuers, performing credit
analyses of potential investments and monitoring current developments and
trends in both the international economy and financial markets.
Each series may invest in all types of equity securities, including the
following: common stocks, preferred stocks and preference stocks; securities
such as bonds, warrants or rights that are convertible into stocks; and
depositary receipts for those securities. These securities may be listed on
securities exchanges, traded in various over-the-counter markets or have no
organized market.
For temporary defensive reasons, such as during times of international
political or economic uncertainty or turmoil, most or all of each series'
investments may be in cash (U.S. dollars, foreign
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currencies or multinational currency units) and/or securities that are
denominated in U.S. dollars or whose issuers are domiciled in the U.S. Each
series is not restricted as to the portions of its assets which may be
invested in securities denominated in a particular currency and up to 100% of
each series' net assets may be invested in securities denominated in foreign
currencies and multinational currency units.
The Adviser and the Sub-Advisers determine where an issuer's principal
activities are located by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and assets. The issuer's principal activities are generally
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws
of, and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives
50% or more of its total revenues from goods sold or services performed in
that country; or (e) the issuer has 50% or more of its assets in that country.
INVESTMENT INSTRUMENTS AND TECHNIQUES
In order to achieve its investment objective, each of the MFS/Foreign &
Colonial Series may employ the investment instruments and techniques described
below.
FOREIGN GROWTH SECURITIES: Each series may invest in securities of foreign
growth companies, including established foreign companies, whose rates of
earnings growth are expected to accelerate because of special factors, such as
rejuvenated management, new products, changes in consumer demand, or basic
changes in the economic environment or which otherwise represent opportunities
for long-term growth. See "Additional Risk Factors" below. It is anticipated
that these companies will primarily be in nations with more developed
securities markets, such as Japan, Australia, Canada, New Zealand and most
Western European countries, including Great Britain.
EMERGING MARKET SECURITIES: Each series may invest in securities of issuers
whose principal activities are located in emerging market countries. Emerging
market countries include any country determined by the Adviser or Sub-Advisers
to have an emerging market economy, taking into account a number of factors,
including whether the country has a low- to middle-income economy according to
the International Bank for Reconstruction and Development, the country's
foreign currency debt rating, its political and economic stability and the
development of its financial and capital markets. See Appendix A --"Emerging
Market Securities" for a description of emerging market securities, and the
risks involved in these investments. See also "Additional Risk Factors--
Emerging Markets" below.
FIXED INCOME SECURITIES: Fixed income securities in which each series may
invest include all types of long- or short-term debt obligations, such as
bonds, notes, bills, debentures, loans, loan
assignments and commercial paper. Each series may invest in emerging market
fixed income securities, which, in addition to the securities identified
above, may take the form of interests issued by entities organized and
operated for the purpose of restructuring the investment characteristics of
instruments issued by emerging market country issuers. Fixed income securities
in which each series may invest include securities in the lower rating
categories of recognized rating agencies and comparable unrated securities.
See "Additional Risk Factors--Lower Rated Fixed Income Securities" below. The
International Growth Series will not invest more than 10% of its net assets,
the International Growth and Income Series will not invest more than 25% of
its net assets and the Emerging Markets
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Equity Series will not invest 35% or more of its net assets in fixed income
securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch and
comparable unrated securities. However, because most foreign fixed income
securities are not rated, a series will invest in foreign fixed income
securities primarily based on the Adviser's or the Sub-Advisers' credit
analysis without relying on published ratings.
INVESTMENT IN OTHER INVESTMENT COMPANIES: Each series may invest in other
investment companies to the extent permitted by the Investment Company Act of
1940 (the "1940 Act") and any applicable state securities laws (i) as a means
by which the series may invest in securities of certain countries which do not
otherwise permit investment, (ii) as a means to purchase thinly traded
securities of emerging market companies, or (iii) when the Adviser or the Sub-
Advisers believe such investments may be more advantageous to the series than
a direct market purchase of securities. If a series invests in such investment
companies, the series' shareholders will bear not only their proportionate
share of the expenses of the series (including operating expenses and the fees
of the Adviser) but also will indirectly bear similar expenses of the
underlying investment companies.
PRIVATIZATIONS: The governments in some countries, including emerging market
countries, have been engaged in programs of selling part or all of their
stakes in government owned or controlled enterprises ("privatizations"). Each
series may invest in privatizations. In certain countries, the ability of
foreign entities to participate in privatizations may be limited by local law
and the terms on which the foreign entities may be permitted to participate
may be less advantageous than those afforded local investors.
DEPOSITORY RECEIPTS: Each series may invest in ADRs, Global Depository
Receipts ("GDRs") and other types of depository receipts. ADRs are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. See Appendix A--"American Depositary Receipts."
GDRs and other types of depository receipts are typically issued by foreign
banks or trust companies and evidence ownership of underlying securities
issued by either a foreign or a U.S. company. Generally, ADRs are in
registered form and are designed for use in U.S. securities markets and GDRs
are in bearer form and are designed for use in foreign securities markets. For
the purposes of these series' policy of investing a certain percentage of
their assets in foreign securities, the investments of a series in ADRs, GDRs
and other types of depository receipts are deemed to be investments in the
underlying securities.
BRADY BONDS: Each series may invest in Brady Bonds. Brady Bonds and their
attendant risks are described in "Appendix A--Brady Bonds."
STRUCTURED SECURITIES: Each series may invest a portion of its assets in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations. This type of
restructuring involves the deposit with, or purchase by, an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans
or Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing interests in,
the underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent
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of the cash flow on the underlying instruments. Because Structured Securities
of the type in which each series anticipates it will invest typically involve
no credit enhancement, their credit risk generally will be equivalent to that
of the underlying instruments. Each series is permitted to invest in a class
of Structured Securities that is either subordinated or unsubordinated to the
right of payment of another class. Subordinated Structured Securities
typically have higher yields and present greater risks than unsubordinated
Structured Securities. Structured Securities are typically sold in private
placement transactions, and there currently is no active trading market for
Structured Securities.
REPURCHASE AGREEMENTS: Each series may enter into repurchase agreements with
both domestic and foreign securities dealers or institutions in order to earn
additional income on available cash or as a temporary defensive measure.
Repurchase agreements and their attendant risks are described in "Appendix A--
Repurchase Agreements." In addition, foreign repurchase agreements may be less
well secured than U.S. repurchase agreements, and may be denominated in
foreign currencies. They may also involve greater risk of loss if the
counterparty defaults. Some counterparties in these transactions may be less
creditworthy than those in U.S. markets.
OTHER INSTRUMENTS: Each series may also invest in zero coupon bonds,
deferred interest bonds and PIK bonds, indexed securities, restricted
securities (subject to the limitation on investing more than 15% of a series'
net assets in securities that are not readily marketable) and loans and other
direct indebtedness (including loans to corporate, government or other
borrowers). See Appendix A for a discussion of these instruments and their
attendant risks.
INVESTMENT TECHNIQUES: In order to achieve their investment objectives, each
of the MFS/Foreign & Colonial Series may employ the following investment
techniques: (1) lending portfolio securities to entities deemed creditworthy
by the Adviser or the Sub-Advisers, usually to member banks of the Federal
Reserve System and member firms (and subsidiaries thereof) of the New York
Stock Exchange; (2) purchasing securities on a "when issued" or a "forward
delivery" basis; (3) writing (selling) covered put and call options on
securities for the purpose of increasing its return and/or to protect the
value of its portfolio, and purchasing put or call options on securities in
anticipation of declines in the value of portfolio securities or increases in
the value of securities to be acquired (the series may also write combinations
of put and call options on the same security, known as "straddles," which
transactions can generate additional income, but also present increased
risks); (4) entering into "yield curve" options for hedging and non-hedging
purposes; (5) writing covered call and put options and purchasing call and put
options on domestic and foreign stock indexes for the purpose of increasing
its current income and/or for hedging purposes and to attempt to reduce the
risk of missing a market or industry segment advance; (6) entering into
contracts for the purchase or sale for future delivery of contracts based on
indexes of securities as such instruments become available for trading or
fixed income securities or foreign currencies ("futures contracts") for
hedging purposes (to protect the series' current or intended investments from
the effects of changes in interest or exchange rates or declines in a
securities market, or for non-hedging proposes, to the extent permitted by law
(which involves greater risks and could result in losses which are not offset
by gains on other portfolio assets); (7) purchasing and writing options on
futures contracts for the purpose of protecting against declines in the value
of portfolio securities or against increases in the cost of securities to be
acquired and also for non-hedging purposes, to the extent permitted by law;
(8) purchasing and writing options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to
be acquired; (9) entering into
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forward foreign currency exchange contracts ("forward contracts") for hedging
purposes as well as for the non-hedging purpose of increasing the series'
current income; and (10) entering into interest rate swaps, currency swaps,
and other types of available swap agreements which will tend to shift the
series' investment exposure from one type of investment to another. See
Appendix B and the SAI Appendix for a discussion of these investment
techniques and their attendant risks.
PORTFOLIO TRADING
While it is not generally each series' policy to invest or trade for short-
term profits, each series may dispose of a portfolio security whenever the
Adviser or the Sub-Adviser is of the opinion that such security no longer has
an appropriate appreciation potential or when another security appears to
offer relatively greater appreciation potential. Portfolio changes are made
without regard to the length of time a security has been held, or whether a
sale would result in a profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor when a change in the portfolio is otherwise
appropriate.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE MFS/FOREIGN & COLONIAL SERIES.
ADDITIONAL RISK FACTORS
FOREIGN SECURITIES: Each series may invest up to 100% of its assets in
foreign securities, including foreign securities that are not traded on a U.S.
exchange. Transactions involving foreign equity or debt securities or foreign
currencies, and transactions entered into in foreign countries, involve
considerations and risks not typically associated with investing in U.S.
markets. See "Appendix A--Foreign Securities".
EMERGING MARKETS: The risks of investing in foreign securities may be
intensified in the case of investments in emerging markets. Investment in
emerging market countries could decrease the series' liquidity, as a result of
settlement problems and other factors. Certain markets may require payment for
securities before delivery, and in such markets the series bear the risk that
the securities will not be delivered and that the series' payments will not be
returned. See "Appendix A--Emerging Market Securities."
ALLOCATION AMONG EMERGING MARKETS: Each series may allocate all or a portion
of its investment in emerging market securities among the emerging markets of
Latin America, Asia, Africa, the Middle East and the developing countries of
Europe, primarily in Eastern Europe. Each series will allocate its investments
among these emerging markets in accordance with the Adviser's and the Sub-
Advisers' determination as to the allocation most appropriate with respect to
the series' investment objective and policies. Each series may invest its
assets allocated for investment in emerging markets without limitation in any
particular region, and, in accordance with the Adviser's and the Sub-Advisers'
investment discretion, at times may invest all of its assets allocated for
investment in emerging markets in securities of emerging market issuers
located in a single region (e.g., Latin America). To the extent that a series'
investments are concentrated in one or a few emerging market regions, the
series' investment performance correspondingly will be more dependent upon the
economic, political and social conditions and changes in those regions. The
ability of a series to allocate its investments
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among emerging market regions without restriction may have the effect of
increasing the volatility of the series, as compared to a series which limits
such allocations.
INVESTMENTS IN ONE OR A LIMITED NUMBER OF COUNTRIES: Each series will seek
to reduce risk by investing its assets in a number of markets and issuers.
However, each series may invest up to 50% of its net assets in issuers located
in a single country. To the extent that a series invests a significant portion
of its assets in a single or limited number of countries, the series'
investment performance correspondingly will be more dependent upon the
economic, political and social conditions and changes in that country or
countries, and the risks associated with investments in such country or
countries will be particularly significant. The ability of a series to focus
its investments in one or a limited number of countries may have the effect of
increasing the volatility of that series.
EMERGING GROWTH COMPANIES: Each series may invest in securities of emerging
growth companies, including established companies. Investing in emerging
growth companies involves greater risk than is customarily associated with
investing in more established companies. Emerging growth companies often have
limited product lines, markets or financial resources, and they may be
dependent on one-person management. The securities of emerging growth
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies
or the market averages in general. Similarly, many of the securities offering
the capital appreciation sought by the series will involve a higher degree of
risk than would established growth stocks.
FOREIGN CURRENCIES: Because each series may invest up to 100% of its assets
in securities denominated in currencies other than the U.S. dollar, and
because each series may hold foreign currencies, the value of a series'
investments, and the value of dividends and interest earned by a series, may
be significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency
markets, which could adversely affect the series. Although the Adviser and
Sub-Advisers may attempt to manage currency exchange rate risks, there is no
assurance that the Adviser and Sub-Advisers will do so at an appropriate time
or that the Adviser and Sub-Advisers will be able to predict exchange rates
accurately. For example, if the Adviser and Sub-Advisers hedge a series'
exposure to a foreign currency, and that currency's value rises, the series
will lose the opportunity to participate in the currency's appreciation. Each
series may hold foreign currency received in connection with investments in
foreign securities, and enter into forward contracts, futures contracts and
options on foreign currencies when, in the judgment of the Adviser or Sub-
Advisers, it would be beneficial to convert such currency into U.S. dollars at
a later date, based on anticipated changes in the relevant exchange rates.
While the holding of foreign currencies will permit a series to take advantage
of favorable movements in the applicable exchange rate, it also exposes the
series to risk of loss if such rates move in a direction adverse to the
series' position. Such losses could also adversely affect the series' hedging
strategies. See the SAI for further discussion of the holding of foreign
currencies as well as the associated risks.
FIXED INCOME SECURITIES: To the extent a series invests in fixed income
securities, the net asset value of the series may change as the general levels
of interest rates fluctuate. When interest rates decline, the value of fixed
income securities can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities can be expected to decline. Each
series is subject to no
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restrictions on the maturities of the fixed income securities it holds. A
series' investments in fixed income securities with longer terms to maturity
are subject to greater volatility than the series' shorter-term obligations.
LOWER RATED FIXED INCOME SECURITIES: Each series may invest in fixed income
securities rated Baa by Moody's or BBB by S&P or Fitch (and comparable unrated
securities). For a description of these and other rating categories, see
Appendix C. These securities, while normally exhibiting adequate protection
parameters, have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than in the case of higher
grade fixed income securities. Each series may also invest in fixed income
securities rated Ba or lower by Moody's or BB or lower by S&P or Fitch (and
comparable unrated securities). No minimum rating standard is required by any
series. These securities are considered speculative and, while generally
providing greater yield than investments in higher rated securities, will
involve greater risk of principal and income. See "Additional Risk Factors
Regarding Lower Rated Securities" under "High Yield Series" above.
TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS: See
Appendix B-- "Risks of Transactions In Options, Futures Contracts and Forward
Contracts" and the SAI Appendix.
(10) MONEY MARKET SERIES
The Money Market Series will seek maximum current income to the extent
consistent with stability of principal by investing exclusively in the
following types of U.S. dollar-denominated money market instruments which
mature in less than 13 months:
(a) Obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities;
(b) Certificates of deposit issued by domestic or foreign branches of any
U.S. or Canadian-chartered bank which has total assets in excess of $1
billion ("Eurodollar CD's") and bankers' acceptances issued by domestic
branches of any such bank (see Appendix A);
(c) Commercial paper which at the date of investment is rated A-1 by S&P
or P-1 by Moody's (see Appendix C);
(d) Repurchase agreements for the purchase of obligations which are
suitable for investment under paragraph (a) above (see Appendix A).
Under regulations currently in effect, the average maturity of the
investments in the Money Market Series may not exceed 90 days.
(11) RESEARCH GROWTH AND INCOME SERIES
The Research Growth and Income Series' investment objective is to provide
long-term growth of capital, current income and growth of income.
The portfolio securities of the series are selected by a committee of
investment research analysts. This committee includes investment analysts
employed not only by the Adviser but also by MFS International (U.K.) Limited,
a wholly owned subsidiary of MFS. The series' assets are allocated among
industries by the analysts acting together as a group. Individual analysts are
then responsible for
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selecting what they view as the securities best suited to meet the series'
investment objective within their assigned industry responsibility.
Under normal market conditions, the series invests at least 65% of its total
assets in equity securities of companies with a market capitalization of at
least $2 billion which, in the Adviser's judgment, offer earnings growth
potential while paying current dividends. Equity securities include common
stocks, preferred stocks and preference stocks, securities such as bonds,
warrants or rights that are convertible into stocks; and depository receipts
for these securities. Over time, continued growth of earnings tends to lead to
higher dividends and enhancement of capital value. The series may also invest
up to 35% of its total assets in other equity securities which offer prospects
for growth of capital and future income.
The Research Growth and Income Series may enter into repurchase agreements
for U.S. Government Securities, lend portfolio securities, invest in
restricted securities, purchase securities on a "when-issued" basis, purchase
indexed securities and swaps, and purchase and sell options and futures
contracts. The series may invest up to 20% (and generally expects to invest
between 5% and 15%) of its net assets in foreign equity securities, which are
not traded on a U.S. exchange, which may include emerging market securities,
may invest in ADRs, and may enter into forward foreign currency exchange
contracts ("forward contracts"). The Research Growth and Income Series may
invest in restricted securities, subject to the limitation on investing more
than 15% of its net assets in securities that are not readily marketable.
The Research Growth and Income Series does not intend to trade in securities
for short-term profits. However, the Series will trade whenever it believes
that changes are appropriate.
See Appendix A for a discussion of foreign securities, ADRs, emerging market
securities, indexed securities, restricted securities and other instruments
set forth above and the risks involved in these investments. Securities
lending, options, futures and forward contracts, swaps and "when issued"
securities and the attendant risks are discussed in Appendix B. Please refer
to the SAI Appendix for further discussion of forward contracts.
(12) RESEARCH SERIES
The Research Series' investment objective is to provide long-term growth of
capital and future income.
The portfolio securities of the series are selected by a committee of
investment research analysts. This committee includes investment analysts
employed not only by the Adviser but also by MFS International (U.K.) Limited,
a wholly owned subsidiary of MFS. The series' assets are allocated among
industries by the analysts acting together as a group. Individual analysts are
then responsible for selecting what they view as the securities best suited to
meet the series' investment objective within their assigned industry
responsibility.
The series' policy is to invest a substantial proportion of its assets in
the common stocks or securities convertible into common stocks of companies
believed to possess better than average prospects for long-term growth. A
smaller proportion of the assets may be invested in bonds, short-term
obligations, preferred stocks or common stocks whose principal characteristic
is income
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production rather than growth. Such securities may also offer opportunities
for growth of capital as well as income. In the case of both growth stocks and
income issues, emphasis is placed on the selection of progressive, well-
managed companies. From time to time, the Research Series' management will
exercise its judgment with respect to the proportions invested in growth
stocks, income-producing securities or cash (including foreign currency) and
cash equivalents depending on its view of their relative attractiveness. The
Research Series may hold part or all of its assets in cash or short-term
obligations for temporary defensive purposes or as a reserve for future
purchases.
The Research Series' debt investments, if any, may consist of "investment
grade" securities (rated BBB or better by S&P or Fitch or Baa or better by
Moody's), and, with respect to no more than 10% of its net assets, securities
rated BB or lower by S&P or Fitch or Ba or lower by Moody's or securities
which the Adviser believes to be of similar quality (commonly known as "junk
bonds"). (See Appendix C; see also "Additional Risk Factors Regarding Lower
Rated Securities" under "High Yield Series" above.) It is not the Research
Series' policy to rely exclusively on ratings issued by established credit
rating agencies but rather to supplement such ratings with the Adviser's own
independent and ongoing review of credit quality. The Research Series'
achievement of its investment objective may be more dependent on the Adviser's
own credit analysis than in the case of a series or fund investing in
primarily higher quality bonds.
The Research Series may enter into repurchase agreements for U.S. Government
Securities, lend portfolio securities, and invest in restricted securities.
The series may invest up to 20% of its total assets in foreign securities,
which may include emerging market securities and Brady Bonds, may invest in
ADRs, and may enter into forward foreign currency exchange contracts ("forward
contracts") for hedging purposes. The Research Series may invest in restricted
securities, subject to the limitation on investing more than 15% of its net
assets in securities that are not readily marketable.
The Research Series does not intend to trade in securities for short-term
profits. However, the Series will trade whenever it believes that changes are
appropriate.
See Appendix A for a discussion of foreign securities, emerging market
securities, Brady Bonds, restricted securities and other instruments set forth
above and the risks involved in these investments. Securities lending and
forward contracts and the attendant risks are discussed in Appendix B. Please
refer to the SAI Appendix for further discussion of forward contracts.
(13) TOTAL RETURN SERIES
The Total Return Series' primary investment objective is to obtain above-
average income (compared to a portfolio entirely invested in equity
securities) consistent with the prudent employment of capital. While current
income is the primary objective, this series also will seek a reasonable
opportunity for growth of capital and income, since many securities offering a
better than average yield may also possess growth potential. Assets will be
allocated and reallocated from time to time between money market, fixed income
and equity securities. Under normal market conditions, at least 25% of the
series' assets will be invested in fixed income securities and at least 40%
and no more than 75% of the series' assets will be invested in equity
securities, including preferred stocks.
The Total Return Series' policy is to invest in a broad portfolio of
securities, including short-term obligations. The portfolio may be diversified
not only by companies and industries, but also by type of
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securities, for example, equity securities, fixed income securities, and
securities representing cash equivalents. Thus fixed income securities, such
as bonds, may be held as well as common stocks. In addition, some fixed income
securities held by this series may include a right to purchase common stock by
means of a conversion privilege or attached warrants. This series may vary the
percentage of assets invested in any one type of security in accordance with
its interpretation of economic and money market conditions, fiscal and
monetary policy, and underlying security values. Most of the series' long-term
debt investments will consist of "investment grade" securities (rated Baa or
better by Moody's or BBB or better by S&P or Fitch), although the series may
invest up to 20% of its net assets in lower rated securities. (See Appendix C
and "Additional Risk Factors Regarding Lower Rated Securities" under "High
Yield Series" above.) The series may enter into repurchase agreements for U.S.
Government Securities and may seek to increase its income by lending its
portfolio securities to the extent consistent with present regulatory
policies. The series may enter into mortgage "dollar roll" transactions and
invest in corporate asset-backed securities. The series may invest up to 20%
of its total assets in foreign securities, including emerging market
securities and Brady Bonds, and may invest in ADRs. The series may invest in
restricted securities, subject to the limitation on investing more than 10% of
its net assets in securities that are not readily marketable.
Securities offering above-average yield may at times involve greater than
average risk. For this reason, and because the value of securities and the
income earned on them may fluctuate according to the earnings of the issuers
and changes in economic and money market conditions, there can be no assurance
that the series' investment objectives will be achieved.
The Total Return Series' portfolio will be managed actively with respect to
fixed income securities, and the asset allocations will be modified as the
Adviser deems necessary. Although the Total Return Series does not intend to
seek short-term profits, fixed income securities in its portfolio will be sold
whenever the Adviser believes it is appropriate to do so, without regard to
the length of time the particular asset may have been held. With respect to
its equity securities, the Total Return Series does not intend to trade in
securities for short-term profits and anticipates that equity securities in
its portfolio will ordinarily be held for one year or longer. However, the
series will trade whenever it believes that changes in the portfolio are
appropriate.
See Appendix A for discussion of foreign securities, emerging market
securities, Brady Bonds, corporate asset-backed securities, restricted
securities and repurchase agreements and the risks involved in these
investments. Mortgage "dollar roll" transactions and lending portfolio
securities and their attendant risks are discussed in Appendix B.
(14) UTILITIES SERIES
The Utilities Series will seek capital growth and current income (income
above that available from a portfolio invested entirely in equity securities)
by investing, under normal market conditions, at least 65% (but up to 100% at
the discretion of the Adviser) of its assets in equity and debt securities of
both domestic and foreign companies in the utilities industry. Equity
securities in which the Utilities Series may invest include common stocks,
preferred stocks, securities convertible into common stocks or preferred
stocks, and warrants to purchase common or preferred stocks. At least 80% of
the debt securities held by the Utilities Series will be rated at the time of
investment at least Baa by Moody's or BBB by S&P or Fitch (see Appendix C) or
will be of comparable quality as determined by the Adviser
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(see "Additional Risk Factors Regarding Lower Rated Securities" under "High
Yield Series" above). The Utilities Series may also invest in debt and equity
securities of issuers in other industries, as discussed below, although under
normal circumstances not more than 35% of the series' assets will be so
invested. In addition, the Utilities Series may hold a portion of its assets
in cash and money market instruments.
Companies in the utilities industry include (i) companies engaged in the
manufacture, production, generation, transmission, sale or distribution of
electric, gas or other types of energy, water or other sanitary services and
(ii) companies engaged in telecommunications, including telephone, cellular
telephones, telegraph, satellite, microwave, cable television and other
communications media (but not companies engaged in public broadcasting). The
Adviser deems a particular company to be in the utilities industry if, at the
time of investment, the Adviser determines that at least 50% of the company's
assets or revenues are derived from one or more of those industries. For a
description of the principal sectors of the utilities industry, see Appendix
D.
The portion of the Utilities Series' assets invested in a particular type of
utility and in equity or debt securities will vary in light of changes in
interest rates, market conditions and economic conditions and other factors.
The Utilities Series may invest in foreign securities, including non-dollar
denominated securities and emerging market securities, and in ADRs, although
under normal circumstances it is not expected that more than 35% of the
Utilities Series' assets will be invested in foreign securities.
The Utilities Series is permitted to invest in securities of issuers that
are outside the utilities industry, although under normal circumstances not
more than 35% of the Utilities Series' assets will be so invested. Such
investments may include common stocks, debt securities (including municipal
debt securities) and preferred stocks and will be selected to meet the
Utilities Series' investment objective of both capital appreciation and
current income. These securities may be issued by either U.S. or non-U.S.
companies. Some of these issuers may be in industries related to the utilities
industry and, therefore, may be subject to similar risks. Investments outside
the utilities industry may also include U.S. Government Securities, including
U.S. Government Securities that are mortgage pass-through securities.
Some U.S. Government Securities do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from these securities are generally lower than
the yields available from corporate interest bearing securities. Like other
interest bearing securities, however, the values of U.S. Government Securities
change as interest rates fluctuate.
When unfavorable economic or market conditions exist, the Utilities Series
may, until favorable conditions return, invest up to 75% of its assets in cash
(or foreign currency), cash equivalents (such as certificates of deposit,
bankers' acceptances and time deposits), commercial paper, short-term
obligations, repurchase agreements and obligations issued or guaranteed by the
U.S. or any foreign government or any of their agencies, authorities or
instrumentalities.
See "Additional Risk Factors" below for further information on investing in
the securities described above as well as the risks associated therewith.
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In order to achieve its investment objective the Utilities Series may employ
the investment techniques noted below and purchase the securities described
below in accordance with the above-mentioned investment policies: (1) entering
into repurchase agreements for U.S. Government Securities; (2) lending
portfolio securities to the extent consistent with present regulatory policies
for the purpose of increasing the Utilities Series' income; (3) entering into
covered mortgage "dollar roll" transactions; (4) investing in corporate asset-
backed securities; (5) purchasing securities on a "when-issued" or on a
"forward delivery" basis; (6) investing in indexed securities whose value is
linked to foreign currencies, interest rates, commodities, indexes or other
financial indicators; (7) purchasing restricted securities, subject to the
limitation on investing more than 15% of its net assets in securities that are
not readily marketable; (8) writing covered put and call options and
purchasing put and call options on domestic and foreign stock indexes for the
purpose of increasing the Utilities Series' gross income or for hedging
purposes, and to attempt to reduce the risk of missing a market or industry
segment advance; (9) investing in CMOs, multiclass pass-through securities,
parallel pay CMO's and Planned Amortization Class CMO's ("PAC Bonds");
(10) investing in zero coupon bonds; (11) entering into futures contracts,
options on futures contracts and options on foreign currencies for hedging
purposes in order to protect the Utilities Series' current or intended
investments from the effects of changes in interest or exchange rates or
declines in the stock market and entering into futures contracts and options
on futures contracts for non-hedging purposes to the extent permitted by
applicable law; and (12) entering into forward foreign currency exchange
contracts ("forward contracts") for hedging purposes as well as for non-
hedging (i.e., speculative) purposes.
The Utilities Series' portfolio will be managed actively and the selection
of securities modified as the Adviser deems necessary. Although the Utilities
Series does not intend to seek short-term profits, securities in its portfolio
will be sold whenever the Adviser believes it is appropriate to do so without
regard to the length of time the particular asset may have been held.
See Appendix A for a discussion of foreign securities, emerging market
securities, U.S. Government Securities, repurchase agreements and other
instruments set forth above and the risks involved in these investments. The
investment techniques set forth above and their attendant risks are discussed
in Appendix B. Please refer to the SAI Appendix for further discussion of
these techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE UTILITIES SERIES.
ADDITIONAL RISK FACTORS
UTILITY COMPANIES: Since the Utilities Series' investments are concentrated
in utility securities, the value of the shares of the series will be
especially affected by factors peculiar to the utilities industry and may
fluctuate more widely than the value of shares of a series that invests in a
broader range of industries. The rates many utility companies may charge their
customers are controlled by governmental regulatory commissions which may
result in a delay in the utility company passing along increases in costs to
its customers. Furthermore, there is no assurance that regulatory authorities
will, in the future, grant rate increases or that such increases will be
adequate to permit the payment of dividends on common stocks. Many utility
companies, especially electric and gas and other energy related utility
companies, are subject to various uncertainties, including: risks of increases
in fuel and other operating costs; the high cost of borrowing to finance
capital construction during inflationary
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periods; difficulty obtaining adequate returns on invested capital, even if
frequent rate increases are approved by public service commissions;
restrictions on operations and increased costs and delays as a result of
environmental and nuclear safety regulations; securing financing for large
construction projects during an inflationary period; difficulties of the
capital markets in absorbing utility debt and equity securities; difficulty in
raising capital in adequate amounts on reasonable terms in periods of high
inflation and unsettled capital markets; technological innovations which may
render existing plants, equipment or products obsolete; the potential impact
of natural or man-made disasters; difficulties in obtaining natural gas for
resale or fuel for electric generation at reasonable prices; coping with the
general effects of energy conservation, particularly in light of changing
policies regarding energy; and special risks associated with the construction
and operation of nuclear power generating facilities, including technical
factors and costs, and the possibility that federal, state and municipal
government authorities may from time to time review existing requirements and
impose additional requirements. Certain utility companies, especially gas and
telephone utility companies, have in recent years been affected by increased
competition, which could adversely affect the profitability of such utility
companies. Furthermore, there are uncertainties resulting from certain
telecommunications companies' diversification into new domestic and
international businesses as well as agreements by many such companies linking
future rate increases to inflation or other factors not directly related to
the active operating profits of the enterprise.
FOREIGN UTILITY COMPANIES: Foreign utility companies are also subject to
regulation, although such regulations may or may not be comparable to those in
the U.S. Foreign utility companies may be more heavily regulated by their
respective governments than utilities in the U.S. and, as in the U.S.,
generally are required to seek government approval for rate increases. In
addition, since many foreign utilities use fuel that causes more pollution
than those used in the U.S., such utilities may be required to invest in
pollution control equipment to meet any proposed pollution restrictions.
Foreign regulatory systems vary from country to country and may evolve in ways
different from regulation in the U.S.
(15) VALUE SERIES
The Value Series' investment objective is to seek capital appreciation.
Dividend income, if any, is a consideration incidental to the series'
objective of capital appreciation.
While the Value Series' policy is to invest primarily in common stocks, it
may seek appreciation in other types of securities such as fixed income
securities (which may be unrated), convertible bonds, convertible preferred
stocks and warrants when relative values make such purchases appear attractive
either as individual issues or as types of securities in certain economic
environments. The series may invest in income securities rated lower than
"investment grade" (investment grade securities are rated at least Baa by
Moody's or BBB by S&P or Fitch), or in comparable unrated securities, when, in
the opinion of the Adviser, such an investment presents a greater opportunity
for appreciation with comparable risk to an investment in "investment grade"
securities. Under normal market conditions, the series will invest not more
than 25% of its net assets in these securities. Such lower rated or unrated
fixed income securities may have speculative risk characteristics (see
"Additional Risk Factors Regarding Lower Rated Securities" under "High Yield
Series" above). Fixed income securities that the Value Series may invest in
also include zero coupon bonds, deferred interest bonds and PIK bonds. There
is no formula as to the percentage of assets that may be invested in any one
type of security. Cash, commercial paper, short-term obligations, repurchase
agreements or debt securities are held to
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provide a reserve for future purchases of common stock or other securities and
may also be held as a temporary defensive measure when the Adviser determines
security markets to be overvalued.
The Value Series may invest up to 50% of its total assets in foreign
securities, which may include emerging market securities and Brady Bonds. The
series may also invest a portion of its assets in loans, loan participations
or other direct indebtedness.
In order to achieve its investment objective, the Value Series may also
purchase the securities and employ the investment techniques described below:
(1) entering into repurchase agreements; (2) lending portfolio securities; (3)
purchasing securities on a "when issued" or "forward delivery" basis; (4)
purchasing restricted securities, subject to the limitation on investing more
than 15% of its net assets in securities that are not readily marketable; (5)
purchasing ADRs; (6) writing (selling) covered put and call options on
securities for the purpose of increasing its return and/or to protect the
value of its portfolio, and purchasing put and call options on securities in
anticipation of declines in the value of portfolio securities or increases in
the value of securities to be acquired (the series may also write combinations
of put and call options on the same security, known as "straddles," which
transactions can generate additional income, but also present increased
risks); (7) entering into "yield curve" options for hedging and nonhedging
purposes; (8) entering into stock index and foreign currency futures contracts
for hedging purposes (to protect the series' current or intended investments
from the effects of changes in interest or exchange rates, or declines in the
value of portfolio securities or increases in the cost of such securities to
be acquired) as well as for nonhedging purposes, to the extent permitted by
applicable law (which involves greater risks and could result in losses which
are not offset by gains and other portfolio assets); (9) purchasing and
writing options on futures contracts for the purpose of protecting against
declines in the value of portfolio securities or against increases in the cost
of securities to be acquired and also for nonhedging purposes, to the extent
permitted by applicable law; (10) entering into forward foreign currency
exchange contracts ("forward contracts") for hedging purposes as well as for
the nonhedging purpose of increasing current income; (11) purchasing and
selling options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired; (12) writing covered call and
put options and purchasing call and put options on stock indexes for the
purpose of increasing its current income and/or for hedging purposes and to
attempt to reduce the risk of missing a market or industry segment advance;
and (13) investing in indexed securities whose value is linked to foreign
currencies, precious metals, interest rates, commodities, indexes or other
financial indicators.
The Value Series is designed for purchasers who understand and are willing
to accept the risks inherent in seeking capital appreciation.
The Value Series' portfolio is aggressively managed. Portfolio changes are
made without regard to the length of time a security has been held, or whether
a sale would result in profit or loss. Therefore, the rate of portfolio
turnover is not a limiting factor when appropriate.
See Appendix A for discussion of foreign securities, emerging market
securities, Brady Bonds, ADRs, zero coupon bonds, deferred interest bonds and
PIK bonds, restricted securities, loans and loan participations, and other
instruments set forth above, and the risks involved in these securities. The
investment techniques set forth above and their attendant risks are discussed
in Appendix B. Please refer to the SAI Appendix for further discussion of
these instruments and techniques.
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PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE VALUE SERIES.
(16) WORLD ASSET ALLOCATION SERIES
The World Asset Allocation Series' investment objective is to seek total
return over the long term through investments in equity and fixed income
securities; the series will also seek to have low volatility of share price
(i.e., net asset value per share) and reduced risk (compared to an aggressive
equity/fixed income portfolio).
The World Asset Allocation Series will seek to achieve its objective by
allocating portfolio assets among various asset classes of equity and fixed
income securities where the opportunities for total return are expected to be
most attractive. On average, over time, the World Asset Allocation Series
intends to invest approximately 65% of its total assets in equity securities;
however, at any particular point in time, equity securities may constitute
more or less than 65% of the series' total assets. Under normal circumstances,
the series intends to invest at least 30% of its total assets in equity
securities and allocate its assets among at least three asset classes, except
when the Adviser believes that investing for temporary defensive purposes is
appropriate as noted below.
Equity securities include: common and preferred stock; securities such as
bonds, warrants or rights that are convertible into stock; and depository
receipts for those securities. Fixed income securities include: bonds,
debentures and other debt instruments issued by a variety of issuers,
including corporations and other business entities, the U.S. and foreign
governments and their agencies, authorities, instrumentalities and political
subdivisions and supranational entities; mortgage-backed and other asset
backed securities; receipts evidencing separately traded interest and
principal component parts of obligations; and repurchase agreements involving
any of the foregoing types of securities.
The Adviser will allocate assets among some or all of the following five
asset classes of securities.
(i) U.S. Equity Securities--equity securities of U.S. issuers including
securities of emerging growth companies;
(ii) Foreign Equity Securities--equity securities of foreign issuers
including securities of issuers in emerging markets (as described below);
(iii) U.S. Investment Grade Fixed Income Securities--fixed income
securities of U.S. issuers (including U.S. Government Securities, short-
term instruments and municipal obligations) rated Baa or better by Moody's
or BBB or better by S&P or Fitch or comparable unrated securities;
(iv) U.S. High Yield Fixed Income Securities--high yield fixed income
securities of U.S. issuers, including municipal obligations, rated Ba or
below by Moody's or BB or below by S&P or Fitch or comparable unrated
securities (commonly known as "junk bonds"); and
(v) Foreign Fixed Income Securities--fixed income securities of foreign
issuers including securities of issuers in emerging markets (as described
below). Foreign fixed income securities may include securities in any of
the rating categories (and comparable unrated securities) including
securities in lower rating categories.
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As of the date of this Prospectus, the target allocations of assets among
the asset classes are in the following approximate proportions of the World
Asset Allocation Series' portfolio: U.S. Equity Securities--15%; Foreign
Equity Securities--45%; U.S. Investment Grade Fixed Income Securities--10%;
U.S. High Yield Fixed Income Securities--10%; and Foreign Fixed Income
Securities--20%. Such allocation will change from time to time, as described
below. (See Appendix E for a chart indicating the composition of the World
Asset Allocation Series' portfolio for the fiscal year ended December 31,
1996, with the debt securities separated into rating categories and comparable
unrated securities.)
The Adviser will allocate the assets of the World Asset Allocation Series
among some or all of the various asset classes described above where the
opportunities for total return are expected to be the most attractive,
consistent with the objective of seeking low share price volatility and
reduced risk. The judgment of the Adviser concerning the allocation of the
World Asset Allocation Series' assets will be based on the Adviser's
experience in qualitative and fundamental analysis and disciplined
quantitative techniques. The Adviser will make changes in the allocation of
assets of the World Asset Allocation Series when its research and analysis
indicate the likely occurrence of changes in financial markets or economic
conditions affecting the various asset classes that may change the expected
total return from the various asset classes. To the extent World Asset
Allocation Series assets are allocated among most or all of the asset classes,
this will reduce the impact of the poorer performing classes at any point in
time. By following this asset allocation strategy, the World Asset Allocation
Series' performance in part will be dependent on the Adviser's skill in
allocating assets.
Although the percentage of the World Asset Allocation Series' assets
invested in foreign securities will vary, the Series will be invested in at
least three different countries, one of which may be the United States, except
when the Adviser believes that investing for defensive purposes is appropriate
as noted below.
The risks of each asset class vary. For example, the values of equity
securities change in response to general market and economic conditions and
the activities and changing circumstances of individual issuers, and the
values of fixed income securities change in response to changes in economic
conditions, interest rates and the creditworthiness of individual issuers. A
significant portion of the World Asset Allocation Series' assets may be
allocated to equity and fixed income investments in foreign securities which
involve the risks set forth under "Additional Risk Factors" below. The World
Asset Allocation Series may also invest in high yield fixed income securities
(see "Additional Risk Factors regarding Lower Rated Securities" under "High
Yield Series" above).
Emerging Growth Companies: The World Asset Allocation Series may invest in
securities of U.S. and foreign emerging growth companies. For a discussion of
emerging growth companies see the description of these companies and
"Additional Risk Factors Relating to Emerging Growth Companies" under
"Emerging Growth Series."
Emerging Market Securities: The World Asset Allocation Series may invest in
securities of issuers whose principal activities are in emerging market
countries, including investments in Brady Bonds. See "Appendix A--Emerging
Market Securities" and "Brady Bonds" for a discussion of emerging market
securities and Brady Bonds and the risks involved in these investments. The
World Asset Allocation Series may also invest in securities of emerging market
governments or any of their
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political subdivisions, agencies, authorities or instrumentalities. See
"Additional Risk Factors--Foreign Securities" below.
Investments in Other Investment Companies: The World Asset Allocation Series
may invest in other investment companies to the extent permitted by the 1940
Act (i) as a means by which the series may invest in securities of certain
countries which do not otherwise permit investment, (ii) as a means to acquire
securities of emerging market companies where the supply of such securities
available for purchase is limited, or (iii) when the Adviser believes such
investments may be more advantageous to the series than a direct market
purchase of securities. Such investment may also involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities, and the total return on such investment will be reduced by the
operating expenses and fees of such other investment companies, including
advisory fees.
Investments for Defensive Purposes: When the Adviser believes that investing
for defensive purposes is appropriate, such as during periods of unusual or
unfavorable market or economic conditions, or in order to meet anticipated
redemption requests, up to 100% of the World Asset Allocation Series' assets
may be temporarily invested in cash (including foreign currency) or cash
equivalents including, but not limited to, obligations of banks (including
certificates of deposit, bankers' acceptances and repurchase agreements) with
assets of $1 billion or more, commercial paper, short-term notes, obligations
issued or guaranteed by the U.S. or any foreign government or any of their
agencies, authorities or instrumentalities and repurchase agreements.
Other Investments and Techniques: In order to achieve its investment
objective, the World Asset Allocation Series also may purchase the securities
and employ the investment techniques described below: (1) purchasing zero
coupon bonds, deferred interest bonds, PIK bonds, loan participations and
other direct indebtedness, indexed securities, municipal obligations, mortgage
securities, collateralized mortgage obligations and multiclass pass-through
securities, stripped mortgage-backed securities, and restricted securities,
subject to the limitation on investing more than 15% of its net assets in
securities that are not readily marketable; (2) lending portfolio securities;
(3) entering into mortgage "dollar roll" transactions; (4) writing (selling)
covered put and call options on securities for the purpose of increasing its
return and/or to protect the value of its portfolio, and purchasing put and
call options on securities in anticipation of declines in the value of
portfolio securities or increases in the value of securities to be acquired
(the Series may also write combinations of put and call options on the same
security, known as "straddles," which transactions can generate additional
income, but also present increased risks); (5) entering into "yield curve"
options for hedging and nonhedging purposes; (6) writing covered call and put
options and purchasing call and put options on domestic and foreign stock
indexes for the purpose of increasing its current income and/or for hedging
purposes and to attempt to reduce the risk of missing a market or industry
segment advance; (7) entering into contracts for the purchase or sale for
future delivery of fixed income securities or foreign currencies or contracts
based on indexes of securities or currencies (including any index of U.S. or
foreign securities) as such instruments become available for trading ("futures
contracts") for hedging purposes (to protect the Series' current or intended
investments from the effects of changes in interest or exchange rates or
declines in a securities market) as well as for nonhedging purposes, to the
extent permitted by law (which involves greater risks and could result in
losses which are not offset by gains and other portfolio assets); (8)
purchasing and writing options on futures contracts for the purpose of
protecting against declines in the value of portfolio securities or against
increases in the cost of securities to be acquired
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and also for non hedging purposes, to the extent permitted by applicable law;
(9) entering into forward foreign currency exchange contracts ("forward
contracts") for hedging purposes as well as nonhedging purposes; (10)
purchasing and selling options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of securities to be
acquired; and (11) entering into interest rate swaps, currency swaps, and
other types of available swap agreements for the purpose of shifting the
series' investment exposure from one type of investment to another.
Portfolio Trading: Although the World Asset Allocation Series does not
intend to seek short-term profits, securities in its portfolio will be sold
whenever the Adviser believes it is appropriate to do so without regard to the
length of time the particular asset may have been held or whether the sale
would result in a gain or loss. Therefore, the rate of portfolio turnover is
not a limiting factor when a change in the portfolio is otherwise appropriate.
See Appendix A for a discussion of foreign securities, emerging market
securities, Brady Bonds, zero coupon bonds, PIK bonds, loan participations,
mortgage pass through securities, collateralized mortgage obligations and
multiclass pass through securities and other instruments set forth above, and
the risks involved in these investments. The investment techniques set forth
above and their attendant risks are discussed in Appendix B. Please refer to
the SAI Appendix for further discussion for these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD ASSET ALLOCATION SERIES.
ADDITIONAL RISK FACTORS
EMERGING GROWTH COMPANIES: Investing in emerging growth companies involves
greater risk than is customarily associated with investing in more established
companies. See "Additional Risk Factors Relating to Emerging Growth Companies"
under "Emerging Growth Series" above.)
FOREIGN SECURITIES: Transactions involving foreign equity or debt securities
or foreign currencies, and transactions entered into in foreign countries,
involve considerations and risks not typically associated with investing in
U.S. markets (see "Appendix A--Foreign Securities"). In addition, investments
in emerging markets involve special risks (see "Appendix A--Emerging Market
Securities").
FOREIGN CURRENCIES: To the extent the series invests in securities not
denominated in U.S. dollars, the value of the series' foreign investments, and
the value of dividends and interest earned by the series on such investments,
may be significantly affected by changes in currency exchange rates. Some
foreign currency values may be volatile, and there is the possibility of
governmental controls on currency exchange or governmental intervention in
currency markets which could adversely affect the series. Although the Adviser
(or a Sub-Adviser, if applicable) may attempt to manage currency exchange rate
risks, there is no assurance that they will do so at an appropriate time or
that they will be able to predict exchange rates accurately. For example, if
the Adviser hedges the series' exposure to a foreign currency, and that
currency's value rises, the series will lose the opportunity to participate in
the currency's appreciation. The series may hold foreign currency received in
connection with
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investments in foreign securities, forward contracts and options on foreign
currencies when, in the judgment of the Adviser, it would be beneficial to
convert such currency into U.S. dollars at a later date, based on anticipated
changes in the relevant exchange rates. While the holding of foreign
currencies will permit the series to take advantage of favorable movements in
the applicable exchange rate, it also exposes the series to risk of loss if
such rates move in a direction adverse to the series' position. Such losses
could also adversely affect the series' hedging strategies.
(17) WORLD GOVERNMENTS SERIES
The World Governments Series will seek moderate current income and
preservation and growth of capital by investing in debt obligations that are
issued or guaranteed as to principal and interest by (1) the U.S. government,
its agencies, authorities or instrumentalities ("U.S. Government Securities")
or (2) the governments of foreign countries ("Foreign Government Securities")
(to the extent the Adviser believes that the higher yields available from such
Foreign Government Securities are sufficient to justify the risks of investing
in such securities). The World Governments Series may also hold its assets in
cash or short-term obligations. In pursuing its objectives, the World
Governments Series will consider the preservation and growth of capital by
balancing the yields of various fixed income securities against their
attendant risks.
The World Governments Series will seek to provide purchasers with an
opportunity to enhance the value and increase the protection of their
investment against inflation and otherwise by taking advantage of investment
opportunities in the United States as well as in other countries where
opportunities may be more rewarding. It is believed that diversification of
assets on an international basis decreases the degree to which events in any
one country, including the United States, can affect the entire portfolio.
Although the percentage of the series' assets invested in securities issued
abroad and denominated in foreign currencies ("non-dollar securities") will
vary depending on the state of the economies of the principal countries of the
world, their financial markets and the relationships of their currencies to
the U.S. dollar, under normal conditions the series' portfolio will be
internationally diversified. However, for defensive reasons or during times of
international, political, or economic uncertainty or turmoil, most or all of
the series' investments may be in the United States.
The World Governments Series will purchase non-dollar securities denominated
in the currency of countries where the interest rate environment as well as
the general economic climate provide an opportunity for declining interest
rates and currency appreciation. If interest rates decline, such non-dollar
securities will appreciate in value. If the currency also appreciates against
the dollar, the total investment in such non-dollar securities would be
enhanced further. Conversely, a rise in interest rates or decline in currency
exchange rates would adversely affect the series' return. Investments in non-
dollar securities are evaluated primarily on the strength of a particular
currency against the dollar and on the interest rate climate of that country.
Currency is judged on the basis of fundamental economic criteria (e.g.,
relative inflation levels and trends, growth rate forecasts, balance of
payments status, and economic policies) as well as technical and political
data. In addition to the foregoing, interest rates are evaluated on the basis
of differentials or anomalies that may exist between different countries.
The phrase "preservation of capital" is generally understood to imply that
the portfolio is invested in very low risk securities and that the major risk
is loss of purchasing power through the effects of inflation or major changes
in interest rates. However, while the World Governments Series will invest
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in securities which are believed by the Adviser to have minimal credit risk,
an error of judgment in selecting a currency or an interest rate environment
could result in loss of capital.
The World Governments Series may invest in Foreign Government Securities of
issuers considered stable by the Adviser. The Adviser does not believe that
the credit risk inherent in the obligations of such stable foreign governments
is significantly greater than that of U.S. Government Securities. The
percentage of the World Governments Series' assets invested in Foreign
Government Securities will vary depending on the relative yields of such
securities, the economies of the countries in which the investments are made
and such countries' financial markets, the interest rate climate of such
countries and the relationship of such countries' currencies to the U.S.
dollar. To the extent that the World Governments Series invests in Foreign
Government Securities, its portfolio, under normal conditions, will include
securities of a number of foreign countries. As a "non-diversified" series,
the World Governments Series will be able to invest more than 5% of its assets
in obligations of one or more foreign governments, to the extent consistent
with federal income tax diversification requirements; the World Governments
Series may also hold foreign currency for hedging purposes.
When the Adviser believes that investing for temporary defensive purposes is
appropriate, such as during periods of unusual market conditions, or when
relative yields are deemed attractive, part or all of the World Governments
Series' assets may be invested in cash (including foreign currency) or cash
equivalent short-term obligations including, but not limited to, certificates
of deposit, commercial paper, notes, U.S. Government Securities, Foreign
Government Securities and repurchase agreements.
Some U.S. Government Securities do not generally involve the credit risks
associated with other types of interest bearing securities, although, as a
result, the yields available from such securities are generally lower than the
yields available from other interest bearing securities. Like other interest
bearing securities, however, the values of U.S. Government Securities change
as interest rates fluctuate. When interest rates decline, the value of a
portfolio invested at higher yields can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested at lower yields can be
expected to decline. If the series' expectations of changes in interest rates
or its evaluation of the normal yield relationship between two securities
proves to be incorrect, the series' income and the value of its shares
decreases.
In order to achieve its investment objectives, the World Governments Series
may employ the following investment techniques: (1) writing covered put and
call options and purchasing put and call options on U.S. and Foreign
Government Securities that are traded on United States and foreign securities
exchanges and over the counter in an effort to increase current income and to
reduce fluctuations in the value of its shares; (2) entering into contracts
for the purchase or sale for future delivery of fixed income securities or
foreign currencies, or contracts based on financial indexes, including any
index of U.S. or Foreign Government Securities ("futures contracts") and
purchasing and writing options to buy or sell futures contracts ("options on
futures contracts") but only as a hedge against anticipated further changes in
interest or exchange rates; (3) purchasing and writing put and call options on
foreign currencies traded on U.S. and foreign exchanges or over the counter
for the purpose of protecting against declines in the dollar value of foreign
portfolio securities and against increase in the dollar cost of foreign
securities to be acquired; (4) entering into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the series
from adverse
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changes in the relationship between the U.S. dollar and foreign currencies;
(5) lending portfolio securities to the extent consistent with present
regulatory policies for the purpose of increasing the World Governments
Series' income; (6) purchasing securities on a "when-issued" or on a "forward
delivery" basis; (7) entering into repurchase agreements for U.S. Government
Securities; (8) entering into mortgage "dollar roll" transactions; (9)
purchasing restricted securities, subject to the limitation on investing more
than 15% of its net assets in securities that are not readily marketable; and,
subject to approval by the Board of Trustees, (10) entering into interest rate
swaps, currency swaps and other types of swap agreements; and (11) purchasing
indexed securities.
The World Governments Series will engage in portfolio trading if it believes
that a transaction, net of costs, will help in achieving its investment
objective. The World Governments Series cannot accurately predict its
portfolio turnover rate, but it is anticipated that the annual turnover rate
generally will not exceed 400% (excluding turnover of securities having a
maturity of one year or less). A high turnover rate (in excess of 100%)
involves greater expenses, including higher brokerage and transaction costs,
to the World Governments Series.
See Appendix A for a discussion of foreign securities, indexed securities,
U.S. Government Securities, and other instruments set forth above, and the
risks involved in such investments. The investment techniques set forth above
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for further discussion of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD GOVERNMENTS SERIES.
(18) WORLD GROWTH SERIES
The World Growth Series will seek capital appreciation by investing in
securities of companies worldwide growing at rates expected to be well above
the growth rate of the overall U.S. economy. The World Growth Series will seek
to achieve this objective by investing primarily in securities in three market
sectors: U.S. emerging growth companies; foreign growth companies; and
emerging market companies. (The U.S. emerging growth and foreign growth
sectors may include securities of more established companies which represent
opportunities for long-term growth.) Although the percentage of the World
Growth Series' assets invested in securities issued abroad and denominated or
quoted in foreign currencies ("non-dollar securities") will vary depending on
the state of the economies of the various countries of the world, their
financial markets and the relationship of their currencies to the U.S. dollar,
under normal conditions, the series will be invested in at least three
different countries, one of which will be the United States. For defensive
reasons or during times of international political or economic uncertainty or
turmoil, most or all of the series' investments may be in the United States.
While the World Growth Series intends to invest primarily in equity
securities, the series may also invest in fixed income securities as described
below. Equity securities include: common and preferred stocks; securities such
as bonds, warrants or rights that are convertible into stock; and depository
receipts for those securities. The selection of securities, except for
defensive purposes, is made solely on the basis of potential for capital
appreciation. Dividend and interest income from portfolio securities, if any,
is incidental to the series' investment objective of capital appreciation.
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U.S. Emerging Growth Companies: The World Growth Series may invest in
securities of U.S. emerging growth companies. For a discussion of emerging
growth companies see the description of these companies and "Additional Risk
Factors Relating to Emerging Growth Companies" under Emerging Growth Series
above.
Foreign Growth Companies: The World Growth Series may invest in securities
and in ADRs of foreign growth companies and more established foreign companies
whose rates of earnings growth are expected to accelerate because of special
factors, such as rejuvenated management, new products, changes in consumer
demand, or basic changes in the economic environment or which otherwise
represent opportunities for long-term growth. It is anticipated that these
companies will primarily be in nations with more developed securities markets
such as Australia, Canada, Japan, New Zealand and Western European countries.
(See "Additional Risk Factors--Foreign Securities" below.)
Emerging Market Companies: The World Growth Series may invest in securities
of issuers whose principal activities are in emerging market countries. See
"Appendix A--Emerging Market Securities" for a description of emerging market
securities, and the risks involved in these investments.
Fixed Income and Debt Securities: Debt securities of both domestic and
foreign issuers in which the World Growth Series may invest include all types
of long- or short-term debt obligations, such as bonds, debentures, notes,
equipment lease certificates, equipment trust certificates, conditional sales
contracts and commercial paper. The World Growth Series may also invest in
zero coupon bonds, deferred interest bonds, PIK bonds, and corporate asset-
backed securities. Fixed income securities in which the World Growth Series
may invest include securities in the lower rating categories of recognized
rating agencies (and comparable unrated securities). The series will not
invest more than 35% of its net assets in fixed income securities rated Ba or
lower by Moody's or BB or lower by S&P or Fitch (or comparable unrated
securities). (See Appendix C for a description of these ratings. See also
"Additional Risk Factors Regarding Lower-Rated Securities" under "High Yield
Series" above.) To the extent the World Growth Series invests in fixed income
securities, the net asset value of the series may change as the general levels
of interest rates fluctuate. When interest rates decline, the value of fixed
income securities can be expected to rise. Conversely, when interest rates
rise, the value of fixed income securities can be expected to decline.
Investments in Other Investment Companies: The World Growth Series may
invest in other investment companies to the extent permitted by the 1940 Act
(i) as a means by which the series may invest in securities of certain
countries which do not otherwise permit investment, (ii) as a means to acquire
securities of emerging market companies where the supply of such securities
available for purchase is limited, or (iii) when the Adviser or a Sub-Adviser
believes such investments may be more advantageous to the series than a direct
market purchase of securities. Such investment may also involve the payment of
substantial premiums above the value of such investment companies' portfolio
securities, and the total return on such investment will be reduced by the
operating expenses and fees of such other investment companies, including
advisory fees.
Investments for Defensive Purposes: When the Adviser or a Sub-Adviser
believes that investing for defensive purposes is appropriate, such as during
periods of unusual market conditions, or when relative yields are deemed
attractive, part or all of the World Growth Series' assets may be temporarily
invested in cash (including foreign currency) or cash equivalent short-term
obligations including, but
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not limited to, certificates of deposit, commercial paper, short-term notes,
U.S. Government Securities and repurchase agreements.
Other Investments and Techniques: In order to achieve its investment
objective, the World Growth Series also may purchase the securities and employ
the investment techniques described below: (1) entering into repurchase
agreements; (2) purchasing restricted securities, subject to the limitation on
investing more than 15% of its net assets in securities that are not readily
marketable; (3) writing (selling) covered put and call options on securities
that are traded on U.S. and foreign securities exchanges and over the counter
for the purpose of increasing its current income and/or to protect the value
of the series' portfolio and purchasing put and call options on securities in
anticipation of declines in the value of portfolio securities or increases in
the value of securities to be acquired (the series may also write combinations
of put and call options on the same security, known as "straddles," which
transactions can generate additional income, but also present increased risk);
(4) writing covered call and put options and purchasing call and put options
on domestic and foreign stock indexes for the purpose of increasing current
income and/or for hedging purposes and to attempt to reduce the risk of
missing a market or industry segment advance; (5) entering into futures
contracts and options on futures contracts to protect the series' current or
intended stock investments from broad fluctuations in stock prices and, to the
extent permitted by applicable law, for non-hedging purposes, which involves
greater risks and could result in losses which are not offset by gains on
other portfolio assets; (6) entering into forward foreign currency exchange
contracts ("forward contracts") for hedging purposes as well as for the non-
hedging purpose of increasing the World Growth Series' current income; (7)
entering into options on foreign currencies for the purpose of protecting
against declines in the dollar value of foreign portfolio securities and
against increases in the cost of securities to be acquired; (8) lending
portfolio securities; and (9) purchasing securities on a "when-issued" or a
"forward delivery" basis.
Portfolio Trading: The World Growth Series' portfolio will be managed
actively and the asset allocation modified as the Adviser or a Sub-Adviser
deems necessary. While it is not generally the series' policy to invest or
trade for short-term profits, the series may dispose of a portfolio security
whenever the Adviser or a Sub-Adviser is of the opinion that such security no
longer has an appropriate appreciation potential or when another security
appears to offer relatively greater appreciation potential. Portfolio changes
are made without regard to the length of time a security has been held, or
whether a sale would result in a profit or loss. Therefore, the rate of
portfolio turnover is not a limiting factor when a change in the portfolio is
otherwise appropriate.
See Appendix A for a discussion of foreign securities, emerging market
securities, PIK bonds, corporate asset-backed securities, restricted
securities, repurchase agreements, and other instruments set forth above, and
the risks involved in these investments. The investment techniques set forth
above and their attendant risks are discussed in Appendix B. Please refer to
the SAI Appendix for further discussion of these instruments and techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD GROWTH SERIES.
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ADDITIONAL RISK FACTORS
See the discussion of risks involved in emerging growth companies, foreign
securities, emerging market securities, and foreign currencies in "Additional
Risk Factors" under World Asset Allocation Series above.
(19) WORLD TOTAL RETURN SERIES
The World Total Return Series' investment objective is to seek total return
by investing in securities which will provide above-average current income
(compared to a portfolio invested entirely in equity securities) and
opportunities for long-term growth of capital and income. The Series will
invest primarily in global equity and fixed income securities (i.e., those of
U.S. and non-U.S. issuers).
The World Total Return Series will seek to achieve its investment objective
through a professionally managed, internationally diversified portfolio
consisting of equity and fixed income securities. The World Total Return
Series will attempt to provide investors with an opportunity to enhance the
value and increase the protection of their investment against inflation and
otherwise by taking advantage of investment opportunities in the United States
as well as in other countries where opportunities may be more rewarding. It is
believed that diversification of assets on an international basis decreases
the degree to which events in any one country, including the United States,
can affect the entire portfolio. Although the percentage of the World Total
Return Series' assets invested in securities issued abroad and denominated or
quoted in foreign currencies ("non-dollar securities") will vary depending on
the state of the economies of the various countries of the world, their
financial markets and the relationship of their currencies to the U.S. dollar,
under normal conditions the series will be invested in at least three
different countries, one of which will be the United States. For defensive
reasons or during times of international or political or economic uncertainty
or turmoil, most or all of the series' investments may be in the United
States.
Under normal economic and market conditions, the World Total Return Series
will invest not less than 40% and not more than 75% of its assets in equity
securities. Such securities will include common stocks and equivalents (such
as convertible securities and warrants) and preferred stocks of (i) U.S.
issuers which derive, or have the potential to derive, a meaningful portion
(approximately 25% or more) of their revenues and earnings in foreign markets;
(ii) non-U.S. issuers; and (iii) to a lesser extent, other U.S. issuers. The
Series may invest up to 90% of its total assets in foreign securities (not
including ADRs), which may be traded on foreign exchanges.
In managing the World Total Return Series conservatively, the Adviser
attempts to exercise prudence, discretion and intelligence in the selection of
securities of high or improving investment quality, with due regard for
probable income and probable safety of capital. The words "high investment
quality" reflect the intention of the World Total Return Series to invest in
securities of well-known, established issuers and to avoid the acquisition of
speculative securities or those of doubtful character even if the immediate
prospect is tempting. The Adviser may determine that a security possesses high
or improving investment quality if, for instance, there has been an increase
in the issuer's sales and earnings or if current trends indicate that an
increase in the issuer's sales and earnings is likely, or if the issuer's
balance sheet is strong or has improved. The opportunity for currency
appreciation generally is not a significant factor in the series' selection of
equity securities.
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Under normal economic and market conditions, at least 25% of the World Total
Return Series' assets will be invested in fixed income securities, such as
bonds, debentures, mortgage securities, notes, commercial paper, obligations
issued or guaranteed by a government or any of its political subdivisions,
agencies or instrumentalities, certificates of deposit, as well as debt
obligations which may have a call on common stock by means of attached
warrants. Debt securities in which the series may invest may also include zero
coupon bonds.
The World Total Return Series will purchase non-dollar fixed income
securities denominated in the currency of countries where the interest rate
environment as well as the general economic climate provide an opportunity for
declining interest rates and currency appreciation. If interest rates decline,
such non-dollar fixed income securities will generally appreciate in value. If
the currency also appreciates against the dollar, the total investment in such
non-dollar fixed income securities would be enhanced further.
Conversely, a rise in interest rates or decline in currency exchange rates
would adversely affect the World Total Return Series' return. Investments in
non-dollar fixed income securities are evaluated by the Adviser primarily on
the strength of a particular currency against the dollar and on the interest
rate climate of that country. Currency is judged on the basis of fundamental
economic criteria (e.g., relative inflation levels and trends, growth rate
forecasts, balance of payments status and economic policies) as well as
technical and political data. In addition to the foregoing, interest rates are
evaluated on the basis of differentials or anomalies that may exist between
different countries. The World Total Return Series may hold foreign currency
received in connection with investments in non-dollar fixed income securities
when, in the judgment of the Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date, based on anticipated changes in
the relevant exchange rate.
The World Total Return Series will invest in investment grade U.S. and non-
U.S. fixed income securities. Such securities will be rated BBB or better by
S&P or Fitch or Baa or better by Moody's or, if unrated, will be determined by
the Adviser to be of comparable quality. Securities rated BBB or Baa, while
normally exhibiting adequate protection parameters, have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade fixed income securities. If a
security purchased by the World Total Return Series is subsequently downgraded
to below BBB by S&P or Fitch or Baa by Moody's (or comparable standards for
unrated securities), the security will be sold only if the Adviser believes it
is advantageous to do so (see Appendix C and "Additional Risk Factors
Regarding Lower Rated Securities" under "High Yield Series" above).
Assets invested in fixed income securities of non-U.S. issuers will be
diversified among countries where opportunities for total return are expected
to be most attractive. It is currently expected that fixed income investments
within foreign countries will be primarily in securities issued or guaranteed
by governments, including their political subdivisions, authorities, agencies
and instrumentalities, or supranational authorities (such as the World Bank)
to minimize credit risk. While the World Total Return Series will invest in
fixed income securities which are believed to have minimal credit risk, an
error of judgment in selecting a currency or an interest rate environment
could result in a loss of capital.
48
<PAGE>
Although it may invest anywhere in the world, the World Total Return Series
expects to invest most of its assets in the equity securities of issuers
located in Europe, Japan or the United States and in the debt securities of
issuers located in any of such regions or countries or Australia, New Zealand
or Canada. The series may also invest in emerging market securities and Brady
Bonds. The series may invest more than 25% of its assets in securities of
issuers located in the United States. The Adviser will determine the amount of
the series' assets to be invested in the United States and the amount to be
invested abroad.
When unfavorable economic or market conditions exist, the series may, until
favorable conditions return, invest all or a portion of its assets in cash (or
foreign currency) or cash equivalents (such as certificates of deposit,
bankers acceptances and time deposits), commercial paper, short-term
obligations, repurchase agreements and obligations issued or guaranteed by the
U.S. or any foreign government or any of their agencies, authorities or
instrumentalities.
In order to achieve its investment objective, the World Total Return Series
may also purchase the securities and employ the investment techniques
described below: (1) entering into repurchase agreements; (2) lending
portfolio securities; (3) purchasing securities on a "when issued" or "forward
delivery" basis; (4) purchasing restricted securities, subject to the
limitation on investing more than 15% of its net assets in securities that are
not readily marketable, and ADRs; (5) entering into mortgage "dollar roll"
transactions; (6) writing (selling) covered put and call options on fixed
income securities for the purpose of increasing its return and/or to protect
the value of its portfolio, and purchasing put and call options on securities
in anticipation of declines in the value of portfolio securities or increases
in the value of securities to be acquired (the Series may also write
combinations of put and call options on the same security, known as
"straddles," which transactions can generate additional income, but also
present increased risks); (7) entering into "yield curve" options for hedging
and nonhedging purposes; (8) entering into contracts for the purchase or sale
for future delivery of fixed income securities or foreign currencies or
contracts based on indexes of fixed income securities as such instruments
become available for trading ("futures contracts") for hedging purposes (to
protect the series' current or intended investments from the effects of
changes in interest or exchange rates, or declines in the value of fixed
income portfolio securities or increases in the cost of such securities to be
acquired) as well as for nonhedging purposes, to the extent permitted by
applicable law (which involves greater risks and could result in losses which
are not offset by gains and other portfolio assets); (9) purchasing and
writing options on futures contracts for the purpose of protecting against
declines in the value of portfolio securities or against increases in the cost
of securities to be acquired and also for non hedging purposes, to the extent
permitted by applicable law; (10) entering into forward foreign currency
exchange contracts ("forward contracts") for hedging purposes as well as for
the nonhedging purpose of increasing current income; (11) purchasing and
selling options on foreign currencies for the purpose of protecting against
declines in the dollar value of fixed income portfolio securities and against
increases in the dollar cost of fixed income securities to be acquired; and
(12) entering into interest rate swaps, currency swaps and other types of swap
agreements.
The World Total Return Series portfolio will be managed actively and the
asset allocations modified as the Adviser deems necessary. Although the series
does not intend to seek short-term profits, securities in its portfolio will
be sold whenever the Adviser believes it is appropriate to do so without
regard to the length of time the particular asset may have been held.
49
<PAGE>
See Appendix A for discussion of foreign securities, emerging market
securities, Brady Bonds, ADRs, corporate asset-backed securities, zero coupon
bonds, restricted securities and other instruments set forth above, and the
risks involved in these securities. The investment techniques set forth above
and their attendant risks are discussed in Appendix B. Please refer to the SAI
Appendix for further discussion of these techniques.
PROSPECTIVE PURCHASERS SHOULD REVIEW THIS SECTION CAREFULLY AND CONSIDER THE
INVESTMENT RISKS INVOLVED BEFORE ALLOCATING PURCHASE PAYMENTS UNDER THE
CONTRACTS TO THE WORLD TOTAL RETURN SERIES.
(20) ZERO COUPON SERIES, PORTFOLIO 2000
The Zero Coupon Series, Portfolio 2000 will seek the highest predictable
compounded investment return for a specific period of time, consistent with
the safety of invested capital, by investing primarily in debt obligations of
the United States Treasury that have been issued without interest coupons or
stripped of their unmatured interest coupons, interest coupons that have been
stripped from such debt obligations, and receipts and certificates for such
stripped debt obligations and stripped coupons (collectively, "Zero Coupon
Obligations"). This portfolio is a sub-series of the Zero Coupon Series and
has a liquidation date of November 15, 2000. This series is currently
available only in connection with the purchase of variable life insurance
contracts issued by Sun Life of Canada (U.S.).
The Zero Coupon Series invests only in readily marketable debt securities.
It is the policy of the Zero Coupon Series to invest at least 90% of its
assets in Zero Coupon Obligations. Up to 10% of the assets may be invested and
held in stripped securities issued by corporations with a quality rating of
Baa or better. (See Appendix C.) MFS will evaluate the creditworthiness of
potential investments in corporate securities in order to determine whether
such securities are suitable for purchase by the Zero Coupon Series.
Because it does not make periodic interest payments, a Zero Coupon
Obligation normally trades at a price significantly less than face value,
often referred to as a "deep discount." The size of this discount depends upon
the final maturity of the Zero Coupon Obligation and current market interest
rates. Investment return consists of the difference between the face value of
the Zero Coupon Obligation (which is paid at the time of maturity, or the
payment date in the case of coupons) and the price at which the Zero Coupon
Obligation was acquired. Investment return is normally expressed in terms of a
compounded rate of return, which is calculated as though there were an
automatic reinvestment of current earnings at a rate of return that is "locked
in" at the time of initial investment.
As with any fixed income investment, when interest rates decline, the market
value of an investment made at higher yields can be expected to rise.
Conversely, when interest rates rise, the market value of an investment made
at lower yields can be expected to decline. Because they "automatically
reinvest" current earnings, investments in Zero Coupon Obligations eliminate
the risk of being unable to reinvest current earnings at a rate as high as the
implicit yield on the Zero Coupon Obligations; conversely, they forego the
ability to reinvest at higher rates should market interest rates rise in the
future.
The value of the Zero Coupon Obligations acquired by the Portfolio, and
therefore the value of shares in the Portfolio, may be subject to greater
fluctuations in response to changing market interest
50
<PAGE>
rates than the value of debt obligations that pay interest currently. The
degree of fluctuation with interest rate changes is typically greater when the
period to maturity is longer.
It is the policy of the Zero Coupon Series to invest as great a portion of
its assets as is practicable in Zero Coupon Obligations. Any Zero Coupon
Obligations purchased will mature within one year of the Portfolio liquidation
date. A portion of the Zero Coupon Series may be invested in interest-bearing
debt obligations in order to make effective use of cash reserves pending
investments in the securities described above, pending liquidation and to
permit the payment of current operating expenses of the Zero Coupon Series.
On the liquidation date of the Portfolio, all of the securities held by the
Portfolio will be sold and all outstanding shares of the Portfolio will be
redeemed. As explained in the prospectus for the Contracts, the redemption
proceeds will, except as otherwise directed by Contract owners, be used to
purchase shares of the Money Market Series.
RISK FACTORS
The Zero Coupon Series seeks to realize a higher yield than would be
obtained simply by maintaining the Zero Coupon Series' initial investments.
The Zero Coupon Series is actively managed by MFS to take advantage of trading
opportunities that may exist from time to time due to price and yield
distortions resulting from changes in the supply and demand characteristics or
perceived differences in quality or liquidity characteristics of the
securities available for purchase by the Zero Coupon Series. There is a
corresponding risk that, to the extent that this strategy is unsuccessful, the
initial yield objective will not be met.
As described above, Zero Coupon Obligations, if held to maturity, provide a
predictable yield. However, in light of the fluctuation in the market value of
the Zero Coupon Obligations that occurs with changes in market interest rates,
Contract owners who desire to attain the growth rate anticipated at the time
of investment must plan to leave their Account Values invested in Portfolio
shares until the Portfolio matures. Any Contract owner who transfers his or
her Account Values in the Portfolio prior to the Portfolio liquidation date is
likely to achieve quite a different investment return than the return that was
anticipated on the date the investment was made, and may even suffer a loss.
DETERMINATION OF NET ASSET VALUE
The Net Asset Value of the shares of the Zero Coupon Series will be
determined in accordance with the procedures set forth at page 55 of this
Prospectus. This determination will be made at the close of regular trading on
the New York Stock Exchange on each day the Exchange is open for trading. MFS
also will calculate the compounded annual yield that would result if all
securities in the Portfolio were held until the liquidation date or until
their maturity dates, if earlier (with the proceeds reinvested until the
liquidation date). This is the anticipated yield for the Portfolio on a given
date. It can also be expressed as the amount to which an investment of $10,000
is predicted to grow by the Portfolio liquidation date. To the extent
permitted by regulations of the Securities and Exchange Commission, MFS will
furnish both of these numbers on request.
The calculation of a Portfolio's anticipated yield assumes that (a) all
dividends and disbursements will be reinvested and (b) the expense ratio and
portfolio composition of a Portfolio remains unchanged for the life of that
Portfolio. Factors such as MFS' investment skills and changes in the economy's
interest rate structure will determine how closely the return actually
realized by a Contract owner
51
<PAGE>
matches the anticipated yield if such owner's Account Value remains invested
in a Portfolio's shares and all dividends and distributions are reinvested
until the Portfolio matures.
PORTFOLIO TRANSACTIONS
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. Consistent with the foregoing primary consideration, the Conduct
Rules of the National Association of Securities Dealers, Inc. and such other
policies as the Trustees may determine, MFS may consider the sale of
Contracts, and thus the sale of Series Fund shares through the allocation of
purchase payments under the Contracts, together with the sale of shares of
funds in the MFS Family of Funds, as a factor in the selection of broker-
dealers to execute the Series Fund's portfolio transactions. The Adviser and
the Sub-Advisers also have the ability to direct portfolio security
transactions to broker-dealers in consideration of the payment of certain
Series Fund expenses. As discussed under "Condensed Financial Information"
above, certain series have had portfolio turnover rates that exceed 100%. A
relatively high level of portfolio activity (i.e., in excess of 100%) involves
greater expenses, including higher transaction and brokerage costs, to the
Series. For a further discussion of portfolio trading, see the SAI.
INVESTMENT RESTRICTIONS
The SAI includes a listing of specific investment restrictions and a
discussion of investment policies applicable to the series. The specific
investment restrictions listed in the SAI may not be changed without
shareholder approval, unless otherwise indicated. If a percentage restriction
or a rating restriction on investments or utilization of assets is adhered to
at the time an investment is made or assets are so utilized, a later change in
percentage resulting from changes in the value of the Series Fund's portfolio
securities or a change in the rating of a portfolio security will not be
considered a violation of policy.
NON-DIVERSIFIED STATUS
The High Yield Series, Managed Sectors Series, Utilities Series, World Asset
Allocation Series, World Governments Series, World Growth Series and World
Total Return Series are "non-diversified" as that term is defined in the 1940
Act, so that the proportion of their assets that may be invested in the
securities of any one issuer is limited only by the series' own investment
restrictions and the diversification requirements of the Internal Revenue Code
of 1986, as amended. Since these series may invest a relatively high
percentage of their assets in a limited number of issuers, they will be more
susceptible to any single economic, political or regulatory occurrence and to
the financial conditions of the issuers in which they invest.
4. MANAGEMENT OF THE SERIES FUND
The Series Fund's Board of Trustees provides broad supervision over the
affairs of the Series Fund. MFS is responsible for the management of each
series' assets (including supervision of the Sub-Advisers), and the officers
of the Series Fund are responsible for the Series Fund's operations.
52
<PAGE>
INVESTMENT ADVISER--MFS, a Delaware corporation, 500 Boylston Street,
Boston, Massachusetts 02116, manages the assets of the Money Market Series,
the Government Securities Series, the High Yield Series and the Capital
Appreciation Series pursuant to an Investment Advisory Agreement dated May 24,
1985 and manages the assets of the Conservative Growth Series and the Zero
Coupon Series pursuant to an Investment Advisory Agreement dated July 23,
1986. MFS manages the assets of the World Governments Series, Total Return
Series and Managed Sectors Series pursuant to an Investment Advisory Agreement
dated January 26, 1988; manages the assets of the World Growth Series and
Utilities Series pursuant to Investment Advisory Agreements dated November 1,
1993; manages the assets of the Research Series, World Asset Allocation Series
and World Total Return Series pursuant to Investment Advisory Agreements dated
September 16, 1994; manages the assets of the Emerging Growth Series pursuant
to an Investment Advisory Agreement dated May 1, 1995; manages the assets of
each of the MFS/Foreign & Colonial Series pursuant to separate Investment
Advisory Agreements each dated September 1, 1995; and manages the assets of
the Value Series pursuant to an Investment Advisory Agreement dated May 1,
1996. MFS manages the assets of the Research Growth and Income Series pursuant
to an Investment Advisory Agreement to be dated on or about May 12, 1997.
Under the Advisory Agreements, the Adviser provides each series of the
Series Fund with overall investment advisory services. The portfolio
manager(s) of each series and his/her position with MFS are shown below.
<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGERS
------ ------------------
<S> <C>
Money Market and Zero Geoffrey L. Kurinsky, a Senior Vice President MFS, has
Coupon been employed by the Adviser as a portfolio manager since
1987.
Government Securities D. Richard Smith, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1993. Prior to 1993, Mr. Smith was a Vice President at
Salomon Brothers, Inc.
High Yield Bernard Scozzafava, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1989.
Capital Appreciation Paul M. McMahon, a Senior Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1981.
Conservative Growth John D. Laupheimer, Jr., a Senior Vice President of MFS
since 1981. Kevin R. Parke, a Senior Vice President of
MFS, has been employed by the Adviser as a portfolio
manager since 1985. Mitchell D. Dynan, a Vice President
of MFS, has been employed by the Adviser as a portfolio
manager since 1986.
World Governments Stephen C. Bryant, a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager since
1987.
Total Return David M. Calabro, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1992. Prior to 1992, Mr. Calabro was an analyst and
sector portfolio manager with Fidelity Investments.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
SERIES PORTFOLIO MANAGERS
------ ------------------
<S> <C>
Geoffrey L. Kurinsky, a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager since
1987.
Managed Sectors Kenneth J. Enright, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1986.
Emerging Growth John W. Ballen, a Senior Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1984. Toni Y. Shimura, a Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1987.
Utilities Maura A. Shaughnessy, a Vice President of MFS has been
employed by the Adviser as a portfolio manager since
1991.
World Asset Allocation James T. Swanson, a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager since
1985. David R. Mannheim, a Senior Vice President of MFS,
has been employed by the Adviser as a portfolio manager
since 1988. Joan S. Batchelder, a Senior Vice President
of MFS, has been employed by the Adviser as a portfolio
manager since 1978. Geoffrey L. Kurinsky, a Senior Vice
President of MFS, has been employed by the Adviser as a
portfolio manager since 1987. John F. Brennan, Jr., a
Senior Vice President of MFS, has been employed by the
Adviser as a portfolio manager since 1985. Leslie J.
Nanberg, a Senior Vice President of MFS, has been
employed by the Adviser as a portfolio manager since
1980.
World Total Return Frederick J. Simmons, a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager since
1971.
</TABLE>
<TABLE>
<S> <C>
Value John F. Brennan, Jr., a Senior Vice President of MFS, has
been employed by the Adviser as a portfolio manager since
1985.
Research and Research These Series are managed by a committee comprised of
Growth and Income various equity research analysts.
MFS/Foreign & Colonial See "Sub-Advisers to the MFS/Foreign & Colonial Series"
International Growth below.
MFS/Foreign & Colonial See "Sub-Advisers to the MFS/Foreign & Colonial Series"
International Growth below.
and Income
MFS/Foreign & Colonial See "Sub-Advisers to the MFS/Foreign & Colonial Series"
Emerging Markets Equity below.
World Growth See description immediately below.
</TABLE>
54
<PAGE>
The World Growth Series' assets are allocated by the Adviser among: domestic
(i.e., U.S.) growth companies; foreign developed markets (e.g., Western
European countries) growth companies; and foreign emerging markets (e.g.,
South American and Pacific Rim countries) growth companies.
The World Growth Series' assets allocated to domestic growth companies are
managed by John W. Ballen, Senior Vice President, Toni Y. Shimura, Vice
President, and David R. Mannheim, Senior Vice President of the Adviser, each
of whom has been employed by the Adviser as a portfolio manager since 1984,
1987 and 1988, respectively.
The World Growth Series' assets allocated to foreign developed markets
growth companies are managed by a committee of investment research analysts.
This committee includes investment analysts employed not only by the Adviser
but also by MFS International (U.K.) Limited, a wholly owned subsidiary of
MFS, and investment analysts employed by FCM and FCEM, with which MFS has
entered into a strategic alliance, as described below. This portion of the
World Growth Series' assets are further allocated among countries and
industries by the analysts acting together as a group. Individual analysts are
then responsible for selecting what they view as the securities best suited to
meet the World Growth Series' investment objective within their assigned
geographic and industry responsibility.
The World Growth Series' assets allocated to foreign emerging markets growth
securities are managed by Dr. Arnab Kumar Banerji, Chief Investment Officer of
FCEM. Dr. Banerji has been employed by FCEM as a portfolio manager since 1993.
Prior to 1993, Dr. Barerji served as Joint Head of Emerging Markets for
Citibank Global Asset Management since 1989.
55
<PAGE>
Subject to such policies as the Trustees may determine, the Adviser makes
investment decisions for each series of the Series Fund. For these services,
the Adviser receives a fee computed and paid monthly at an annual rate equal
to:
<TABLE>
<CAPTION>
MANAGEMENT FEE AS A % OF
SERIES AVERAGE DAILY NET ASSETS ("ADNA")
- ------ ---------------------------------
<S> <C>
Money Market.......................... 0.50%
Government Securities................. 0.55%
High Yield............................ 0.75%
Capital Appreciation.................. 0.75% of the first $1 billion of ADNA
0.675% of ADNA in excess of $1 billion
Conservative Growth................... 0.55%
World Governments..................... 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
Total Return.......................... 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
but less than $1 billion
0.60% of ADNA in excess of $1 billion
Managed Sectors....................... 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
Zero Coupon........................... 0.25%
World Growth.......................... 0.90%
Research.............................. 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
Utilities............................. 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
World Asset Allocation................ 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
World Total Return.................... 0.75% of the first $300 million of ADNA
Emerging Growth....................... 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
MFS/Foreign & Colonial International
Growth............................... 0.975% of the first $500 million of ADNA
0.925% of ADNA in excess of $500 million
MFS/Foreign & Colonial International
Growth and Income.................... 0.975% of the first $500 million of ADNA
0.925% of ADNA in excess of $500 million
MFS/Foreign & Colonial Emerging
Markets Equity*...................... 1.25%
Value................................. 0.75% of the first $300 million of ADNA
0.675% of ADNA in excess of $300 million
Research Growth and Income............ 0.75%
</TABLE>
- --------
* MFS has voluntarily agreed to reduce the series' management fee to 0% of
average daily net assets. This voluntary fee reduction may be rescinded or
changed at any time without notice to shareholders as to fees accruing
after the date of such rescission.
56
<PAGE>
For the Series Fund's fiscal year ended December 31, 1996 the Series Fund's
Adviser received fees under the investment advisory agreements as follows:
<TABLE>
<CAPTION>
MANAGEMENT
MANAGEMENT FEES WAIVED
FEES PAID FOR BY ADVISER FOR
FISCAL YEAR % FISCAL YEAR
SERIES ENDED 1996 ADNA ENDED 1996 % ADNA
- ------ ------------- ----- -------------- ------
<S> <C> <C> <C> <C>
Money Market......................... $1,658,426 0.50% N/A N/A
Government Securities................ 2,121,808 0.55% N/A N/A
High Yield........................... 1,252,812 0.75% N/A N/A
Capital Appreciation................. 7,006,502 0.75% N/A N/A
Conservative Growth.................. 2,320,310 0.55% N/A N/A
World Governments.................... 1,091,953 0.75% N/A N/A
Total Return......................... 8,228,127 0.68% N/A N/A
Managed Sectors...................... 1,729,822 0.75% N/A N/A
Zero Coupon.......................... 11,094 0.25% N/A N/A
World Growth......................... 1,633,811 0.90% N/A N/A
Research............................. 1,401,185 0.75% N/A N/A
Utilities............................ 418,966 0.75% N/A N/A
World Asset Allocation............... 390,024 0.75% N/A N/A
World Total Return................... 194,413 0.75% N/A N/A
Emerging Growth...................... 956,932 0.61% $225,349 0.14%
MFS/Foreign & Colonial International
Growth and Income................... 185,572 0.78% 44,482 0.19%
MFS/Foreign & Colonial International
Growth(1)........................... N/A N/A 14,479 0.975%
MFS/Foreign & Colonial Emerging Mar-
kets Equity(2)...................... N/A N/A 11,151 1.25%
Value(1)............................. N/A N/A 27,382 0.75%
</TABLE>
- --------
(1) From the commencement of investment operations on June 3, 1996.
(2) From the commencement of investment operations on June 5, 1996.
MFS also serves as investment adviser to each of the funds in the MFS Family
of Funds and to certain other registered investment companies established by
MFS and/or Sun Life of Canada (U.S.). MFS Institutional Advisors, Inc., a
wholly owned subsidiary of MFS, provides investment advice to substantial
private clients. MFS is America's oldest mutual fund organization. MFS and its
predecessor organizations have a history of money management dating from 1924
and the founding of the first mutual fund in the United States, Massachusetts
Investors Trust. Net assets under the management of the MFS organization were
approximately $51.5 billion on behalf of 2.4 million investor accounts as of
March 31, 1997, consisting of approximately $18.9 billion of assets invested
in fixed income funds or portfolios, approximately $3.9 billion in foreign
securities and approximately $27.9 billion in equity securities. MFS is a
subsidiary of Sun Life of Canada (U.S.), which, in turn, is a wholly owned
subsidiary of Sun Life Assurance Company of Canada ("Sun Life"). The Directors
of MFS are A. Keith Brodkin, Arnold D. Scott, Donald A. Stewart, John D.
McNeil and Jeffrey L. Shames. Messrs. Brodkin, Shames and Scott are the
Chairman, the President and the Secretary and a Senior Executive Vice
President, respectively, of MFS, and Messrs. McNeil and Stewart are the
Chairman and President, respectively, of Sun Life. Sun Life, a mutual life
insurance company, is one of the largest international
57
<PAGE>
life insurance companies in the world and has been operating in the United
States since 1895. The executive officers of MFS report directly to the
Chairman of Sun Life.
John D. McNeil is the Chairman and a Trustee of the Series Fund and David D.
Horn is a Trustee of the Series Fund. Both are directors and/or officers of
Sun Life, Sun Life of Canada (U.S.) and Sun Life (N.Y.). Stephen E. Cavan,
James R. Bordewick, Jr., W. Thomas London and James O. Yost are officers of
the Series Fund and of MFS.
STRATEGIC ALLIANCE--MFS has established a strategic alliance with FCM. The
ownership of FCM is discussed below under "Sub-Advisers to the MFS/Foreign
Colonial Series." As part of this alliance, the portfolio managers and
investment analysts of MFS and FCM share their views on a variety of
investment related issues, such as the economy, securities markets, portfolio
securities and their issuers, investment recommendations, strategies and
techniques, risk analysis, trading strategies and other portfolio management
matters. MFS has access to the extensive international equity investment
expertise of FCM, and FCM has access to the extensive U.S. equity investment
expertise of MFS. MFS and FCM each have investment personnel working in each
other's offices in Boston and London respectively.
In certain instances there may be securities which are suitable for the
Series Fund's portfolio as well as for portfolios of other clients of MFS or
clients of FCM. Some simultaneous transactions are inevitable when several
clients receive investment advice from MFS and FCM, particularly when the same
security is suitable for more than one client. While in some cases this
arrangement could have a detrimental effect on the price or availability of
the security as far as a Series is concerned, in other cases, however, it may
produce increased investment opportunities for a Series.
SUB-INVESTMENT ADVISERS--The Advisory Agreements with respect to the
MFS/Foreign & Colonial Series and the World Growth Series permit the Adviser
from time to time to engage one or more sub-advisers to assist in the
performance of its services. MFS has engaged the following sub-advisers with
respect to these series:
SUB-ADVISERS TO THE MFS/FOREIGN & COLONIAL SERIES
The Adviser has engaged FCM, a company incorporated under the laws of
England and Wales (see "Strategic Alliance" above), located at Exchange House,
Primrose Street, London EC2A 2NY, United Kingdom, as sub-adviser to render
advisory services to the MFS/Foreign & Colonial Series. FCM is a wholly owned
subsidiary of Hypo Foreign & Colonial Management (Holdings) Ltd. ("Hypo F&C").
Sixty-five percent of the outstanding voting securities of Hypo F&C is owned
by Hypo (U.K.) Holdings Ltd., which is a wholly owned subsidiary of HYPO-BANK
(Bayerische Hypotheken-und Wechsel-Bank AG), the oldest publicly listed, and
fifth largest, commercial bank in Germany, founded in 1835. The remaining
thirty-five percent is owned by four closed-end, publicly listed investment
trusts managed by FCM, including Foreign & Colonial Investment Trust PLC
(which has a 30.5 percent interest). FCM has a history of money management
dating from 1868 and the establishment of the world's oldest closed-end fund,
Foreign & Colonial Investment Trust PLC. As of December 31, 1996, FCM managed
approximately U.S. $42 billion of assets.
Under separate Sub-Advisory Agreements between the Adviser and FCM, each
dated September 1, 1995 (the "Sub-Advisory Agreements"), the Adviser may
delegate to FCM the authority
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to make investment decisions for each of the MFS/Foreign & Colonial Series. It
is presently intended that FCM will provide portfolio management services for
all of the assets of the International Growth Series and the Emerging Markets
Equity Series and for the equity portion of the assets of the International
Growth and Income Series. For its services, the Adviser pays FCM a management
fee, computed and paid monthly, in an amount equal to 0.80% and 1.00% of the
average daily net assets of the International Growth Series and the Emerging
Markets Equity Series, respectively, on an annualized basis and 0.75% of the
average daily net assets managed by FCM of the International Growth and Income
Series on an annualized basis. As described under "Strategic Alliance" above,
the Adviser and FCM have agreed to cooperate in distributing, advising and
managing investment products throughout the world. In this arrangement they
anticipate that certain expenses and revenues relating to their cooperative
activities, including investment advisory fees received from the series and
certain expenses incurred by MFS, FCM and their affiliates attributable to
their services to the series, will be shared. FCM has voluntarily agreed to
waive the management fee with respect to the Emerging Markets Equity Series.
This waiver may be rescinded at any time without notice to shareholders as to
fees accruing after the date of such rescission, although FCM has agreed not
to rescind the waiver as long as MFS continues to waive its fees.
Each Sub-Advisory Agreement permits FCM from time to time to engage one or
more sub-advisers to assist in the performance of its services. Pursuant to
each Sub-Advisory Agreement, FCM has engaged FCEM, a company incorporated
under the laws of England and Wales, located at Exchange House, Primrose
Street, London EC2A, 2NY, United Kingdom, as sub-adviser to render advisory
services to the MFS/Foreign & Colonial Series. FCEM is a subsidiary of FCM.
FCEM serves as the investment adviser to public closed-end and open-end funds
and segregated accounts specializing in emerging markets. As of December 31,
1996, FCEM managed approximately U.S.$4.7 billion of assets invested in
emerging markets.
Under separate Sub-Advisory Agreements between FCM and FCEM, each dated
September 1, 1995, FCM may delegate to FCEM the authority to make investment
decisions for each of the MFS/Foreign & Colonial Series. It is presently
intended that FCEM will provide portfolio management services for the portion
of the assets of the series invested in emerging markets securities. For its
services, FCM pays FCEM a management fee, computed and paid monthly, in an
amount equal to 1.00% of the average daily net assets managed by FCEM of each
series on an annualized basis. FCEM has voluntarily agreed to waive the
management fee with respect to the Emerging Markets Equity Series. This waiver
may be rescinded at any time without notice to shareholders as to fees
accruing after the date of such recision, although FCEM has agreed not to
rescind the waiver as long as MFS continues to waive its fees.
The identity and background of the portfolio managers for each of the
MFS/Foreign & Colonial Series is set forth below.
International Growth Series--Ian K. Wright, Director of the Board of FCM,
Atul Patel, Assistant Director and Global Funds Manager of FCM and June Scott,
Global Funds Manager of FCM, are the series' portfolio managers. Mr. Wright
has been employed as a portfolio manager by FCM since 1981. Mr. Patel has been
employed by FCM as a portfolio manager since 1994 before which he was employed
by Bankers Trust Investment Management as Investment Manager since 1992 and by
Gartmore Investment Management as Global Fund Manager since 1990. Ms. Scott
has been employed by FCM as a portfolio manager since 1995, before which she
completed her MBA at the
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London Business School. Prior to completing her MBA, Ms. Scott worked as a
Quantitative Portfolio Analyst in the Equity Research Group at J.P. Morgan
Investment Management in London.
International Growth and Income Series--Chilton Thomson, Chief Investment
Officer of FCM, Atul Patel, Assistant Director and Global Funds Manager of
FCM, and Richard O. Hawkins, a Senior Vice President of the Adviser, are the
series' portfolio managers. Mr. Thomson has been employed by FCM as a
portfolio manager since 1994 before which he was employed by Bankers Trust
Investment Management as Chief International Investment Officer since 1992 and
by Gartmore Investment Management as International Director since 1989. Mr.
Patel has been employed by FCM as a portfolio manager since 1994 before which
he was employed by Bankers Trust Investment Management as Investment Manager
since 1992 and by Gartmore Investment Management as Global Fund Manager since
1990. Mr. Hawkins has been employed by the Adviser as a portfolio manager
since 1988.
Emerging Markets Equity Series--Dr. Arnab Kumar Banerji, Chief Investment
Officer of FCEM, and Jefferey Chowdry, a Director of FCEM, are the series'
portfolio managers. Dr. Banerji has been employed by FCEM as a portfolio
manager since 1993 before which he served as Joint Head of Emerging Markets
for Citibank Global Asset Management since 1989. Mr. Chowdry has been employed
by FCEM as a portfolio manager since 1994, before which he was a portfolio
manager at BZW Investment Management.
SUB-ADVISERS TO THE WORLD GROWTH SERIES
The Adviser has engaged FCM and FCEM as sub-advisers to the World Growth
Series. FCM and FCEM are described above under "Strategic Alliance" and "Sub-
Advisers to the MFS/Foreign & Colonial Series."
Under the sub-investment advisory agreement between FCM and the Adviser
dated May 1, 1996, the Adviser may delegate to FCM the authority to make
investment decisions for the World Growth Series. It is intended that FCM,
through FCEM, will provide portfolio management services for assets of the
World Growth Series to be invested in emerging markets. For its services, the
Adviser pays FCM an annual management fee computed and paid monthly, in an
amount equal to 1.00% on an annualized basis of the average daily net asset
value of the World Growth Series' assets managed by FCM.
The terms of the sub-advisory agreement with FCM (the "FCM Agreement")
permit FCM from time to time to engage one or more sub-advisers to assist in
the performance of its services. FCM has entered into a sub-advisory agreement
with FCEM, dated May 1, 1996, under which FCM may delegate to FCEM FCM's
obligations under the FCM Agreement, reflecting the fact that FCEM is the FCM
affiliate that has the investment expertise in emerging markets. For these
services, FCM pays FCEM a sub-advisory fee equal to 1.00% on an annualized
basis of the average daily net asset value of the assets of the World Growth
Series managed by FCEM. The Agreement with FCEM is substantially identical to
the FCM Agreement.
ADMINISTRATOR--MFS provides each series with certain administrative services
pursuant to a Master Administrative Services Agreement dated March 1, 1997.
Under this Agreement, MFS provides each series with certain financial, legal,
compliance, shareholder communications and other administrative services. As a
partial reimbursement for the cost of providing these services, each Series
pays MFS an administrative fee up to 0.015% per annum of the series' average
daily net assets, provided that the administrative fee is not assessed on
series' assets that exceed $3 billion.
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EXPENSES
The Series Fund pays the compensation of the four Trustees who are not
affiliated with MFS or Sun Life of Canada (U.S.) as well as certain of its
other expenses and fees, including governmental fees, taxes, brokerage
expenses, fees and expenses of legal counsel, independent auditors, any
shareholder servicing agent, dividend disbursing agent and the custodian and
expenses of preparing, printing and mailing materials to shareholders and
government authorities, in certain cases subject to limited reimbursement by
MFS (see "Management of the Series Fund" in the SAI). Expenses which are not
attributable to a specific series are allocated among the series in a manner
believed to be fair and equitable to each.
Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear the expenses of the MFS/Foreign & Colonial Emerging Markets
Equity Series and the Research Growth and Income Series such that each such
series' "Total Operating Expenses," which are defined to include all series'
expenses except for interest, taxes, brokerage commissions and extraordinary
expenses, do not exceed 1.50% per annum of its average daily net assets (the
"Maximum Percentage"). The obligation of MFS to bear these expenses terminates
on the last day of the series' fiscal year in which such series' "Total
Operating Expenses" are less than or equal to the Maximum Percentage.
POTENTIAL CONFLICTS
Shares of the Series Fund may be offered to Variable Accounts established by
Sun Life of Canada (U.S.), Sun Life (N.Y.) and their affiliated companies to
fund benefits under both variable annuity and variable life insurance
products. The Series Fund does not anticipate any disadvantage to contract
owners arising out of its simultaneous funding of both variable annuity and
variable life insurance contracts. Such conflict could occur due to a change
in laws affecting the operation of variable life and/or variable annuity
separate accounts or for some other reason. The management of the Series Fund
intends to monitor events in order to identify any material conflicts among
the interests of variable annuity contract owners and the interests of
variable life insurance contract owners and to determine what action, if any,
should be taken in response. In addition, if Sun Life of Canada (U.S.) and/or
Sun Life (N.Y.) believe the Series Fund's response to any such events or
conflicts is insufficient to protect contract owners, they will take
additional appropriate action. Such action might include withdrawal by one or
more separate accounts of their investment in the Series Fund, which could
force the Series Fund to liquidate portfolio securities at disadvantageous
prices.
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5. ADDITIONAL INFORMATION WITH RESPECT TO SHARES OF EACH SERIES
PURCHASES
Sun Life of Canada (U.S.) and Sun Life (N.Y.) buy shares of each series at
their net asset value without a sales charge for their Variable Accounts
through the allocation of purchase payments made under Contracts issued by Sun
Life of Canada (U.S.) and Sun Life (N.Y.) in accordance with the allocation
instructions received from owners of the Contracts.
NET ASSET VALUE, DIVIDENDS AND DISTRIBUTIONS
The Net Asset Value of each series is determined as of the close of regular
trading on the New York Stock Exchange on each day the Exchange is open for
trading.
MONEY MARKET SERIES--All the Net Income, as defined in the SAI, of the Money
Market Series is declared as a dividend to its shareholders at the time of
such determination. Shares purchased become entitled to dividends declared as
of the first day following the date of investment. Dividends are distributed
on the last business day of each month. If paid in the form of additional
shares, dividends are paid at the rate of one share (and fraction thereof) for
each one dollar (and fraction thereof) of dividend income attributable to the
Money Market Series.
Securities held by the Money Market Series are valued at amortized cost,
which the Trustees have determined in good faith constitutes fair value for
the purposes of complying with the 1940 Act. This valuation method will
continue to be used until such time as the Trustees determine that it does not
constitute fair value for such purposes. Since the Net Income of the Money
Market Series is declared as a dividend each time the Net Income of that
series is determined, the net asset value per share of that series (i.e., the
value of the net assets of that series divided by the number of its shares
outstanding) remains at $1.00 per share immediately after each such
determination and dividend declaration.
It is expected that the Money Market Series will have a positive Net Income
at the time of each determination thereof. If for any reason the Net Income
determined at any time is a negative amount the Series Fund will first offset
the negative amount against the dividends declared during the month and will
then, to the extent necessary, reduce the number of its outstanding shares by
treating each shareholder of that series as having contributed to the capital
of that series that number of full and fractional shares in the account of
such shareholder which represents his proportion of the negative amount. Each
shareholder of the Money Market Series will be deemed to have agreed to such
contribution in these circumstances by his investment in that series. This
procedure will permit the net asset value per share of the Money Market Series
to be maintained at a constant $1.00 per share. There can be no assurance that
the Money Market Series will be able to maintain a stable net asset value of
$1.00 per share, other than by such offset of dividends or reduction in the
number of shares in a shareholder account.
ALL SERIES OTHER THAN THE MONEY MARKET SERIES.--With respect to these
series, determination of the net asset value per share is made by deducting
the liabilities of that series from the value of its assets and dividing the
difference by the number of its shares outstanding. Equity securities in the
portfolio of a series are normally valued at the last sale price during
regular hours on the exchange on which they are primarily traded or on the
NASDAQ system for unlisted national market issues, or at
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the last quoted bid price for unlisted securities or listed securities in
which there were no sales during that day. Debt securities of U.S. issuers
(other than short-term obligations) in any of these portfolios are normally
valued on the basis of valuations provided by a pricing service since such
valuations are believed to reflect the fair value of such securities.
Valuations provided by the pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. Forward Contracts will be valued using a pricing model taking into
consideration market data from an external pricing service. Use of the pricing
services has been approved by the Board of Trustees. Short-term obligations in
any of these portfolios (i.e., obligations maturing in not more than sixty
days) are valued at amortized cost, which constitutes fair value as determined
by the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer supplied valuations. All other
securities, futures contracts and options in the series' portfolio (other than
short-term obligations) for which the principal market is one or more
securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, futures contracts or options
are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available,
be valued at current bid prices, unless such securities are reported on the
NASDAQ system, in which case they are valued at the last sale price or, if no
sales occurred during that day, at the last quoted bid price. Portfolio
securities and other assets for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Board of Trustees.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates.
The Conservative Growth Series, High Yield Series, Government Securities
Series, Research Growth and Income Series, World Governments Series, Total
Return Series, Zero Coupon Series and Utilities Series receive dividends,
interest or other earnings from substantially all of their investments.
Substantially all of the net income of all series (other than the Money Market
Series, which is discussed above) is paid to their shareholders as a dividend
at least annually. Each series will also distribute its net profits from the
sale of securities, if any, on at least an annual basis.
DISTRIBUTIONS--The Variable Accounts can choose to receive distributions
from the Series Fund in either cash or additional shares. It is expected that
the Variable Accounts will choose to receive distributions in additional
shares. If the Variable Accounts choose to receive distributions in cash, they
will reinvest the cash in the Series Fund to purchase additional shares at
their net asset value.
TAX STATUS
Each series and each portfolio of the Zero Coupon Series is treated as a
separate entity for federal income tax purposes. In order to minimize the
taxes each series or portfolio would otherwise be required to pay, each
individual series or portfolio of the Series Fund intends to qualify and elect
to be treated as a regulated investment company pursuant to Subchapter M of
the Internal Revenue Code of 1986, as amended, (the "Code") and to distribute
all of its net investment income and realized capital gains to its
shareholders in accordance with the timing requirements imposed by the Code,
and it should therefore pay no federal income tax.
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REDEMPTIONS
Sun Life of Canada (U.S.) and Sun Life (N.Y.) will redeem shares of each
series held in their Variable Accounts as they deem necessary to make benefit
or surrender payments under the terms of their Contracts. Redemptions are
processed on any day on which the net asset value of the Series Fund is
calculated and are effected at the net asset value next determined after the
redemption order is received.
The Series Fund may suspend the right of redemption with respect to the
shares of any series only under the following unusual circumstances: when the
New York Stock Exchange is closed or trading is restricted; when an emergency
exists, making disposal of portfolio securities or the valuation of net assets
not reasonably practicable; or during any period when the Securities and
Exchange Commission has by order permitted a suspension of redemptions for the
protection of shareholders.
EXCHANGE PRIVILEGE
Shares of any series of the Series Fund may be exchanged for shares of any
other series of the Series Fund (if shares of that series are available for
purchase) at net asset value so as to facilitate exchanges among Sub-Accounts
of the Variable Accounts as described in the prospectuses for the Variable
Accounts. Such exchanges are treated as a redemption of shares in one series
and a purchase of shares in one or more of the other series. If a substantial
portion of any series' shares should be redeemed within a short period, the
series might have to liquidate portfolio securities it might otherwise hold
and also incur the additional costs related to such transactions.
Neither the Series Fund nor the Variable Accounts are designed for
professional market timing organizations or other entities using programmed
and frequent transfers. The Variable Accounts, in coordination with the Series
Fund, reserve the right to temporarily or permanently refuse exchange requests
if, in the Adviser's judgment, a series would be unable to invest effectively
in accordance with its investment objective and policies, or would otherwise
potentially be adversely affected. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive to a series and
therefore may be refused. Investors should consult the appropriate Variable
Account prospectus that accompanies this prospectus for information on other
specific limitations on the transfer privilege.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional Shares of Beneficial Interest (without par value) and
to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the Series
Fund. The Series Fund presently has twenty series of shares and has reserved
the right to create additional series of shares. Each share of a series
represents an equal proportionate interest in that series with each other
share of that series. Shares of each series participate equally in the
earnings, dividends and assets of that series or portfolio. Shares when issued
are fully paid and non-assessable. Shareholders are entitled to one vote for
each share held. Shares of each series are entitled to vote separately to
approve investment advisory agreements or changes in investment restrictions,
but shares of all series would vote together in the election of Trustees and
selection of accountants. Upon liquidation of the Series Fund, shareholders of
each series would be entitled to share pro rata in the net assets of their
respective series available for distribution to shareholders.
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The Series Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of any series of such a
trust may, under certain circumstances, be held personally liable as partners
for its obligations. However, the Series Fund's Declaration of Trust contains
an express disclaimer of shareholder liability for acts or obligations of the
Series Fund and provides for indemnification and reimbursement of expenses out
of the Series Fund property for any shareholder held personally liable for the
obligations of the Series Fund. The Series Fund's Declaration of Trust also
provides that it shall maintain appropriate insurance (for example,
fidelity bonding and errors and omissions insurance) for the protection of the
Series Fund, its shareholders, Trustees, officers, employees and agents
covering possible tort and other liabilities. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability would be limited
to circumstances in which both inadequate insurance existed and the Series
Fund itself was unable to meet its obligations.
CONTENTS OF SAI
The Series Fund's SAI contains more detailed information about the Series
Fund, including information related to (i) the Series Fund's investment
policies and restrictions, (ii) its Trustees, officers, investment adviser and
sub-investment advisers, (iii) portfolio transactions and brokerage
commissions, (iv) the Series Fund's shares, including rights and liabilities
of shareholders, and (v) various services and privileges provided by the
Series Fund for the benefit of its shareholders. The following audited
financial statements of the Series Fund are incorporated in the SAI by
reference from the Series Fund's Annual Report to shareholders for the year
ended December 31, 1996: Portfolios of Investments at December 31, 1996;
Statements of Assets and Liabilities at December 31, 1996; Statements of
Operations for the year ended December 31, 1996; and Statements of Changes in
Net Assets for the years ended December 31, 1996 and December 31, 1995.
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APPENDIX A
DESCRIPTION OF INSTRUMENTS
AMERICAN DEPOSITARY RECEIPTS--American Depositary Receipts ("ADRs") are
certificates issued by a U.S. depository (usually a bank) and represent a
specified quantity of shares of an underlying non-U.S. stock on deposit with a
custodian bank as collateral. ADRs may be sponsored or unsponsored. A
sponsored ADR is issued by a depository which has an exclusive relationship
with the issuer of the underlying security. An unsponsored ADR may be issued
by any number of U.S. depositories. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. Each series that invests in
foreign securities may invest in either type of ADR. Although the U.S.
investor holds a substitute receipt of ownership rather than direct stock
certificates, the use of the depository receipts in the United States can
reduce costs and delays as well as potential currency exchange and other
difficulties. These series may purchase securities in local markets and direct
delivery of these ordinary shares to the local depository of an ADR agent bank
in the foreign country. Simultaneously, the ADR agents create a certificate
which settles at the series' custodian in five days. Each such series may also
execute trades on the U.S. markets using existing ADRs. Because ADRs trade on
United States securities exchanges, the Adviser does not treat them as foreign
securities. However, they are subject to many of the risks of foreign
securities. A foreign issuer of the security underlying an ADR is generally
not subject to the same reporting requirements in the United States as a
domestic issuer. Accordingly the information available to a U.S. investor will
be limited to the information the foreign issuer is required to disclose in
its own country and the market value of an ADR may not reflect undisclosed
material information concerning the issuer of the underlying security. ADRs
may also be subject to exchange rate risks if the underlying foreign
securities are traded in foreign currency.
BANKERS' ACCEPTANCES--Bankers' acceptances are short-term credit instruments
used to finance the import, export, transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity.
BRADY BONDS--Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings under a
debt restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented to date in Mexico, Uruguay, Venezuela, Costa Rica, Dominican
Republic, Ecuador, Jordan, Argentina, Nigeria, Panama, Brazil, Bulgaria,
Poland and the Philippines. Brady Bonds have been issued only recently, and
for that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar) and are actively traded in over-the-counter
secondary markets. U.S. dollar-denominated, collateralized Brady Bonds, which
may be fixed-rate bonds or floating-rate bonds, are generally collateralized
in full as to principal by U.S. Treasury zero coupon bonds having the same
maturity as the bonds. Brady Bonds are often viewed as having three or four
valuation components: the collateralized repayment of
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principal at final maturity; the collateralized interest payments; the
uncollateralized interest payments; and any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constituting the
"residual risk"). In light of the residual risk of Brady Bonds and the history
of defaults of countries issuing Brady Bonds with respect to commercial bank
loans by public and private entities, investments in Brady Bonds may be viewed
as speculative.
CERTIFICATES OF DEPOSIT--Certificates of deposit are certificates issued
against funds deposited in a bank, are for a definite period of time, earn a
specified rate of return, and are normally negotiable. An investment in
certificates of deposit issued by foreign branches of U.S. or Canadian-
chartered banks ("Eurodollar CD's") may be subject to risks in addition to
those incurred by an investment in debt obligations issued in the United
States. Such risks may include future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
the Eurodollar CD's, the possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls or the adoption of
other foreign governmental restrictions which might adversely affect the
payment of the principal of and interest on the Eurodollar CD's. Also,
Eurodollar CD's are not insured by the Federal Deposit Insurance Corporation.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS PASS-THROUGH
SECURITIES-- Collateralized mortgage obligations ("CMOs") are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by certificates issued by the Government
National Mortgage Association, the Federal National Mortgage Association or
the Federal Home Loan Mortgage Corporation but also may be collateralized by
whole loans or private mortgage pass-through securities (such collateral
collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-
through securities are equity interests in a trust composed of Mortgage
Assets. Unless the context indicates otherwise, all references herein to CMOs
include multi-class pass-through securities. Payments of principal of and
interest on the Mortgage Assets and any reinvestment income thereon provide
the funds to pay debt service on the CMOs or make scheduled distributions on
the multi-class pass-through securities. CMOs may be issued by agencies or
instrumentalities of the United States government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
In a CMO, a series of bonds or certificates is usually issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specific fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayment on a Mortgage Asset may cause the CMOs
to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any
has been paid. Certain classes of CMOs have priority over others with respect
to the receipt of prepayments on the mortgages. Therefore, depending on the
type of CMOs in which the series invests, the investment may be subject to a
greater or lesser risk of prepayment than other types of mortgage-related
securities. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated under several classes of a series of a CMO in
innumerable ways. In a common structure, payments of principal, including any
principal prepayment, on the Mortgage Assets are applied to the classes of the
series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class
of CMOs until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
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Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken
into account in calculating the stated maturity date or final distribution
date of each class, which, as with other CMO structures, must be retired by
its stated maturity date or final distribution date but may be retired
earlier. Planned amortization class CMOs ("PAC Bonds") generally require
payments of the specified amount of principal on each payment date. PAC Bonds
are always parallel pay CMOs with the required principal payment of such
securities having the highest priority after interest has been paid to all
classes.
COMMERCIAL PAPER--Commercial paper refers to promissory notes issued by
corporations in order to finance their short-term credit needs.
CONVERTIBLE BONDS--Convertible bonds are bonds which, at the option of the
holder, are convertible into other securities of the issuer, usually into
equity securities.
CORPORATE ASSET-BACKED SECURITIES--Corporate asset-backed securities are
issued by trusts and special purpose corporations and are backed by a pool of
assets, such as credit card and automobile loan receivables, representing the
obligations of a number of different parties.
Corporate asset-backed securities present certain risks. For instance, in
the case of credit card receivables, these securities may not have the benefit
of any security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of automobile receivables permit the
servicers to retain possession of the underlying obligations. If the servicer
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in all of the obligations backing such receivables.
Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
The underlying assets (e.g., loans) are also subject to prepayments which
shorten the securities' weighted average life and may lower their return.
As noted above, corporate asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make
payments, the securities may contain elements of credit support which fall
into two categories: (i) liquidity protection; and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provision of advances, generally by the
entity administering the pool of assets, to ensure that the receipt of
payments on the underlying pool occurs in a timely fashion. Protection against
losses resulting from ultimate default ensures payment through insurance
policies or letters of credit obtained by the issuer or sponsor from third
parties. The series will not pay any additional or separate fees for credit
support. The degree of credit support provided for each issue is generally
based on historical information respecting the level of credit risk associated
with the underlying assets. Delinquency or loss in excess of that anticipated
or failure of the credit support could adversely affect the return on an
investment in such a security.
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CORPORATE OBLIGATIONS--Corporate obligations include bonds and notes issued
by corporations in order to finance long-term credit needs. The Money Market
Series will invest only in corporate obligations which have a maturity when
purchased of less than 13 months.
EMERGING MARKET SECURITIES--Emerging market securities are securities of
issuers whose principal activities are located in emerging market countries.
Emerging market countries include any country determined by the Adviser or a
Sub-Adviser to have an emerging market economy, taking into account a number
of factors, including whether the country has a low- to middle-income economy
according to the International Bank for Reconstruction and Development, the
country's foreign currency debt rating, its political and economic stability
and the development of its financial and capital markets. The Adviser or a
Sub-Adviser determines whether an issuer's principal activities are located in
an emerging market country by considering such factors as its country of
organization, the principal trading market for its securities and the source
of its revenues and assets. The issuer's principal activities generally are
deemed to be located in a particular country if: (a) the security is issued or
guaranteed by the government of that country or any of its agencies,
authorities or instrumentalities; (b) the issuer is organized under the laws
of, and maintains a principal office in, that country; (c) the issuer has its
principal securities trading market in that country; (d) the issuer derives
50% or more of its total revenues from goods sold or services performed in
that country; or (e) the issuer has 50% or more of its assets in that country.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets. Securities prices in emerging markets can
be significantly more volatile and less liquid than in the more developed
nations of the world, reflecting the greater uncertainties of investing in
less established markets and economies. In particular, countries with emerging
markets may have relatively unstable governments, present the risk of
nationalization of businesses, restrictions on foreign ownership, or
prohibitions of repatriation of assets, and may have less protection of
property rights than more developed countries. The economies of countries with
emerging markets may be predominantly based on only a few industries, may be
highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates. Local
securities markets may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times.
Securities of issuers located in countries with emerging markets may have
limited marketability and may be subject to more abrupt or erratic price
movements.
These securities may be considered speculative and, while generally offering
higher income and the potential for capital appreciation, may present
significantly greater risk. Emerging markets may have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when a portion of the assets of a
series is uninvested and no return is earned thereon. The inability of a
series to make intended security purchases due to settlement problems could
cause the series to miss attractive investment opportunities. Inability to
dispose of portfolio securities due to settlement problems could result in
losses to the series due to subsequent declines in values of the portfolio
securities, a decrease in the level of liquidity in the series' portfolio, or,
if the series has entered into a contract to sell the security, possible
liability to the purchaser. Certain markets may require payment
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for securities before delivery, and in such markets the series bears the risk
that the securities will not be delivered and that the series' payments will
not be returned.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. A series could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the
application to a series of any restrictions on investments.
Investment in certain foreign emerging market debt obligations may be
restricted or controlled to varying degrees. These restrictions or controls
may at times preclude investment in certain foreign emerging market debt
obligations and increase the expenses of a Series.
FOREIGN SECURITIES--Investing in foreign securities involves considerations
and risks not typically associated with investing in U.S. markets. Such
investments may be favorably or unfavorably affected by changes in interest
rates, currency exchange rates and exchange control regulations, application
of foreign tax laws, including withholding taxes, changes in governmental
administration or economic or monetary policy (in the U.S. or abroad) or
changed circumstances between nations. There may be less publicly-available
information about a foreign company than about a domestic company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those of U.S. companies. Foreign
securities markets, while growing in volume, have substantially less volume
than U.S. markets, and securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable domestic
companies. Fixed brokerage commissions and other transaction costs are
generally higher than in the United States. There is generally less government
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the United States. In addition, investments in
foreign countries could be affected by other factors generally not thought to
be present in the United States, including the possibility of heavy taxation,
political or social instability, limitations on the removal of funds or other
assets of the series, expropriation of assets, diplomatic developments adverse
to U.S. investors and difficulties in enforcing contractual obligations, and
could be subjected to extended settlement periods.
As a result of its investments in foreign securities, a series may receive
interest or dividend payments, or the proceeds of the sale or redemption of
such securities, in the foreign currencies in which such securities are
denominated. In that event, the series may promptly convert such currencies
into dollars at the current exchange rate. Under certain circumstances,
however, such as where the Adviser believes that the applicable exchange rate
is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the exchange rate will improve, the
series may hold such currencies for an indefinite period of time. The series
may also hold foreign currency in anticipation of purchasing foreign
securities.
While the holding of currencies will permit a series to take advantage of
favorable movements in the applicable exchange rate, it also exposes the
series to risk of loss if such rates move in a direction adverse to the
series' position. Such losses could reduce any profits or increase any losses
sustained by the series from the sale or redemption of securities, and could
reduce the dollar value of interest or dividend payments received. Costs may
also be incurred in connection with conversions between various currencies.
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GOVERNMENT BACKED TRUST CERTIFICATES--Government backed trust certificates
("GBTs") are obligations of certain private trusts formed for the purpose of
refinancing certain foreign government loans. The assets of the trust
typically include (a) a foreign government loan (the "Note"), 90% of principal
and interest payments on which are backed by a full faith and credit guaranty
of the United States government and (b) a beneficial interest in a trust
holding direct obligations of the United States government, calculated to
provide amounts equal to at least 10% of all principal and interest payments
on the Note. Funds scheduled to be received from these assets are calculated
to cover all scheduled distributions on the GBTs.
INDEXED SECURITIES--The value of indexed securities is linked to foreign
currencies, interest rates, commodities, indices, or other financial
indicators. Most indexed securities are short to intermediate term fixed-
income securities whose values at maturity (i.e., principal value) or interest
rates rise or fall according to the change in one or more specified underlying
instruments. Indexed securities may be positively or negatively indexed (i.e.,
their principal value or interest rates may increase or decrease if the
underlying instrument appreciates), and may have return characteristics
similar to direct investments in the underlying instrument or to one or more
options on the underlying instrument. Indexed securities may be more volatile
than the underlying instrument itself.
The performance of indexed securities depends to a great extent on the
performance of the securities, currencies, or other instruments to which they
are indexed, and may also be influenced by interest rate changes in the U.S.
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies.
LOANS, LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS--By purchasing a
loan or loan participation, the series acquires some or all of the interest of
a bank or other lending institution in a loan to a corporate, government, or
other borrower. Many such loans are secured, and most impose restrictive
covenants which must be met by the borrower. These loans are made generally to
finance internal growth, mergers, acquisitions, stock repurchases, leveraged
buy-outs and other corporate activities. Such loans may be in default at the
time of purchase. The series may also purchase trade or other claims against
companies, which generally represent money owed by the company to a supplier
of goods or services. These claims may also be purchased at a time when the
company is in default. Certain of the loan participations acquired by a series
may involve revolving credit facilities or other standby financing commitments
which obligate the series to pay additional cash on a certain date or on
demand.
The highly leveraged nature of many such loans may make such loans
especially vulnerable to adverse changes in economic or market conditions.
Loan participations and other direct indebtedness may not be in the form of
securities or may be subject to restrictions on transfer, and only limited
opportunities may exist to resell such instruments. As a result, the series
may be unable to sell such investments at an opportune time or may have to
resell them at less than fair market value. For a further discussion of loan
participations and the risks related to transactions therein, see the SAI
Appendix.
MORTGAGE PASS-THROUGH SECURITIES--Mortgage pass-through securities are
securities representing interests in "pools" of mortgage loans. Monthly
payments of interest and principal by the
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individual borrowers on mortgages are passed through to the holders of the
securities (net of fees paid to the issuer or guarantor of the securities) as
the mortgages in the underlying mortgage pools are paid off. The average life
of mortgage pass-throughs are variable when issued because their average lives
depend on prepayment rates. The average life of these securities is likely to
be substantially shorter than their stated final maturity as a result of
unscheduled principal prepayment. Prepayments on underlying mortgages result
in a loss of anticipated interest, and all or part of a premium if any has
been paid, and the actual yield (or total return) to the series may be
different than the quoted yield on the securities. Mortgage prepayments
generally increase with falling interest rates and decrease with rising
interest rates. Like other fixed income securities, when interest rates rise
the value of a mortgage pass-through security generally will decline; however,
when interest rates are declining, the value of mortgage pass-through
securities with prepayment features may not increase as much as that of other
fixed-income securities. Payment of principal and interest on some mortgage
pass-through securities (but not the market value of the securities
themselves) will be guaranteed by either the full faith and credit of the U.S.
Government (in the case of securities guaranteed by GNMA); or guaranteed by
agencies or instrumentalities of the U.S. Government but not guaranteed by the
U.S. Government (such as the Federal National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage pass-through
securities may also be issued by nongovernmental issuers (such as commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers). Some of these mortgage
pass-through securities may be supported by various forms of insurance or
guarantees.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a
person purchases a security and simultaneously commits to resell that security
to the seller (such as a member bank of the Federal Reserve System or
recognized securities dealer) at an agreed upon price on an agreed upon date.
The repurchase price may be higher than the purchase price, the difference
being income to the series, or the purchase and repurchase price may be the
same, with interest at a standard rate due to the Series together with the
repurchase price on repurchase. In either case, the income to the Series is
unrelated to the coupon rate or maturity of the purchased security. Such
transactions afford an opportunity for a series to earn a return on available
cash. However the series may be subject to various delays and risks of loss
(including risk of decline in market value of the underlying securities) if
the seller is unable to meet its obligation to repurchase. In evaluating
whether to enter into a repurchase agreement the Adviser will carefully
consider the creditworthiness of the seller and will follow guidelines
regarding the determination of creditworthiness established by the Board of
Trustees of the Series Fund. A series may enter into repurchase agreements
only with member banks of the Federal Reserve System, member firms (or
subsidiaries thereof) of the New York Stock Exchange, recognized primary U.S.
Government Securities dealers or other institutions that the Adviser has
determined to be of comparable credit-worthiness, unless otherwise indicated.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, the series will have the right to liquidate the securities. If at
the time the series is contractually entitled to exercise its right to
liquidate the securities, the seller is subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to a stay order, the
series' exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the Series. The Series Fund has adopted
and follows procedures which are intended to minimize the risks of repurchase
agreements. For example, a series only enters into repurchase agreements after
the Adviser has determined that the seller is creditworthy,
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and the Adviser monitors that seller's creditworthiness on an ongoing basis.
Moreover, under such agreements, the value of the securities (which are marked
to market every business day) is required to be greater than the repurchase
price, and the series has the right to make margin calls at any time if the
value of the securities falls below the agreed upon margin.
RESTRICTED SECURITIES--Restricted securities are securities that are subject
to legal or contractual restrictions on resale, including securities which
cannot be sold to the public without registration under the Securities Act of
1933 (the "Securities Act"). Unless registered for sale, such securities can
only be sold in privately negotiated transactions or pursuant to an exemption
from registration, such as pursuant to Rule 144A under the Securities Act for
offers and sales to "qualified institutional buyers". Consequently, there may
be a more limited trading market for these securities and market quotations
may be less readily available. However, as to certain restricted securities, a
substantial market of qualified institutional buyers may develop pursuant to
Rule 144A ("Rule 144A Securities"). A determination is made based upon a
continuing review of the trading markets for the specific Rule 144A Security
that such securities are readily marketable. The Board of Trustees has adopted
guidelines and delegated to the Adviser the daily function of determining and
monitoring liquidity of Rule 144A Securities. The Board, however, retains
oversight, focusing on factors such as valuation, liquidity and availability
of information. Investing in Rule 144A Securities could have the effect of
decreasing the level of liquidity in a series to the extent that qualified
institutional buyers become for a time uninterested in purchasing Rule 144A
Securities held in the series' portfolio. As a result, the series might not be
able to sell these securities when the Adviser wishes to do so, or might have
to sell them at less than fair value. In addition, market quotations are less
readily available. Therefore, judgment may at times play a greater role in
valuing these securities than in the case of unrestricted securities. A series
may invest in restricted securities as to which the Board has made such a
determination of ready marketability, to the extent consistent with its
investment objectives. Where the Board has not made such a determination,
investments in restricted securities are subject to the series' investment
restrictions on investments in securities that are not readily marketable.
STRIPPED MORTGAGE-BACKED SECURITIES--Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities issued by agencies or
instrumentalities of the United States Government or by private originators
of, or investors in, mortgage loans including savings and loan associations,
mortgage banks, commercial banks and investment banks. SMBS are usually
structured with two classes that receive different proportions of the interest
and principal distributions from a pool of Mortgage Assets. A common type of
SMBS will have one class receiving some of the interest and most of the
principal from the Mortgage Assets while the other class will receive most of
the interest and the remainder of the principal. In the most extreme case, one
class will receive all of the interest (the interest only or "IO" class) while
the other class will receive all of the principal (the principal only or "PO"
class). The yield to maturity on an IO is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying Mortgage
Assets, and a rapid rate of principal payments may have a material adverse
effect on such securities' yield to maturity. If the underlying Mortgage
Assets experience more than anticipated prepayments of principal, a series may
fail to fully recoup its initial investment in these securities. The market
value of the class consisting primarily or entirely of principal payments
generally is unusually volatile in response to changes in interest rates.
U.S. GOVERNMENT SECURITIES--U.S. Government Securities include: (1) U.S.
Treasury obligations, which differ only in their interest rates, maturities
and times of issuance: U.S. Treasury bills (maturity
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of one year or less), U.S. Treasury notes (maturities of one to 10 years), and
U.S. Treasury bonds (generally maturities of greater than 10 years), all of
which are backed by the full faith and credit of the United States; and (2)
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, some of which are backed by the full faith and credit of
the U.S. Treasury, e.g., direct pass-through certificates of the Government
National Mortgage Association ("GNMA"); some of which are supported by the
right of the issuer to borrow from the U.S. government, e.g., obligations of
Federal Home Loan Banks; some of which are backed only by the credit of the
issuer itself, e.g., obligations of the Student Loan Marketing Association;
and some of which are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations, e.g., obligations of the
Federal National Mortgage Association ("FNMA"). Agencies and instrumentalities
of the U.S. Government are established under the authority of an act of
Congress and include, but are not limited to, in addition to those mentioned
above, the Tennessee Valley Authority, the Bank for Cooperatives, the Farmers
Home Administration, Federal Intermediate Credit Banks, Federal Land Banks,
the Federal Home Loan Mortgage Corporation, the Small Business Administration,
the Resolution Funding Corporation, the Financing Corporation, and the Federal
Agricultural Mortgage Corporation.
No assurance can be given that the U.S. Government will provide financial
support to instrumentalities sponsored by the U.S. Government as it is not
obligated by law, in certain instances, to do so.
WARRANTS--Warrants are certificates giving the holder the right, either for
a specified period of time or indefinitely, to purchase a security at a
stipulated price.
ZERO COUPON BONDS, DEFERRED INTEREST BONDS AND PIK BONDS--Zero coupon and
deferred interest bonds are debt obligations which are issued or purchased at
a significant discount from face value. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting
the market rate of the security at the time of issuance. Zero coupon bonds do
not require the periodic payment of interest and deferred interest bonds
provide for a period of delay before the regular payment of interest begins.
PIK bonds are debt obligations which provide that the issuer thereof may, at
its option, pay interest on such bonds in cash or in the form of additional
debt obligations. Such investments benefit the issuer by mitigating its need
for cash to meet debt service, but also require a higher rate of return to
attract investors who are willing to defer receipt of such cash. Such
investments may experience greater volatility in market value due to changes
in interest rates and/or credit quality than debt obligations which make
regular payments of interest. A series will accrue income on such investments
for tax and accounting purposes, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the series' distribution
obligations.
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APPENDIX B
INVESTMENT TECHNIQUES
LENDING OF PORTFOLIO SECURITIES
The Conservative Growth Series, Emerging Growth Series, Research Growth and
Income Series, Research Series, Total Return Series, Utilities Series, Value
Series, World Asset Allocation Series, World Governments Series, World Total
Return Series and World Growth Series and the MFS/Foreign & Colonial Series
may seek to increase their income by lending portfolio securities to the
extent consistent with present regulatory policies, including those of the
Board of Governors of the Federal Reserve System and the Securities and
Exchange Commission. Such loans may be made to member banks of the Federal
Reserve System and to member firms (and subsidiaries thereof) of the New York
Stock Exchange (unless otherwise indicated) and would be required to be
secured continuously by collateral, including cash, U.S. Government
Securities, or an irrevocable letter of credit maintained on a current basis
at an amount at least equal to the market value of the securities loaned. A
series would have the right to call a loan and obtain the securities loaned at
any time on customary industry settlement notice (which will usually not
exceed five days). For the duration of a loan, the series would continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation from the investment of
the collateral. A series would not, however, have the right to vote any
securities having voting rights during the existence of the loan, but would
call the loan in anticipation of an important vote to be taken among holders
of the securities or of the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in the collateral
should the borrower of the securities fail financially. However, the loans
would be made only to firms deemed by the investment adviser to be of good
standing, and when, in the judgment of the investment adviser, the
consideration which could be earned currently from securities loans of this
type justified the attendant risk. If the investment adviser determines to
make securities loans, it is intended that the value of the securities loaned
would not exceed 30% of the value of a series' total assets.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS
The Government Securities Series, High Yield Series, Total Return Series,
Utilities Series, World Asset Allocation Series, World Governments Series and
World Total Return Series may enter into mortgage "dollar roll" transactions
with selected banks and broker-dealers pursuant to which the series sells
mortgage-backed securities for delivery in the future (generally within 30
days) and simultaneously contracts to repurchase substantially similar (same
type, coupon and maturity) securities on a specified future date. The series
will only enter into covered rolls. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash
equivalent security position which matures on or before the forward settlement
date of the dollar roll transaction. During the roll period, the series
foregoes principal and interest paid on the mortgage-backed securities. The
series is compensated for the lost interest by the difference between the
current sales price and the lower price for the futures purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale. The series may also be compensated by receipt of
a commitment fee.
In the event that the party with whom a series contracts to repurchase
substantially similar securities on a future date fails to deliver such
securities, the series may not be able to obtain such
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securities at the price specified in such contract and thus may not benefit
from the price differential between the current sales price and the repurchase
price. The market value of securities purchased by the series may decline
below the price of securities that the series has sold but is obligated to
repurchase under the agreement. Under the terms of these transactions, the
securities purchased may have different prepayment characteristics and both
the series and the dealer may be permitted to over or underdeliver the
aggregate principal amount of the securities by 2%.
OPTIONS, FUTURES AND FORWARD CONTRACTS
Certain series may enter into transactions in options, futures and forward
contracts on a variety of instruments and indexes, in order to protect against
declines in the value of portfolio securities or increases in the cost of
securities or other assets to be acquired and, subject to applicable law, to
increase the series' gross income. The types of instruments that may be
purchased and sold by each series and the permissible purposes of these
transactions are described in the series' statement of investment objectives
and policies. Among other risks, the trading of options, futures contracts and
forward contracts entails the risk that, if the Adviser's judgment as to the
general direction of interest or exchange rates is incorrect, the series'
overall performance may be poorer than if it had not entered into any such
contract. For example, if the series has hedged against the possibility of an
increase in interest rates, and rates instead decline, the series will lose
part or all of the benefit of the increased value of the securities being
hedged, and may be required to meet ongoing daily variation margin payments.
The SAI Appendix, which should be read in conjunction with the following
section, contains a further discussion of the nature of the transactions which
may be entered into and the risks associated therewith.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Capital Appreciation Series, Emerging Growth Series, Government
Securities Series, Managed Sectors Series, Research Growth and Income Series,
Utilities Series, Value Series, World Asset Allocation Series, World
Governments Series, World Growth Series and World Total Return Series and the
MFS/Foreign & Colonial Series may write (sell) "covered" call and put options
and purchase call and put options on securities or securities indices. These
transactions may be designed for the purpose of increasing a series' return on
such securities and/or to protect the value of its portfolio. In particular,
where the series writes an option which expires unexercised or is closed out
by the series at a profit, it will retain the premium paid for the option
(less related transaction costs) which will increase its gross income and will
offset in part the reduced value of the portfolio security underlying the
option, or the increased cost of portfolio securities to be acquired. In
contrast, however, if the price of the underlying security or index moves
adversely to the series' position, the option may be exercised and the series
will be required to purchase or sell the underlying security or index at a
disadvantageous price, which may only be partially offset by the amount of the
premium. The series may also write combinations of put and call options on the
same security, known as "straddles." Such transactions can generate additional
premium income but also present increased risk.
By writing a call option on a security, the series limits its opportunity to
profit from any increase in the market value of the underlying security, since
the holder will usually exercise the call option when the market value of the
underlying security exceeds the exercise price of the call. However, the
series retains the risk of depreciation in value of securities on which it has
written call options.
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A series may also purchase put or call options in anticipation of market
fluctuations which may adversely affect the value of its portfolio or the
prices of securities that the series wants to purchase at a later date, or, in
the case of an option on a stock index, to attempt to reduce the risk of
missing a market or industry segment advance. In the event that the expected
market fluctuations occur, the series may be able to offset the resulting
adverse effect on its portfolio, in whole or in part, through the options
purchased. The premium paid for a put or call option plus any transaction
costs will reduce the benefit, if any, realized by the series upon exercise or
liquidation of the option, and, unless the price of the underlying security
changes sufficiently, the option may expire without value to the series.
"Yield curve" options are options on the yield "spread," or yield
differential between two securities. In contrast to other types of options a
yield curve option is based on the difference between the yields of designated
securities rather than the actual prices of the individual securities, and is
settled through cash payments. Accordingly, a yield curve option is profitable
to the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease. Yield curve options will be "covered" but
could involve additional risks, as discussed in the SAI Appendix.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Capital Appreciation Series, Emerging Growth Series, Government
Securities Series, Managed Sectors Series, Research Growth and Income Series,
Utilities Series, Value Series, World Asset Allocation Series, World
Governments Series, World Growth Series, World Total Return Series and the
MFS/Foreign & Colonial Series may enter into contracts for the purchase or
sale for future delivery of securities, securities indexes or currency
("futures contracts"). These instruments may be used for hedging purposes, in
order to protect the series' current or intended investments from a decline in
value due to changes in exchange rates or interest rates or declines in the
stock market, and for non-hedging purposes subject to applicable law. With
respect to hedging purposes, if an anticipated decrease in the value of
portfolio securities or currency occurs as a result of market movements, the
adverse effects of such changes may be offset, in whole or in part, by gains
on the sale of futures contracts. Conversely, the increased cost of portfolio
securities to be acquired may be offset, in whole or in part, by gains on
futures contracts purchased. The series will incur brokerage fees when it
purchases and sells futures contracts, and will be required to maintain margin
deposits. In addition, futures contracts entail risks. Although the Adviser
believes that use of such contracts will benefit the series, if its investment
judgment about the general direction of exchange rates, interest rates or the
stock market is incorrect, the series' overall performance may be poorer than
if it had not entered into any such contract and the series may realize a
loss. The series will not enter into any futures contract if immediately
thereafter the value of securities and other obligations underlying all such
futures contracts would exceed 50% of the value of its total assets.
These series may also purchase and write options on such futures contracts.
Purchases of options on futures contracts may present less risk in hedging the
series' portfolio than the purchase or sale of the underlying futures
contracts since the potential loss is limited to the amount of the premium
plus related transaction costs, although it may be necessary to exercise the
option to realize any profit, which results in the establishment of a futures
position. The writing of options on futures contracts, however, does not
present less risk than the trading of futures contracts and will constitute
only a partial hedge, up to the amount of the premium received. In addition,
if an option is exercised, the
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series may suffer a loss on the transaction. These transactions may also be
used for non-hedging purposes, to the extent permitted by applicable law.
In order to assure that the series will not be deemed to be a "commodity
pool" for purposes of the Commodity Exchange Act, regulations of the Commodity
Futures Trading Commission (the "CFTC") require that the series enter into
transactions in futures contracts and options on futures contracts only (i)
for bona fide hedging purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided that the aggregate initial margin and premiums
on such non-hedging positions does not exceed 5% of the liquidation value of
the series' assets. In addition, the series must comply with the requirements
of various state securities laws in connection with such transactions.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ("FORWARD CONTRACTS")
The Capital Appreciation Series, Emerging Growth Series, Managed Sectors
Series, Research Growth and Income Series, Research Series, Utilities Series,
Value Series, World Asset Allocation Series, World Governments Series, World
Growth Series, World Total Return Series and the MFS/Foreign & Colonial Series
may enter into contracts for the purchase or sale of a specific currency at a
future date at a price set at the time of the contract (a "forward contract").
Forward contracts may be entered into for hedging and non-hedging purposes.
Hedging purposes include seeking to minimize the risk to the series from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. Transactions in forward contracts entered into for hedging
purposes may include forward purchases or sales of foreign currencies for the
purpose of protecting the dollar value of securities denominated in a foreign
currency or protecting the dollar equivalent of interest or dividends to be
paid on such securities. The series may also enter into forward contracts for
"cross hedging" purposes, e.g., the purchase or sale of a forward contract on
one type of currency as a hedge against adverse fluctuations in the value of a
second type of currency. By entering into such transactions, however, the
series may be required to forgo the benefits of advantageous changes in
exchange rates. Certain series may also enter into transactions in forward
contracts for other than hedging purposes. For example, if the Adviser
believes that the value of a particular foreign currency will increase or
decrease relative to the value of the U.S. dollar, a series may purchase or
sell such currency, respectively, through a forward contract. If the expected
changes in the value of the currency occur, the series will realize profits
which will increase its gross income. Where exchange rates do not move in the
direction or to the extent anticipated, such series may sustain losses which
will reduce its gross income. Such transactions may be considered speculative
and could involve significant risk of loss, as set forth below. Forward
contracts are traded over-the- counter, and not on organized commodities or
securities exchanges; as a result, such contracts operate in a manner distinct
from exchange-traded instruments, and their use involves certain risks beyond
those associated with transactions in future contracts or options traded on
exchanges. The series have established procedures consistent with statements
of the Securities and Exchange Commission (the "SEC") and its staff regarding
the use of forward contracts by registered investment companies, which
requires use of segregated assets or "cover" in connection with the purchase
and sale of such contracts.
Forward contracts are traded over-the-counter, and not on organized
commodities or securities exchanges. As a result, such contracts operate in a
manner distinct from exchange-traded instruments, and their use involves
certain risks beyond those associated with transactions in the futures and
options contracts described above.
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OPTIONS ON FOREIGN CURRENCIES
The Emerging Growth Series, Research Growth and Income Series, Utilities
Series, Value Series, World Asset Allocation Series, World Governments Series,
World Growth Series, World Total Return Series and the MFS/Foreign & Colonial
Series may purchase and write options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio
securities and against increases in the dollar cost of foreign securities to
be acquired. As in the case of other types of options, however, the writing of
an option on foreign currency will constitute only a partial hedge, up to the
amount of the premium received, and the series may be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the series' position, it may forfeit the entire
amount of the premium paid for the option plus related transaction costs. The
series may also choose to, or be required to, receive delivery of the foreign
currencies underlying options on foreign currencies it has entered into. Under
certain circumstances, such as where the Adviser or a Sub-Adviser believes
that the applicable exchange rate is unfavorable at the time the currencies
are received, or the Adviser or Sub-Adviser anticipates for any other reason
that the exchange rate will improve, the series may hold such currencies for
an indefinite period of time. (See "Appendix A--Foreign Securities" for
information on the risks associated with holding foreign currency.)
RISKS OF TRANSACTIONS IN OPTIONS, FUTURES CONTRACTS AND FORWARD
CONTRACTS: Even where a series enters into transactions in futures contracts,
options on futures contracts, forward contracts and options for hedging
purposes, such transactions do involve certain risks. For example, a lack of
correlation between the index or instrument underlying an option, futures
contract or forward contract and the assets being hedged, or unexpected
adverse price movements, could render the series' hedging strategy
unsuccessful and could result in losses. "Cross hedging" transactions may
involve greater correlation risks. In addition, there can be no assurance that
a liquid secondary market will exist for any contract purchased or sold, and
the series may be required to maintain a position until exercise or
expiration, which could result in the series' being unable to control losses.
As noted, certain series may also enter into transactions in such instruments
(except for options on foreign currencies) for other than hedging purposes
(subject to applicable law), including speculative transactions, which involve
greater risk. In particular, in entering into such transactions, a series may
experience losses which are not offset by gains on other portfolio positions,
thereby lowering the series' return and the loss from investing in certain
futures transactions is potentially unlimited. In addition, the markets for
such instruments may be extremely volatile from time to time, as discussed in
the SAI Appendix, which could increase the risks incurred by the series in
entering into such transactions. Gains and losses on investments in such
instruments depend on the ability of the Adviser or Sub-Adviser to predict
correctly the direction of stock prices, interest rates or other economic
factors affecting market conditions and incorrect decisions by the Adviser or
Sub-Adviser may cause a series to experience losses or otherwise reduce its
return.
Transactions in options may be entered into on U.S. exchanges regulated by
the SEC, in the over-the-counter market and on foreign exchanges, while
forward contracts may be entered into only in the over-the-counter market.
Futures contracts and options on futures contracts may be entered into on U.S.
exchanges regulated by the Commodity Futures Trading Commission (the "CFTC")
and on foreign exchanges. The securities underlying options and futures
contracts traded by a series may include domestic as well as foreign
securities. Investors should recognize that transactions involving
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foreign securities or foreign currencies, and transactions entered into in
foreign countries, may involve considerations and risks not typically
associated with investing in U.S. markets.
SWAPS AND RELATED TRANSACTIONS
The Research Growth and Income Series, World Asset Allocation Series, World
Governments Series, World Total Return Series and the MFS/Foreign & Colonial
Series may enter into interest rate swaps, currency swaps and other types of
available swap agreements (such as caps, collars and floors), as one way of
managing their exposure to different types of investments. These transactions
involve the exchange by a series with another party of cash payments based
upon different interest rate indexes, currencies, and other prices or rates,
such as the value of mortgage prepayment rates. For example, in the typical
interest rate swap, the series might exchange a sequence of cash payments
based on a floating rate index for cash payments based on a fixed rate.
Payments made by both parties to a swap transaction are based on a principal
amount determined by the parties.
These series may also purchase and sell caps, floors and collars. In a
typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the
counterparty. For example, the purchase of an interest rate cap entitles the
buyer, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal
amount from the counterparty selling such interest rate cap. The sale of an
interest rate floor obligates the seller to make payments to the extent that a
specified interest rate falls below an agreed-upon level. A collar arrangement
combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Series' investment exposure from one
type of investment to another. For example, if a series agreed to exchange
payments in dollars for payments in foreign currency, in each case based on a
fixed rate, the swap agreement would tend to decrease a Series' exposure to
U.S. interest rates and increase its exposure to foreign currency and interest
rates. Caps and floors have an effect similar to buying or writing options.
Depending on how they are used, swap agreements may increase or decrease the
overall volatility of a Series' investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on a
series' performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A series may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions.
Swaps, caps, floors and collars are highly specialized activities which
involve certain risks different from those associated with ordinary portfolio
transactions. See the SAI Appendix for further information on, and the risks
involved in, these activities.
"WHEN-ISSUED" SECURITIES
The Emerging Growth Series, Government Securities Series, High Yield Series,
Research Growth and Income Series, Utilities Series, Value Series, World Asset
Allocation Series, World Governments Series, World Growth Series, World Total
Return Series and the MFS/Foreign & Colonial Series may
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purchase securities on a "when-issued" or on a "forward delivery" basis, which
means that the obligations will be delivered at a future date usually beyond
customary settlement time. The commitment to purchase a security for which
payment will be made on a future date may be deemed a separate security.
Although a series is not limited to the amount of securities for which it may
have commitments to purchase on such basis, it is expected that under normal
circumstances, a series will not commit more than 30% of its assets to such
purchase. A series does not pay for the securities until received or start
earning interest on them until the settlement date. In order to invest its
assets immediately, while awaiting delivery of securities purchased on such
basis, a series will normally invest in short-term securities that offer same-
day settlement and earnings, but that may bear interest at a lower rate than
longer term securities.
When a series commits to purchase a security on a "when issued" or "forward
delivery" basis it will set up a segregated account consistent with the
statements of the SEC referred to above under "Forward Foreign Currency
Exchange Contracts." While the series do not intend to make such purchases for
speculative purposes and intend to adhere to the provisions of the SEC policy,
purchases of securities on such bases may involve more risk than other types
of purchases. For example, if a series determines it is necessary to sell the
"when issued" or "forward delivery" securities before delivery, it may incur a
gain or a loss because of market fluctuations since the time the commitment to
purchase such securities was made.
APPENDIX C
DESCRIPTION OF STANDARD & POOR'S RATINGS SERVICES ("S&P"), FITCH INVESTORS
SERVICE, INC. ("FITCH") AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
HIGHEST COMMERCIAL PAPER RATINGS AND BOND RATINGS:
A-1 AND P-1 COMMERCIAL PAPER RATINGS
Description of S&P and Moody's highest commercial paper ratings:
The rating "A" is the highest commercial paper rating assigned by S&P and
issues so rated are regarded as having the greatest capacity for timely
payment. Issues in the "A" category are delineated with the numbers 1, 2
and 3 to indicate the relative degree of safety. The A-1 designation
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Those A-1 issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
The rating P-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated P-1 have a superior ability for repayment. P-1
repayment capacity will normally be evidenced by the following
characteristics: (1) leading market positions in well established
industries; (2) high rates of return on funds employed; (3) conservative
capitalization structure with moderate reliance on debt and ample asset
protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access
to a range of financial markets and assured sources of alternate liquidity.
BOND/DEBT RATINGS
The ratings of S&P, Fitch and Moody's represent their opinions as to the
quality of various debt instruments. It should be emphasized, however, that
ratings are not absolute standards of quality.
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Consequently, debt instruments with the same maturity, coupon and rating may
have different yields while debt instruments of the same maturity and coupon
with different ratings may have the same yield.
S&P DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC and C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness
to pay interest and repay principal. The B rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied BB or
BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
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C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR: indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
FITCH'S BOND RATINGS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA'. Because bonds rated in the
"AAA' and "AA' categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-
1+'.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
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CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
Plus (+) Minus (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus
and minus signs, however, are not used in the "AAA' category.
NR indicates that Fitch does not rate the specific issue.
Conditional: A conditional rating is premised on the successful completion
of a project or the occurrence of a specific event.
Suspended: A rating is suspended when Fitch deems the amount of information
available from the issuer to be inadequate for rating purposes.
Withdrawn: A rating will be withdrawn when an issue matures or is called or
refinanced, and, at Fitch's discretion, when an issuer fails to furnish proper
and timely information.
FitchAlert: Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for potential downgrade, or "Evolving", where
ratings may be raised or lowered. FitchAlert is relatively short-term, and
should be resolved within 12 months.
MOODY'S BOND RATINGS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance or
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating: Where no rating has been assigned or where a rating has
been suspended or withdrawn, it may be for reasons unrelated to the quality of
the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not
published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise,
the effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
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APPENDIX D
INDUSTRY SECTORS
The Managed Sectors Series seeks to achieve its investment objective by
varying the weighting of its portfolio among the following thirteen industry
sectors (i.e., industry groupings):
(1) AUTOS AND HOUSING SECTOR: companies engaged in the design, production
and sale of automobiles, automobile parts, mobile homes and related
products, and in the design, construction, renovation and refurbishing of
residential dwellings. The value of automobile industry securities is
affected by foreign competition, consumer confidence, consumer debt and
installment loan rates. The housing construction industry is affected by
the level of consumer confidence, consumer debt, mortgage rates and the
inflation outlook.
(2) BASIC MATERIALS AND CONSUMER STAPLES SECTOR: companies engaged in
providing consumer goods and services such as: the design, processing,
production and storage of packaged, canned, bottled and frozen foods and
beverages; and the design, production and sale of home furnishings,
appliances, clothing, accessories, cosmetics and perfumes. Certain such
companies are subject to government regulation affecting the permissibility
of using various food additives and production methods, which regulations
could affect company profitability. Also, the success of food- and fashion-
related products may be strongly affected by fads, marketing campaigns and
other factors affecting supply and demand.
(3) DEFENSE AND AEROSPACE SECTOR: companies engaged in the research,
manufacture, or sale of products or services related to the defense and
aerospace industries, such as: air transport; data processing or computer-
related services; communications systems; military weapons and
transportation; general aviation equipment, missiles, space launch vehicles
and spacecraft; units for guidance, propulsion and control of flight
vehicles; and airborne and ground-based equipment essential to the test,
operation and maintenance of flight vehicles. Since such companies rely
largely on U.S. (and other) governmental demand for their products and
services, their financial conditions are heavily influenced by federal (and
other governmental) defense spending policies.
(4) ENERGY SECTOR: companies in the energy field, including oil, gas,
electricity and coal as well as nuclear, geothermal, oil shale and solar
sources of energy. The business activities of companies comprising this
sector may include: production, generation, transmission, marketing,
control or measurement of energy or energy fuels; provision of component
parts or services to companies engaged in such activities; energy research
or experimentation; environmental activities related to the solution of
energy problems; and activities resulting from technological advances or
research discoveries in the energy field. The value of such companies'
securities varies based on the price and supply of energy fuels and may be
affected by events relating to international politics, energy conservation,
the success of exploration projects, and the tax and other regulatory
policies of various governments.
(5) FINANCIAL SERVICES SECTOR: companies providing financial services to
consumers and industry, such as: commercial banks and savings and loan
associations; consumer and industrial finance companies; securities
brokerage companies; leasing companies; and firms in all segments of the
insurance field (such as multiline, property and casualty, and life
insurance). These kinds of companies are subject to extensive governmental
regulations, some of which regulations are
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currently being studied by Congress. The profitability of these groups may
fluctuate significantly as a result of volatile interest rates and general
economic conditions.
(6) HEALTH CARE SECTOR: companies engaged in the design, manufacture or
sale of products or services used in connection with health care or
medicine, such as: pharmaceutical companies; firms that design,
manufacture, sell or supply medical, dental and optical products, hardware
or services; companies involved in biotechnology, medical diagnostic and
biochemical research and development; and companies involved in the
operation of health care facilities. Many of these companies are subject to
government regulation, which could affect the price and availability of
their products and services. Also, products and services in this sector
could quickly become obsolete.
(7) INDUSTRIAL GOODS AND SERVICES SECTOR: companies engaged in the
research, development, manufacture or marketing of products, processes or
services related to the agriculture, chemicals, containers, forest
products, non-ferrous metals, steel and pollution control industries, such
as: synthetic and natural materials, for example, chemicals, plastics,
fertilizers, gases, fibers, flavorings and fragrances; paper; wood
products; steel and cement. Certain companies in this sector are subject to
regulation by state and federal authorities, which could require alteration
or cessation of production of a product, payment of fines or cleaning of a
disposal site. In addition, since some of the materials and processes used
by these companies involve hazardous components, there are risks associated
with their production, handling and disposal. The risk of product
obsolescence is also present.
(8) LEISURE SECTOR: companies engaged in the design, production or
distribution of goods or services in the leisure industry, such as:
television and radio broadcast or manufacture; motion pictures and
photography; recordings and musical instruments; publishing; sporting
goods, camping and recreational equipment; sports arenas; toys and games;
amusement and theme parks; travel-related services and airlines; hotels and
motels; fast food and other restaurants; and gaming casinos. Many products
produced by companies in this sector--for example, video and electronic
games--may quickly become obsolete.
(9) RETAILING SECTOR: companies engaged in the retail distribution of
home furnishings, food products, clothing, pharmaceuticals, leisure
products and other consumer goods, such as: department stores;
supermarkets; and retail chains specializing in particular items such as
shoes, toys or pharmaceuticals. The value of securities in this sector will
fluctuate based on consumer spending patterns, which depend on inflation
and interest rates, level of consumer debt and seasonal shopping habits.
The success or failure of a particular company in this highly competitive
sector will depend on such company's ability to predict rapidly changing
consumer tastes.
(10) TECHNOLOGY SECTOR: companies which are expected to have or develop
products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future
automation trends in the office and factory, such as: semiconductors:
computers and peripheral equipment; scientific instruments; computer
software; telecommunications; and electronic components, instruments and
systems. Such companies are sensitive to foreign competition and import
tariffs. Also, many products produced by companies in this sector may
quickly become obsolete.
(11) TRANSPORTATION SECTOR: companies involved in the provision of
transportation of people and products, such as: airlines, railroads and
trucking firms. Revenues of companies in this
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sector will be affected by fluctuations in fuel prices resulting from
domestic and international events, and government regulation of fares.
(12) UTILITIES SECTOR: companies in the public utilities industry and
companies deriving a substantial majority of their revenues through
supplying public utilities such as: companies engaged in the manufacture,
production, generation, transmission and sale of gas and electric energy;
and companies engaged in the communications field, including telephone,
telegraph, satellite, microwave and the provision of other communication
facilities to the public. The gas and electric public utilities industries
are subject to various uncertainties, including the outcome of political
issues concerning the environment, prices of fuel for electric generation,
availability of natural gas, and risks associated with the construction and
operation of nuclear power facilities.
(13) FOREIGN SECTOR: companies whose primary business activity takes
place outside of the United States. The securities of foreign companies
would be heavily influenced by the strength of national economies,
inflation levels and the value of the U.S. dollar versus foreign
currencies. Foreign investments will be subject to certain risks not
generally associated with domestic investments. Such investments may be
favorably or unfavorably affected by changes in interest rates, currency
exchange rates and exchange control regulations, and costs may be incurred
in connection with conversions between currencies. In addition, investments
in foreign countries could be affected by less favorable tax provisions,
less publicly available information, less securities regulation, political
or social instability, limitations on the removal of funds or other assets
of the Managed Sectors Series, expropriation of assets, diplomatic
developments adverse to U.S. investments and difficulties in enforcing
contractual obligations.
Diversified companies will generally be included in the sector of their
predominant industry activity, as determined by the Adviser.
PRINCIPAL SECTORS OF THE UTILITIES INDUSTRY
The principal sectors of the utilities industry in which the Utilities
Series may invest are discussed below.
ELECTRIC--The electric utility industry consists of companies that are
engaged principally in the generation, transmission and sale of electric
energy, although many also provide other energy-related services. Domestic
electric utility companies, in general, recently have been favorably affected
by lower fuel and financing costs and the full or near completion of major
construction programs. In addition, many of these companies recently have
generated cash flows in excess of current operating expenses and construction
expenditures, permitting some degree of diversification into unregulated
businesses. Some electric utilities have also taken advantage of the right to
sell power outside of their traditional geographic areas. Electric utility
companies historically have been subject to the risks associated with
increases in fuel and other operating costs, high interest costs on borrowings
needed for capital construction programs, costs associated with compliance
with environmental and safety regulations and changes in the regulatory
climate.
In the U.S., the construction and operation of nuclear power facilities is
subject to increased scrutiny by, and evolving regulations of, the Nuclear
Regulatory Commission and state agencies having comparable jurisdiction.
Increased scrutiny might result in higher operating costs and higher
88
<PAGE>
capital expenditures, with the risk that the regulators may disallow inclusion
of these costs in rate authorizations or the risk that a company may not be
permitted to operate or complete construction of a facility. In addition,
operators of nuclear power plants may be subject to significant costs for
disposal of nuclear fuel and for the de-commissioning of such plants.
TELECOMMUNICATIONS--The telephone industry is large and highly concentrated.
Companies that distribute telephone services and provide access to the
telephone networks comprise the greatest portion of this segment. Telephone
companies in the U.S. are still experiencing the effects of the breakup of
American Telephone & Telegraph Company, which occurred in 1984. Since 1984,
companies engaged in telephone communication services have expanded their non-
regulated activities into other businesses, including cellular telephone
services, data processing, equipment retailing, computer software and hardware
services, and financial services. This expansion has provided significant
opportunities for certain telephone companies to increase their earnings and
dividends at faster rates than had been allowed in traditionally regulated
businesses. Increasing competition, technological innovations and other
structural changes, however, could adversely affect the profitability of such
utilities.
GAS--Gas transmission companies and gas distribution companies are also
undergoing significant changes. In the U.S., interstate transmission companies
are regulated by the Federal Energy Regulatory Commission, which is reducing
its regulation of the industry. Many companies have diversified into oil and
gas exploration and development, making returns more sensitive to energy
prices. In the recent decade, gas utility companies have been adversely
affected by disruptions in the oil industry and have also been affected by
increased concentration and competition. In the opinion of the Adviser,
however, environmental considerations could improve the gas industry outlook
in the future. For example, natural gas is the cleanest of the hydrocarbon
fuels, and this may result in incremental shifts in fuel consumption toward
natural gas and away from oil and coal.
WATER--Water supply utilities are companies that collect, purify, distribute
and sell water. In the U.S. and around the world, the industry is highly
fragmented because most of the supplies are owned by local authorities.
Companies in this industry are generally mature and are experiencing little or
no per capita volume growth.
89
<PAGE>
APPENDIX E
PORTFOLIO COMPOSITION CHARTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
The charts below show the percentages of the Series' assets at December 31,
1996 invested in bonds assigned to the various rating categories by S&P,
Moody's (provided only for securities not rated by S&P) and Fitch (provided
only for securities not rated by S&P or Moody's) and in unrated bonds
determined by the Adviser to be of comparable quality. For a split rated bond,
the S&P rating is used, and when an S&P rating is unavailable, secondary
sources are selected in the following order: Moody's and Fitch.
HIGH YIELD SERIES
<TABLE>
<CAPTION>
UNRATED
BONDS OF
COMPARABLE
RATING COMPILED RATINGS QUALITY TOTAL
- ------ ---------------- ---------- -----
<S> <C> <C> <C>
AAA/Aaa...................................... -- -- --
AA/Aa........................................ -- -- --
A/A.......................................... -- -- --
BBB/Baa...................................... -- -- --
BB/Ba........................................ 12.76% -- 12.76%
B/B.......................................... 71.66% 2.70% 74.36%
CCC/Caa...................................... 4.33% 0.04% 4.37%
CC/Ca........................................ -- -- --
C/C.......................................... -- -- --
Default...................................... 0.60% -- 0.60%
----- ---- -----
Total...................................... 89.35% 2.74% 92.09%
WORLD ASSET ALLOCATION SERIES
<CAPTION>
UNRATED
BONDS OF
COMPARABLE
RATING COMPILED RATINGS QUALITY TOTAL
- ------ ---------------- ---------- -----
<S> <C> <C> <C>
AAA/Aaa...................................... 3.37% -- 3.37%
AA/Aa........................................ 4.11% -- 4.11%
A/A.......................................... -- -- --
BBB/Baa...................................... 0.33% -- 0.33%
BB/Ba........................................ 1.68% -- 1.68%
B/B.......................................... 7.36% -- 7.36%
CCC/Caa...................................... 0.31% -- 0.31%
CC/Ca........................................ -- -- --
C/C.......................................... -- -- --
Default...................................... -- -- --
----- ---- -----
Total...................................... 17.16% -- 17.16%
</TABLE>
The charts do not necessarily indicate what the composition of the Series'
portfolios will be in subsequent years. Rather, the Series' investment
objectives, policies and restrictions indicate the extent to which the Series
may purchase securities in the various categories.
90
<PAGE>
SUN-1-5/97/185M
MFS/SUN LIFE SERIES TRUST
An Open-End Management Investment Company
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
MAILING ADDRESS:
P.O. Box 1024, Boston, MA 02103
BUSINESS ADDRESS:
500 Boylston Street, Boston, MA 02116
AUDITORS
Deloitte & Touche llp
125 Summer Street, Boston, MA 02110
<PAGE>
MFS/SUN LIFE SERIES TRUST
STATEMENT OF ADDITIONAL INFORMATION MAY 1, 1997
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- -------------------------------------------------------------------------------
<S> <C>
1. Definitions 2
- -------------------------------------------------------------------------------
2. Investment Objectives, Policies and Restrictions 2
- -------------------------------------------------------------------------------
3. Management of the Series Fund 15
Trustees and Officers 15
Investment Adviser 16
Administrator 21
Custodian 21
Shareholder Servicing Agent 22
- -------------------------------------------------------------------------------
4. Independent Accountants and Financial Statements 22
- -------------------------------------------------------------------------------
5. Additional Information with Respect to Shares of Each Series 23
Purchases 23
Exchange Privilege 23
Net Asset Value, Dividends and Distributions 23
Tax Status 25
Description of Shares, Voting Rights and Liabilities 25
- -------------------------------------------------------------------------------
6. Portfolio Transactions and Brokerage Commissions 26
- -------------------------------------------------------------------------------
Appendix 31
- -------------------------------------------------------------------------------
</TABLE>
This Statement of Additional Information, as amended or supplemented from time
to time (the "SAI"), sets forth information which may be of interest to
investors but which is not necessarily included in the Series Fund's
Prospectus dated May 1, 1997. This SAI should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by contacting the
Sun Life Annuity Service Center, P.O. Box 1024, Boston, Massachusetts 02103,
telephone (800) 752-7215.
THIS SAI IS NOT A PROSPECTUS AND IS AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE
INVESTORS ONLY IF PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
1
<PAGE>
1. DEFINITIONS
"Series Fund"-- MFS/Sun Life Series Trust, a Massachusetts business trust. The
Series Fund changed its name from "Compass Series Trust" in
January, 1985. The shares of each series will be used to fund
benefits under variable annuity contracts and variable life
insurance contracts.
"Sun Life of Canada (U.S.)"-- Sun Life Assurance Company of Canada (U.S.), a
Delaware corporation.
"Sun Life (N.Y.)"-- Sun Life Insurance and Annuity Company of New York, a New
York corporation.
"Contracts"-- Variable annuity and variable life insurance contracts issued by
Sun Life of Canada (U.S.), Sun Life (N.Y.) or any of their
affiliated companies.
"Variable Accounts"-- Variable accounts established by Sun Life of Canada
(U.S.), Sun Life (N.Y.) and their affiliated companies to fund
Contracts.
"MFS" or the "Adviser"-- Massachusetts Financial Services Company, a Delaware
corporation.
"Prospectus"-- The Prospectus of the Series Fund, dated May 1, 1997, as
amended or supplemented from time to time.
2. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the twenty series of the Series
Fund are described in the Prospectus. More information about some of the
series' investment instruments and techniques can be found in the Appendix to
this SAI. There can be no assurance that the investment objectives of any
series will be achieved. Shareholder approval is not required to change the
investment objectives of any series or the manner in which each series seeks
to achieve its objectives.
INVESTMENT RESTRICTIONS
The Series Fund has adopted the following policies which apply to the
various series and, except where specifically indicated, cannot be changed
with respect to any series without the approval of the holders of a majority
of the shares of that series (which, as used in this SAI, means the lesser of
(i) 67% or more of the outstanding shares present at a meeting at which
holders of more than 50% of the outstanding shares are represented in person
or by proxy, or (ii) more than 50% of the outstanding shares):
(1) INVESTMENT RESTRICTIONS THAT APPLY TO THE CAPITAL APPRECIATION SERIES,
CONSERVATIVE GROWTH SERIES, GOVERNMENT SECURITIES SERIES, HIGH YIELD SERIES,
MANAGED SECTORS SERIES, MONEY MARKET SERIES, TOTAL RETURN SERIES, WORLD
GOVERNMENTS SERIES AND ZERO COUPON SERIES.
None of these series may, except as indicated:
(1) Enter into repurchase agreements if, as a result of such agreement,
more than 10% of the series' total assets valued at the time of the
transaction would be subject to repurchase agreements maturing in more than
seven days.
2
<PAGE>
(2) Lend money or securities, provided that the making of time or demand
deposits with banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short-term
obligations in accordance with its investment objectives and policies are
not prohibited; and provided that the Conservative Growth Series, Total
Return Series, World Governments Series and Managed Sectors Series may
purchase a portion of an issue of debt securities of types commonly
distributed privately to financial institutions, and provided that this
shall not prohibit the World Governments Series, Total Return Series or
Conservative Growth Series from lending securities in accordance with their
investment objectives or the Managed Sectors Series from purchasing
convertible debt instruments consistent with its investment objectives. For
the purposes of this restriction, the purchase of short-term commercial
paper or a portion of an issue of debt securities which are part of an
issue to the public shall not be considered the making of a loan.
(3) Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to 1/3 of the value of its
total assets, in order to meet redemption requests without immediately
selling any portfolio securities (any such borrowings under this section
will not be collateralized). If, for any reason, the current value of the
total assets of any series falls below an amount equal to three times the
amount of its indebtedness for money borrowed, that series will, within
three business days, reduce its indebtedness to the extent necessary. No
series will borrow for leverage purposes. No series will purchase any
investments while borrowings are outstanding. For this purpose a borrowing
shall not be deemed the issuance of a senior security.
(4) Write, purchase or sell puts, calls or combinations thereof, provided
however that warrants and convertible securities may be purchased and sold
by a series, and provided further that this shall not prevent the Capital
Appreciation Series, the Government Securities Series, the World
Governments Series or the Managed Sectors Series from writing, purchasing
and selling puts, calls or combinations thereof or from purchasing, owning,
holding or selling contracts for the future delivery of securities or
currencies in accordance with their objectives and policies.
(5) Purchase or retain the securities of any issuer if any of the members
of the Board of Trustees or the Directors and Officers of Sun Life of
Canada (U.S.), Sun Life (N.Y.) or MFS own beneficially more than 1/2 of 1%
of the securities of such issuer and together own more than 5% of the
securities of such issuer.
(6) Invest for the purpose of exercising control or management of another
issuer.
(7) Invest in oil, gas or other mineral exploration or development
programs.
(8) Purchase securities of other investment companies, except that the
Government Securities Series may purchase U.S. Government-related
Securities in accordance with its investment objectives and policies; and
except, as regards the Total Return Series, the World Governments Series
and the Managed Sectors Series, by purchase in the open market where no
commission or profit to a sponsor or dealer results from such purchase
other than the customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger or
consolidation; and provided, however that the Managed Sectors Series shall
not purchase the securities of any investment company if such purchase at
the time thereof would cause more than 10% of the series' total assets
(taken at market value) to be invested in the securities of such issuers;
and provided, further, that these series shall not purchase securities
issued by any registered open-end investment company.
3
<PAGE>
(9) Underwrite securities issued by others except to the extent the
series may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of portfolio securities.
(10) Make short sales of securities or purchase any securities on margin
except to obtain such short term credits as may be necessary for the
clearance of transactions; provided that this shall not prevent the Capital
Appreciation Series, Government Securities Series, World Governments Series
or Managed Sectors Series from making margin deposits in connection with
options, Futures Contracts, Options on Futures Contracts, Forward Contracts
or options on foreign currencies; and provided that this shall not prevent
the Total Return Series, Managed Sectors Series or Conservative Growth
Series from making any short sales of securities or selling a security
which it does not own if, by virtue of its ownership of other securities,
the series has, at the time of sale, a right to obtain securities without
payment of further consideration equivalent in kind and amount to the
securities sold and provided that if such right is conditional, the sale is
made upon the same conditions.
(11) Invest in commodities or commodity futures contracts or in real
estate; except that this restriction shall not prevent the Capital
Appreciation Series, Government Securities Series, World Governments Series
or Managed Sectors Series from writing, selling or purchasing Futures
Contracts, Options on Futures Contracts, Forward Contracts or options on
foreign currencies or from holding or selling real estate or mineral
leases, commodities or commodity contracts acquired as a result of the
ownership of securities in accordance with their investment objectives and
policies and provided that this restriction shall not apply to the
Conservative Growth Series;
(2) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE CAPITAL APPRECIATION SERIES
The Capital Appreciation Series will operate under the general investment
restrictions described above. In addition, the Capital Appreciation Series
will not:
(1) Purchase securities of any issuer (other than obligations of, or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 5% of the value of its assets would
be invested in the securities of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer. All
debt securities and all preferred stocks shall each be considered one
class.
(3) Concentrate more than 25% of the value of its assets in any one
industry. Water, communications, electric, and gas utilities shall each be
considered a separate industry.
(4) Invest more than 10% of its total assets in securities of issuers
which are not readily marketable (including repurchase agreements maturing
in more than seven days).
(3) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE CONSERVATIVE GROWTH SERIES
The Conservative Growth Series will operate under the general investment
restrictions described above. In addition, the Conservative Growth Series will
not:
(1) Pledge, mortgage or hypothecate an amount of assets which (taken at
market value) exceeds 15% of its gross assets (taken at the lower of cost
or market value).
(2) Concentrate more than 25% of the value of its assets in any one
industry.
4
<PAGE>
(3) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 5% of the value of its assets would
be invested in the securities of that issuer.
(4) Purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the Conservative Growth Series; or
purchase securities of any issuer if such purchase at the time thereof
would cause the Conservative Growth Series to hold more than 10% of any
class of securities of such issuer. For this purpose all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an issuer
shall be deemed a single class.
(5) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(6) Purchase or sell real estate (including limited partnership interests
but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein) or mineral leases,
commodities or commodity contracts in the ordinary course of its business.
The Conservative Growth Series reserves the freedom of action to hold and
to sell real estate or mineral leases, commodities or commodity contracts
acquired as a result of the ownership of securities, but will not purchase
securities for the purpose of acquiring real estate or mineral leases,
commodities or commodity contracts.
(4) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE GOVERNMENT SECURITIES
SERIES
The Government Securities Series will operate under the general investment
restrictions described above. In addition, the Government Securities Series
will not:
(1) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities that
are backed by the full faith and credit of the United States Government)
if, as a result of such purchase, more than 10% of the value of its assets
would be invested in securities of that issuer (for this purpose,
investments in certificates representing individual interests in pools of
U.S. Treasury securities will be treated as direct investments in U.S.
Treasury obligations).
(2) Purchase more than 10% of any class of securities of any issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class).
(3) Purchase equity securities or voting securities.
(4) Purchase interests in pools of mortgages evidenced by direct pass
through mortgage certificates if, as a result of such purchase, more than
90% of the value of its assets would be evidenced by direct pass through
mortgage certificates.
(5) Invest in securities of issuers which are not readily marketable
(except for repurchase agreements maturing in more than seven days).
(5) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE HIGH YIELD SERIES
The High Yield Series will operate under the general investment restrictions
described above. In addition, the High Yield Series will not:
(1) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 10% of the value of its assets
would be invested in the securities of that issuer.
5
<PAGE>
(2) Concentrate more than 25% of the value of its assets in any one
industry. Water, communications, electric, and gas utilities shall each be
considered a separate industry.
(3) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(6) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE MANAGED SECTORS SERIES:
The Managed Sectors Series will operate under the general investment
restrictions described above. In addition, the Managed Sectors Series will
not:
(1) Purchase the securities of any issuer (other than obligations of, or
guaranteed by the United States government, its agencies or
instrumentalities) if, as to 50% of the series' total assets, such
purchase, at the time thereof, would cause more than 5% of its total
assets, taken at market value, to be invested in the securities of such
issuer.
(2) Purchase voting securities of any issuer if, as to 50% of the value
of the series' assets, such purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of such issuer to be held by
the series.
(3) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
The Managed Sectors Series has also adopted the following nonfundamental
investment policy, which may be changed by the series without approval of its
shareholders. The series' purchase of warrants will not exceed 5% of its
assets. Included within that amount, but not exceeding 2% of assets, may be
warrants for which there is no public market. Any such warrants will be valued
at their market value, except that warrants which are attached to securities
at the time such securities are acquired by the Managed Sectors Series will be
deemed to be without value for the purpose of this restriction.
(7) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE MONEY MARKET SERIES
The Money Market Series will operate under the general investment
restrictions described above. In addition, the Money Market Series will not:
(1) Purchase securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
as a result of such purchase, more than 5% of the value of its assets would
be invested in securities of that issuer.
(2) Purchase more than 10% of any class of securities of any issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class).
(3) Concentrate more than 25% of the value of its assets in any one
industry, provided that this restriction shall not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or certificates of deposit or securities issued or
guaranteed by domestic banks.
(4) Purchase equity securities, voting securities or local or state
government securities.
(5) Invest in securities of issuers which are not readily marketable
(except for repurchase agreements maturing in more than seven days).
6
<PAGE>
(8) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE TOTAL RETURN SERIES:
The Total Return Series will operate under the general investment
restrictions described above. In addition, the Total Return Series will not:
(1) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objectives, up to
25% of its assets, taken at market value at the time of each investment,
may be invested in any one industry.
(2) Purchase the securities of any issuer (other than obligations of, or
guaranteed by the United States government, its agencies or
instrumentalities) if such purchase, at the time thereof, would cause more
than 5% of its total assets, taken at market value, to be invested in the
securities of such issuer.
(3) Purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the series, or purchase securities
of any issuer if such purchase at the time thereof, would cause the series
to hold more than 10% of any class of securities of such issuer. For this
purpose, all indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single class.
(4) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(9) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE WORLD GOVERNMENTS SERIES:
The World Governments Series will operate under the general investment
restrictions described above. In addition the World Governments Series will
not:
(1) Purchase the securities of any issuer (other than obligations of, or
guaranteed by the United States government, its agencies or
instrumentalities) if such purchase at the time thereof would cause more
than 10% of the voting securities of such issuer to be held by the series.
(2) Invest more than 10% of its total assets, taken at market value, in
securities of issuers which are not readily marketable (including
repurchase agreements maturing in more than seven days).
(10) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE ZERO COUPON SERIES
The Zero Coupon Series will operate under the general investment
restrictions described above. In addition, the Zero Coupon Series will not:
(1) Purchase securities of any issuer (other than the U.S. Treasury) if,
as a result of such purchase, more than 10% of the value of its assets
would be invested in securities of that issuer (for this purpose,
investments in certificates representing individual interests in pools of
U.S. Treasury securities will be treated as direct investments in U.S.
Treasury obligations).
(2) Purchase more than 10% of any class of securities of any issuer (for
this purpose all indebtedness of an issuer shall be deemed a single class).
(3) Purchase equity securities, voting securities, securities of agencies
or instrumentalities of the United States Government which are not backed
by the full faith and credit of the United States Treasury.
7
<PAGE>
(4) Invest in securities of issuers which are not readily marketable
(except for repurchase agreements maturing in more than seven days).
PERCENTAGE RESTRICTIONS: With respect to the above restrictions (1) through
(10) applicable to all series except the Emerging Growth Series, Research
Series, World Asset Allocation Series, World Growth Series, World Total Return
Series and the Utilities Series, if a percentage restriction is adhered to at
the time of investment, a later increase or decrease in percentage beyond the
specified limit resulting from a change in values or assets will not be
considered a violation of policy.
(11) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE UTILITIES SERIES
The Utilities Series will not:
(1) Borrow amounts in excess of 33 1/3% of its gross assets, and then
only as a temporary measure for extraordinary or emergency purposes, or
pledge, mortgage or hypothecate its assets (taken at market value) to an
extent greater than 33 1/3% of its gross assets, in each case taken at the
lower of cost or market value and subject to a 300% asset coverage
requirement (for the purpose of this restriction, collateral arrangements
with respect to options, Futures Contracts, Options on Futures Contracts,
Forward Contracts and Options on Foreign Currencies and payments of initial
and variation margin in connection therewith are not considered a pledge of
assets); while such borrowings exceed 5% of the series' gross assets, no
securities may be purchased; however, the series' may complete the purchase
of securities already contracted for;
(2) Underwrite securities issued by other persons except insofar as the
series may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) Invest 25% or more of the market value of its total assets in
securities of issuers in any one industry (excluding obligations of the
U.S. Government and repurchase agreements collateralized by obligations of
the U.S. Government), except that the series will invest at least 25% of
its total assets in the utilities industry;
(4) Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except foreign currencies, Forward Contracts, Futures Contracts, options,
Options on Futures Contracts and Options on Foreign Currencies) in the
ordinary course of its business. The series reserves the freedom of action
to hold and to sell real estate and commodities acquired as a result of the
ownership of securities;
(5) Make loans to other persons except through the lending of its
portfolio securities and except through repurchase agreements. For these
purposes the purchase of commercial paper or all or a portion of an issue
of debt securities shall not be considered the making of a loan;
(6) Invest for the purpose of exercising control or management;
(7) Purchase any securities or evidences of interest therein on margin,
except that the series may obtain such short-term credit as may be
necessary for the clearance of any transactions and except that the series
may make margin deposits in connection with Futures Contracts, Options on
Futures Contracts, Forward Contracts, options and Options on Foreign
Currencies;
(8) Sell any security which the series does not own unless by virtue of
its ownership of other securities the series has at the time of sale a
right to obtain securities without payment of further
8
<PAGE>
consideration equivalent in kind and amount to the securities sold and
provided that if such right is conditional the sale is made upon the same
conditions;
(9) Invest in illiquid investments, including securities which are
subject to legal or contractual restrictions on resale, or for which there
is no readily available market (e.g., trading in the security is suspended
or, in the case of unlisted securities, market makers do not exist or will
not entertain bids or offers), unless the Board of Trustees of the Series
Fund has determined that such securities are liquid based upon trading
markets for the specific security, if more than 15% of the series' assets
(taken at market value) would be invested in such securities.
Except with respect to Investment Restriction (1), these investment
restrictions applicable to the Utilities Series are adhered to at the time of
purchase or utilization of assets; a subsequent change in circumstances will
not be considered to result in a violation of policy.
OTHER INVESTMENT POLICIES THAT APPLY ONLY TO THE UTILITIES SERIES
The Utilities Series has also adopted the following additional
nonfundamental investment policies that may be required by various laws and
administrative positions. These investment policies are not fundamental and
may be changed by the series without approval of its shareholders.
(a) Repurchase agreements maturing in more than seven days will be deemed to
be illiquid for purposes of the series' limitation on investment in illiquid
securities; (b) during the coming year, (i) less than 5% of the series' assets
will be used to engage in short sales permitted by Investment Restriction (8)
above and (ii) purchases of warrants will not exceed 5% of the series' net
assets (included within that amount, but not exceeding 2% of the series' net
assets, may be warrants not listed on the New York or American Stock
Exchange); (c) the series will not invest more than 5% of its total assets in
companies which, including their respective predecessors, have a record of
less than three years' continuous operation; (d) the series will not purchase
or retain in its portfolio any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or Trustee of
the Series Fund, or is a partner, officer or a director of the Adviser, if
after the purchase of the securities of such issuer by the series one or more
of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, of such issuer, and such persons owning more than 1/2 of
1% of such shares or securities together own beneficially more than 5% of such
shares or securities, or both; (e) the series will not write, purchase or sell
any put or call option or any combination thereof, provided that this shall
not prevent the series from writing, purchasing and selling puts, calls or
combinations thereof with respect to securities (including yields on
securities), indexes of securities, foreign currencies and futures contracts;
(f) the series may not purchase voting securities of any issuer if such
purchase, at the time thereof, would cause more than 10% of the outstanding
voting securities of such issuer to be held by the series (for this purpose,
all indebtedness of an issuer shall be deemed a single class and all preferred
stock of an issuer shall be deemed a single class); (g) the series will not
purchase securities issued by any closed-end investment company except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market,
is part of a plan of merger or consolidation; provided, however, that the
series shall not purchase such securities if such purchase at the time thereof
would cause more than 10% of its total assets (taken at market value) to be
invested in the securities of such issuers, or more than 3% of the total
outstanding voting securities of any closed-end investment company to be held
by the series. The
9
<PAGE>
series shall not purchase securities issued by any open-end investment
company; (h) the series will only borrow amounts from banks and then only as
permitted by Investment Restriction (1); and (i) the Board of Trustees of the
Series Fund will determine a security is liquid based upon trading markets for
the specific security as stated in Investment Restriction (9) only if the
security is a Rule 144A restricted security.
(12) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE EMERGING GROWTH SERIES,
RESEARCH GROWTH AND INCOME SERIES, RESEARCH SERIES, VALUE SERIES, WORLD ASSET
ALLOCATION SERIES, WORLD GROWTH SERIES AND WORLD TOTAL RETURN SERIES (see (13)
below for two additional restrictions applicable only to the Emerging Growth
Series and Research Series)
None of these series may, except as indicated:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed, and then only as a temporary measure for extraordinary or
emergency purposes;
(2) underwrite securities issued by other persons except insofar as a
series may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal
in real estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (excluding currencies, any type
of option, any type of futures contract, and Forward Contracts) in the
ordinary course of its business. The series reserve the freedom of action
to hold and to sell real estate, mineral leases, commodities or commodity
contracts (including currencies, any type of option, any type of futures
contract, and Forward Contracts) acquired as a result of the ownership of
securities;
(4) issue any senior securities except as permitted by the 1940 Act. (For
purposes of this restriction, collateral arrangements with respect to any
type of option, any type of swap agreement, Forward Contracts and any type
of futures contract and collateral arrangements with respect to initial and
variation margin are not deemed to be the issuance of a senior security);
(5) make loans to other persons. For these purposes the purchase of
short-term commercial paper, the purchase of a portion or all of an issue
of debt securities, the purchase of loan participations and other direct
indebtedness in accordance with its investment objectives, the lending of
portfolio securities, and the investment of a series' assets in repurchase
agreements shall not be considered the making of a loan; or
(6) purchase any securities of an issuer of a particular industry, if as
a result 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry
(except for obligations issued or guaranteed by the U.S. Government or its
agencies, authorities or instrumentalities and repurchase agreements
collateralized by such obligations).
Except with respect to Investment Restriction (1), these investment
restrictions and the investment restrictions below are adhered to at the time
of purchase or utilization of assets; a subsequent change in circumstances
will not be considered to result in a violation of policy;
10
<PAGE>
OTHER INVESTMENT POLICIES THAT APPLY TO THE EMERGING GROWTH SERIES, RESEARCH
GROWTH AND INCOME SERIES, RESEARCH SERIES, VALUE SERIES, WORLD ASSET
ALLOCATION SERIES, WORLD GROWTH SERIES AND WORLD TOTAL RETURN SERIES
The Emerging Growth Series, Research Growth and Income Series, Research
Series, Value Series, World Asset Allocation Series, World Growth Series and
World Total Return Series have the following additional nonfundamental
policies which may be changed without shareholder approval. Each of these
Series will not:
(1) invest in illiquid investments, including securities subject to legal
or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended, or, in the
case of unlisted securities, where no market exists) if more than 15% of
the series' net assets (taken at market value) would be invested in such
securities. Repurchase agreements maturing in more than seven days will be
deemed to be illiquid for purposes of this limitation. Securities that are
not registered under the 1933 Act and sold in reliance on Rule 144A
thereunder, but are determined to be liquid by the Series Fund's Board of
Trustees (or its delegee), will not be subject to this 15% limitation;
(2) invest more than 5% of the value of the series' net assets, valued at
the lower of cost or market, in warrants. Included within such amount, but
not to exceed 2% of the value of the series' net assets, may be warrants
which are not listed on the New York or American Stock Exchange. Warrants
acquired by a series in units or attached to securities may be deemed to be
without value;
(3) purchase securities issued by any other investment company in excess
of the amount permitted by the 1940 Act, except when such purchase is part
of a plan of merger or consolidation;
(4) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or trustee of the
Series Fund, or is an officer or a director of the Adviser, or any Sub-
Adviser to the series, if one or more of such persons also owns
beneficially more than 1/2 of 1% of the securities of such issuer, and such
persons owning more than 1/2 of 1% of such securities together own
beneficially more than 5% of such securities;
(5) purchase any securities or evidences of interest therein on margin,
except that a Series may obtain such short-term credit as may be necessary
for the clearance of any transaction and except that a series may make
margin deposits in connection with any type of option, any type of futures
contract, any type of swap agreement and Forward Contracts entered into in
accordance with its investment objectives and policies;
(6) sell any security which the series does not own unless by virtue of
its ownership of other securities the series has at the time of sale a
right to obtain securities without payment of further consideration
equivalent in kind and amount to the securities sold and provided that if
such right is conditional, the sale is made upon the same conditions;
(7) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners
and guarantors, have a record of less than three years' continuous
operation or relevant business experience;
(8) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with
respect to any type of option, any type of futures contracts, any type of
swap agreement, Forward Contracts and payments of initial and variation
margin in connection therewith, in each case in accordance with the Series'
investment objectives and policies, are not considered a pledge of assets;
11
<PAGE>
(9) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding
or sale of (i) warrants where the grantor of the warrants is the issuer of
the underlying securities or (ii) put or call options or combinations
thereof with respect to securities, indexes of securities, foreign
currency, any type of swap agreement or any type of futures contracts or
(b) the purchase, ownership, holding or sale of contracts for the future
delivery of securities or currencies, in each case in accordance with the
series' investment objectives and policies;
(10) purchase securities while borrowings pursuant to fundamental
investment restriction (1) exceed 5% of the series' total assets; however,
a series may complete the purchase of securities already contracted for; or
(11) invest for the purpose of exercising control or management.
(13) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE EMERGING GROWTH SERIES AND
THE RESEARCH SERIES.
Neither the Emerging Growth Series nor the Research Series may:
(1) purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market
value) to be invested in the securities of such issuer, other than U.S.
Government securities;
(2) purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting
securities of such issuer to be held by the series; or purchase securities
of any issuer if such purchase at the time thereof would cause the series
to hold more than 10% of any class of securities of such issuer. For this
purpose all indebtedness of an issuer shall be deemed a single class and
all preferred stock of an issuer shall be deemed a single class.
(14) INVESTMENT RESTRICTIONS THAT APPLY ONLY TO THE MFS/FOREIGN & COLONIAL
SERIES
None of these series may, except as indicated:
(1) borrow amounts in excess of 33 1/3% of its assets including amounts
borrowed;
(2) underwrite securities issued by other persons except insofar as a
series may technically be deemed an underwriter under the Securities Act of
1933 in selling a portfolio security;
(3) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein and
securities of companies, such as real estate investment trusts, which deal
in real estate or interests therein), interests in oil, gas or mineral
leases, commodities or commodity contracts (excluding currencies, any type
of option, any type of futures contract, and Forward Contracts) in the
ordinary course of its business. The series reserve the freedom of action
to hold and to sell real estate, mineral leases, commodities or commodity
contracts (including currencies, any type of option, any type of futures
contract, and Forward Contracts) acquired as a result of the ownership of
securities;
(4) issue any senior securities except as permitted by the 1940 Act. (For
purposes of this restriction, collateral arrangements with respect to any
type of option, any type of swap agreement, Forward Contracts and any type
of futures contract and collateral arrangements with respect to initial and
variation margin are not deemed to be the issuance of a senior security);
12
<PAGE>
(5) make loans to other persons. For these purposes the purchase of
short-term commercial paper, the purchase of a portion or all of an issue
of debt securities, the purchase of loan participations and other direct
indebtedness in accordance with its investment objectives, the lending of
portfolio securities, and the investment of a series' assets in repurchase
agreements shall not be considered the making of a loan; or
(6) purchase any securities of an issuer of a particular industry, if as
a result 25% or more of its gross assets would be invested in securities of
issuers whose principal business activities are in the same industry
(except for obligations issued or guaranteed by the U.S. Government or its
agencies, authorities or instrumentalities and repurchase agreements
collateralized by such obligations).
Except with respect to Investment Restriction (1), these investment
restrictions and the investment restrictions below are adhered to at the time
of purchase or utilization of assets; a subsequent change in circumstances
will not be considered to result in a violation of policy;
OTHER INVESTMENT POLICIES THAT APPLY TO THE MFS/FOREIGN & COLONIAL SERIES
The MFS/Foreign & Colonial Series have the following additional
nonfundamental policies which may be changed without shareholder approval.
Each of these series will not:
(1) invest in illiquid investments, including securities subject to legal
or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended, or, in the
case of unlisted securities, where no market exists) if more than 15% of
the series' net assets (taken at market value) would be invested in such
securities. Repurchase agreements maturing in more than seven days will be
deemed to be illiquid for purposes of this limitation. Securities that are
not registered under the 1933 Act and sold in reliance on Rule 144A
thereunder, but are determined to be liquid by the Series Fund's Board of
Trustees (or its delegee), will not be subject to this 15% limitation;
(2) invest more than 10% of the value of the series' net assets, valued
at the lower of cost or market, in warrants. Included within such amount
may be warrants which are not listed on the New York or American Stock
Exchange. Warrants acquired by a series in units or attached to securities
may be deemed to be without value;
(3) purchase securities issued by any other investment company in excess
of the amount permitted by the 1940 Act, except when such purchase is part
of a plan of merger or consolidation;
(4) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer or trustee of the
Series Fund, or is an officer or a director of the Adviser, or any Sub-
Adviser to the series, if one or more of such persons also owns
beneficially more than 1/2 of 1% of the securities of such issuer, and such
persons owning more than 1/2 of 1% of such securities together own
beneficially more than 5% of such securities;
(5) purchase any securities or evidences of interest therein on margin,
except that a series may obtain such short-term credit as may be necessary
for the clearance of any transaction and except that a series may make
margin deposits in connection with any type of option, any type of futures
contract, any type of swap agreement and Forward Contracts;
(6) sell any security which the series does not own unless by virtue of
its ownership of other securities the series has at the time of sale a
right to obtain securities without payment of further
13
<PAGE>
consideration equivalent in kind and amount to the securities sold and
provided that if such right is conditional, the sale is made upon the same
conditions;
(7) invest more than 5% of its gross assets in companies which, including
predecessors, controlling persons, sponsoring entities, general partners
and guarantors, have a record of less than three years' continuous
operation or relevant business experience;
(8) pledge, mortgage or hypothecate in excess of 33 1/3% of its gross
assets. For purposes of this restriction, collateral arrangements with
respect to any type of option, any type of futures contracts, any type of
swap agreement, Forward Contracts and payments of initial and variation
margin in connection therewith are not considered a pledge of assets;
(9) borrow, except as a temporary measure for extraordinary or emergency
purposes;
(10) purchase or sell any put or call option or any combination thereof,
provided that this shall not prevent (a) the purchase, ownership, holding
or sale of (i) warrants where the grantor of the warrants is the issuer of
the underlying securities or (ii) put or call options or combinations
thereof with respect to securities, indexes of securities, or foreign
currency, or (iii) any type of swap agreement or any type of futures
contracts or (b) the purchase, ownership, holding or sale of contracts for
the future delivery of securities or currencies; or
(11) invest for the purpose of exercising control or management.
----------------
INSURANCE LAW RESTRICTIONS: In connection with the Series Fund's agreement
to sell shares to the Variable Accounts, MFS and Sun Life of Canada (U.S.),
Sun Life (N.Y.) or any of their affiliated companies may enter into
agreements, required by certain state insurance departments, under which MFS
may agree to use its best efforts to ensure that the Series Fund complies with
the investment restrictions and limitations prescribed by state insurance
laws, and the regulations promulgated thereunder, insofar as such investment
restrictions and limitations are applicable to the investment of assets of the
Variable Accounts in shares of the Series Fund, and to permit Sun Life of
Canada (U.S.), Sun Life (N.Y.) or any of their affiliated companies to monitor
investments made by the Series Fund to ensure compliance with those
restrictions and limitations. If the Series Fund fails to comply with such
restrictions or limitations, the Variable Accounts will take appropriate
action which might include ceasing to make investments in the Series Fund or
ceasing to issue Contracts in the state imposing the limitation. It is not
expected that such restrictions and limitations will have a significant impact
on the operations of the Series Fund.
14
<PAGE>
3. MANAGEMENT OF THE SERIES FUND
The Series Fund's Board of Trustees provides broad supervision over the
affairs of the Series Fund. MFS is responsible for the investment management
of each series, and the officers of the Series Fund are responsible for the
Series Fund's operations. The Trustees and officers are listed below, together
with their principal occupations during the past five years. (Their titles may
have varied during that period.)
TRUSTEES
SAMUEL ADAMS (born 10/19/25) GARTH MARSTON (born 4/28/26)
Partner, Warner & Stackpole (Attorneys) Chairman-Retired, Provident
Address: 75 State Street, Boston, Institution for Savings
Massachusetts Address: 90 Beacon Street, Boston,
Massachusetts
JOHN D. McNEIL*, Chairman DAVID D. HORN* (born 6/7/41)
(born 2/17/34) Senior Vice President and General
Chairman and Director, Sun Life Manager, Sun Life Assurance Company
Assurance Company of Canada of Canada
Address: 150 King Street West, Address: One Sun Life Executive Park,
Toronto, Ontario, Canada Wellesley Hills,
Massachusetts
GEOFFREY CROFTS (born 5/12/24) DERWYN F. PHILLIPS (born 8/31/30)
Professor Emeritus, University Vice Chairman-Retired, The Gillette
of Hartford Company
Address: 74 Scott Drive, Bloomfield, Address: One Cliff Street,
Connecticut Marblehead, Massachusetts
----------------
OFFICERS
W. THOMAS LONDON*, Treasurer (born 3/1/44)
STEPHEN E. CAVAN,* Secretary and
Senior Vice President and Clerk (born 11/6/53)
Assistant Treasurer, Senior Vice President, General
Massachusetts Financial Services Counsel and Assistant Secretary,
Company Massachusetts Financial Services
Address: 500 Boylston Street, Company
Boston, Massachusetts Address: 500 Boylston Street, Boston,
Massachuetts
JAMES O. YOST*, Assistant Treasurer JAMES R. BORDEWICK, JR.,* Assistant
(born (6/12/60) Secretary (born 3/6/59)
Vice President, Massachusetts Senior Vice President and Associate
General Counsel,
Financial Services Massachusetts Financial Services
Company, Company
Address: 500 Boylston Street, Address: 500 Boylston Street, Boston,
Boston, Massachusetts Massachusetts
- --------
* "Interested persons" (as defined in the 1940 Act) of MFS whose address is
500 Boylston Street, Boston, Massachusetts.
All of the Trustees are also Members of the Boards of Managers of Money
Market Variable Account, High Yield Variable Account, Capital Appreciation
Variable Account, Government Securities Variable Account, World Governments
Variable Account, Total Return Variable Account and Managed Sectors Variable
Account, which were established by Sun Life of Canada (U.S.) in connection
with the sale of Compass combination fixed/variable annuity contracts. The
officers of the Series Fund hold similar offices for these variable accounts.
Mr. McNeil is a Director of MFS, the Series Fund's investment adviser and
Chairman of the Boards of Managers of the aforementioned variable accounts.
No Trustee or Officer owned shares of the Series Fund on the date of this
SAI.
15
<PAGE>
The Series Fund's Declaration of Trust provides that the Series Fund will
indemnify its Trustees and officers against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
offices with the Series Fund, unless it is finally adjudicated or, in case of
a settlement, it has been determined by fair and reasonable means, that they
have not acted in good faith in the reasonable belief that their actions were
in the best interests of the Series Fund. However, no indemnification will be
paid to any Trustee or Officer for any liability to the Series Fund or its
shareholders which arose by reason of his wilful misfeasance, bad faith, gross
negligence or reckless disregard of his duties.
INVESTMENT ADVISER
MFS is the investment adviser of the Series Fund and in such capacity
manages the portfolio of each series. MFS also serves as investment adviser to
the funds in the MFS Family of Funds, and to certain other registered
investment companies established by MFS and/or Sun Life of Canada (U.S.). MFS
Institutional Advisors, Inc., a wholly owned subsidiary of MFS, provides
investment advice to substantial private clients. For information concerning
the allocation by MFS of simultaneous securities transactions for different
clients, see "Portfolio Transactions and Brokerage Commissions."
MFS and its predecessor organizations have a history of money management
dating from 1924. MFS is a subsidiary of Sun Life of Canada (U.S.) which in
turn is a wholly owned subsidiary of Sun Life Assurance Company of Canada
("Sun Life"). The Prospectus contains information with respect to the
management of the Adviser and other investment companies for which MFS serves
as investment adviser.
INVESTMENT ADVISORY AGREEMENTS--MFS manages the series pursuant to
investment advisory agreements as noted below:
<TABLE>
<CAPTION>
DATE OF INVESTMENT
SERIES ADVISORY AGREEMENT
------ ------------------
<S> <C>
Money Market, High Yield and Capital Appreciation........ May 24, 1985
Government Securities, Conservative Growth and Zero Cou- July 23, 1986
pon.....................................................
World Governments, Total Return and Managed Sectors...... January 26, 1988
World Growth and Utilities............................... November 1, 1993
Research, World Asset Allocation and World Total Return.. September 16, 1994
Emerging Growth.......................................... May 1, 1995
Each of the MFS/Foreign & Colonial Series ............... September 1, 1995
Value.................................................... May 1, 1996
Research Growth and Income............................... May 12, 1997
</TABLE>
MFS provides each series of the Series Fund with overall investment advisory
services. Subject to such policies as the Trustees may determine, MFS makes
investment decisions for each series of the Series Fund. For these services,
MFS receives an annual management fee, computed and paid monthly, as disclosed
in the Prospectus under the heading "Management of the Series Fund."
16
<PAGE>
For the fiscal years ended December 31, 1996, 1995 and 1994, the Series paid
the following management fees ("average daily net assets" below has been
abbreviated as "ADNA"):
<TABLE>
<CAPTION>
MANAGEMENT FEES
MANAGEMENT WAIVED BY
FEES PAID FOR ADVISER
FISCAL YEAR % FOR FISCAL YEAR %
SERIES ENDED 1996 ADNA ENDED 1996 ADNA
------ ------------- ---- --------------- -----
<S> <C> <C> <C> <C>
Money Market........................ $1,658,426 0.50% N/A N/A
Government Securities............... 2,121,808 0.55% N/A N/A
High Yield.......................... 1,252,812 0.75% N/A N/A
Capital Appreciation................ 7,006,502 0.75% N/A N/A
Conservative Growth................. 2,320,310 0.55% N/A N/A
World Governments................... 1,091,953 0.75% N/A N/A
Total Return........................ 8,228,127 0.68% N/A N/A
Managed Sectors..................... 1,729,822 0.75% N/A N/A
Zero Coupon......................... 11,094 0.25% N/A N/A
World Growth........................ 1,633,811 0.90% N/A N/A
Research............................ 1,401,185 0.75% N/A N/A
Utilities........................... 418,966 0.75% N/A N/A
World Asset Allocation.............. 390,024 0.75% N/A N/A
World Total Return.................. 194,413 0.75% N/A N/A
Emerging Growth..................... 956,932 0.61% $225,349 0.14%
MFS/Foreign & Colonial International
Growth and Income.................. 185,572 0.78% 44,482 0.19%
MFS/Foreign & Colonial International
Growth(1).......................... N/A N/A 14,479 0.975%
MFS/Foreign & Colonial Emerging
Markets Equity(2).................. N/A N/A 11,151 1.25%
Value(1)............................ N/A N/A 27,382 0.75%
</TABLE>
- --------
(1) From the commencement of investment operations on June 3, 1996.
(2) From the commencement of investment operations on June 5, 1996.
<TABLE>
<CAPTION>
MANAGEMENT FEES
MANAGEMENT WAIVED BY
FEES PAID FOR ADVISER
FISCAL YEAR % FOR FISCAL YEAR %
SERIES ENDED 1995 ADNA ENDED 1995 ADNA
------ ------------- ---- --------------- ----
<S> <C> <C> <C> <C>
Money Market................... $1,204,609 0.50% N/A N/A
Government Securities.......... 1,877,922 0.55% N/A N/A
High Yield..................... 990,965 0.75% N/A N/A
Capital Appreciation........... 4,876,631 0.75% N/A N/A
Conservative Growth............ 1,160,504 0.55% N/A N/A
World Governments.............. 1,136,612 0.75% N/A N/A
Total Return................... 6,671,672 0.70% N/A N/A
Managed Sectors................ 1,202,378 0.75% N/A N/A
Zero Coupon.................... 8,185 0.25% N/A N/A
World Growth................... 1,090,977 0.90% N/A N/A
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT FEES
MANAGEMENT WAIVED BY
FEES PAID FOR ADVISER
FISCAL YEAR % FOR FISCAL YEAR %
SERIES ENDED 1995 ADNA ENDED 1995 ADNA
------ ------------- ---- --------------- ----
<S> <C> <C> <C> <C>
Research...................... $106,482 0.38% $105,489 0.37%
Utilities..................... 70,277 0.24% 148,727 0.51%
World Asset Allocation........ 41,031 0.31% 57,610 0.44%
World Total Return............ 21,382 0.33% 27,327 0.42%
Emerging Growth(1)............ N/A N/A 149,156 0.75%
MFS/Foreign & Colonial
International Growth and
Income(2).................... N/A N/A 7,653 0.98%
</TABLE>
- --------
(1) From the commencement of investment operations on May 1, 1995.
(2) From the commencement of investment operations on October 2, 1995.
<TABLE>
<CAPTION>
MANAGEMENT FEES
MANAGEMENT WAIVED BY
FEES PAID FOR ADVISER
FISCAL YEAR % FOR FISCAL YEAR %
SERIES ENDED 1994 ADNA ENDED 1994 ADNA
------ ------------- ---- --------------- ----
<S> <C> <C> <C> <C>
Money Market......................... $1,090,506 0.50% N/A N/A
Government Securities................ 1,872,095 0.55% N/A N/A
High Yield........................... 745,658 0.75% N/A N/A
Capital Appreciation................. 3,421,246 0.75% N/A N/A
Conservative Growth.................. 699,509 0.55% N/A N/A
World Governments.................... 1,086,621 0.75% N/A N/A
Total Return......................... 5,700,358 0.68% N/A N/A
Managed Sectors...................... 843,914 0.75% N/A N/A
Zero Coupon.......................... 21,500 0.25% N/A N/A
Research............................. N/A N/A $ 2,145 0.75%
Utilities............................ N/A N/A 109,624 0.75%
World Asset Allocation(1)............ N/A N/A 1,577 0.75%
World Total Return(1)................ N/A N/A 773 0.75%
World Growth......................... 111,479 0.17% 472,698 0.73%
</TABLE>
- --------
(1) From the commencement of investment operations on November 7, 1994.
Subject to termination or revision at the sole discretion of MFS, MFS has
agreed to bear the expenses of the MFS/Foreign & Colonial Emerging Markets
Equity Series and the Research Growth and Income Series such that each such
series' "Total Operating Expenses," which are defined to include all series'
expenses except for interest, taxes, brokerage commissions and extraordinary
expenses, do not exceed 1.50% per annum of its average daily net assets (the
"Maximum Percentage"). The obligation of MFS to bear these expenses terminates
on the last day of the Series' fiscal year in which such series' "Total
Operating Expenses" are less than or equal to the Maximum Percentage.
MFS has agreed to bear the expenses of the
Capital Appreciation Series
Conservative Growth Series
Government Securities Series
18
<PAGE>
High Yield Series
Managed Sectors Series
Money Market Series
Total Return Series
World Governments Series and
Zero Coupon Series
such that each such series' "Total Operating Expenses," which are defined to
include all series' expenses except for interest, taxes, brokerage commissions
and extraordinary expenses, do not exceed 1.25% per annum of its average daily
net assets. The obligation of MFS to bear these expenses continues
indefinitely.
The Series Fund pays the compensation of the four Trustees who are not
affiliated with MFS or Sun Life of Canada (U.S.) (who will each receive from
the Series Fund $1,500 to $3,300 annually, depending on attendance at
meetings) and all expenses (other than those assumed by MFS), including
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Series Fund, fees and expenses of
independent auditors, of legal counsel and of any transfer agent or registrar
of the Series Fund, expenses of repurchasing and redeeming shares, expenses of
preparing, printing and mailing shareholder reports, notices, proxy statements
and reports to governmental officers and commissions, brokerage and other
expenses connected with the execution, recording and settlement of portfolio
security transactions including currency conversion costs, insurance premiums,
fees and expenses of State Street Bank and Trust Company, the Series Fund's
Custodian, for all services to the Series Fund, including safekeeping of funds
and securities and maintaining required books and accounts, expenses of
calculating the net asset value of the shares of each series, and expenses of
shareholder meetings. Payment by the Series Fund of brokerage commissions for
brokerage and research services of value to MFS in serving its clients is
discussed under the caption "Portfolio Transactions and Brokerage
Commissions." Expenses of the Series Fund which are not attributable to a
specific series are allocated among the series in a manner believed to be fair
and equitable to each.
The Investment Advisory Agreements will remain in effect until November 1,
1997 (except for the Investment Advisory Agreement for the Research Growth and
Income Series, which will remain in effect until May 12, 1999) and will
continue in effect thereafter only if such continuance is specifically
approved at least annually by the Series Fund's Board of Trustees or by the
vote of a majority of the outstanding voting securities of each series and, in
either case, by a majority of the Trustees who are not parties to the Advisory
Agreements or interested persons of any such party. The Advisory Agreements
terminate automatically if assigned and, since they are severable with respect
to each series, may be terminated with respect to any series without penalty
by vote of a majority of the outstanding voting securities of that series or
by either party on not more than 60 days' nor less than 30 days' written
notice. The Advisory Agreements provide that MFS may render services to others
and that neither MFS nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution and management of the Series Fund,
except for wilful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its
obligations and duties under the Advisory Agreements.
19
<PAGE>
SUB-ADVISER TO THE MFS/FOREIGN & COLONIAL SERIES
As discussed in the Prospectus, FCM serves as sub-adviser to the MFS/Foreign
& Colonial Series pursuant to separate Sub-Advisory Agreements, each dated
September 1, 1995, between the Adviser and FCM (the "FCM Sub-Advisory
Agreements"). FCEM serves as sub-adviser to the MFS/Foreign & Colonial Series
pursuant to separate Sub-Advisory Agreements, each dated September 1, 1995,
between FCM and FCEM (the "FCEM Sub-Advisory Agreements").
Each Sub-Advisory Agreement will remain in effect until November 1, 1997,
and will continue in effect thereafter only if such continuance is
specifically approved at least annually by the Series Fund's Board of Trustees
or by the vote of a majority of the relevant series' outstanding voting
securities, and, in either case, by a majority of the Trustees who are not
parties to the Sub-Advisory Agreement or interested persons of any such party.
Each FCM Sub-Advisory Agreement terminates automatically if it is assigned or
if the Advisory Agreement has terminated for any reason, and may be terminated
without penalty by the Trustees, by vote of a majority of the relevant series'
outstanding voting securities, by the Adviser on not less than 30 days' nor
more than 60 days' written notice or by FCM on not less than 60 days' nor more
than 90 days' written notice. Each FCEM Sub-Advisory Agreement terminates
automatically if it is assigned or in the event that the FCM Sub-Advisory
Agreement or the Advisory Agreement shall have terminated for any reason, and
may be terminated without penalty by the Trustees, by vote of a majority of
the relevant series' outstanding voting securities, by the Adviser or by FCM
on not less than 30 days' nor more than 60 days' written notice or by FCEM on
not less than 60 days' nor more than 90 days' written notice.
Each FCM Sub-Advisory Agreement provides that if FCM ceases to serve as the
sub-adviser to the series, the series will change its name so as to delete the
words "Foreign & Colonial" and that FCM may render services to others and may
permit other fund clients to use the words "Foreign & Colonial" in their
names. Each Sub-Advisory Agreement specifically provides that neither FCM or
FCEM, as the case may be, nor its personnel shall be liable for any error of
judgment or mistake of law or for any loss arising out of any investment or
for any act or omission in the execution and management of the relevant
series, except for wilful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its
or their obligations and duties under the Sub-Advisory Agreement.
For the periods ended December 31, 1996 and 1995, FCM received and/or waived
the following fees:
<TABLE>
<CAPTION>
RECEIVED WAIVED RECEIVED WAIVED
SERIES 1996 1996 1995 1995
------ -------- ------- -------- ------
<S> <C> <C> <C> <C>
MFS/F&C International Growth................... N/A $11,880 N/A N/A
MFS/F&C International Growth and Income........ $113,776 $25,053 N/A $721
MFS/F&C Emerging Markets Equity................ N/A $ 8,964 N/A N/A
</TABLE>
SUB-ADVISERS TO THE WORLD GROWTH SERIES
As discussed in the Prospectus, FCM and FCEM also serve as sub-advisers to
the World Growth Series. FCM serves as sub-adviser to the series pursuant to a
Sub-Advisory Agreement dated May 1, 1996, between MFS and FCM. FCEM serves as
sub-adviser to the series pursuant to a Sub-Investment Advisory Agreement
dated May 1, 1996, between FCM and FCEM. The terms of these
20
<PAGE>
agreements are substantially similar to the FCM and FCEM Sub-Advisory
Agreements discussed above.
Prior to May 1, 1996 and November 1, 1996, MFS had retained Batterymarch
Financial Management, Inc. ("Batterymarch") and Oechsle International
Advisers, Inc. ("Oechsle"), respectively, as sub-advisers to the World Growth
Series. Under this arrangement, the World Growth Series paid an investment
advisory fee to MFS and MFS paid sub-advisory fees to Batterymarch and
Oechsle.
On April 29, 1996, shareholders of the World Growth Series approved the
replacement of Batterymarch as a sub-adviser to the World Growth Series with
FCM and its subsidiary, FCEM. Effective November 1, 1996, MFS terminated
Oechsle as a sub-adviser to the World Growth Series. On November 1, 1996, MFS
began managing the assets of the World Growth Series previously managed by
Oechsle. These assets are managed by MFS using a committee of investment
research analysts as described in the Prospectus under the caption "Management
of the Series Fund--Investment Adviser." A further description of FCM and FCEM
is contained in the Prospectus under the caption "Management of the Series
Fund--Sub-Investment Advisers."
For the periods ended December 31, 1996 and 1995, Batterymarch, Oechsle and
FCM received the following fees:
<TABLE>
<CAPTION>
SUB-ADVISER 1996 1995
----------- -------- --------
<S> <C> <C>
Batterymarch.................................................. $110,377 $206,294
Oechsle....................................................... 223,505 180,863
FCM........................................................... 268,449 N/A
</TABLE>
ADMINISTRATOR
MFS provides each series with certain administrative services pursuant to a
Master Administrative Services Agreement dated March 1, 1997. Under this
Agreement, MFS provides each series with certain financial, legal, compliance,
shareholder communications and other administrative services. As a partial
reimbursement for the cost of providing these services. Each series' pays MFS
an administrative fee up to 0.015% per annum of each series' average daily net
assets, provided that the administrative fee is not assessed on series' assets
that exceed $3 billion.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian") is the custodian of
the Series Fund's assets. The Custodian's responsibilities include safekeeping
and controlling the Series Fund's cash and securities, handling the receipt
and delivery of securities, determining income and collecting interest and
dividends on the Series Fund's investments, maintaining books of original
entry for portfolio and fund accounting and other required books and accounts,
and calculating the daily net asset value, public offering price and
redemption price of shares of the Series Fund. The Custodian has contracted
with the Adviser for the Adviser to perform certain accounting functions
related to options transactions for which the Adviser receives remuneration on
a cost basis. The Custodian does not determine the investment policies of the
Series Fund or decide which securities the Series Fund will buy or sell. The
Series Fund may, however, invest in securities of the Custodian and may deal
with the Custodian as principal in securities transactions. Portfolio
securities may be deposited into the Federal Reserve--Treasury Department Book
Entry System, the Depository Trust Company, or the Mortgage Backed Securities
Clearing Corporation.
21
<PAGE>
TRUSTEE COMPENSATION TABLE
<TABLE>
<CAPTION>
TRUSTEE FEES TOTAL TRUSTEE FEES
FROM EACH FROM SERIES FUND
TRUSTEE SERIES AND FUND COMPLEX(2)
------- ------------ -------------------
<S> <C> <C>
Samuel Adams............................. $158 $23,500
Geoffrey Crofts.......................... 174 26,200
David D. Horn............................ 0 0**
John D. McNeil........................... 0 0**
Garth Marston............................ 158 23,500
Derwyn F. Phillips....................... 158 23,500
</TABLE>
- --------
(1) For the year ended December 31, 1996.
(2) Information provided for calendar year 1996. All Trustees receiving
compensation from the Series Fund served as Trustees of 27 funds within
the MFS Fund complex having aggregate net assets at December 31, 1996 of
$6.9 billion.
** Messrs. Horn and McNeil are affiliated with MFS and receive no compensation
from the Series Fund.
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc. (the "Shareholder Servicing Agent"), a wholly owned
subsidiary of MFS, is the Series Fund's shareholder servicing agent, pursuant
to a Shareholder Servicing Agreement effective August 1, 1985 (the "Agency
Agreement") with the Series Fund. The Shareholder Servicing Agent's
responsibilities under the Agency Agreement include administering and
performing transfer agent functions and the keeping of records in connection
with the issuance, transfer and redemption of the shares of the Series Fund.
In addition, State Street Bank and Trust Company, the dividend and
distribution disbursing agent for the Series Fund, has contracted with the
Shareholder Servicing Agent to administer and perform certain dividend and
distribution disbursing functions for the Series Fund. For these services, the
Shareholder Servicing Agent will receive a fee based on the number of accounts
in the Series Fund, computed and paid monthly. In addition, the Shareholder
Servicing Agent will be reimbursed by the Series Fund for certain expenses
incurred by the Shareholder Servicing Agent on behalf of the Series Fund.
4. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
The financial statements incorporated in this SAI by reference from the
Series Fund's Annual Report to shareholders for the year ended December 31,
1996 have been audited by Deloitte & Touche llp, independent auditors, as
stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing. A copy of the Annual Report
accompanies this SAI.
22
<PAGE>
5. ADDITIONAL INFORMATION WITH RESPECT TO SHARES OF EACH SERIES
PURCHASES
Sun Life of Canada (U.S.) and Sun Life (N.Y.) buy shares of each series for
their Variable Accounts without a sales charge at their net asset value
through the allocation of purchase payments made under Contracts issued by Sun
Life of Canada (U.S.) and Sun Life (N.Y.) in accordance with the allocation
instructions received from owners of the Contracts.
EXCHANGE PRIVILEGE
Shares of any series of the Series Fund may be exchanged for shares of any
other series of the Series Fund (if shares of that series are available for
purchase) at net asset value so as to facilitate exchanges among Sub-Accounts
of the Variable Accounts, as described in the prospectuses for the Variable
Accounts. See the Prospectus for a further discussion of the exchange
privilege.
NET ASSET VALUE, DIVIDENDS AND DISTRIBUTIONS
The Net Asset Value of each series is determined once daily as of the close
of regular trading on the New York Stock Exchange on each day the Exchange is
open for trading. As of the date of this SAI, the Exchange is open for trading
every weekday except for the following holidays (or the days on which they are
observed): New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
MONEY MARKET SERIES--All the Net Income, as defined below, of the Money
Market Series determined at the times stated above is declared as a dividend
to its shareholders at the time of such determination. (Shares purchased
become entitled to dividends declared as of the first day following the date
of investment.) Dividends are distributed on the last business day of each
month. If paid in the form of additonal shares, dividends are paid at the rate
of one share (and fraction thereof) for each one dollar (and fraction thereof)
of dividend income attributable to the Money Market Series.
For this purpose the Net Income of the Money Market Series (from the time of
the immediately preceding determination thereof) shall consist of (i) all
interest income accrued on the portfolio assets of the series, (ii) less all
actual and accrued expenses of the series determined in accordance with
generally accepted accounting principles, and (iii) plus or minus net realized
or net unrealized gains and losses on the assets of the series. Interest
income shall include discount earned (including both original issue and market
discount) on discount paper accrued ratably to the date of maturity.
Securities are valued at amortized cost, which the Trustees have determined in
good faith constitutes fair value for the purposes of complying with the 1940
Act. This valuation method will continue to be used until such time as the
Trustees determine that it does not constitute fair value for such purposes.
Since the Net Income of the Money Market Series is declared as a dividend
each time the Net Income of that series is determined, the net asset value per
share of that series (i.e., the value of the net assets of that series divided
by the number of its shares outstanding) remains at $1.00 per share
immediately after each such determination and dividend declaration.
It is expected that the Money Market Series will have a positive Net Income
at the time of each determination thereof. If for any reason the Net Income
determined at any time is a negative amount,
23
<PAGE>
which could occur, for instance, upon default by an issuer of a portfolio
security, the Series Fund will first offset the negative amount with respect
to each shareholder account against the dividends declared during the month
with respect to each such account. If and to the extent that such negative
amount exceeds such declared dividends at the end of the month, the Series
Fund will reduce the number of outstanding shares of the Money Market Series
by treating each shareholder of that series as having contributed to the
capital of that series that number of full and fractional shares in the
account of such shareholder which represents his proportion of the negative
amount. Each shareholder of the Money Market Series will be deemed to have
agreed to such contribution in these circumstances by his investment in that
series. This procedure will permit the net asset value per share of the Money
Market Series to be maintained at a constant $1.00 per share. There can be no
assurance that the Money Market Series will be able to maintain a stable net
asset value of $1.00 per share other than by such offset of dividends or
reduction in the number of shares in a shareholder account.
ALL SERIES OTHER THAN THE MONEY MARKET SERIES--With respect to these series,
the determination of net asset value per share is made by deducting the
liabilities of each series from the value of its assets and dividing the
difference by the number of its shares outstanding. Equity securities in the
portfolio of a series are normally valued at the last sale price during
regular hours on the exchange on which they are primarily traded or on the
NASDAQ system for unlisted national market issues, or at the last quoted bid
price for unlisted securities or listed securities in which there were no
sales during that day. Debt securities of U.S. issuers (other than short-term
obligations) in the portfolio of any of these series are normally valued on
the basis of valuations provided by a pricing service since such prices are
believed to reflect the fair value of such securities. Prices provided by the
pricing service may be determined without exclusive reliance on quoted prices
and may take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics and other market data.
Forward Contracts will be valued using a pricing model taking into
consideration market data from an external pricing source. Use of the pricing
services has been approved by the Board of Trustees. Short-term obligations in
the portfolios of any of these series (i.e., obligations maturing in not more
than sixty days) are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer supplied valuations.
All other securities, futures contracts and options in the series' portfolio
(other than short-term obligations) for which the principal market is one or
more securities or commodities exchanges (whether domestic or foreign) will be
valued at the last reported sale price or at the settlement price prior to the
determination (or if there has been no current sale, at the closing bid price)
on the primary exchange on which such securities, futures contracts or options
are traded; but if a securities exchange is not the principal market for
securities, such securities will, if market quotations are readily available,
be valued at current bid prices, unless such securities are reported on the
NASDAQ system, in which case they are valued at the last sale price or, if no
sales occurred during the day, at the last quoted bid price. Portfolio
securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Board of
Trustees.
All investments and assets are expressed in U.S. dollars based upon current
currency exchange rates.
Generally, trading in foreign securities is substantially completed each day
at various times prior to the close of regular trading on the exchange.
Occasionally, events affecting the values of such
24
<PAGE>
securities may occur between the times at which they are determined and the
close of regular trading on the exchange which will not be reflected in the
computation of the series' net asset value unless the Trustees deem that such
event would materially affect the net asset value in which case an adjustment
would be made.
The Conservative Growth Series, High Yield Series, Government Securities
Series, Research Growth and Income Series, World Governments Series, Total
Return Series, Zero Coupon Series and Utilities Series receive dividends,
interest or other earnings from substantially all of their investments.
Substantially all of the net income of all series (other than the Money Market
Series, which is discussed above) is paid to their shareholders as a dividend
at least annually. Each series will also distribute its net profits from the
sale of securities, if any, on at least an annual basis.
DISTRIBUTIONS--The Variable Accounts can choose to receive distributions
from the Series Fund in either cash or additional shares. It is expected that
the Variable Accounts will choose to receive distributions in additional
shares. If the Variable Accounts choose to receive distributions in cash, they
will reinvest the cash in the Series Fund to purchase additional shares at
their net asset value.
TAX STATUS
Each series is treated as a separate entity for federal income tax purposes.
Each individual series of the Series Fund intends to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended, and to distribute all of its net investment
income and realized capital gains to its shareholders, and should, therefore,
pay no federal income tax. Distributions by the Series Fund, to the extent
applied to increase reserves under the Contracts, are not taxable to Sun Life
of Canada (U.S.) or Sun Life (N.Y.).
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional Shares of Beneficial Interest (without par value) and
to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interests in the Series
Fund. The Series Fund presently has twenty series of shares and has reserved
the right to create additional series of shares. Each share of a series
represents an equal proportionate interest in that series with each other
share of that series. Shares of each series participate equally in the
earnings, dividends and assets of that series. Shares when issued are fully
paid and non-assessable. Shares of each series are entitled to vote separately
to approve investment advisory agreements or changes in investment
restrictions, but shares of all series would vote together in the election or
selection of Trustees and accountants. Upon liquidation of the Series Fund,
shareholders of each series would be entitled to share pro rata in the net
assets of their respective series available for distribution to shareholders.
Shareholders are entitled to one vote for each share held and may vote in
the election of Trustees and on other matters submitted to meetings of
shareholders. Although Trustees are not elected annually by the shareholders,
shareholders have under certain circumstances the right to remove one or more
Trustees. No material amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding shares of the
Series Fund. For a discussion of the
25
<PAGE>
manner in which the Variable Account will vote its shares, see the
prospectuses for the Contracts. No shares of any series have pre-emptive or
conversion rights. The Series Fund may be terminated (i) upon the sale of its
assets to another open-end management investment company, if approved by the
vote of the holders of a majority (as defined in the 1940 Act) of the
outstanding shares of the Series Fund, or (ii) upon liquidation and
distribution of the assets of the Series Fund, if approved by the vote of the
holders of a majority (as defined in the Investment Company Act of 1940) of
the outstanding shares of the Series Fund, or (iii) by the Trustees by written
notice to the shareholders of the Series Fund. If not so terminated, the
Series Fund will continue indefinitely.
The Series Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of any series of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Series Fund. However, the Declaration of Trust
contains an express disclaimer of shareholder liability for acts or
obligations of the Series Fund and provides for indemnification and
reimbursement of expenses out of the Series Fund property for any shareholder
held personally liable for the obligations of the Series Fund. The Declaration
of Trust also provides that the Series Fund shall maintain appropriate
insurance (for example, fidelity bonding or errors and omissions insurance)
for the protection of the Series Fund, shareholders of each of its series,
Trustees, officers, employees and agents covering possible tort and other
liabilities. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Series Fund itself was unable to meet its
obligations.
The Declaration of Trust further provides that obligations of the Series
Fund are not binding upon the Trustees individually but only upon the property
of the Series Fund and that the Trustees will not be liable for errors of
judgment or mistakes of fact or law, but nothing in the Declaration of Trust
protects a Trustee against any liability to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
6. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
Specific decisions to purchase or sell securities for each series or sub-
series of the Series Fund are made by a portfolio manager for that series or
sub-series each of whom is an employee of MFS appointed and supervised by its
senior officers or by persons affiliated with a Sub-Adviser. Any such person
may serve other clients of the Adviser or a Sub-Adviser or any subsidiary of
the Adviser or a Sub-Adviser in a similar capacity. Changes in the investments
of each series are reviewed by the Board of Trustees.
The primary consideration in placing portfolio security transactions for
each series is "best execution," i.e., execution at the most favorable prices
and in the most effective manner possible. In certain instances there may be
securities which are suitable for the portfolio of one or more series of the
Series Fund as well as for that of one or more of the Adviser's or a Sub-
Adviser's other clients. Investment decisions for each series of the Series
Fund and for such other clients are made with a view to achieving their
respective investment objectives. It may develop that a particular security is
bought or sold for only one client even though it might be held by, or bought
or sold for, other clients.
26
<PAGE>
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice
from the same investment adviser, particularly when the same security is
suitable for the investment objectives of more than one client. When two or
more clients are simultaneously engaged in the purchase or sale of the same
security, the securities are allocated among clients in a manner believed to
be equitable to each. It is recognized that in some cases this system could
have a detrimental effect on the price or volume of the security as far as any
series of the Series Fund is concerned. In other cases, however, the Series
Fund believes that the ability of the series to participate in volume
transactions will produce better executions for the series.
Consistent with the foregoing primary consideration, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser or a Sub-Adviser may
consider the sale of Contracts, and thus the sale of Series Fund shares
through the allocation of purchase payments from the Contracts, as a factor in
the selection of broker-dealers to execute the Series Fund's portfolio
transactions.
MONEY MARKET SERIES--MFS has complete freedom as to the markets in and the
broker-dealers through which it seeks to achieve "best execution." It is
expected that most transactions will be with the issuer or with major dealers
acting for their own account and not as brokers. Subject to the requirement of
seeking "best execution," securities may be bought from or sold to broker-
dealers who have furnished research and investment services to MFS. Such
research and investment services are those which brokerage houses customarily
provide to institutional investors and include statistical and economic data
and research reports on particular companies and industries. In placing orders
with such broker-dealers MFS will, where possible, take into account the
comparative usefulness of such research and investment services. Such research
and investment services are useful to MFS even though their dollar value may
be indeterminable and their receipt or availability generally does not reduce
the normal research activities or expenses of MFS.
ALL SERIES OTHER THAN THE MONEY MARKET SERIES--MFS has complete freedom as
to the markets in and the broker-dealers through which it seeks to achieve
"best execution." The Equity Trading Department of MFS or a Sub-Adviser, which
also serves other clients of MFS or a Sub-Adviser, attempts to achieve "best
execution" by selecting broker-dealers to execute portfolio transactions on
behalf of the Series Fund and other clients of MFS or a Sub-Adviser on the
basis of their professional capability, the value and quality of their
brokerage services and the level of their brokerage commissions. In the United
States and some other countries debt securities are traded principally in the
over-the-counter market on a net basis through dealers acting for their own
account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased and sold from and
to dealers include a dealer's mark-up or mark-down. MFS normally seeks to deal
directly with the primary market makers or on major exchanges unless, in its
opinion, better prices are available elsewhere. Subject to the requirement of
seeking execution at the best available price, securities may, as authorized
by the respective Advisory Agreements, be bought from or sold to dealers who
have furnished statistical, research and other information or services to MFS.
From time to time soliciting dealer fees are available to MFS or a Sub-
Adviser on the tender of securities from the portfolio of these series in so-
called tender or exchange offers. Such soliciting
27
<PAGE>
dealer fees are in effect recaptured for these series by the Adviser or a Sub-
Adviser. At present no other recapture arrangements are in effect.
Under the Investment Advisory Agreements and Sub-Advisory Agreements and as
permitted by Section 28(e) of the Securities Exchange Act of 1934, MFS or a
Sub-Adviser may cause these series to pay a broker-dealer which provides
brokerage and research services to such series and MFS or a Sub-Adviser an
amount of commission for effecting a securities transaction for such series in
excess of the amount other broker-dealers would have charged for the
transaction if MFS or a Sub-Adviser determines in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the executing broker-dealer viewed in terms of
either a particular transaction or their overall responsibilities to such
series and to accounts as to which they exercise investment discretion.
The term "brokerage and research services" includes advice as to the value
of securities, the advisability of investing in, purchasing, or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement).
Although commissions paid on every transaction will, in the judgment of MFS
or a Sub-Adviser, be reasonable in relation to the value of the brokerage
services provided, commissions exceeding those which another broker might
charge may be paid to broker-dealers who were selected to execute transactions
on behalf of the series and other clients of MFS or a Sub-Adviser in part for
providing advice as to the availability of securities or of purchasers or
sellers of securities and services in effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.
Broker-dealers may be willing to furnish statistical, research and other
factual information or services ("Research") to MFS or a Sub-Adviser for no
consideration other than brokerage or underwriting commissions. Securities may
be bought or sold from time to time through such broker-dealers on behalf of
the Series Fund.
The investment management personnel of MFS attempt to evaluate the quality
of Research provided by brokers. Results of this effort are sometimes used by
the Adviser as a consideration in the selection of brokers to execute
portfolio transactions. However, MFS is unable to quantify the amount of
commissions which are paid as a result of such Research because a substantial
number of transactions are effected through brokers which provide Research but
which are selected principally because of their execution capabilities.
The management fee paid by the Series Fund to MFS or by MFS to a Sub-Adviser
will not be reduced as a consequence of the receipt of brokerage and research
services. To the extent portfolio transactions of a series are used to obtain
such services, the brokerage commissions paid by such series will exceed those
that might otherwise be paid, for such portfolio transactions, or for such
portfolio transactions and research, by an amount which cannot be presently
determined. Such services would be useful and of value to MFS or a Sub-Adviser
in serving the series and other clients and conversely, such services obtained
by the placement of brokerage business of other clients would
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<PAGE>
be useful to MFS or a Sub-Adviser in carrying out its obligations to the
series. While such services are not expected to reduce the expenses of MFS or
a Sub-Adviser, MFS or a Sub-Adviser would, through use of the services, avoid
the additional expenses which would be incurred if they should attempt to
develop comparable information through their own staff.
The portfolio turnover rates of any series cannot be accurately predicted.
However, it is anticipated that the annual turnover rate for certain series
will exceed 100% (excluding short-term obligations). For example, a 100%
annual portfolio turnover rate would occur if all the securities in a series'
portfolio were replaced once in a period of one year.
For the years ended December 31, 1994, 1995 and 1996, brokerage commissions
paid by the Series were as follows:
<TABLE>
<CAPTION>
TOTAL COMMISSIONS PAID DURING
--------------------------------
SERIES 1994 1995 1996
------ ---------- ---------- ----------
<S> <C> <C> <C>
Capital Appreciation.......................... $1,215,985 $1,644,280 $1,286,630
Conservative Growth........................... 602,120 453,519 599,469
Government Securities......................... 0 0 0
World Governments............................. 0 0 0
High Yield.................................... 340 0 0
Managed Sectors............................... 430,233 691,688 683,756
Total Return.................................. 331,065 745,342 1,053,060
Utilities..................................... 54,179 154,286 198,070
World Growth.................................. 0 0 840,289
Zero Coupon................................... 0 0 0
Research(5)................................... 2,631 223,769 577,244
World Asset Allocation(5)..................... 4,277 114,957 175,327
World Total Return(5)......................... 1,119 76,890 53,646
Emerging Growth(3)............................ 119,816 306,542
MFS/Foreign & Colonial International
Growth(1).................................... N/A N/A 14,450
MFS/Foreign & Colonial International Growth
and Income(4)................................ N/A 1,404 29,935
MFS/Foreign & Colonial Emerging Markets Equi-
ty(2)........................................ N/A N/A 7,951
Value(1)...................................... 19,750
Money Market.................................. 0 0 0
</TABLE>
- --------
(1) From the commencement of investment operations on June 3, 1996.
(2) From the commencement of investment operations on June 5, 1996.
(3) From the commencement of investment operations on May 1, 1995.
(4) From the commencement of investment operations on October 2, 1995.
(5) From the commencement of investment operations on November 7, 1994.
29
<PAGE>
During the year ended December 31, 1996 each of the following Series
purchased and retained securities issued by regular broker-dealers and
affiliates thereof, as follows:
<TABLE>
<CAPTION>
VALUE OF SECURITY AT
SERIES BROKER-DEALER DECEMBER 31, 1996
- ------ ------------- --------------------
<S> <C> <C>
Capital Ap- Ford Motor Credit $13,707,000
preciation
Capital Ap- General Electric Co. 10,965,000
preciation
Conservative General Electric Co. 11,994,000
Growth
Conservative Merrill Lynch, Pierce, Fenner & Smith, Inc. 1,426,000
Growth
Government Goldman Sachs 6,399
Securities
High Yield Merrill Lynch, Pierce, Fenner & Smith, Inc. 420,000
Managed Sec- Ford Motor Credit 5,684,000
tors
Money Market Bank America Corp. 6,912,000
Money Market Ford Motor Credit 11,610,000
Total Return General Electric Co. 15,622,000
Total Return Nationsbank 1,854,000
Total Return Merrill Lynch, Pierce, Fenner & Smith, Inc. 798,000
Total Return Ford Motor Credit 6,320,000
Utilities Ford Motor Credit 230,000
World Growth Ford Motor Credit 9,323,000
World Total General Electric Co. 430,000
Return
World Asset Ford Motor Credit 147,000
Allocation
Emerging Ford Motor Credit 6,094,000
Growth
Value Ford Motor Credit 140,000
</TABLE>
30
<PAGE>
APPENDIX
ADDITIONAL INFORMATION CONCERNING INVESTMENT INSTRUMENTS AND TECHNIQUES
OPTIONS AND FUTURES
A discussion of options, Futures Contracts, Options on Futures Contracts,
Forward Foreign Currency Contracts and options on foreign currencies follows.
OPTIONS ON SECURITIES--A call option written by a series will be covered (i)
through ownership of the security underlying the option or through ownership
of an absolute and immediate right to acquire such security upon conversion or
exchange of other securities held in its portfolio; or (ii) in such other
manner as may be in accordance with the rules of the exchange on which the
option is traded and applicable laws and regulations. A put option will be
covered through (i) segregation in a segregated account held by the custodian
of liquid assets in an amount equal to the exercise price of the option; or
(ii) in such other manner as may be in accordance with the requirements of the
exchange on which the option is traded and applicable laws and regulations.
Effecting a closing transaction in the case of a written call option will
permit a series to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case
of a written put option will permit a series to write another put option to
the extent that the exercise price thereof is secured by liquid assets. Such
transactions permit a series to generate additional premium income, which will
partially offset declines in the value of portfolio securities or increases in
the cost of securities to be acquired. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any securities
subject to the option to be used for other investments, provided that another
option on such security is not written. If a series desires to sell a
particular security from its portfolio on which it has written a call option,
it will effect a closing transaction in connection with the option prior to or
concurrent with the sale of the security.
A series will realize a profit from a closing transaction if the premium
paid in connection with the closing of an option written by it is less than
the premium received from writing the option, or if the premium received in
connection with the closing of an option purchased by it is more than the
premium paid for the original purchase. Conversely, a series will suffer a
loss if the premium paid or received in connection with a closing transaction
is more or less, respectively, than the premium received or paid in
establishing the option position. Because increases in the market price of a
call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option
previously written by a series is likely to be offset in whole or in part by
appreciation of the underlying security owned by a series.
A series may write options in connection with buy-and-write transactions;
that is, a series may purchase a security and then write a call option against
that security. The exercise price of the call option will depend upon the
expected price movement of the underlying security. The exercise price of a
call option may be below ("in-the-money"), equal to ("at-the-money") or above
("out-of-the-money") the current value of the underlying security at the time
the option is written. If the call options are exercised in such transactions,
the series' maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between the series'
purchase price of the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the amount of
such decline will be offset in part, or entirely, by the premium received.
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<PAGE>
The writing of covered put options is similar in terms of risk/return
characteristics to buy-and-write transactions. Put options could be used by a
series in the same market environments that call options would be used in
equivalent buy-and-write transactions.
A series may write combinations of put and call options on the same
security, a practice known as a "straddle." By writing a straddle, a series
undertakes a simultaneous obligation to sell and purchase the same security in
the event that one of the options is exercised. If the price of the security
subsequently rises sufficiently above the exercise price to cover the amount
of the premium and transaction costs, the call will likely be exercised and
the series will be required to sell the underlying security at a below market
price. This loss may be offset, however, in whole or in part, by the premiums
received on the writing of the two options. Conversely, if the price of the
security declines by a sufficient amount, the put will likely be exercised.
The writing of straddles will likely be effective, therefore, only where the
price of a security remains stable and neither the call nor the put is
exercised. In an instance where one of the options is exercised, the loss on
the purchase or sale of the underlying security may exceed the amount of the
premiums received.
By writing a call option, a series limits its opportunity to profit from any
increase in the market value of the underlying security above the exercise
price of the option. By writing a put option, a series assumes the risk that
it may be required to purchase the underlying security for an exercise price
above its then current market value, resulting in a loss unless the security
subsequently appreciated in value. The writing of options on securities by the
Capital Appreciation Series, Government Markets Series, Managed Sectors
Series, Research Growth and Income Series, Utilities Series, Value Series,
World Asset Allocation Series, World Growth Series and World Total Return
Series and the MFS/Foreign & Colonial Series will not be undertaken solely for
hedging purposes, and could involve certain risks which are not present in the
case of hedging transactions. Moreover, even where options are written for
hedging purposes, such transactions will constitute only a partial hedge
against declines in the value of portfolio securities or against increases in
the value of securities to be acquired, up to the amount of the premium.
A series also may purchase put and call options on securities. Put options
would be purchased to hedge against a decline in the value of the securities
held in its portfolio. If such a decline occurs, the put options will permit a
series to sell the securities at the exercise price, or to close out the
options at a profit. By using put options in this way, the series will reduce
any profit it might otherwise have realized in the underlying security by the
amount of the premium paid for the put option and related transaction costs. A
series may purchase call options to hedge against an increase in the price of
securities that the series anticipates purchasing in the future. If such an
increase occurs, the call option will permit the series to purchase the
securities at the exercise price or to close out the option at a profit. The
premium paid for a call or put option plus any transaction costs will reduce
the benefit, if any, realized by the series upon exercise of the option, and,
unless the price of the underlying security rose or declined sufficiently, the
option may expire worthless to the series.
Yield curve options may be used for the same purposes as other options on
securities. Specifically, a series may purchase or write such options for
hedging purposes. For example, a series may purchase a call option on the
yield spread between two securities, if it owns one of the securities and
anticipates purchasing the other security and wants to hedge against an
adverse change in the yield spread between the two securities. The series may
also purchase or write yield curve options for other than hedging purposes
(i.e., in an effort to increase its current income) if, in the judgment of the
32
<PAGE>
Adviser or Sub Adviser, the series will be able to profit from movements in
the spread between the yields of the underlying securities. The trading of
yield curve options is subject to all of the risks associated with the trading
of other types of options. In addition, however, such options present risk of
loss even if the yield of one of the underlying securities remains constant,
if the spread moves in a direction or to an extent which was not anticipated.
Yield curve options written by the series will be "covered." A call (or put)
option is covered if the series holds another call (or put) option on the
spread between the same two securities and maintains in a segregated account
with its custodian liquid assets sufficient to cover the series' net liability
under the two options. Therefore, the series' liability for such a covered
option is generally limited to the difference between the amount of the
series' liability under the option written by the series less the value of the
option held by the series. Yield curve options may also be covered in such
other manner as may be in accordance with the requirements of the counter
party with which the option is traded and applicable laws and regulations.
Yield curve options are traded over-the-counter and because they have been
only recently introduced, established trading markets for these securities
have not yet developed.
OPTIONS ON INDICES--A series will cover call options on indices by owning
securities whose price changes, in the opinion of MFS, are expected to be
similar to those of the index, or in such other manner as may be in accordance
with the rules of the exchange on which the option is traded and applicable
laws and regulations. Nevertheless, where a series covers a call option on an
index through ownership of securities, such securities may not match the
composition of the index. In that event, the series will not be fully covered
and could be subject to risk of loss in the event of adverse changes in the
value of the index. A series will cover put options on indices by segregating
assets equal to the option's exercise price, or in such other manner as may be
in accordance with the rules of the exchange on which the option is traded and
applicable laws and regulations.
A series will receive a premium from writing a put or call option, which
increases its gross income in the event the option expires unexercised or is
closed out at a profit. If the value of an index on which a series has written
a call option falls or remains the same, the series will realize a profit in
the form of the premium received (less transaction costs) that could offset
all or a portion of any decline in the value of the securities it owns. If the
value of the index rises, however, the series will realize a loss in its call
option position, which will reduce the benefit of any unrealized appreciation
in the series' investments. By writing a put option, a series assumes the risk
of a decline in the index. To the extent that the price changes of securities
owned by the series correlate with changes in the value of the index, writing
covered put options on indices will increase the series' loss in the event of
a market decline, although such losses will be offset in part by the premium
received for writing the option.
The purchase of call options on indices may be used by a series to attempt
to reduce the risk of missing a broad market advance, or an advance in an
industry or market segment, at a time when a series holds uninvested cash or
short-term debt securities awaiting investment. When purchasing call options
for this purpose, the series will also bear the risk of losing all or a
portion of the premium paid, and related transaction costs, if the value of
the index does not rise. The purchase of call options on indices when the
series is substantially fully invested is a form of leverage, up to the amount
of the premium and related transaction costs, and involves risks of loss and
of increased volatility similar to those involved in purchasing calls on
securities the series owns.
A series also may purchase put options on indices to hedge its investments
against a decline in value. By purchasing a put option on an index, a series
will seek to offset a decline in the value of
33
<PAGE>
securities it owns through appreciation of the put option. If the value of the
series' investments does not decline as anticipated, or if the value of the
option does not increase, the series' loss will be limited to the premium paid
for the option, plus related transaction costs. The success of this strategy
will largely depend on the accuracy of the correlation between the changes in
value of the index and the changes in value of the series' security holdings.
FUTURES CONTRACTS--The Capital Appreciation Series, Emerging Growth Series,
Government Securities Series, World Governments Series, Managed Sectors
Series, Research Growth and Income Series, Utilities Series, Value Series,
World Asset Allocation Series, World Growth Series and World Total Return
Series and the MFS/Foreign & Colonial Series may enter into interest rate or
stock index futures contracts ("Futures Contracts") in order to protect the
series' current or intended investments from broad fluctuations in interest
rates or stock prices. The Emerging Growth Series, Utilities Series, Research
Growth and Income Series, Value Series, World Asset Allocation Series, World
Growth Series and World Total Return Series and the MFS/Foreign & Colonial
Series may also enter into Futures Contracts for non-hedging purposes, which
involves greater risk and could result in losses which are not offset by gains
on other portfolio assets. The Emerging Growth Series, Utilities Series,
Research Growth and Income Series, Value Series, World Asset Allocation
Series, World Governments Series, World Growth Series and World Total Return
Series and the MFS/Foreign & Colonial Series may also enter into foreign
currency futures contracts.
For example, a series may sell Futures Contracts in anticipation of or
during a market decline to attempt to offset the decrease in market value of
the series' securities portfolio that might otherwise result. If such decline
occurs, the loss in value of portfolio securities may be offset, in whole or
in part, by gains on the futures position. When a series is not fully invested
in the securities market and anticipates a significant market advance, it may
purchase Futures Contracts in order to gain rapid market exposure that may, in
part or in whole, offset increase in the cost of securities that the series
intends to purchase. As such acquisitions are made, the corresponding
positions in Futures Contracts will be closed out. In a substantial majority
of these transactions, a series will purchase such securities upon the
termination of the futures position, but under unusual market conditions, a
long futures position may be terminated without a related purchase of
securities.
OPTIONS ON FUTURES CONTRACTS--The writing of a call Option on a Futures
Contract constitutes a partial hedge against declining prices of the
securities underlying the Futures Contract or of the securities comprising the
index underlying the Futures Contact. If the futures price at expiration of
the option is below the exercise price, the series will retain the full amount
of the option premium which provides a partial hedge against any decline that
may have occurred in the series' portfolio holdings. The writing of a put
Option on a Futures Contract constitutes a partial hedge against increasing
prices of the securities underlying the Futures Contract or of the securities
comprising the index underlying the Futures Contract. If the futures price at
expiration of the option is higher than the exercise price, a series will
retain the full amount of the option premium which provides a partial hedge
against any increase in the price of securities which a series intends to
purchase. If a put or call option a series has written is exercised, it will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, the
series' losses from existing Options of Futures Contracts may to some extent
be reduced or increased by changes in the value of portfolio securities.
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<PAGE>
A series will cover the writing of call Options on Futures Contracts through
purchases of the underlying Futures Contract, and will cover the writing of
put Options on Futures Contracts through sales of the underlying Futures
Contract. Upon the exercise of a call Option on a Futures Contract written by
a series, the series will be required to sell the underlying Futures Contract
which, if the series has covered its obligation through the purchase of such
Contract, will serve to liquidate its futures position. Similarly, where a put
Option on a Futures Contract written by a series is exercised, the series will
be required to purchase the underlying Futures Contract which, if the series
has covered its obligation through the sale of such Contract, will close out
its futures position. Put and call Options on Futures Contracts may also be
covered in such other manner as may be in accordance with the rules of the
exchange on which the option is traded and applicable laws and regulations.
A series may purchase Options on Futures Contracts for hedging purposes as
an alternative to purchasing or selling the underlying Futures Contracts. For
example, where a decrease in the value of portfolio securities is anticipated
as a result of a projected market-wide decline, a series could, in lieu of
selling Futures Contracts, purchase put options thereon. In the event that
such decrease occurs, it may be offset, in whole or part, by a profit on the
option. Conversely, where it is projected that the value of securities to be
acquired by a series will increase prior to acquisition, due to a market
advance, the series could purchase call Options on Futures Contracts, rather
than purchasing the underlying Futures Contracts.
FORWARD CONTRACTS--The Capital Appreciation Series, Managed Sectors Series,
Research Series and World Governments Series may enter into contracts for the
purchase or sale of a specific currency at a future date at a price set at the
time the contract is entered into (a "Forward Contract") for hedging purposes
only. The Emerging Growth Series, Utilities Series, Research Growth and Income
Series, Value Series, World Asset Allocation Series, World Growth Series and
World Total Return Series and the MFS/Foreign & Colonial Series may enter into
Forward Contracts for hedging purposes and non-hedging purposes. A series will
enter into Forward Contracts for the purpose of protecting its current or
intended investments from fluctuations in currency exchange rates. A Forward
Contract to sell a currency may be entered into, for example, in lieu of the
sale of a foreign currency futures contract where a series seeks to protect
against an anticipated increase in the exchange rate for a specific currency
which could reduce the dollar value of portfolio securities denominated in
such currency. Conversely, a series may enter into a Forward Contract to
purchase a given currency to protect against a projected increase in the
dollar value of securities denominated in such currency which a series intends
to acquire.
If a hedging transaction in Forward Contracts is successful, the decline in
the value of portfolio securities or the increase in the cost of securities to
be acquired may be offset, at least in part, by profits on the Forward
Contract. Nevertheless, by entering into such Forward Contracts, a series may
be required to forego all or a portion of the benefits which otherwise could
have been obtained from favorable movements in exchange rates. The series do
not presently intend to hold Forward Contracts entered into until maturity, at
which time they would be required to deliver or accept delivery of the
underlying currency, but will seek in most instances to close out positions in
such Contracts by entering into offsetting transactions, which will serve to
fix the series' profit or loss based upon the value of the Contracts at the
time the offsetting transaction is executed.
Each of the series has established procedures consistent with Securities and
Exchange Commission policies concerning the use of "cover" or the
establishment of segregated accounts in
35
<PAGE>
connection with purchases of foreign currency through Forward Contracts. Since
those policies currently require the use of "cover" or that liquid assets of
the series equal to the amount of the purchase be held aside or segregated in
an account maintained by the custodian to be used to pay for the commitment,
each series will always use "cover" or have liquid assets available sufficient
to cover any commitments under these contracts or to limit any potential risk.
OPTIONS ON FOREIGN CURRENCIES--The Emerging Growth Series, Utilities Series,
Research Growth and Income Series, Value Series, World Asset Allocation
Series, World Governments Series, World Growth Series and World Total Return
Series and the MFS/Foreign & Colonial Series may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
Futures Contracts on foreign currencies, or Forward Contracts, will be
utilized. All call options written on foreign currencies will be covered. A
call option written on a foreign currency is "covered" if the series owns the
underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated
account by the series' custodian) upon conversion or exchange of other foreign
currency held in its portfolio. A call option is also covered if the series
has a call on the same foreign currency and in the same principal amount as
the call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the
series in liquid assets in a segregated account with its custodian. Options on
foreign currencies may also be covered in such other manner as may be in
accordance with the requirements of the exchange on which they are traded and
applicable laws and regulations.
RISK FACTORS: IMPERFECT CORRELATION OF HEDGING INSTRUMENTS WITH A SERIES'
PORTFOLIO--A series' ability effectively to hedge all or a portion of its
portfolio through transactions in options, Futures Contracts, options on
foreign currencies, Options on Futures Contracts, and Forward Contracts will
depend on the degree to which price movements in the underlying index or
instrument correlate with price movements in the relevant portion of the
portfolio. Because the securities in the portfolio will most likely not be the
same as those securities underlying an index, the correlation between
movements in the portfolio and in the securities underlying the index will not
be perfect. The trading of Futures Contracts and options entails the
additional risk of imperfect correlation between movements in the futures or
option price and the price of the underlying index or obligation. The
anticipated spread between the prices may be distorted due to the differences
in the nature of the markets, such as differences in margin requirements, the
liquidity of such markets and the participation of speculators in the futures
and options market. In this regard, trading by speculators in such instruments
has in the past occasionally resulted in market distortions, which may be
difficult or impossible to predict particularly near the expiration of such
contracts. It should be noted that Futures Contracts or options based upon a
narrower index of securities, such as those of a particular industry group,
may present greater risk than options or Futures Contracts based on a broad
market index, because a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a small number of
securities. The trading of Options on Futures Contracts also entails the risk
that changes in the value of the underlying Futures Contracts will not be
fully reflected in the value of the option. Further, with respect to options
on securities, options on indices and Options on Futures Contracts, a series
is subject to the risk of market movements between the time that the option is
exercised and the time of performance thereunder. In writing a covered call
option on a security, index or Futures Contract, a series also incurs the risk
that changes in the value of the instruments used to
36
<PAGE>
cover the position will not correlate closely with changes in the value of the
option or underlying index or instrument. Transactions in Forward Contracts or
options on foreign currencies designed to hedge against exposure arising from
currency fluctuations will subject a series to the risk of imperfect
correlation between changes in the value of the currencies underlying the
forwards or options and changes in the value of the currencies being hedged.
A series will invest in a hedging instrument only if, in the judgment of
MFS, there would be expected to be a sufficient degree of correlation between
movements in the value of the instrument and movements in the value of the
relevant portion of the series' portfolio for such hedge to be effective.
There can be no assurance that MFS' judgment will be accurate.
It should also be noted that the Capital Appreciation Series, Managed
Sectors Series, Research Growth and Income Series, Utilities Series, World
Governments Series, World Asset Allocation Series, World Growth Series and
World Total Return Series and the MFS/Foreign & Colonial Series would be able
to purchase and write options on securities and indices not only for hedging
purposes, but also for the purpose of increasing their return on portfolio
securities. The Utilities Series, World Asset Allocation Series, World Growth
Series and the World Total Return Series and the MFS/Foreign & Colonial Series
may also purchase and write Futures Contracts, Options on Futures Contracts
and Forward Contracts for non-hedging purposes. As a result, in the event of
adverse market movements, such series might be required to forfeit the entire
amount of the premium paid for an option purchased, which might not be offset
by increases in the value of portfolio securities or declines in the cost of
securities to be acquired. In addition, the method of covering an option
employed by a series may not fully protect it against risk of loss and, in any
event, a series could suffer losses on the option position which might not be
offset by corresponding portfolio gains.
With respect to the writing of straddles on securities, a series would incur
the risk that the price of the underlying security will not remain stable,
that one of the options written will be exercised and that the resulting loss
will not be offset by the amount of the premiums received.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET--Prior to exercise or
expiration, a futures or option position can only be terminated by entering
into a closing purchase or sale transaction. This requires a secondary market
for such instruments on the exchange on which the initial transaction was
entered into. While a series will enter into options or futures positions only
if there appears to be a liquid secondary market therefor, there can be no
assurance that such a market will exist for any particular contracts at any
specific time. In that event, it may not be possible to close out a position
held by a series and the series could be required to purchase or sell the
instrument underlying an option, make or receive a cash settlement or meet
ongoing variation margin requirements. Under such circumstances, if the series
had insufficient cash available to meet margin requirements, it might be
necessary to liquidate portfolio securities at a time when it would be
disadvantageous to do so. The inability to close out options and futures
positions, therefore, could have an adverse impact on a series' ability
effectively to hedge its portfolio, and could result in trading losses. The
liquidity of a secondary market in a Futures Contract or options thereon may
also be adversely affected by "daily price fluctuation limits", established by
exchanges, which limit the amount of fluctuation in the price of a contract
during a single trading day. The trading of Futures Contracts and options is
also subject to the risk of trading halts, suspensions, exchange or clearing
house equipment failures government intervention, insolvency of a brokerage
firm of clearing house or other disruptions of normal trading
37
<PAGE>
activity, which could at times make if difficult or impossible to liquidate
existing positions or to recover excess variation margin payments.
MARGIN--Because of low initial margin deposits made upon the opening of a
futures position and the writing of an option, such transactions involve
substantial leverage. As a result, relatively small movements in the price of
the contract can result in substantial unrealized gains or losses. To the
extent a series engages in the purchase or sale of Futures Contracts and the
writing of Options on Futures Contracts solely for hedging purposes, however,
and to the extent that the series purchases and writes options on securities
and indices for hedging purposes, any losses incurred in connection therewith
should, if the hedging strategy is successful, be offset, in whole or in part,
by increases in the value of securities held by the series or decreases in the
prices of securities the series intends to acquire. If a series writes options
on securities or options on indices for other than hedging purposes, the
margin requirements associated with such transactions could expose the series
to greater risk.
TRADING AND POSITION LIMITS--The exchanges on which Futures Contracts and
options are traded may impose limitations governing the maximum number of
positions on the same side of the market and involving the same underlying
instrument which may be held by a single investor, whether acting alone or in
concert with others (regardless of whether such contracts are held on the same
or different exchanges or held or written in one or more accounts or through
one or more brokers). In addition, the Commodity Futures Trading Commission
("CFTC") and the various contract markets have established limits referred to
as "speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
MFS does not believe that these trading and position limits will have any
adverse impact on the strategies for hedging the portfolio of a series.
RISK OF OPTIONS ON FUTURES CONTRACTS--The amount of risk a series assumes
when it purchases an Option on a Futures Contract is the premium paid for the
option, plus related transaction costs. In order to profit from an option
purchased, however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks of the
availability of a liquid offset market described herein. The writer of an
Option on a Futures Contract is subject to the risks of commodity futures
trading, including the requirement of initial and variation margin payments,
as well as the additional risk that movements in the price of the option may
not correlate with movements in the price of the underlying index or Futures
Contract.
ADDITIONAL RISKS OF TRANSACTIONS RELATED TO FOREIGN CURRENCIES AND
TRANSACTIONS NOT CONDUCTED ON U.S. EXCHANGES--Transactions in Forward
Contracts are subject to all of the correlation, liquidity and other risks
outlined above. In addition, however, such transactions are subject to the
risk of governmental actions affecting trading in or the prices of currencies
underlying such contracts, which could restrict or eliminate trading and could
have a substantial adverse effect on the value of positions held by a series.
In addition, the value of such positions could be adversely affected by a
number of other complex political and economic factors applicable to the
countries issuing the underlying currencies. Further, unlike trading in most
other types of instruments, there is no systematic reporting of last sale
information with respect to the foreign currencies underlying contracts
thereon. As a result, the available information on which trading systems will
be based may not be as complete as the comparable data on which a series makes
investment and trading decisions in connection with other transactions.
Moreover, because the foreign currency market is a global, twenty-four hour
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market, events could occur on that market which would not be reflected in the
forward markets until the following day, thereby preventing a series from
responding to such events in a timely manner. Settlements of exercises of
Forward Contracts generally must occur within the country issuing the
underlying currency, which in turn requires traders to accept or make delivery
of such currencies in conformity with any United States or foreign
restrictions and regulations regarding the maintenance of foreign banking
relationships, fees, taxes or other charges.
Forward Contracts, over-the-counter options on securities, and options on
foreign exchanges are not traded on contract markets regulated by the CFTC or
the Securities and Exchange Commission, but through financial institutions
acting as market-makers. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be available. In
addition, over-the-counter transactions can only be entered into with a
financial institution willing to take the opposite side, as principal, of the
series' position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the series.
Where no such counterparty is available, it will not be possible to enter into
a desired transaction. There also may be no liquid secondary market in the
trading of over-the-counter contracts, and a series could be required to
retain options purchased or written, or Forward Contracts entered into, until
exercise, expiration or maturity. This in turn could limit a series' ability
to profit from open positions or to reduce losses experienced, and could
result in greater losses. Further, over-the-counter transactions are not
subject to the performance guarantee of an exchange clearing house, and a
series will therefore be subject to the risk of default by, or the bankruptcy
of, the financial institution serving as its counterparty.
While Forward Contracts are not presently subject to regulation by the CFTC,
the CFTC may in the future assert or be granted authority to regulate such
instruments. In such event, a series' ability to utilize Forward Contracts in
the manner set forth above could be restricted.
Options on securities, options on indices, Futures Contracts, Options on
Futures Contracts and options on foreign currencies may be traded on exchanges
located in foreign countries. Such transactions may not be conducted in the
same manner as those entered into on United States exchanges, and may be
subject to different margin, exercise, settlement or expiration procedures. As
a result, many of the risks of over-the-counter trading may be present in
connection with such transactions.
RESTRICTIONS ON THE USE OF OPTIONS AND FUTURES--In order to assure that a
series will not be deemed to be a "commodity pool" for purposes of the
Commodity Exchange Act, regulations of the CFTC require that the series enter
into transactions in Futures Contracts and Options on Futures Contracts only
(i) for bona fide hedging purposes (as defined in CFTC regulations), or (ii)
for non-hedging purposes, provided that the aggregate initial margin and
premiums on such non-hedging positions does not exceed 5% of the liquidation
value of the series' assets.
The Board of Trustees of the Series Fund has adopted the additional
restriction that a series will not enter into a Futures Contract if,
immediately thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the value of the
series' assets, taken at market value. Moreover, a series will not purchase
put and call options if, as a result, more than 5% of its total assets would
be invested in such options.
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When a series purchases a Futures Contract an amount of cash and cash
equivalents will be deposited in a segregated account with the series'
custodian so that the amount so segregated will at all times equal the value
of the Futures Contract, thereby insuring that the leveraging of such Futures
Contract is minimized.
The staff of the Securities and Exchange Commission ("SEC") has taken the
position that purchased over-the-counter options and assets used to cover
written over-the-counter options are illiquid and, therefore, together with
other illiquid securities held by a series, cannot exceed 15% of such series'
assets, or such lower ceiling on illiquid securities imposed by a series'
investment restrictions (the "SEC Illiquidity Ceiling"). Although the
investment adviser disagrees with this position, the investment adviser
intends to limit a series' writing of over-the-counter options in accordance
with the following procedure. Except as provided below, each series which may
write options intends to write over-the-counter options only with primary U.S.
Government securities dealers recognized as such by the Federal Reserve Bank
of New York. Also, the contracts these series have in place with such primary
dealers provide that the series has the absolute right to repurchase an option
it writes at any time at a price which represents the fair market value, as
determined in good faith through negotiation between the parties, but which in
no event will exceed a price determined pursuant to a formula in the contract.
Although the specific formula may vary between contracts with different
primary dealers, the formula generally is based on a multiple of the premium
received by the series for writing the option, plus the amount, if any, of the
option's intrinsic value (i.e., the amount that the option is in-the-money).
The formula may also include a factor to account for the difference between
the price of the security and the strike price of the option if the option is
written out-of-the-money. A series will treat all or a portion of the formula
as illiquid for purposes of the SEC Illiquidity Ceiling. Each series which may
write options may also write over-the-counter options with non-primary
dealers, including foreign dealers (where applicable), and will treat the
assets used to cover these options as illiquid for purposes of such SEC
Illiquidity Ceiling.
LOANS, LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS
The Emerging Growth Series, High Yield Series Value Series and World Asset
Allocation Series and the MFS/Foreign & Colonial Series may purchase loans,
loan participations and other direct claims against a borrower. In purchasing
a loan or loan participation, the series acquires some or all of the interest
of a bank or other lending institution in a loan to a corporate borrower. Many
such loans are secured, although some may be unsecured. Such loans may be in
default at the time of purchase. Loans that are fully secured offer the series
more protection than an unsecured loan in the event of non-payment of
scheduled interest or principal. However, there is no assurance that the
liquidation of collateral from a secured loan would satisfy the corporate
borrower's obligation, or that the collateral can be liquidated.
These loans are made generally to finance internal growth, mergers,
acquisitions, stock repurchases, leveraged buy-outs and other corporate
activities. Such loans are typically made by a syndicate of lending
institutions, represented by an agent lending institution which has negotiated
and structured the loan and is responsible for collecting interest, principal
and other amounts due on its own behalf and on behalf of the others in the
syndicate, and for enforcing its and their other rights against the borrower.
Alternatively, such loans may be structured as a novation, pursuant to which
the series would assume all of the rights of the lending institution in a
loan, or as an assignment, pursuant
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to which the series would purchase an assignment of a portion of a lender's
interest in a loan either directly from the lender or through an intermediary.
The series may also purchase trade or other claims against companies, which
generally represent money owed by the company to a supplier of goods or
services. These claims may also be purchased at a time when the company is in
default.
Certain of the loan participations acquired by the series may involve
revolving credit facilities or other standby financing commitments which
obligate the series to pay additional cash on a certain date or on demand.
These commitments may have the effect of requiring the series to increase its
investment in a company at a time when the series might not otherwise decide
to do so (including at a time when the company's financial condition makes it
unlikely that such amounts will be repaid). To the extent that the series is
committed to advance additional funds, it will at all times hold and maintain
in a segregated account cash or other high grade debt obligations in an amount
sufficient to meet such commitments.
The series' ability to receive payments of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loan participations and
other direct investments which the series will purchase, the Adviser will rely
upon its (and not that of the original lending institution's) own credit
analysis of the borrower. As the series may be required to rely upon another
lending institution to collect and pass on to the series amounts payable with
respect to the loan and to enforce the series' rights under the loan, an
involvency, bankruptcy or reorganization of the lending institution may delay
or prevent the series from receiving such amounts. In such cases, the series
will evaluate as well the creditworthiness of the lending institution and will
treat both the borrower and the lending institution as an "issuer" of the loan
participation for purposes of certain investment restrictions pertaining to
the diversification of the series' portfolio investments. The highly leveraged
nature of many such loans may make such loans especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans may
involve additional risks to the series. For example, if a loan is foreclosed,
the series could become part owner of any collateral, and would bear the costs
and liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of lender
liability, the series could be held liable as a co-lender. It is unclear
whether loans and other forms of direct indebtedness offer securities law
protections against fraud and misrepresentation. In the absence of definitive
regulatory guidance, the series relies on the Adviser's or Sub-Adviser's
research in an attempt to avoid situations where fraud or misrepresentation
could adversely affect the series. In addition, loan participations and other
direct investments may not be in the form of securities or may be subject to
restrictions on transfer, and only limited opportunities may exist to resell
such instruments. As a result, the series may be unable to sell such
instruments at an opportune time or may have to resell them at less than fair
market value. To the extent that the Adviser or a Sub-Adviser determines that
any such investments are illiquid, the series will include them in the
investment limitations applicable to the series.
SWAPS AND RELATED TRANSACTIONS
The Research Growth and Income Series, World Asset Allocation Series, World
Government Series and World Total Return Series and the MFS/Foreign & Colonial
Series may enter into interest rate swaps, currency swaps and other types of
available swap agreements, such as caps, collars and floors. Swap agreements
may be individually negotiated and structured to include exposure to a variety
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of different types of investments or market factors. Depending on their
structure, swap agreements may increase or decrease a series' exposure to long
or short-term interest rates (in the U.S. or abroad), foreign currency values,
mortgage securities, corporate borrowing rates, or other factors such as
securities prices or inflation rates. Swap agreements can take many different
forms and are known by a variety of names. A series is not limited to any
particular form or variety of swap agreement if the Adviser determines it is
consistent with the series' investment objective and policies.
The series will maintain cash or appropriate liquid assets with its
custodian to cover its current obligations under swap transactions. If the
series enters into a swap agreement on a net basis (i.e., the two payment
streams are netted out, with the series receiving or paying, as the case may
be, only the net amount of the two payments), the series will maintain liquid
assets with its custodian with a daily value at least equal to the excess, if
any, of the series' accrued obligations under the swap agreement over the
accrued amount the series is entitled to receive under the agreement. If the
series enters into a swap agreement on other than a net basis, it will
maintain cash or liquid assets with a value equal to the full amount of the
series' accrued obligations under the agreement.
The most significant factor in the performance of swaps, caps, floors and
collars is the change in the specific interest rate, currency or other factor
that determines the amount of payments to be made under the arrangement. If
the Adviser is incorrect in its forecasts of such factors, the investment
performance of the series would be less than what it would have been if these
investment techniques had not been used. If a swap agreement calls for
payments by the series, the series must be prepared to make such payments when
due. In addition, if the counterparty's creditworthiness declined, the value
of the swap arrangement would be likely to decline, potentially resulting in
losses. If the counterparty defaults, the series' risk of loss consists of the
net amount of payments that the series is contractually entitled to receive.
The series anticipates that it will be able to eliminate or reduce its
exposure under these arrangements by assignment or other disposition or by
entering into an offsetting agreement with the same or another counterparty.
INVESTMENT INSTRUMENTS AND TECHNIQUES OF THE MFS/FOREIGN & COLONIAL SERIES
EMERGING MARKETS: Each of the MFS/Foreign & Colonial Series may invest in
securities of government, government-related, supranational and corporate
issuers located in emerging markets. Such investments entail significant risks
as described in the Prospectus under the caption "Additional Risk Factors" and
as more fully described below.
COMPANY DEBT--Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects of the
private sector through the ownership or control of many companies, including
some of the largest in any given country. As a result, government actions in
the future could have a significant effect on economic conditions in emerging
markets, which in turn, may adversely affect companies in the private sector,
general market conditions and prices and yields of certain of the securities
in a series' portfolio. Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar developments have
occurred frequently over the history of certain emerging markets and could
adversely affect a series' assets should these conditions recur.
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SOVEREIGN DEBT--Investment in sovereign debt can involve a high degree of
risk. The governmental entity that controls the repayment of sovereign debt
may not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of the debt service burden to the economy as
a whole, the governmental entity's policy towards the International Monetary
Fund and the political constraints to which a governmental entity may be
subject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce
principal and interest on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancelation of such third
parties' commitments to lend funds to the governmental entity, which may
further impair such debtor's ability or willingness to service its debts in a
timely manner. Consequently, governmental entities may default on their
sovereign debt. Holders of sovereign debt (including a series) may be
requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which governmental entities have defaulted may be
collected in whole or in part.
Emerging market governmental issuers are among the largest debtors to
commercial banks, foreign governments, international financial organizations
and other financial institutions. Certain emerging market governmental issuers
have not been able to make payments of interest on or principal of debt
obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
The ability of emerging market governmental issuers to make timely payments
on their obligations is likely to be influenced strongly by the issuer's
balance of payments, including export performance, and its access to
international credits and investments. An emerging market whose exports are
concentrated in a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities. Increased
protectionism on the part of an emerging market's trading partners could also
adversely affect the country's exports and tarnish its trade account surplus,
if any. To the extent that emerging markets receive payment for their exports
in currencies other than dollars or non-emerging market currencies, its
ability to make debt payments denominated in dollars or non-emerging market
currencies could be affected.
To the extent that an emerging market country cannot generate a trade
surplus, it must depend on continuing loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and on inflows of foreign investment. The access of
emerging markets to these forms of external funding may not be certain, and a
withdrawal of external funding could adversely affect the capacity of emerging
market country governmental issuers to make payments on their obligations. In
addition, the cost of servicing emerging market debt obligations can be
affected by a change in international interest rates since the majority of
these obligations carry interest rates that are adjusted periodically based
upon international rates.
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Another factor bearing on the ability of emerging market countries to repay
debt obligations is the level of international reserves of the country.
Fluctuations in the level of these reserves affect the amount of foreign
exchange readily available for external debt payments and thus could have a
bearing on the capacity of emerging market countries to make payments on these
debt obligations.
LIQUIDITY; TRADING VOLUME; REGULATORY OVERSIGHT--The securities markets of
emerging market countries are substantially smaller, less developed, less
liquid and more volatile than the major securities markets in the U.S.
Disclosure and regulatory standards are in many respects less stringent than
U.S. standards. Furthermore, there is a lower level of monitoring and
regulation of the markets and the activities of investors in such markets.
The limited size of many emerging market securities markets and limited
trading volume in the securities of emerging market issuers compared to volume
of trading in the securities of U.S. issuers could cause prices to be erratic
for reasons apart from factors that affect the soundness and competitiveness
of the securities issuers. For example, limited market size may cause prices
to be unduly influenced by traders who control large positions. Adverse
publicity and investors' perceptions, whether or not based on in-depth
fundamental analysis, may decrease the value and liquidity of portfolio
securities.
The risk also exists that an emergency situation may arise in one or more
emerging markets, as a result of which trading of securities may cease or may
be substantially curtailed and prices for a series' securities in such markets
may not be readily available. The Series Fund may suspend redemption of its
shares for any period during which an emergency exists, as determined by the
SEC. Accordingly, if a series believes that appropriate circumstances exist,
it will promptly apply to the SEC for a determination that an emergency is
present. During the period commencing from the series' identification of such
condition until the date of the SEC action, the series' securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
DEFAULT; LEGAL RECOURSE--A series may have limited legal recourse in the
event of a default with respect to certain debt obligations it may hold. If
the issuer of a fixed-income security owned by a series defaults, the series
may incur additional expenses to seek recovery. Debt obligations issued by
emerging market governments differ from debt obligations of private entities;
remedies from defaults on debt obligations issued by emerging market
governments, unlike those on private debt, must be pursued in the courts of
the defaulting party itself. A series' ability to enforce its rights against
private issuers may be limited. The ability to attach assets to enforce a
judgment may be limited. Legal recourse is therefore somewhat diminished.
Bankruptcy, moratorium and other similar laws applicable to private issuers of
debt obligations may be substantially different from those of other countries.
The political context, expressed as an emerging market governmental issuer's
willingness to meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given that the
holders of commercial bank debt may not contest payments to the holders of
debt obligations in the event of default under commercial bank loan
agreements.
INFLATION--Many emerging markets have experienced substantial, and in some
periods extremely high, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have adverse
effects on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price controls have
been imposed in
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certain countries. Of these countries, some, in recent years, have begun to
control inflation through prudent economic policies.
WITHHOLDING--Income from securities held by a series could be reduced by a
withholding tax on the source or other taxes imposed by the emerging market
countries in which the series makes its investments. A series' net asset value
may also be affected by changes in the rates or methods of taxation applicable
to the series or to entities in which the series has invested. The Adviser and
the Sub-Adviser will consider the cost of any taxes in determining whether to
acquire any particular investments, but can provide no assurance that the
taxes will not be subject to change.
FOREIGN CURRENCIES--Each series may invest up to 100% of its assets in
securities denominated in foreign currencies. Accordingly, changes in the
value of these currencies against the U.S. dollar may result in corresponding
changes in the U.S. dollar value of a series' asset denominated in those
currencies. Each Series may attempt to minimize the impact of these changes to
the U.S. dollar value of the series' portfolio by engaging in certain hedging
practices, such as entering into Futures Contracts and Options on Foreign
Securities as described below.
Some emerging market countries also may have managed currencies, which are
not free floating against the U.S. dollar. In addition, there is risk that
certain emerging market countries may restrict the free conversion of their
currencies into other currencies. Further, certain emerging market currencies
may not be internationally traded. Certain of these currencies have
experienced a steep devaluation relative to the U.S. dollar. Any devaluations
in the currencies in which a Series' portfolio securities are denominated may
have a detrimental impact on the series' net asset value.
INVESTMENT IN OTHER INVESTMENT COMPANIES: A series' investment in other
investment companies, as described in the Prospectus is limited in amount by
the 1940 Act, and any applicable state securities laws. Such investment may
also involve the payment of substantial premiums above the value of such
investment companies' portfolio securities, and the total return on such
investment will be reduced by the operating expenses and fees of such other
investment companies, including advisory fees.
REPURCHASE AGREEMENTS: Each series may enter into repurchase agreements with
sellers who are member firms (or a subsidiary thereof) of the New York Stock
Exchange, members of the Federal Reserve System, recognized domestic or
foreign securities dealers or institutions which the Adviser or the Sub-
Adviser has determined to be of comparable creditworthiness. The securities
that a series purchases and holds have values which are equal to or greater
than the repurchase price agreed to be paid by the seller. The repurchase
price may be higher than the purchase price, the difference being income to
the series, or the purchase and repurchase prices may be the same, with
interest at a standard rate due to the series together with the repurchase
price on repurchase.
The repurchase agreement provides that in the event the seller fails to pay
the price agreed upon on the agreed upon delivery date or upon demand, as the
case may be, a series will have the right to liquidate the securities. If at
the time the series is contractually entitled to exercise its right to
liquidate the securities, the seller is subject to a proceeding under the
bankruptcy laws or its assets are otherwise subject to a stay order, the
series' exercise of its right to liquidate the securities may be delayed and
result in certain losses and costs to the series. Each series has adopted and
follows procedures which are intended to minimize the risk of repurchase
agreements. For example, a series
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only enters into repurchase agreements after the Adviser or the Sub-Adviser
has determined that the seller is creditworthy, and the Adviser or the Sub-
Adviser monitors that seller's creditworthiness on an ongoing basis. Moreover,
under such agreements, the value of the securities (which are marked to market
every business day) is required to be greater than the repurchase price, and
the series has the right to make margin calls at any time if the value of the
securities falls below the agreed upon margin.
LOANS AND OTHER DIRECT INDEBTEDNESS: Each series may purchase loans and other
direct claims against an issuer of emerging market debt instruments (a
"borrower"). In purchasing a loan, a series acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate,
governmental or other borrower. Many such loans are secured, although some may
be unsecured. Such loans may be in default at the time of purchase. Loans that
are fully secured offer a series more protection than an unsecured loan in the
event of non-payment of scheduled interest or principal. However, there is no
assurance that the liquidation of collateral from a secured loan would satisfy
the corporate borrower's obligation, or that the collateral can be liquidated.
Certain of the loans acquired by a series may involve revolving credit
facilities or other standby financing commitments which obligate the series to
pay additional cash on a certain date or on demand. These commitments may have
the effect of requiring a series to increase its investment in a company at a
time when the series might not otherwise decide to do so (including at a time
when the company's financial condition makes it unlikely that such amounts
will be repaid). To the extent that a series is committed to advance
additional funds, it will at all times hold and maintain in a segregated
account liquid assets in an amount sufficient to meet such commitments.
A series' ability to receive payments of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. Direct indebtedness of developing
countries involves the risk that the governmental entities responsible for the
repayment of the note may be unable, or unwilling, to pay interest and repay
principal where due. In selecting the loans and other direct indebtedness
which a series will purchase, the Adviser or Sub-Advisor will rely upon their
(and not that of the original lending institution's) own credit analysis of
the borrower. As a series may be required to rely upon another lending
institution to collect and pass on to the series amounts payable with respect
to the loan and to enforce the series' rights under the loan, an insolvency,
bankruptcy or reorganization of the lending institution may delay or prevent
the Series from receiving such amounts. In such cases, the series will
evaluate as well the creditworthiness of the lending institution and will
treat both the borrower and the lending institution as an "Issuer" of the loan
for purposes of certain investment restrictions pertaining to the
diversification of the series' portfolio investments. The highly leveraged
nature of many such loans may make such loans especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans may
involve additional risks to a series.
WARRANTS: Each series will not invest more than 10% of its net assets, taken
at market value, in warrants not acquired in a unit transaction. Warrants are
securities that give a series the right to purchase equity securities from the
issuer at a specific price (the "strike price") for a limited period of time.
The strike price of warrants typically is much lower than the current market
price of the underlying securities, yet they are subject to similar price
fluctuations. As a result, warrants may be more volatile investment than the
underlying securities and may offer greater potential for capital appreciation
as well as capital loss.
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Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to
have value if it is not exercised prior to the expiration date. These factors
can make warrants more speculative than other types of investments.
DEPOSITORY RECEIPTS: Each series may purchase depository receipts, including
unsponsored depository receipts. Under the terms of most sponsored
arrangements, depositories agree to distribute notices of shareholder meetings
and voting instructions, and to provide shareholder communications and other
information to the ADR holders at the request of the issuer of the deposited
securities. The depository of an unsponsored ADR, on the other hand, is under
no obligation to distribute shareholder communications received from the
issuer of the deposited securities or to pass through voting rights to ADR
holders in respect of the deposited securities. For further discussion of
depository receipts see the Prospectus and Appendix A to the Prospectus--
"American Depositary Receipts."
47
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SUN-13--5/97/750
MFS/SUN LIFE SERIES TRUST
An Open-end Management Investment Company
INVESTMENT ADVISER
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116
(617) 954-5000
CUSTODIAN AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
MFS Service Center, Inc.
MAILING ADDRESS:
P.O. Box 2281, Boston, MA 02107
BUSINESS ADDRESS:
500 Boylston Street, Boston, MA 02116
TELEPHONE:
Toll free: (800) 225-2606;
in Massachusetts and Alaska,
collect: (617) 954-5000
AUDITORS
Deloitte & Touche llp
125 Summer Street, Boston, MA 02110
MFS/Sun Life Series Trust [arrow right]
ANNUAL REPORT [bullet] December 31, 1996
Capital Appreciation Series
Conservative Growth Series
Emerging Growth Series
MFS/Foreign & Colonial Emerging
Markets Equity Series
MFS/Foreign & Colonial International
Growth Series
MFS/Foreign & Colonial International
Growth and Income Series
Government Securities Series
High Yield Series
Managed Sectors Series
Money Market Series
Research Series
Total Return Series
Utilities Series
Value Series
World Asset Allocation Series
World Governments Series
World Growth Series
World Total Return Series
Zero Coupon Series 2000 Portfolio
<PAGE>
Dear Contract Owners:
The pattern of slow but sustainable growth seen in most of the world in 1996
seems likely to continue in 1997. While it appears that U.S. growth in 1997
will slow modestly relative to 1996, there is evidence that the European
economies and, to a lesser degree, Japan are continuing to recover from
recession. At the same time, companies in many emerging markets are reporting
robust increases in earnings as these economies benefit from
higher-than-average growth and open market reforms, which should continue to
provide more opportunities for development and trade.
U.S. Outlook
After more than six years of expansion, the U.S. economy appears headed
toward another year of at least moderate growth in 1997, although a few signs
point to the possibility of a modest rise in inflation during the year. On
the positive side, the pattern of moderate growth and subdued inflation
experienced over the past few years now seems fairly well entrenched and
appears to have enough momentum to continue on track for some time. Also,
recent gains in such important sectors as housing, automobiles, industrial
production, and exports indicate a fair amount of underlying strength in the
economy. However, some reason for caution can be seen in the continuing high
levels of consumer debt and the attendant rise in personal bankruptcies, as
well as the modestly disappointing levels of holiday sales. Furthermore, the
ongoing tightness in labor markets, and price rises in such important sectors
as energy, could add some inflationary pressures to the economy. Given these
somewhat conflicting indicators, we expect real (inflation-adjusted) growth
to revolve around 2% in 1997, which would represent a modest decline from
1996.
Global Outlook
Internationally, the environment of moderate growth, benign inflation, and
fairly steady interest rates is also providing support for investment markets
and should help sustain valuation levels in the coming year. Throughout the
world, the key to stock market performance in 1997 will be corporate earnings
growth. While U.S. earnings growth is slowing but still expected to be fairly
healthy, we anticipate that a number of European countries will see an
acceleration in earnings growth and improved valuations in 1997. Despite this
environment, many European stock markets trade at discounts to the United
States. In particular, we see opportunities in some of the multinationals and
businesses with the ability to generate steady earnings growth. In Japan, a
recovery appears to be taking place, but at a very modest rate, with
valuations still at high levels. In the emerging markets, the long-term
economic growth story remains intact and, although selectivity is even more
critical in these markets, an increasing number of companies is benefiting
from this economic expansion while trading at below-average global
valuations.
Bond Markets
Conflicting signals over the strength of the economy have created near-term
volatility in U.S. bond markets. Comments by Federal Reserve Chairman Alan
Greenspan in late 1996 have created some uncertainty over the Federal Reserve
Board's next move. However, we expect the Fed to maintain its
anti-inflationary stance should signs of more rapid economic growth and,
particularly, higher inflation resurface. While inflationary forces largely
remained in check in 1996, the continued strength in labor markets and rising
energy prices mean that some pickup in inflation is still possible. However,
the U.S. budget deficit continues to decline and, as a percentage of gross
domestic product, is now less than 2%, which we consider a positive
development for the bond markets. Although interest rates may move higher
over the coming months, we believe that, at current levels, fixed-income
markets remain fairly valued.
Stock Market
While U.S. equity returns of the past two years have been impressive, we
would anticipate returns in 1997 to be closer to historical levels. Just as
the slowdown in corporate earnings growth and increases in interest rates in
1996 raised some near-term concerns, further interest rate increases coupled
with an acceleration of inflation could negatively affect the stock market in
1997. However, to the extent that some slowdown in earnings means that the
economy is not overheating, this may be beneficial for the equity market in
the long run. Also, we believe many of the technology-driven productivity
gains that U.S. companies have made in recent years will continue to enhance
corporate America's competitiveness and profitability. Therefore, while we
have some near-term concerns, we remain reasonably positive that the equity
market will produce satisfactory long-term returns.
A discussion of the performance and current investment strategy for each of
the series is presented here and on the following pages. The performance
figures provided in the discussion do not reflect the deduction of any
separate account charges. The results would have been lower had these charges
been deducted. We appreciate your support and welcome any questions or
comments you may have.
On behalf of the Board of Trustees,
/s/John D. McNeil
John D. McNeil
Chairman
January 15, 1997
Capital Appreciation Series
For the year ended December 31, 1996, the Series provided a total return of
21.48%, modestly below the 22.64% return of the Standard & Poor's 500
Composite Index (the S&P 500), an unmanaged index of common stock
performance. The Series' performance benefited from a significant weighting
in the technology sector and in particular Intel and Microsoft which have
strong market positions, related to the personal computer business. Lodging
stocks, such as HFS Inc., a franchiser of hotels and residential real estate
brokerage companies, also contributed significantly to performance. Other
significant contributors include Tyco International, a fire control and
health care products manufacturer and Wisconsin Central, a railroad company.
Performance was negatively impacted by the underweighting in oil and oil
services which benefited from rising oil prices, and financial services which
performed well despite generally flat interest rates since these sectors
outperformed the S&P 500 during the year.
The Series continues to seek companies possessing five key factors: earnings
momentum, reasonable valuations, good management, a strong balance sheet and
positive secular trends. Given that current price/earnings multiples appear
reasonable, the Series will focus on earnings momentum to seek further stock
price appreciation.
Our largest concentration remains in the technology area, which is seeing
strong spending by corporations that are focused on improving their
productivity. Other large weightings are in lodging and industrial goods such
as agricultural equipment that will benefit from a continuing strong farm
economy.
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Conservative Growth Series
For the year ended December 31, 1996, the Series provided a total return of
25.41%, outperforming the 22.64% return of the S&P 500. The past year proved
to be a fairly benign investment environment, with growth continuing, but at
a reasonably slow rate, which allowed interest rates to stay low, and
therefore improved valuations. At the same time, many companies continued to
report significant gains in earnings. The Series benefited from this
favorable investment environment, as the low interest rates led to improved
valuations, and corporate earnings continue to improve. The Series was also
helped by being overweighted in sectors that outperformed the market, while
being underweighted in those that lagged the market. For example, the Series
was overweighted in financial services stocks and industrial goods and
services, particularly aerospace and defense stocks, both of which
outperformed the market, while being underweighted in sectors like utilities
and leisure, both of which underperformed. Financial services stocks
benefited from a number of favorable developments. First, some companies,
such as First Bank Systems and Norwest, have been selling at significant
discounts to the market -- discounts which we feel are not warranted given
the underlying strength of these companies. Second, the ongoing and necessary
consolidation of the banking industry benefits the acquiring companies which
are able to reach broader markets and realize economies of scales, as well as
the stocks of companies being taken over, as they have been bought at
significant premiums.
Meanwhile, the defense and aerospace industry is also going through a massive
consolidation as the defense industry shrinks. In most cases, the resulting
acquisitions and mergers are enhancing, not diluting, earnings as these
companies also enjoy increased economies of scale, as well as increased
purchasing power and global strength. We think there will be more mergers in
the future.
Looking ahead, we have some concerns about the ability of the S&P 500 to
continue to grow earnings at the same pace as the last couple of years. While
the economy slows, the ability of companies to make their earnings estimates
will become more and more significant. As a result, stock selection will
become even more important. In this environment, we believe that our emphasis
on original research, combined with our bottom-up approach to stock
selection, should continue to benefit the Series over the long term.
Emerging Growth Series
For the year ended December 31, 1996, the Series provided a total return of
17.15%. This compares to a 22.64% return for the S&P 500, and a 16.35% return
for the Russell 2000 Total Return Index, an index comprised of 2,000 of the
smallest U.S. domiciled company common stocks, which are traded on the New
York Stock Exchange, the American Stock Exchange, and the NASDAQ. The Series'
performance benefited from strong price appreciation in the stock prices of
some of our holdings in the technology sector. BMC Software (systems
software), Cadence Design Systems (electronic design automation software),
and Oracle Systems (database software) were up 94%, 41%, and 48%,
respectively. Taking a major position in the depressed semiconductor stocks
during the month of August also contributed to the performance of the Series.
We believe that the semiconductor industry has resolved the problem of excess
inventory in the system and that orders and shipments are picking up. This
has been confirmed by the industry's improving "book-to-bill" ratio. Looking
ahead, the semiconductor companies should continue to benefit from robust
growth in PCs, data processing, and telecommunications. Adobe Systems
(electronic printing and publishing software) reported disappointing earnings
early in the year and has been a disappointing stock. We maintain a positive
position in Adobe, as we believe the stock price will rebound from its
currently depressed level.
For the second year in a row, the performance of our leisure stocks was
particularly enhanced by the large weighting in HFS. HFS, the nation's
largest franchiser of hotels and residential real estate brokerage companies,
saw its stock price increase 46% last year. Strong earnings gains and a few
acquisitions such as Coldwell Banker, Avis, Resort Condominiums
International, and PHH Group, have increased the possibility of future growth
prospects for investors. We believe HFS has one of the most astute management
teams, and the position remains the Series' largest.
The Series' positions in radio and television broadcasting stocks performed
very well as a result of the 1996 Telecommunications Act, which relaxed
ownership restrictions. Rapid industry consolidation is already occurring,
with the strong companies getting stronger. Clear Channel Communications and
LIN Television were up 64% and 42%, respectively.
Although the healthcare stocks had a mixed performance over the past year
(especially the health maintenance organizations), two of the Series' major
positions produced superior earnings growth and good stock performance.
Cardinal Health (wholesale distributor of medical products) and Health
Management Associates (hospital management company) appreciated 60% and 29%,
respectively.
In 1996, the stock market and the Series' investments moved higher despite a
rise in interest rates and a slowdown in overall corporate earnings. Although
the large-capitalization stocks outperformed the small-capitalization stocks
over the past six months and the year as a whole, we believe the small fast-
growing companies will resume their outperformance in 1997 as the economy and
corporate earnings continue to slow. As we have mentioned in previous
reports, we are living through an unprecedented era of productivity gains for
corporate America. We believe smaller companies are providing the technology
and resources to drive this productivity to the bottom line, and that the
stock market will continue to reward these companies.
Government Securities Series
For the year ended December 31, 1996, the Series experienced a total return
of 1.65%. This compares to a 2.77% return for the Lehman Brothers Government
Bond Index (the Lehman Index), an unmanaged index comprised of debt issued by
the U.S. Treasury, U.S. government agencies, and corporate debt guaranteed by
the U.S. government. The portfolio is currently positioned for stable to
rising yields. The portfolio is 10% less sensitive to market price movements
than the Lehman Index and is focused on securities which add incremental
yield to the Series. Cash positions are less than 5%.
Nearly half of the portfolio is held in U.S. Treasury, U.S. agency
debentures, and Small Business Association Loans. These issues currently
yield between 6.0% and 7.4%. Issue maturities are distributed across the
entire maturity spectrum but vary from the Lehman Index from an overweighting
in shorter maturities and an underweighting in longer maturities. The agency
issues add between 0.20% and 1.10% incremental yield above comparable U.S.
Treasury issues. Government guarantees apply to individual securities and not
to prices and yields in a managed portfolio.
The other 53% of the portfolio is held in U.S. agency mortgage pass-through
certificates. Issues held in the portfolio are held for both their yield
characteristics and extension risk protection. Both 30-year and 15-year
issues are currently represented, with yields that average 1.00% greater than
comparable Treasury issues. The issues have stable prepayment rates, which
should make the certificates move in a predictable fashion with their
Treasury counterparts.
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Should we become more constructive on the market, the portfolio will decrease
its allocation to mortgage securities, and increase its allocation to five-
and ten-year Treasury issues.
High Yield Series
For the 12 months ended December 31, 1996, the Series provided a total return
of 12.12%, compared to a return of 11.4% for the Lehman Brothers High Yield
Bond Index. The Series benefited as the credit quality of its typical
high-yield investment improved throughout the year. In addition, a number of
companies in the portfolio were acquired and their high-yield debt retired at
premiums to secondary market prices. Performance was negatively impacted by
the overweighting of defensive industries such as supermarkets and media
earlier in the year.
The high-yield market was the best performing domestic fixed-income market
in 1996. The economy was stronger than generally forecasted, and most
high-yield issuers fared well. The improvement in credit quality more than
compensated for the rise in interest rates. Favorable technical factors
reinforced these positive credit fundamentals. The demand for high-yield
bonds outpaced supply due to strong cash inflows into high-yield mutual funds
and increased buying interest from traditional investment-grade accounts.
These favorable credit and technical factors caused the spread between the
yield on high-yield bonds and Treasury securities to narrow which led to
higher bond prices. (Principal value and interest on Treasury securities are
guaranteed by the U.S. government, if held to maturity). The high-yield
market currently offers approximately 3.25 percentage points more yield than
the Treasury bond market. We would not expect this spread to widen
significantly given our outlook for continued modest economic growth and the
prospects for further credit improvements. While this spread is near the
lower end of its historic range, it represents a 50% premium to the yields
currently available on Treasury securities, and we believe it is adequate
compensation for the credit risk associated with the high-yield market.
Recently, we have selectively added to the metals sector by buying bonds of
specialty steel manufacturers. Despite longer-term concerns regarding
capacity additions, steel prices have been firm, reflecting continued strong
demand. We have balanced this cyclical exposure with an overweighted position
in such name-brand consumer products companies as Westpoint Stevens, Sealy,
Samsonite, and Revlon Cosmetics. The Series continues to emphasize
telecommunication credits in such high growth areas as wireless personal
communication services. The Series is underweighted in the cable television
sector due to increased competition from alternative media sources. We
continue to seek companies which have improving credit quality and whose
high-yield bonds offer attractive expected returns.
Managed Sectors Series
For the year ended December 31, 1996, the Series provided a total return of
17.58%, which compares to a 22.64% return for the S&P 500. Consistent with
the Series' charter to be non-diversified, the Series was overweighted in a
number of industries, particularly technology. Weakness in this sector
hindered performance in the first several months of 1996. Also, weakness in
the Series' gaming positions and continued softness in stocks of health
maintenance organizations, recent additions to the Series, have also hurt
results. This was offset to some degree by good performances in the Series'
energy holdings as well as strong individual performance in names such as
First Interstate, Freddie Mac, Intel, BMC Software, Promus Hotels, Tyco
International, and ADT Ltd.
The Series has recently narrowed its sector focus to four areas. The
technology weighting has been increased as dramatic price corrections in many
of that industry's segments have presented what we believe is an opportunity
to buy high-quality companies at relative valuations well below both the
market and historic averages, despite our expectations of above average
earnings growth. Energy weightings (primarily oil services companies) have
been modestly increased as the prospect for consolidation-driven cost-savings
and enhanced operating leverage in a favorable overall environment for energy
continues to bode well for superior earnings growth in natural gas and oil.
The Series' allocation to the leisure sector, primarily gaming and cellular,
has remained approximately the same. The health care sector was added during
the year and consists primarily of health maintenance organizations (HMOs).
Stocks in this area suffered major corrections as earnings growth slowed,
primarily due to weaker-than-expected pricing. We still believe the prospects
for unit growth are very positive and pricing expectations have improved, and
we expect earnings for the HMOs to reaccelerate in 1997 and beyond, well
above current consensus. Finally, the "other" category, which consists of
prospective future sectors and/or individual ideas where we believe the
Series is better off owning than not, has been concentrated to reduce the
number of holdings and increase weightings in stocks we believe represent
attractive values. Names such as Tyco International, ADT Limited, Wisconsin
Central, Loral Space & Communications, Office Depot, McDonnell-Douglas, Sears
and Equitable of Iowa are a few examples.
Looking ahead, we still believe the economy will continue to grow, albeit at
a moderate rate. In addition, this subdued level of growth should help
inflation remain modest. We believe this environment will put a premium on
the visibility and growth of earnings, and that the market is likely to keep
trading in a narrow range marked by volatile sector rotations. In this
environment, we believe the best course of action for the Series is to
concentrate holdings in companies led by strong management teams and which
have visible earnings growth and attractive relative valuations.
MFS/Foreign & Colonial Emerging Markets
Equity Series
The Series, which commenced operations on June 5, 1996 seeks capital
appreciation through investing primarily in companies whose principal
activities are located in emerging markets countries. The Series has the
ability to invest up to 35% of its assets in lower-rated or unrated
fixed-income securities. Emerging markets have generally made little progress
over the past year as international investors have preferred to concentrate
their attention on more developed markets, which have continued to perform
well. The Series has benefited from being overweighted in India, Pakistan,
Colombia, Peru, and China and being lower weighted in Hong Kong and the
Philippines.
The Series remains very well-diversified at the country level, with major
industry weightings in telecommunications, banking, electric utilities, food
and beverage, and oil and gas. The largest country weightings are Brazil,
Mexico, India, Malaysia, and Hong Kong. Within Asia, we have continued to
build positions in China and Hong Kong, which we believe will be re-rated
upwards as the handover approaches, in mid 1997. We also remain positive
about India (which has been a disappointing performer over the last six
months), due to improving liquidity and falling real interest rates. The
small position we currently have in Pakistan has not as yet performed due to
political instability in the country, but we are hopeful of an improvement in
the situation in the next 12 months in what remains, in our view, the
cheapest market in Asia.
Our largest position in Latin America remains with Brazil. Interest rates
have been steadily easing and reforms are continuing while
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the stock market has continued to perform well. We also remain positive on
the smaller Latin American markets of Colombia and Peru. In Colombia,
political worries have continued to overshadow exceptional valuation levels.
In Peru, the medium-term outlook remains positive despite short-term
political concerns and weakness in the economy.
In other emerging markets, Poland and Russia remain attractive. The Polish
economy is growing strongly, led by exporters. Even though it has been one of
the best performing markets in the world in 1996, shares of single-digit
price earnings multiples are still available. In Russia, despite the apparent
political risks, economic liberalization is expected to continue and
valuations remain compelling in comparison with Western companies. Exposure
to Hungary has been eliminated while the South Africa weighting has been
reduced significantly. In the former, valuations are no longer attractive
following a near doubling of the market in 1996, while in the latter, a poor
economic outlook and political instability are likely to continue for a
period of time. Two markets where we have increased positions are Morocco and
Egypt. In the former, a healthy economy, continued liberalization, and better
stock market liquidity are likely to lead to a further re-rating upward of
the market. In the latter, the privatization program has accelerated and
dividend yields on many companies are now higher than inflation.
MFS/Foreign & Colonial International
Growth Series
The Series, which commenced operations on June 3, 1996, seeks capital
appreciation through investing, under normal market conditions, at least 65%
of its assets in equity securities companies whose principal activities are
located outside the United States and which we believe offer growth potential
well above the growth rate of the overall U.S. economy. Emerging markets made
little progress during the period as international investors preferred to
focus on the more developed markets. The Series is as yet uninvested in this
area, although the intention remains to build up an exposure of approximately
20% in emerging markets, which we believe offer the potential for
above-average long-term growth. With the exception of Japanese equities, all
major international equity markets posted healthy positive returns over the
period. Evidence of a moderation in economic growth in seven of the largest
industrial countries (the G7), excluding the United Kingdom, has caused
inflationary fears to subside with falling interest rates providing support
for equity markets. After a good first quarter in 1996, smaller companies
underperformed blue chips in most markets. We continue to believe that with
careful stock selection this asset class provides excellent opportunities for
growth.
Hopes for a robust economic recovery in Japan were severely dampened in the
summer months leading to a setback in the equity market during the second
half of the year. However, the current signs of an economic recovery, albeit
modest, and a pick-up in consumer demand lend support to our positive stance
on the outlook for Japanese equities. Japan is at an early stage in its
business cycle with corporate earnings likely to rebound strongly next year.
Elsewhere, equity markets in the United Kingdom performed very strongly, with
major market indices up over 10% in local currency terms, and sterling
strength boosting this to a gain of 22%. The Series benefited from well-timed
purchases of BAT Industries and British Telecom during the period. While
continued strong economic recovery is expected to lead to further interest
rate rises in the United Kingdom, we believe this is already largely
discounted by the market and should not prevent equities making further
progress. The prospect of a general election in the first half of 1997 is
likely to lead to increased volatility in the market.
In Europe, currency weakness detracted somewhat from an otherwise reasonably
strong performance, with the strongest country performances coming from
non-core Europe such as the Scandinavian countries and Spain. Exposure to
Sweden and Spain and the Netherlands in particular have had a positive impact
on the portfolio. After recent strength linked to low interest rates and
optimism on EMU (European Monetary Union) convergence, we believe the outlook
for European markets is relatively dull supporting our underweighted stance
on the region.
Hong Kong was a strong performer during the period, with the unmanaged Hang
Seng Index up 22% in both local currency and U.S. dollar terms. The Series
benefited from its exposure to the property stock Cheung Kong. We expect to
maintain our exposure to the Far East generally, as growth prospects in the
region remain high in relative terms.
In the small-cap portion of the portfolio, Japanese small companies, where
the Series has a significant exposure, experienced a more severe downturn
than the larger stocks due to their greater sensitivity to domestic economic
conditions. However, Japanese small-caps now appear poised for a strong
recovery as the domestic economy regains momentum. Strong performers among
the small-caps generally were United Kingdom niche operators Serco and
Independent Insurance as well as French stationery supplier Guilbert.
MFS/Foreign & Colonial International Growth
and Income Series
For the year ended December 31, 1996, the Series experienced a total return
of 4.84%. This compares to a 14.43% return for the Lipper International Funds
Index, as measured by Lipper Analytical Services, an independent firm that
reports mutual fund performance. The Series' return also compares to a 6.14%
return for a blend (70% and 30%) of the Morgan Stanley Capital EAFE Index and
the J.P. Morgan Global Bond Index. The EAFE Index is an unmanaged index of
international stocks, while the Morgan Index is an unmanaged index of bonds
issued from 13 countries with remaining maturities of at least one year. With
the exception of Japanese equities, all major international bond and equity
markets posted healthy positive returns over the period. Evidence of a
moderation in economic growth in seven of the largest industrial countries
(the G7), excluding the United Kingdom, has provided support for declining
bond yields as inflationary fears have subsided. At present the Series looks
to maintain an exposure of about 20% in international bonds.
In the United Kingdom, equity markets performed very strongly, and the Series
benefited from its holding in British Gas during the period as regulatory
concerns diminished. While continued strong economic recovery is expected to
lead to further interest rate rises in the United Kingdom, we believe this is
already largely discounted by the market and should not prevent equities
making further progress.
In Europe, currency weakness detracted somewhat from an otherwise reasonably
strong performance, with the strongest country performances coming from
non-core Europe such as the Scandinavian countries and Spain. Holdings in
large industrial companies such as Bayer and Mannesman have had a positive
impact on the portfolio, as have exposure to Sweden and Spain. After recent
strength linked to low interest rates and optimism on EMU (European Monetary
Union) convergence, we believe the outlook for European markets is relatively
dull supporting our underweighted stance on the region.
Hong Kong was a strong performer during the period, with the Hang Seng Index
up 22% in both local currency and U.S. dollar terms. The Series benefited
particularly from its exposure to
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property stocks such as Wharf, Cheung Kong and New World Developments. We
expect to maintain our exposure to the Far East generally, as growth
prospects in the region remain high in relative terms.
The fixed-income portion of the Series reflects our expectations of stronger
growth in Europe and Japan in 1997, as well as a continuation of the current
U.S. expansion, which implies some upward pressure on interest rates next
year. On the other hand, low inflation and excess industrial capacity
probably suggest that any rise in rates may be muted. Meanwhile, the bond
market recovery of the second half of 1996 has reduced the cushion, or risk
premium, in bond valuations from their mid-year levels.
In Japan, for example, the market no longer prices in any rise in official
rates over the next couple of years. While we see little chance of a rate
rise over the next several months, the optimistic scenario held by market
participants leaves little room for error. Likewise, the U.S. bond market
reflects a positive scenario of moderate growth, low inflation, and possible
budget reform. Any further price gains would appear to require a significant
slowdown in U.S. economic growth, which we deem unlikely given the strong
income growth of households. Our strategy, therefore, emphasizes markets like
Australia and Canada, where fundamental trends remain more favorable. Within
Europe, we remain optimistic about currency union, which favors markets like
Ireland. Less likely participants in monetary union, such as Spain and Italy,
still offer opportunities for further gains, but a degree of caution seems
appropriate.
Money Market Series
Interest rates on short-term (30 days and less) debt instruments remained
relatively stable during the past 12 months. The Federal Reserve Board
lowered short-term interest rates on January 31, 1996 by 25 basis points
(0.25%) from 5.50% to 5.25%. The Fed Funds rate remained at 5.25% for the
rest of 1996. Because of this, we maintained average maturities between 40
and 50 days.
We continue to limit the Series' investments to securities issued or
guaranteed by the U.S. Treasury or agencies or instrumentality's of the U.S.
government, as well as the highest-quality corporate and bank issues, in an
effort to provide the maximum security against credit risk. At the present
time, approximately 62% of the portfolio is invested in U.S. government or
government guaranteed issues and the balance is in corporate and bank issues.
The Series is neither insured nor guaranteed by the U.S. Government.
Research Series
For the year ended December 31, 1996, the Series provided a total return of
23.77% compared to the S&P 500, which returned 22.64%. The Series remains
overweighted compared to the S&P 500 in several sectors, including
technology, industrial goods and services, consumer staples, and business
services. Relatively neutral weightings to the S&P 500 include: financial
services, health care, retailing, and leisure. The Series continues to be
underweighted in energy, and utilities and communications.
Within the technology sector, there were several stocks which contributed to
the Series' performance over the past six months. Some software names
include: Microsoft, Compuware, BMC Software, and Cisco Systems. These
companies have developed solid competitive positions within their industry
which have translated into successful stock performances.
Several companies within the financial services sector also performed well
over the latter half of 1996. Life insurance companies such as Conseco,
Allstate, and ITT Hartford have implemented several cost savings initiatives
which have contributed to earnings recently. In addition, several banks have
benefited from the consolidation craze. Both Chase Manhattan and BankBoston
have proven that a successful merger or acquisition, coupled with a strong
management team, can contribute to earnings much sooner than anticipated.
While the Series was underweighted in both energy and utilities and
communications, three companies have provided strong returns over the period.
Both Newfield Exploration and PanEnergy Corporation have been excellent
additions. MCI Communications' stock price appreciated following the
announced planned acquisition by British Telecommunications PLC.
Total Return Series
For the year ended December 31, 1996, the Series provided a total return of
14.10%. As a balanced Series, a large portion of the Series' total assets are
invested in both stocks and bonds. In addition, the Series' purchases
preferred stocks and convertible bonds, which in many cases can provide
similar returns to common stocks with less risk. Over the past year, the
Series held about 55% of its assets in common stocks, preferred stocks, and
convertible bonds. This allocation provides the bulk of the return for the
Series as a whole, as the U.S. stock market continues its trend of 1995,
posting spectacular gains. The S&P 500 gained 22.64% over the 12-month period
covered by this report. The remainder of the Series was invested in a blend
of corporate bonds and U.S. Treasury bonds, with an overall duration of five
and six years. The fixed income sector also provided positive returns;
however, the magnitude was far less than that of the Series' stock portion.
For example, the Lehman Brothers Government Corporate Bond Index (the Lehman
Index), which is fairly representative of the Series' bond allocation, gained
2.88% over the same 12-month period. (The Lehman Index is an unmanaged,
market-value weighted index of U.S. Treasury and government agency
securities, excluding mortgage-backed securities.)
The Series' stock investment strategy has focused on companies that, in our
view, have earnings prospects or asset values equal to or higher than the
overall market as measured by the S&P 500. Two sectors that we believe fit
our investment criteria are the energy and financial service sectors. Bank
stocks have done particularly well because earnings have risen steadily and
an increase in merger activity has made nearly all banks more valuable. We
also favor the health care sector, where strong earnings and industry
consolidation has improved the outlook for the stocks of many of these
companies. In addition, we currently favor the aerospace industry, which we
believe will benefit from a cyclical increase in the number of aircraft being
built over the next three years. During the period covered by this report, we
avoided the technology sector, because in our view, many of these stocks have
high growth prospects but also have high valuations, which means they often
carry greater risk. The Series is also underweighted in consumer companies
because of their inability to raise prices as the U.S. consumer continues to
demand more value at lower prices.
Given where equity valuations are today, we feel comfortable with our current
asset allocation. However, should the stock market experience a meaningful
correction, we would be looking to increase our stock allocation.
Looking forward, we believe the U.S. economy will continue to experience
modest growth over the next 12 months. However, over the near term, we
believe the Federal Reserve Board will keep a close watch on wage inflation
and general economic activity, and may raise interest rates should future
economic numbers suggest inflationary growth.
Utilities Series
For the year ended December 31, 1996, the Series provided a total return of
20.37%. This compares to a 22.64% return for the S&P 500 and a 9.26% return
for the average utility fund as measured by
5
<PAGE>
Lipper Analytical Services, an independent firm that reports mutual fund
performance. The Series' performance has benefited from its overweighting in
natural gas stocks, which were terrific performers in 1996. Also, two of the
Series' top 10 holdings, Portland General and MCI Communications, were bought
out, by Enron and British Telecommunications, respectively. Electric utility
stocks also comprise a large portion of the Series' equity position, and
although electric utilities are facing a period of deregulation, the pace of
change is slower than had been anticipated. This is favorable for electric
utility stocks since certain companies are preparing themselves to thrive in
the new environment. Meanwhile, natural gas companies are benefiting from
stronger-than-expected earnings growth due to robust earnings from
nonregulated businesses.
In general, the Series' assets are more interest-rate sensitive than the
overall market, and while the weak bond market in the first half of the
Series' fiscal year hurt utility stocks, the recent strengthening in the bond
market has helped these stocks.
The Series was underweighted in telecommunications stocks for the entire
year. The passage of the federal Telecommunications Act placed an overhanging
of uncertainty over these stocks, as we expect it will be several years
before we understand who are the winners and losers from this legislation.
For the large-capitalization stocks in this sector, we expect earnings per
share growth to decline.
About 20% of the Series is invested internationally. Typically, international
markets can offer much higher growth and, at times, a more constructive
regulatory environment than the United States. However, there are more risks
associated with international investing. Powergen, a U.K. electric generating
company, is one of the cheapest utilities in the world based on growth
relative to its earnings and cash flow generation. Telefonica del Peru,
meanwhile, enjoys an excellent combination of robust growth and rational
regulation.
Another 10% of assets is invested in REITs (real estate investment trusts),
which we believe often offer higher yields and stronger dividend growth than
the typical utility. Our strategy is to hold a diversified group of REITs,
including health care, self-storage, hotel, apartment, office, and
industrial.
Value Series
The Value Series commenced operations on June 3, 1996, and, through December
31, 1996, provided a six-month total return of 10.10%, while the S&P 500
returned 12.06% over the same period. Over this period, the three best
performing sectors of the S&P 500 were technology, financial services, and
industrial goods and services, while the worst performing sectors were
utilities and communications. The Series was slightly underweighted in
technology versus the S&P 500, slightly underweighted in financial services,
and slightly overweighted in industrial goods and services. Our overweighting
in the utility and communication sector is primarily concentrated in the
cellular industry with a large holding in Cellular Communications
International, a member of the Italian licensee Omnitel.
Leisure, our largest sector, is a diverse mix of companies and industries.
The Series' primary focus is on the gaming and lodging industry as well as
the broadcasting industry. We believe the lodging industry will continue to
exhibit favorable trends over the near term. Supply continues to be tight,
especially for the high-end, full-service hotels and demand remains robust.
Key metrics of performance and occupancy and rate should show positive
development throughout 1997. While the gaming industry's expansion slowed in
1996, we continue to be enthusiastic about the long-term prospects. Harrah's
Entertainment is currently one of the more attractively valued companies in
this industry and results should turn more favorable in the second half of
1997. In the broadcasting industry our holdings range across television and
radio which should both benefit from recent deregulation. We believe ongoing
consolidation should aid revenue and costs as pricing flexibility increases
and programming expenses diminish. Our favorite holdings in this industry are
American Radio and Lin Television.
Industrial goods holdings are focused on the aerospace industry, which we
expect to show a strong run-up in profits as the commercial aircraft cycle
evolves over the next several years. BE Aerospace and B.F. Goodrich are
expected to show strong earnings momentum over this period.
International holdings are currently 16% of equities and range across
European and Asian markets. In addition to Cellular Communications
International, other large holdings include Tranz Rail (New Zealand railway)
and Korea Mobile Telecom (South Korea cellular franchise).
World Asset Allocation Series
For the year ended December 31, 1996, the Series provided a total return of
16.04%. This compares to 12-month returns for the following unmanaged
indices: 22.64% for the S&P 500; 6.31% for the Morgan Stanley Capital
International EAFE Index, an index of common stocks; 3.60% for the Lehman
Brothers Aggregate Bond Index, an index of government and corporate bonds
including Treasury, agency, and corporate bond issues and mortgage-backed
securities; and 5.34% for the J.P. Morgan Non-Dollar Index, an index of
international bonds. We have steered the Series' assets on a course favoring
international equities above all over securities. This reflects our
fundamental view that corporate earnings outside the United States will
accelerate while earnings from the U.S. are on a slower track. Valuations
reflect our belief that better stock buys are available outside the Untied
States and our risk model further suggests that long-term out-performance may
be more likely from equity markets in Asia, Europe, and South America.
On the bond side, we favor international sovereign bonds over U.S. Treasury
bonds, as we see the risks rising for higher inflation in the U.S. as the
recovery continues and wage pressures build within a full-employment economy.
However, in the United States we have favored high-yield (below investment
grade) bonds, which are reaping the rewards of broad economic growth, and
consequently better balance sheets and operating ratios.
Looking ahead, we will continue with our international strategy,
re-allocating assets to either the U.S. stock or bond markets until a shift
in relative values asserts itself, or until our internal views change. This
allows us to hold 17% of the Series in reserve temporarily for re-deployment
in an opportunistic manner. Below are the specific reports of our individual
managers:
Our holdings in U.S. equities range across a variety of industries and
incorporate both value and growth strategies. Recent additions to the
portfolio include PepsiCo (soft drinks), MCI Communications
(telecommunications), Host Marriott (hotels), and Rhone-Poulenc Rorer
(pharmaceuticals). Currently, our top three sectors are leisure (with 16.0%
of the portfolio), technology (14.4%), and financial services (13.4%). Our
current outlook continues to be cautious. While the mid-year rise in interest
rates has subsided, equity valuations are rich and leave no margin for error.
We continue to take a conservative, low-risk approach to our stock selection.
Internationally, we emphasize stock selection as opposed to country or
industry selection. Priority is placed on companies which we believe will
generate above-average earnings growth and which are trading at attractive
valuations, regardless of their home country.
6
<PAGE>
Toward the end of the year, the Series' weighting in Asia/Pacific was reduced
by roughly 5%, due to reductions in positions in Australia and New Zealand,
where several holdings reached what we viewed as fair valuation targets, and
the relative underperformance of Japanese holdings. There have been
offsetting increases in Europe and the Americas, where more attractive
companies were found. The largest individual country exposures are Japan,
United Kingdom, and Sweden. The Series' international holdings continue to
contain few cyclical stocks due to the relatively unattractive valuations.
Instead, we are finding better values in companies that we believe will
sustain steady above-average earnings growth. Companies that fit this
description and have been recently added to the Series or had their positions
increased include: Canadian National Railway; Adidas, a German footwear
company; British Aerospace, a U.K. aerospace and defense company; and Henkel,
a German specialty chemicals company.
In the U.S. government bond market, yields declined as the pace of economic
growth slowed in the third quarter and inflationary pressure continued to
recede. After growing at 4.7% in the second quarter, GDP growth in the third
quarter receded to 2.0%. Inflation, as measured by either the Employment Cost
Index or the GDP Deflator, eased during the period. As a result, yields on
10-year Treasury notes declined from 7% to 6% during the period as the U.S.
market adjusted to the view that economic growth will continue at a moderate
pace.
Global bond markets continued to rally, with the higher yielding markets
leading the way again. In Europe the main story remains the anticipation of
the European Monetary Union to be formed in 1999. While it remains to be seen
whether the latest round of fiscal austerity will allow Spain and Italy to
join the EMU at the outset, the market has cast an aggressive vote for the
affirmative. On the other hand, the market seems to believe that the new
"Euro" currency must be weak in order to make EMU viable. Hence, the dollar
has appreciated sharply versus European currencies. An increased flow of
capital out of Japan allowed the dollar to rise sharply against the Yen. In
the dollar-block, Canada and Australia continued to outperform the U.S.
market. The portfolio benefited from our emphasis on the high yielding
markets. We have adopted a more cautious stance with regard to further
spread-tightening within Europe since the market no longer offers generous
compensation for the risk that the EMU process may founder. Australia and
Canada remain attractive based upon improving fundamentals. In Japan, the
fragile nature of the recovery should support the bond market in the near
term, but it may also hamper plans to reduce fiscal stimulus. Over time, we
expect improved growth and/or fiscal pressure to push yields higher.
World Governments Series
For the year ended December 31, 1996, the Series experienced a total return
of 4.66%. This compares to a 3.62% return for the Salomon Brothers World
Government Bond Index (the Salomon Index) measured in local currency terms
for the same period. The Salomon Index is unmanaged and consists of complete
universes of government bonds with remaining maturities of at least five
years. The first half of 1996 witnessed concerns about accelerating U.S.
growth, and its potential boost to other major economies, which set off a
rise in interest rates based on fears of higher inflation and potential rate
hikes by the Federal Reserve Board. However, in the second half, these
concerns proved unwarranted as the U.S. economy slowed, inflation fears
receded and rates aggressively declined. During this second half, most of
central banks with the exception of the U.S., lowered official interest
rates.
By the end of the year, as measured by the Salomon Index, all markets
registered positive returns but with significant differences. For example,
the core markets -- the United States, Japan, and Germany -- were the worst
performers, while the higher yielding markets of Australia, Canada, Japan,
and Italy were among the better performers. The Series benefited by being
overweighted in these higher yielding markets for most of the year.
In preparation for monetary union due to commence in January 1999, almost all
European countries announced tight fiscal budgets, while at the same time
cutting interest rates due to slow growth and low inflation. Within Europe, a
dramatic narrowing of yield spread differentials, or overperformance, began
in earnest during the third quarter with Spain, Italy and Sweden being the
main beneficiaries. Although a good part of this convergence has now taken
place, we anticipate these markets will continue to outperform as the
European monetary union approaches.
Meanwhile, looking at the dollar bloc, both Canada and Australia continue to
benefit from low inflation, slow growth, and tight fiscal budgets. The Series
benefited by being overweighted in both these markets for most of the year.
Looking ahead, while there still is no immediate threat of higher inflation
in Canada, economic growth is finally picking up, and therefore we expect the
Bank of Canada to be accommodative in 1997. While an underweighted position
in U.S. bonds has been beneficial for the year, the Series' performance was
hindered during the third quarter as the U.S. position's duration (a measure
of interest rate sensitivity) was low in anticipation of a pickup in U.S.
economic growth that never materialized.
In regards to the Japanese bond market, the Series was underweighted for most
of the year because we felt other markets offered better value. However, the
Japanese bond market was helped by continued depressed real estate and
banking sectors as well as weak consumer spending. Our outlook calls for a
continuation of slow, choppy growth with a modest increase in inflation.
For the year, the overall rise in U.S. interest rates, coinciding with
reductions in short-term rates in Europe, has enabled the dollar to
appreciate against the German mark. In addition, the dollar also benefited
from yield convergence within Europe. The dollar has continued to strengthen
versus the Japanese yen, based primarily on Japan's low interest rates and
the government's policy of engineering a weaker currency in order to
stimulate its beleaguered economy. Looking forward, we anticipate modest but
further central bank lowering of interest rates in many European countries as
well as in Australia and New Zealand, an environment that we believe could
continue to be positive for bonds. However, some caution is warranted as
ultimately the effect of lower rates in these countries will result in a
pickup in economic growth and, possibly, inflation. Furthermore, with the
U.S. currency benefiting from positive interest rate differentials, renewed
hope for a balanced budget, and movement toward an inclusive, single European
currency, the prospects for a stable dollar remain favorable.
World Growth Series
For the year ended December 31, 1996, the Series provided a total return of
13.02%, as compared to returns of 22.64% for the S&P 500 and 14.00% for the
MSCI World Index, an unmanaged index of international stocks. The Series
performance over the past year reflected our decision to continue
overweighting stocks in the U.S. and emerging markets.
The Series has pursued a strategy of investing in companies worldwide that
are expected to grow much faster than the overall U.S. economy, in what we
consider the most attractive markets with the best long-term growth
potential. We have identified three
7
<PAGE>
of these markets: U.S. small-capitalization and emerging growth stocks, which
represent 44% of the Series' assets; growth stocks in mature foreign markets
such as Europe and Japan, representing 37%; and stock in emerging markets,
representing 19%.
Overweighting the U.S., one of the best performing world markets over the
past year, helped the Series' performance, as did our overweighting in two
strong sectors, technology and leisure. The U.S. sector of the portfolio
focuses on companies with dynamic earnings growth driven by leadership
positions in rapidly growing markets. Thus our holdings include software
companies such as Oracle, BMC Software, and Cisco in networking, where
earnings growth is being driven by corporations' focus on increasing
productivity. In the consumer area, lodging companies such as HFS and Promus
Hotel significantly outperformed the market due to strong demand and
favorable pricing. Performance was also helped by an underweighting in health
maintenance organizations where pricing and utilization have continued to
deteriorate.
The Series' performance was further helped by its overweighting in emerging
markets, especially Latin American countries such as Brazil, Mexico, and
Peru, whose economies appear to be coming out of recession faster than
expected. Performance was also helped by overweighting Hong Kong and China
where solid GDP growth prevailed in the face of slowing inflation and an
underweighting in the rest of emerging Asia, where economic growth rates are
slowing from the accelerated levels of the early 1990s. We also identified
many companies in Eastern Europe where strong export growth drove earnings
acceleration and contributed to performance.
On the negative side, performance was hurt by holdings in Japan, a lackluster
market. There, economic recovery was disappointing despite low interest
rates. The continued economic slowdown in Europe also hurt some of our more
cyclical growth stock holdings. However, we believe buying opportunities have
been created by this slower than anticipated recovery. Our favorite area now
in developed foreign markets is Continental Europe where the focus is on
restructuring, turnaround, and unit growth stories which we expect to do well
in the anticipated slow economic recovery. Reflecting this strategy, major
holdings include ASDA, a U.K. retailer; Walters Kluwer, a Dutch publisher;
and Novartis, a Scandinavian pharmaceutical company.
Looking forward, we are closely following three important economic trends.
First, our view is that U.S. growth in 1997 will slow relative to 1996,
making the higher earnings rates of U.S. emerging growth companies even more
valuable. Second, we expect Europe and Japan to continue their recoveries
from recession, with an accompanying acceleration in earnings growth. Third,
we anticipate robust earnings increases from companies in emerging markets,
where market reforms will enhance trade and open up further opportunities for
development. Recognizing these pervasive trends, we are constantly searching
for the fastest growing companies at the most attractive valuations.
World Total Return Series
For the year ended December 31, 1996, the Series provided a total return of
14.33%. This compares to a 14.00% return for the MSCI World Index and a
14.69% return for the Lipper Global Flexible Fund Index as determined by
Lipper Analytical Services, an independent firm that reports mutual fund
performance. The strength of the U.S. equity market in 1996, relative to
other markets, was somewhat surprising after its powerful surge in 1995. Thus
the Series' approximately 15% reduction in U.S. equities was not as
beneficial as expected. On the other hand, despite our intentions at the
beginning of the year to build up Japanese and other Far East holdings, we
drew back from this strategy, and the Series benefited, since most of these
markets were significant underperformers. The Series' holdings in Japanese
stocks are just one-half of the MSCI World Index. Large overweightings in
some smaller markets such as Sweden and Netherlands were very successful. By
industry category, financial services companies were the best performers,
while growth stocks generally outperformed value-oriented stocks. Almost
without regard to these categories, Japanese stocks were underperformers.
Despite the fact that the United States economy weakened significantly during
the third quarter, most international fixed income markets continued to
outperform the U.S. bond market, and the Series generally benefited by
maintaining overweighted positions in the better performing European markets
while being underweighted in the U.S. bond market.
More specifically, in preparation for monetary union commencing in January
1999, almost all European countries have announced tight fiscal budgets,
while at the same time cutting interest rates due to slow growth and low
inflation. Within Europe, a dramatic narrowing of yield spread differentials,
or outperformance, began in earnest during the third quarter with such
high-yield countries as Spain, Italy, and Sweden being the main
beneficiaries. Although a good part of this convergence has now taken place,
we anticipate these markets will continue to outperform as European Monetary
Union approaches.
Meanwhile, within the dollar bloc, both Canada and Australia continue to
benefit from low inflation, slow growth, and tight fiscal budgets. For most
of the year, the Fund has benefited by being overweighted in both these
markets. While an underweighted position in U.S. bonds has been beneficial
for the year, the Fund's performance was hindered during the third quarter as
the U.S. position's duration (a measure of interest rate sensitivity) was low
in anticipation of a pickup in U.S. economic growth that never materialized.
For the year, the overall rise in U.S. interest rates, coinciding with
reductions in short-term rates in Europe, has enabled the dollar to
appreciate against the German mark. In addition, the dollar has also
benefited from yield convergences with Europe. The U.S. dollar has continued
to strengthen versus the Japanese yen, based primarily on Japan's low
interest rates and the government's policy of engineering a weaker currency
in order to stimulate their beleaguered economy.
Looking forward, we would anticipate modest but further central bank
reductions in interest rates in many European countries as well as in Canada,
Australia, and New Zealand, an environment that we believe would be positive
for bonds. However, some caution is warranted as ultimately the effect of
lower rates in these countries could result in the pickup of economic growth
and possibly inflation. Likewise, with the U.S. currency benefiting from
positive interest rate differentials, renewed hopes for a balanced budget,
and the movement toward an inclusive, single European currency, the prospects
remain for a stable dollar.
Zero Coupon Series 2000 Portfolio
The total return for the portfolio was 1.91% for the 12 months ended December
31, 1996, as intermediate-term Treasury notes moved higher during the period,
with yields on five-year Treasuries rising from 5.50% to 6.25%. The portfolio
consists of discounted coupon or principal payments, which are stripped from
U.S. Treasury securities in order to provide a predictable and compounded
rate of return. With no interest payments prior to maturity, these portfolios
are more sensitive to interest rate changes than are comparable bond funds
with similar maturities. While there will be fluctuations within the
portfolio subject to interest rate moves, all portfolio holdings are
guaranteed by the U.S. Treasury at maturity. (While the guarantees do not
apply to the individual units of the Series, they assure a specified return
to contract owners who hold their units to the maturity of the Series.)
8
<PAGE>
Performance Summary
The following information illustrates the growth of a hypothetical $10,000
investment for each Series during the period indicated. Past performance is
no guarantee of future results. These results do not reflect the deduction of
separate account charges. For returns which reflect the deduction of separate
account charges, please refer to the annual report for the product being
offered.
Capital Appreciation Series
For the 10-year period through December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Capital Consumer
Appreciation S&P 500 Price
Series Composite Index--U.S.
------ --------- -----------
12/86 10000 10000 10000
12/88 10983 12225 10899
12/90 14573 15622 12102
12/92 23336 21922 12831
12/94 26544 24432 13541
12/96 43358 41254 14373
- --------------------------------------------------------------------------------
Average Annual Total Returns
1 Year 3 Years 5 Years 10 Years
----------------------------- --------- --------- --------- -----------
Capital Appreciation Series +21.48% +16.34% +16.12% +15.80%
S&P 500 Composite+ +22.64% +19.58% +15.15% +15.23%
Consumer Price Index*+ + 3.56% + 2.91% + 2.88% + 3.69%
*The Consumer Price Index is a popular measure of change in price.
+Source: CDA/Wiesenberger.
Conservative Growth Series
For the 10-year period through December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Conservative Consumer
Growth Price S&P 500
Series Index--U.S. Composite
------ ----------- ---------
12/86 10000 10018 9982
12/88 10524 10919 12233
12/90 13811 12124 15593
12/92 19963 12854 21881
12/94 21408 13565 24387
12/96 36893 14399 41179
- --------------------------------------------------------------------------------
Average Annual Total Returns
11/14/86**
1 Year 3 Years 5 Years -12/31/96
---------------------------- --------- --------- --------- ------------
Conservative Growth Series +25.41% +19.45% +14.33% +13.94%
S&P 500 Composite+ +22.64% +19.58% +15.15% +15.23%
Consumer Price Index*+ + 3.56% + 2.91% + 2.88% + 3.69%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger.
9
<PAGE>
Performance Summary -- continued
Emerging Growth Series
For the period from May 1, 1995 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Emerging Consumer
Growth Price S&P 500 Russell
Series Index Composite 2000
------ ----- --------- ----
5/95 10000 10000 10000 10000
12/95 12680 10098 12155 12011
6/96 14563 10312 13379 13255
12/96 14854 10461 14932 13992
- --------------------------------------------------------------------------------
Average Annual Total Returns
5/01/95+
1 Year -12/31/96
- ------------------------ --------- ------------
Emerging Growth Series +17.15% +26.72%
Russell 2000 Index+ +16.35% +22.26%
S&P 500+ +22.64% +27.11%
Consumer Price Index*+ + 3.56% + 2.62%
*The Consumer Price Index is a popular measure of change in prices.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on May 1, 1995.
Government Securities Series
For the 10-year period through December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Government Consumer Lehman Brothers
Securities Price Govt./Mortgage
Series Index--U.S. Bond Index
------ ----------- ----------
12/86 10000 10000 10000
12/88 11074 10899 11065
12/90 13609 12102 13875
12/92 16835 12831 17165
12/94 17894 13541 18241
12/96 21401 14346 22281
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------- -------- --------- --------------------
<S> <C> <C> <C> <C>
Government Securities Series +1.65% +5.36% +6.31% +7.91%
Lehman Brothers Govt/Mortgage Index+++ +3.68% +5.91% +6.82% +8.34%
Consumer Price Index*+ +3.56% +2.91% +2.88% +3.69%
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
+Source: CDA/Wiesenberger.
+++Source: AIM
10
<PAGE>
Performance Summary -- continued
MFS/Foreign & Colonial
International Growth Series
For the period from June 1, 1996 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Lipper International
International MSCI Growth
Funds Index (EAFE) Series
----------- ------ ------
6/96 10091 10059 10000
9/96 10100 10054 9890
12/96 10624 10221 9830
- --------------------------------------------------------------------------------
Aggregate Total Returns
6/3/96+
-12/31/96
- --------------------------------------- ------------
MFS/F&C International Growth Series -1.70%
Lipper International Funds Index* +6.24%
Morgan Stanley Capital Index (EAFE)* +2.21%
+Commencement of investment operations. Benchmark comparisons begin on
June 1, 1996.
*Source: Lipper Analytical Services
MFS/Foreign & Colonial
International Growth and Income Series
For the period from October 1, 1995 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Lipper
International 70% Morgan Stanley Capital EAFE/ International
Fund Index 30% JP Morgan Global Bond Index Growth & Income
---------- ------------------------------- ---------------
10/95 9792 10000 10000
3/96 10630 10536 10420
6/96 11065 10681 10570
9/96 11075 10794 10540
12/96 11650 11011 10620
- --------------------------------------------------------------------------------
Average Annual Total Returns
10/2/95+
1 Year -12/31/96
----------------------------------------------- ---------------------
MFS/F&C International Growth & Income Series + 4.84% + 4.93%
Lipper International Funds Index* +14.43% +16.50%
70% Morgan Stanley Capital EAFE/
30% JP Morgan Global Bond Index** + 6.14% + 7.88%
+Commencement of investment operations. Benchmark comparisons begin on
October 1, 1995.
*Source: Lipper Analytical Services
**Source: AIM
11
<PAGE>
Performance Summary -- continued
MFS/Foreign & Colonial
Emerging Markets Equity Series
For the period from June 1, 1996 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Lipper Morgan International
Emerging Stanley Emerging
Markets Captial Markets
Fund Index International Series
---------- ------------- ------
6/96 10019 10062 10000
9/96 9792 9697 9870
12/96 9869 9640 10000
- --------------------------------------------------------------------------------
Aggregate Total Returns
6/5/96+
-12/31/96
----------------------------------------------------- ------------
MFS/F&C Emerging Markets Equity Series 0.00%
Lipper Emerging Markets Funds Index* +6.24%
Morgan Stanley Capital International Index (MSCI) EMF* +6.59%
+Commencement of investment operations. Benchmark comparisons begin on
June 1, 1996.
*Source: CDA/Wiesenberger
High Yield Series
For the 10-year period through December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
High Consumer Lehman Brothers
Yield Price Corporate
Series Index--U.S. Bond Index
------ ----------- ----------
12/86 10000 10000 10000
12/88 11611 10899 11202
12/90 9851 12102 13681
12/92 16705 12831 17622
12/94 19232 13541 18987
12/96 25215 14373 23974
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------------------------------------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C>
High Yield Series +12.12% +8.65% +11.66% + 9.69%
Lehman Brothers Corp. Bond Index+ + 3.26% +6.65% + 8.14% + 9.14%
Lehman Brothers High Yield Bond Index** +11.35% +9.51% +12.23% +10.86%
Consumer Price Index*+ + 3.56% +2.91% + 2.88% + 3.69%
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
**Source: Lipper Analytical Services.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on December 1, 1988.
12
<PAGE>
Performance Summary -- continued
Managed Sectors Series
For the period from June 1, 1988 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Managed Consumer
Sector Price S&P 500
Series Index--U.S. Composite
------ ----------- ---------
6/88 10000 10000 10000
12/90 13627 11387 13789
12/92 23530 12073 19350
12/94 24014 12740 21565
12/96 37354 13523 36414
- --------------------------------------------------------------------------------
Average Annual Total Returns
5/27/88**
1 Year 3 Years 5 Years -12/31/96
- ------------------------ --------- --------- --------- ------------
Managed Sectors Series +17.58% +15.11% +11.07% +16.56%
S&P 500 Composite+ +22.64% +19.58% +15.15% +15.23%
Consumer Price Index*+ + 3.56% + 2.91% + 2.88% + 3.69%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on June 1, 1988.
Research Series
For the period from November 1, 1994 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Consumer
Research Price S&P 500
Series Index--U.S. Composite
------ ----------- ---------
11/94 10000 10000 10000
12/95 13819 10261 13429
12/96 17103 10609 16496
- --------------------------------------------------------------------------------
Average Annual Total Returns
11/07/94**
1 Year -12/31/96
- ------------------------ --------- ------------
Research Series +23.77% +27.33%
S&P 500 Composite+ +22.64% +25.98%
Consumer Price Index*+ + 3.56% + 2.76%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on November 1, 1994.
13
<PAGE>
Performance Summary -- continued
Total Return Series
For the period from June 1, 1988 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Total Consumer Lehman Brothers
Return Price S&P 500 Govt./Corporate
Series Index--U.S. Composite Bond Index
------ ----------- --------- ----------
6/88 10000 10000 10000 10000
12/90 12719 11387 13789 13009
12/92 16792 12073 19350 16252
12/94 18614 12740 21565 17412
12/96 26913 13523 36414 21365
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
5/11/88**
1 Year 3 Years 5 Years -12/31/96
- ---------------------------------------- --------- --------- --------- ------------
<S> <C> <C> <C> <C>
Total Return Series +14.10% +12.23% +11.72% +12.17%
Lehman Brothers Govt/Corp Bond Index+ + 2.88% + 5.79% + 7.18% + 8.38%
S&P 500 Composite+ +22.64% +19.58% +15.15% +15.23%
Consumer Price Index*+ + 3.56% + 2.91% + 2.88% + 3.69%
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on June 1, 1988.
Utilities Series
For the period from December 1, 1993 through
December 31, 1995.
- -------------------------------- LINE CHART -----------------------------------
Consumer
Utilities Price S&P
Series Index--U.S. Utility Index
------ ----------- -------------
12/93 10000 10000 9127
6/94 9409 10151 9125
12/94 9590 10268 9158
6/95 10778 10460 10517
12/95 12694 10521 12924
6/96 13401 10744 12930
12/96 15280 10899 13328
- --------------------------------------------------------------------------------
Average Annual Total Returns
11/16/93**
1 Year 3 Years -12/31/96
-------------------------------- --------- --------- ------------
Utilities Series +20.37% +14.83% +14.27%
S&P Utility Index+++ + 3.12% +10.24% + 9.77%
Consumer Price Index*+ + 3.56% + 2.91% + 2.77%
S&P 500 Composite Index+ +22.64% +19.58% +19.47%
Lehman Brothers Corporate Bond
Utility Total Return Index+++ + 3.04% + 6.44% + 6.43%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on December 1, 1993.
+++Source: Lipper Analytical Services.
14
<PAGE>
Performance Summary -- continued
Value Series
For the period from June 1, 1996 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Consumer
Value Price S&P 500
Series Index--U.S. Composite Index
------ ----------- ---------------
5/96 10000 10000 10000
6/96 10030 10010 10040
9/96 10590 10084 10346
12/96 11010 10135 11206
- --------------------------------------------------------------------------------
Aggregate Total Returns
6/3/96**
-12/31/96
- -------------------------- ------------
Value Series +10.10%
Consumer Price Index*+ + 1.35%
S&P 500 Composite Index+ +12.06%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on June 1, 1996.
World Asset Allocation Series
For the period from November 1, 1994 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
World
Asset Consumer
Allocation Price S&P 500 MSCI
Series Index--U.S. Composite EAFE
---------- ----------- --------- ----
11/94 10000 10000 10000 10000
12/94 10049 10000 10147 10065
6/95 11086 10187 12196 10343
12/95 12216 10247 13948 11228
6/96 13445 10464 15352 11752
12/96 14175 10615 17134 11942
- --------------------------------------------------------------------------------
Average Annual Total Returns
11/07/94**
1 Year -12/31/96
------------------------------------------- --------- ------------
World Asset Allocation Series +16.04% +17.67%
S&P 500 Composite+ +22.64% +25.98%
J.P. Morgan Non-U.S. Global Bond Index+++ + 5.34% +10.85%
Lehman Brothers Aggregate Bond Index+ + 3.60% +10.17%
MSCI EAFE Index+ + 6.31% + 6.11%
Consumer Price Index*+ + 3.56% + 2.76%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on November 1, 1994.
+++Source: AIM
15
<PAGE>
Performance Summary -- continued
World Governments Series
For the period from June 1, 1988 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
World Consumer Salomon Brothers J.P. Morgan
Governments Price World Govt. Global Govt.
Series Index--U.S. Bond Index Bond Index
----------- ----------- ---------------- ------------
6/88 10000 10000 10000 9804
12/90 12971 11387 14073 12317
12/92 14976 12073 16641 14867
12/94 17005 12740 19970 16900
12/96 20588 13523 21168 21049
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
5/16/88**
1 Year 3 Years 5 Years -12/31/96
------------------------------------------- -------- --------- --------- ------------
<S> <C> <C> <C> <C>
World Governments Series +4.66% +4.97% +6.69% +8.74%
J.P. Morgan Global Govt Bond Index+++ +4.39% +8.04% +8.16% +8.78%
Consumer Price Index*+ +3.56% +2.91% +2.88% +3.69%
Salomon Brothers World Govt. Bond Index+ +3.62% +8.08% +8.58% +9.13%
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on June 1, 1988.
+++Source: AIM
World Growth Series
For the period from December 1, 1993 through
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
World Consumer MSCI Russell
Growth Price World 2000 S&P 500
Series Index--U.S. Index Index Composite
------ ----------- ----- ------- ---------
12/93 10000 10000 10000 10000 10000
6/94 10542 10151 10898 9675 9778
12/94 10921 10268 11077 10153 10251
6/95 11495 10460 12120 11617 12321
12/95 12675 10521 13438 13041 14091
6/96 14216 10744 14423 14392 15510
12/96 14326 10899 15319 15192 17310
- --------------------------------------------------------------------------------
Average Annual Total Returns
11/16/93**
1 Year 3 Years -12/31/96
- ------------------------ --------- --------- ------------
World Growth Series +13.02% +10.50% +12.26%
MSCI World Index+ +13.87% +13.45% +14.83%
Russell 2000 Index+ +16.35% +13.68% +14.52%
S&P 500+ +22.64% +19.58% +19.47%
Consumer Price Index*+ + 3.56% + 2.91% + 2.77%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on December 1, 1993.
Results of Shareholder Meeting
At the meeting of shareholders in the World Growth Series of MFS/Sun Life
Series Trust which was held on April 29, 1996 the following action was taken:
Item 1: Proposal to approve two new Sub-Investment Advisory Agreements, one
between Massachusetts Financial Services Company ("MFS") and Foreign
& Colonial Management Limited ("FCM"), and the other between FCM and
its subsidiary, Foreign & Colonial Emerging Markets Limited ("FCEM"),
containing substantially the same terms and conditions as the current
Sub-Investment Advisory Agreement between MFS and Batterymarch
Financial Management, Inc. to become effective on or about May 1,
1996.
Number of Shares
----------------
For 11,942,286
Against 210,915
Abstain 604,984
Total Shares Outstanding on March 25, 1996 12,758,190
16
<PAGE>
Performance Summary -- continued
World Total Return Series
For the period from December 1, 1994 to
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
60% MSCI World
Consumer S&P 500 Index/40% J.P.
World Total Price Composite Morgan Global Govt.
Return Series Index--U.S. Index Bond Index
------------- ----------- --------- -------------------
12/94 10000 10000 10000 9756
6/95 10965 10187 12196 10914
12/95 11824 10247 13948 11765
6/96 12459 10464 15352 12221
12/96 13519 10615 17134 12961
Average Annual Total Returns
- --------------------------------------------------------------------------------
11/07/94**
1 Year -12/31/96
-------------------------------------------- --------- ------------
World Total Return Series +14.33% +15.10%
S&P 500 Composite+ +22.64% +25.98%
60% MSCI World Index/
40% J.P. Morgan Global Govt Bond Index+++ +10.16% +12.23%
Consumer Price Index* + 3.56% + 2.76%
*The Consumer Price Index is a popular measure of change in prices.
**Commencement of investment operations.
+Source: CDA/Wiesenberger. Benchmark comparisons begin on December 1, 1994.
+++Source: AIM
Zero Coupon Series 2000
For the period from December 1, 1986 to
December 31, 1996.
- -------------------------------- LINE CHART -----------------------------------
Consumer Merrill Lynch
Zero Coupon Price 7-10 Yr. Treasury
Series 2000 Index--U.S. Index
----------- ----------- -----------------
12/86 10000 10000 10000
12/87 8771 10450 9940
12/89 11909 11416 12386
12/91 15205 12484 15760
12/93 18923 13200 19146
12/95 21099 13887 22222
12/96 21503 14386 22524
- --------------------------------------------------------------------------------
Average Annual Total Returns
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------------------------------------- -------- --------- --------- -----------
<S> <C> <C> <C> <C>
Zero Coupon Series - 2000 Portfolio +1.91% +13.72% +41.53% +8.25%
Merrill Lynch 7 - 10 Year Treasury Index* +0.84% +5.02% +8.02% +8.32%
Consumer Price Index* +3.56% + 2.91% + 2.88% +3.65%
</TABLE>
*The Consumer Price Index is a popular measure of change in prices.
Source: CDA/Wiesenberger. Benchmark comparisons begin on December 1, 1986.
17
<PAGE>
Portfolio of Investments -- December 31, 1996
Capital Appreciation Series
Stocks -- 97.7%
Issuer Shares Value
U.S. Stocks -- 91.8%
Advertising -- 0.2%
TMP Worldwide, Inc. 35,200 $ 448,800
Universal Outdoor Holdings, Inc.* 67,100 1,576,850
---------------
$ 2,025,650
---------------
Aerospace -- 3.5%
Lockheed Martin Corp. 107,754 $ 9,859,491
McDonnell-Douglas Corp. 274,500 17,568,000
United Technologies Corp. 154,400 10,190,400
---------------
$ 37,617,891
---------------
Agricultural Products -- 2.3%
AGCO Corp. 284,700 $ 8,149,537
Case Corp. 297,600 16,219,200
---------------
$ 24,368,737
---------------
Airlines -- 0.9%
America West Airlines, "B"* 174,700 $ 2,773,363
Southwest Airlines Co. 308,700 6,829,987
---------------
$ 9,603,350
---------------
Automotive -- 0.6%
APS Holding Corp., "A"* 107,800 $ 1,670,900
Goodrich (B.F.) Co. 117,300 4,750,650
---------------
$ 6,421,550
---------------
Banks and Credit Companies -- 0.7%
Fleet/Norstar Financial Group, Inc. 146,800 $ 7,321,650
---------------
Business Machines -- 0.7%
Sun Microsystems, Inc.* 303,200 $ 7,788,450
---------------
Business Services -- 5.9%
AccuStaff, Inc.* 126,000 $ 2,661,750
ADT Ltd.* 642,500 14,697,188
ALCO Standard Corp. 310,200 16,014,075
Ceridian Corp.* 192,300 7,788,150
Corestaff, Inc.* 107,625 2,549,367
DST Systems, Inc.* 320,300 10,049,412
Loewen Group, Inc. 148,900 5,825,712
Sabre Group Holding, Inc., "A"* 94,500 2,634,188
---------------
$ 62,219,842
---------------
Chemicals -- 0.6%
Betzdearborn, Inc. 28,100 $ 1,643,850
Praxair, Inc. 104,100 4,801,613
---------------
$ 6,445,463
---------------
Computer Software -- Personal Computers -- 4.2%
Electronic Arts, Inc.* 222,600 $ 6,664,087
First Data Corp. 191,400 6,986,100
Microsoft Corp.* 377,600 31,199,200
---------------
$ 44,849,387
---------------
Computer Software -- Systems -- 8.7%
Adobe Systems, Inc. 377,500 $ 14,109,062
BMC Software, Inc.* 47,500 1,965,313
Cadence Design Systems, Inc.* 680,700 27,057,825
Computer Associates International, Inc. 227,300 11,308,175
Micro Systems, Inc.* 199,200 6,125,400
Oracle Systems Corp.* 565,300 23,601,275
Sybase, Inc.* 224,700 3,749,681
Synopsys, Inc.* 85,500 3,954,375
---------------
$ 91,871,106
---------------
Consumer Goods and Services -- 7.7%
Colgate-Palmolive Co. 98,500 $ 9,086,625
Gillette Co. 35,300 2,744,575
Philip Morris Cos., Inc. 313,700 35,330,462
Issuer Shares Value
U.S. Stocks -- continued
Consumer Goods and Services -- continued
Tyco International Ltd. 652,300 $ 34,490,363
---------------
$ 81,652,025
---------------
Defense Electronics -- 1.7%
Loral Space & Communications Corp.* 962,700 $ 17,689,613
---------------
Electrical Equipment -- 1.0%
General Electric Co. 110,900 $ 10,965,238
---------------
Electronics -- 8.8%
Altera Corp.* 225,600 $ 16,398,300
Analog Devices, Inc.* 363,300 12,306,787
Intel Corp. 364,000 47,661,250
LSI Logic Corp.* 296,600 7,934,050
Maxim Integrated Products, Inc.* 81,900 3,542,175
Xilinx, Inc.* 160,700 5,915,769
---------------
$ 93,758,331
---------------
Entertainment -- 4.3%
Clear Channel Communications, Inc.* 107,800 $ 3,894,275
Cox Radio, Inc., "A"* 9,000 157,500
Harrah's Entertainment, Inc.* 725,300 14,415,337
Infinity Broadcasting Corp., "A"* 84,750 2,849,719
Jacor Communications, Inc., "A"* 292,000 7,993,500
LIN Television Corp.* 163,700 6,916,325
Mirage Resorts, Inc.* 410,000 8,866,250
Univision Communications, Inc., "A"* 6,100 225,700
---------------
$ 45,318,606
---------------
Financial Institutions -- 5.8%
Associates First Capital Corp., "A" 41,400 $ 1,826,775
Federal Home Loan Mortgage
Corp. 120,100 13,226,012
Financial Federal Corp.* 175,400 2,937,950
Finova Group, Inc. 153,000 9,830,250
Franklin ReSources, Inc. 74,900 5,121,288
Green Tree Financial Corp. 254,700 9,837,787
Schwab (Charles) Corp. 588,300 18,825,600
---------------
$ 61,605,662
---------------
Food and Beverage Products -- 0.8%
PepsiCo, Inc. 272,800 $ 7,979,400
---------------
Insurance -- 0.7%
Amerin Corp.* 69,500 $ 1,789,625
Chubb Corp. 98,000 5,267,500
---------------
$ 7,057,125
---------------
Machinery -- 1.4%
Deere & Co., Inc. 216,800 $ 8,807,500
IDEX Corp. 156,700 6,248,413
---------------
$ 15,055,913
---------------
Medical and Health Products -- 1.6%
Johnson & Johnson 303,600 $ 15,104,100
Omnicare, Inc. 70,000 2,248,750
---------------
$ 17,352,850
---------------
Medical and Health Technology and Services -- 4.1%
HealthSource, Inc.* 523,300 $ 6,868,313
HealthSouth Corp.* 271,700 10,494,412
Oxford Health Plans, Inc.* 141,900 8,310,019
United Healthcare Corp. 399,000 17,955,000
---------------
$ 43,627,744
---------------
Metals and Minerals -- 0.5%
Minerals Technologies, Inc. 124,700 $ 5,112,700
---------------
18
<PAGE>
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- continued
Oils -- 1.0%
Mobil Corp. 88,200 $ 10,782,450
Titan Exploration, Inc.* 29,000 348,000
---------------
$ 11,130,450
---------------
Photographic Products -- 1.5%
Eastman Kodak Co. 192,700 $ 15,464,175
---------------
Railroads -- 3.0%
Burlington Northern Santa Fe Railway
Co. 51,500 $ 4,448,313
Wisconsin Central Transportation Corp.* 682,900 27,059,912
---------------
$ 31,508,225
---------------
Restaurants and Lodging -- 6.3%
HFS, Inc.* 722,700 $ 43,181,325
Promus Hotel Corp.* 642,850 19,044,431
Renaissance Hotel Group N.V.* 179,100 4,208,850
---------------
$ 66,434,606
---------------
Stores -- 5.1%
Ann Taylor Stores Corp.* 214,200 $ 3,748,500
Corporate Express, Inc.* 71,200 2,095,950
Duty Free International, Inc. 30,600 443,700
Federated Department Stores, Inc.* 323,200 11,029,200
General Nutrition Cos., Inc.* 499,800 8,434,125
Linens N Things, Inc.* 39,900 783,038
Micro Warehouse, Inc.* 291,000 3,419,250
Office Depot, Inc.* 593,200 10,529,300
Officemax, Inc.* 282,650 3,003,156
Sears, Roebuck & Co. 135,100 6,231,487
Staples, Inc.* 247,100 4,463,244
---------------
$ 54,180,950
---------------
Supermarkets -- 1.4%
Safeway, Inc.* 356,200 $ 15,227,550
---------------
Telecommunications -- 6.8%
Ascend Communications, Inc.* 77,100 $ 4,789,838
Cisco Systems, Inc.* 334,000 21,250,750
Glenayre Technologies, Inc.* 680,525 14,673,820
Lucent Technologies, Inc. 58,300 2,696,375
MFS Communications Co., Inc.* 36,700 2,000,150
Tel-Save Holdings, Inc.* 71,700 2,079,300
Telco Communications Group* 48,400 847,000
Teleport Communications Group, Inc.,
"A"* 137,800 4,202,900
Tellabs, Inc.* 131,800 4,958,975
WorldCom, Inc.* 566,700 14,769,619
---------------
$ 72,268,727
---------------
Total U.S. Stocks $ 973,922,966
---------------
Foreign Stocks -- 5.9%
Canada -- 0.8%
Loewen Group, Inc.
(Business Services)## 123,200 $ 4,810,041
Canadian National Railway Co.
(Railroads) 89,100 3,385,800
---------------
$ 8,195,841
---------------
Issuer Shares Value
Foreign Stocks -- continued
Germany -- 0.7%
Sap AG (Computer Software -- Systems) 53,955 $ 7,540,023
---------------
Hong Kong -- 0.3%
Peregrine Investment Holdings
(Finance) 2,047,000 $ 3,506,950
---------------
Italy -- 1.5%
Gucci Group Designs N.V.,
(Apparel and Textiles) 48,100 $ 3,072,388
Telecom Italia S.p.A.,
(Telecommunications)* 6,197,200 8,837,107
Telecom Italia S.p.A., Saving Shares,
(Telecommunications) 1,445,300 3,650,733
---------------
$ 15,560,228
---------------
Singapore -- 0.3%
Mandarin Oriental International, Ltd.
(Restaurant & Lodgings) 2,447,530 $ 3,451,017
---------------
South Korea -- 0.7%
Korea Mobile Telecom, ADR
(Telecommunications) 583,083 $ 7,507,194
---------------
Sweden -- 1.6%
Astra AB, "B" (Pharmaceuticals) 311,900 $ 15,057,241
Nobel Biocare AB
(Medical and Health Products) 118,900 2,093,617
---------------
$ 17,150,858
---------------
Total Foreign Stocks $ 62,912,111
---------------
Total Stocks
(Identified Cost, $817,322,989) $1,036,835,077
---------------
Warrants
Finance
Peregrine Investment Holdings
(Identified Cost, $38,572) 311 $ 99,525
---------------
Short-Term Obligations -- 2.0%
Federal National Mortgage Assn., due
1/06/97 7,600 $ 7,594,195
Ford Motor Credit Corp.,
due 1/02/97 13,710 13,707,429
---------------
Total Short-Term Obligations, at Amortized Cost $ 21,301,624
---------------
Total Investments
(Identified Cost, $838,663,185) $1,058,236,226
Other Assets,
Less Liabilities -- 0.3% 3,395,205
---------------
Net Assets -- 100.0% $1,061,631,431
===============
See portfolio footnotes and notes to financial statements
19
<PAGE>
Portfolio of Investments -- December 31, 1996
Conservative Growth Series
Stocks -- 91.6%
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- 87.6%
Aerospace -- 7.6%
AlliedSignal, Inc. 92,700 $ 6,210,900
General Dynamics Corp. 64,000 4,512,000
Lockheed Martin Corp. 105,748 9,675,942
McDonnell-Douglas Corp. 147,600 9,446,400
Raytheon Co. 118,500 5,702,812
United Technologies Corp. 119,400 7,880,400
---------------
$ 43,428,454
---------------
Agricultural Products -- 0.5%
Case Corp. 48,500 $ 2,643,250
---------------
Apparel and Textiles -- 1.6%
Nike, Inc., "B" 82,700 $ 4,941,325
Reebok International Ltd. 31,000 1,302,000
VF Corp. 42,500 2,868,750
---------------
$ 9,112,075
---------------
Automotive -- 0.9%
Goodrich (B.F.) Co. 122,600 $ 4,965,300
---------------
Banks and Credit Companies -- 8.8%
Bank of Boston Corp. 40,200 $ 2,582,850
Chase Manhattan Corp. 22,068 1,969,569
Comerica, Inc. 67,600 3,540,550
Corestates Financial Corp. 6,467 335,476
Crestar Financial Corp. 48,300 3,592,312
First Bank Systems, Inc. 126,400 8,626,800
First Chicago NBD Corp. 30,300 1,628,625
Firstar Corp. 55,600 2,919,000
Household International, Inc. 3,200 295,200
National City Corp. 76,100 3,414,987
Northern Trust Co. 106,000 3,842,500
Norwest Corp. 245,400 10,674,900
SunTrust Banks, Inc. 89,300 4,398,025
U.S. Bancorp 57,300 2,574,919
---------------
$ 50,395,713
---------------
Business Machines -- 0.5%
International Business Machines Corp. 18,000 $ 2,718,000
Xerox Corp. 5,300 278,913
---------------
$ 2,996,913
---------------
Business Services -- 1.9%
Alco Standard Corp. 90,100 $ 4,651,413
Ceridian Corp.* 6,100 247,050
Computer Sciences, Inc.* 51,000 4,188,375
DST Systems, Inc.* 10,800 338,850
Sabre Group Holding, Inc.* 48,400 1,349,150
---------------
$ 10,774,838
---------------
Cellular Telephones
AirTouch Communications, Inc.* 9,500 $ 239,875
---------------
Chemicals -- 2.8%
Air Products & Chemicals, Inc. 79,600 $ 5,502,350
Betzdearborn, Inc. 3,600 210,600
du Pont (E. I.) de Nemours & Co. 51,000 4,813,125
Monsanto Corp. 68,800 2,674,600
Praxair, Inc. 60,600 2,795,175
---------------
$ 15,995,850
---------------
Computer Software -- Personal Computers -- 1.4%
First Data Corp. 82,000 $ 2,993,000
Microsoft Corp.* 60,600 5,007,075
---------------
$ 8,000,075
---------------
Issuer Shares Value
U.S. Stocks -- continued
Computer Software -- Systems -- 1.5%
Computer Associates International,
Inc. 114,750 $ 5,708,813
Electronic Data Systems Corp. 5,000 216,250
Oracle Systems Corp.* 67,000 2,797,250
---------------
$ 8,722,313
---------------
Consumer Goods and Services -- 8.4%
Colgate-Palmolive Co. 106,900 $ 9,861,525
Gillette Co. 154,400 12,004,600
Philip Morris Cos., Inc. 137,500 15,485,937
Procter & Gamble Co. 46,100 4,955,750
RJR Nabisco Holdings Corp. 60 2,040
Service Corp. International 9,200 257,600
Sherwin-Williams Co. 51,300 2,872,800
Tyco International Ltd. 43,100 2,278,913
---------------
$ 47,719,165
---------------
Defense Electronics -- 0.3%
Loral Space & Communications Corp.* 83,000 $ 1,525,125
---------------
Electrical Equipment -- 3.3%
General Electric Co. 121,300 $ 11,993,537
Honeywell, Inc. 108,400 7,127,300
---------------
$ 19,120,837
---------------
Electronics -- 0.9%
Intel Corp. 38,100 $ 4,988,719
---------------
Entertainment -- 0.3%
Comcast Corp., "A" 9,500 $ 169,219
Viacom, Inc., "B"* 39,400 1,374,075
---------------
$ 1,543,294
---------------
Financial Institutions -- 4.5%
American Express Co. 35,900 $ 2,028,350
Beneficial Corp. 152,300 9,652,012
Federal Home Loan Mortgage Corp. 26,700 2,940,338
MBNA Corp. 11,100 460,650
Merrill Lynch & Co., Inc. 17,500 1,426,250
State Street Boston Corp. 121,200 7,817,400
Union Planters Corp. 35,000 1,365,000
---------------
$ 25,690,000
---------------
Food and Beverage Products -- 4.9%
Archer-Daniels-Midland Co. 109,121 $ 2,400,662
Coca-Cola Co. 36,300 1,910,287
CPC International, Inc. 53,800 4,169,500
General Mills, Inc. 92,200 5,843,175
PepsiCo, Inc. 195,500 5,718,375
Ralston-Purina Co. 42,600 3,125,775
Tyson Foods, Inc. 70,800 2,424,900
Wrigley (Wm) Junior Co. 47,700 2,683,125
---------------
$ 28,275,799
---------------
Forest and Paper Products -- 1.4%
Kimberly-Clark Corp. 82,048 $ 7,815,072
---------------
Insurance -- 6.7%
AFLAC, Inc. 90,100 $ 3,851,775
Allstate Corp. 74,700 4,323,263
Chubb Corp. 18,500 994,375
CIGNA Corp. 47,300 6,462,362
ITT Hartford Group, Inc. 55,300 3,732,750
MBIA, Inc. 5,300 536,625
Progressive Corp. 104,500 7,040,687
20
<PAGE>
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- continued
Insurance -- continued
St. Paul Cos., Inc. 53,400 $ 3,130,575
Torchmark Corp. 64,300 3,247,150
Transamerica Corp. 42,300 3,341,700
Travelers Group, Inc. 34,000 1,542,750
---------------
$ 38,204,012
---------------
Machinery -- 1.7%
Deere & Co., Inc. 53,500 $ 2,173,438
Ingersoll Rand Co. 85,300 3,795,850
York International Corp. 63,100 3,525,712
---------------
$ 9,495,000
---------------
Medical and Health Products -- 5.9%
American Home Products Corp. 40,600 $ 2,380,175
Johnson & Johnson 168,300 8,372,925
Lilly (Eli) & Co. 40,836 2,981,028
Pfizer, Inc. 43,600 3,613,350
Pharmacia & Upjohn, Inc. 43,000 1,703,875
Rhone-Poulenc Rorer, Inc. 92,000 7,187,500
Warner-Lambert Co. 99,600 7,470,000
---------------
$ 33,708,853
---------------
Medical and Health Technology and Services -- 2.2%
Medtronic Inc. 26,600 $ 1,808,800
Pacificare Health Systems, Inc., "B"* 39,100 3,333,275
St. Jude Medical, Inc.* 124,500 5,306,812
United Healthcare Corp. 43,300 1,948,500
---------------
$ 12,397,387
---------------
Metals and Minerals -- 0.5%
Phelps Dodge Corp. 42,700 $ 2,882,250
---------------
Oil Services -- 0.3%
Schlumberger Ltd. 16,500 $ 1,647,938
---------------
Oils -- 5.2%
Amoco Corp. 21,400 $ 1,722,700
Chevron Corp. 48,300 3,139,500
Exxon Corp. 72,100 7,065,800
Mobil Corp. 79,200 9,682,200
Texaco, Inc. 83,100 8,154,187
---------------
$ 29,764,387
---------------
Photographic Products -- 0.8%
Eastman Kodak Co. 57,400 $ 4,606,350
---------------
Printing and Publishing -- 1.7%
Gannett Co., Inc. 78,500 $ 5,877,687
Tribune Co. 51,700 4,077,838
---------------
$ 9,955,525
---------------
Railroads -- 1.9%
Burlington Northern Santa Fe 35,200 $ 3,040,400
Conrail, Inc. 19,548 1,947,470
CSX Corp. 87,800 3,709,550
Illinois Central Corp. 65,200 2,086,400
---------------
$ 10,783,820
---------------
Special Products and Services -- 0.3%
McDonalds Corp. 13,100 $ 592,775
Stanley Works 46,400 1,252,800
---------------
$ 1,845,575
---------------
Stores -- 2.3%
Circuit City Stores, Inc. 37,100 $ 1,117,637
CVS Corp. 27,600 1,141,950
Home Depot, Inc. 48,600 2,436,075
Lowes Co., Inc. 71,000 2,520,500
Penney (J.C.), Inc. 64,500 3,144,375
Issuer Shares Value
U.S. Stocks -- continued
Stores -- continued
Sears, Roebuck & Co. 39,800 $ 1,835,775
Talbots, Inc. 33,700 964,663
---------------
$ 13,160,975
---------------
Supermarkets -- 0.8%
Kroger Co.* 7,100 $ 330,150
Safeway, Inc.* 61,200 2,616,300
Vons Cos., Inc.* 32,000 1,916,000
---------------
$ 4,862,450
---------------
Telecommunications -- 0.4%
Cox Communications Inc. 39 $ 902
Lucent Technologies, Inc. 52,800 2,442,000
---------------
$ 2,442,902
---------------
Utilities -- Electric -- 1.6%
Allegheny Power Systems, Inc. 35,900 $ 1,090,463
Cinergy Corp. 35,900 1,198,162
CMS Energy Corp. 6,700 225,288
DPL, Inc. 35,200 862,400
FPL Group, Inc. 62,400 2,870,400
Illinova Corp. 7,100 195,250
Pinnacle West Capital Corp. 8,200 260,350
Portland General Corp. 52,600 2,209,200
---------------
$ 8,911,513
---------------
Utilities -- Gas -- 0.8%
Consolidated Natural Gas Co. 31,500 $ 1,740,375
Pacific Enterprises 31,400 953,775
Panenergy Corp. 44,600 2,007,000
---------------
$ 4,701,150
---------------
Utilities -- Telephone -- 3.0%
Ameritech Corp. 4,500 $ 272,813
BellSouth Corp. 8,300 335,112
GTE Corp. 117,100 5,328,050
MCI Communications Corp. 243,600 7,962,675
Pacific Telesis Group 35,000 1,286,250
SBC Communications, Inc. 33,600 1,738,800
---------------
$ 16,923,700
---------------
Total U.S. Stocks $500,246,454
---------------
Foreign Stocks -- 4.0%
Germany -- 0.1%
Hoechst AG (Chemicals) 16,000 $ 756,061
---------------
Hong Kong -- 0.5%
Hong Kong Land Holdings Ltd. (Real
Estate) 341,000 $ 947,980
Swire Pacific Air Ltd., "A"
(Transportation) 100,000 953,581
Wharf Holdings Ltd. (Real Estate) 239,000 1,192,837
---------------
$ 3,094,398
---------------
Italy -- 0.1%
Telecom Italia S.p.A.
(Telecommunications) 125,000 $ 315,742
---------------
Japan -- 0.2%
Canon, Inc. (Consumer Goods and
Services) 58,000 $ 1,283,319
---------------
Netherlands -- 0.2%
Royal Dutch Petroleum Co., ADR (Oils) 7,400 $ 1,263,550
---------------
New Zealand -- 0.2%
Lion Nathan Ltd. (Food and Beverage
Products) 356,700 $ 854,309
---------------
21
<PAGE>
Stocks -- continued
Issuer Shares Value
Foreign Stocks -- continued
Singapore -- 0.1%
Mandarin Oriental International, Ltd.
(Restaurants and Lodging) 374,000 $ 527,340
------------
South Korea -- 0.2%
Korea Mobile Telecom
(Telecommunications) 87,035 $ 1,120,576
------------
Sweden -- 0.9%
Astra AB, Free Shares, "B"
(Pharmaceuticals) 77,100 $ 3,722,069
Sparbanken Sverige AB (Banks and
Credit Companies) 74,500 1,279,017
------------
$ 5,001,086
------------
Switzerland -- 0.3%
Novartis AG (Pharmaceuticals)* 1,387 $ 1,588,660
------------
United Kingdom -- 1.2%
British Petroleum PLC, ADR (Oils) 20,752 $ 2,933,814
PowerGen PLC (Utilities-Electric) 381,977 3,743,185
SmithKline Beecham PLC, ADR (Medical
and Health Products) 4,000 272,000
------------
$ 6,948,999
------------
Total Foreign Stocks $ 22,754,040
------------
Total Stocks (Identified Cost, $412,784,810) $523,000,494
------------
Preferred Stock -- 0.1%
Chemicals -- 0.1%
Henkel KGaA
(Identified Cost, $765,482) 15,000 $ 753,656
------------
Convertible Preferred Stock -- 0.1%
Financial Institutions
Tosco Financing Trust ## 3,500 $ 179,813
------------
Oils -- 0.1%
Atlantic Richfield Co. 20,300 $ 436,450
------------
Total Convertible Preferred Stocks
(Identified Cost, $686,836) $ 616,263
------------
Principal Amount
(000 Omitted)
Convertible Bond -- 0.2%
Chemicals -- 0.2%
Sandoz Capital BVI Ltd., 2s, 2002
## (Identified Cost, $714,174) $ 803 $ 863,225
------------
Short-Term Obligations -- 7.9%
Federal Farm Credit Bank due 1/7/97 $ 2,280 $ 2,278,008
Federal Home Loan Bank, due 1/2/97 15,960 15,957,665
Federal Home Loan Mortgage Corp.,
due 1/7/97-1/21/97 18,290 18,257,266
Federal National Mortgage Assn.,
due 1/13/97 7,800 7,786,272
Tennessee Valley Authority, due
1/21/97 1,000 997,094
------------
Total Short-Term Obligations, at Amortized Cost $ 45,276,305
------------
Total Investments
(Identified Cost, $460,227,607) $570,509,943
Other Assets,
Less Liabilities -- 0.1% 498,092
------------
Net Assets -- 100.0% $571,008,035
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
Emerging Growth Series
Stocks -- 86.4%
Issuer Shares Value
U.S. Stocks -- 80.8%
Apparel and Textiles -- 0.1%
Nine West Group, Inc.* 7,200 $ 333,900
-----------
Automotive -- 0.2%
APS Holding Corp., "A"* 23,000 $ 356,500
-----------
Business Machines -- 2.6%
Affiliated Computer Services, Inc., "A"* 101,000 $ 3,004,750
Sun Microsystems, Inc.* 134,300 3,449,831
-----------
$ 6,454,581
-----------
Business Services -- 11.2%
AccuStaff, Inc.* 36,100 $ 762,612
ADT Ltd.* 95,400 2,182,275
ALCO Standard Corp. 17,800 918,925
Computer Sciences Corp.* 36,200 2,972,925
CUC International, Inc.* 177,525 4,216,219
DST Systems, Inc.* 75,300 2,362,537
Employee Solutions, Inc.* 86,200 1,767,100
Equity Corp. International* 7,200 144,000
Forrester Research, Inc.* 900 23,175
International Network Services* 600 18,113
Learning Tree International, Inc.* 123,000 3,628,500
Loewen Group, Inc. 5,200 203,450
Sabre Group Holding, Inc., "A"* 11,800 328,925
Superior Consultant, Inc.* 2,700 66,825
Technology Solutions Co.* 195,400 8,109,100
Thermo Fibergen, Inc.* 19,800 207,900
Transaction System Architects, Inc.* 5,000 166,250
-----------
$28,078,831
-----------
Chemicals -- 0.3%
Betzdearborn, Inc. 12,900 $ 754,650
-----------
Computer Software -- Personal Computers -- 3.7%
Autodesk, Inc. 985 $ 27,580
First Data Corp. 108,000 3,942,000
Microsoft Corp.* 63,700 5,263,212
Spectrum Holobyte, Inc.* 11,100 83,250
-----------
$ 9,316,042
-----------
Computer Software -- Systems -- 20.5%
Adobe Systems, Inc. 6,300 $ 235,463
BMC Software, Inc.* 284,000 11,750,500
Cadence Design Systems, Inc.* 216,700 8,613,825
Computer Associates International, Inc. 183,050 9,106,737
Compuware Corp.* 66,500 3,333,312
Information Management Resources, Inc.* 1,400 29,575
Ingram Micro, Inc.* 4,700 108,100
Oracle Systems Corp.* 287,700 12,011,475
Parametric Technology Corp.* 47,900 2,460,863
Sterling Software, Inc.* 7,800 246,675
Sybase, Inc.* 50,900 849,394
Synopsys, Inc.* 23,600 1,091,500
USCS International, Inc.* 18,400 310,500
Viasoft, Inc.* 17,200 812,700
Xionics Document Technologies* 43,200 540,000
-----------
$51,500,619
-----------
Construction Services -- 0.8%
Shaw Group, Inc. 90,000 $ 2,103,750
-----------
Consumer Goods and Services -- 2.6%
Actel Corp.* 22,600 $ 536,750
Carson, Inc.* 120,300 1,669,163
Nu Skin Asia Pacific, Inc.* 1,400 43,225
22
<PAGE>
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- continued
Consumer Goods and Services -- continued
Service Corp. International 8,800 $ 246,400
Tyco International Ltd. 74,100 3,918,037
-----------
$ 6,413,575
-----------
Electronics -- 6.6%
Altera Corp.* 55,300 $ 4,019,619
Analog Devices, Inc.* 56,400 1,910,550
Atmel Corp.* 31,700 1,050,063
Intel Corp. 15,400 2,016,437
Lattice Semiconductor Corp.* 32,600 1,499,600
Linear Technology Corp. 38,700 1,697,962
LSI Logic Corp.* 40,000 1,070,000
Novellus Systems, Inc.* 1,100 59,606
Teradyne, Inc.* 40,000 975,000
Ultratech Stepper, Inc.* 16,900 401,375
VLSI Technology, Inc.* 54,100 1,291,638
Xilinx, Inc.* 18,300 673,669
-----------
$16,665,519
-----------
Entertainment -- 2.6%
Cox Radio, Inc., "A"* 59,800 $ 1,046,500
Harrah's Entertainment, Inc.* 82,900 1,647,638
Heritage Media Corp.* 43,000 483,750
Hollywood Entertainment Corp.* 24,100 445,850
International Speedway Corp.* 1,400 28,700
Jacor Communications, Inc., "A"* 7,000 191,625
LIN Television Corp.* 43,200 1,825,200
Sinclair Broadcast Group, Inc.* 9,100 236,600
Univision Communications, Inc., "A"* 15,300 566,100
-----------
$ 6,471,963
-----------
Financial Institutions -- 0.6%
Associates First Capital Corp., "A" 5,000 $ 220,625
Dean Witter Discover & Co., Inc. 9,600 636,000
Franklin Resources, Inc. 3,000 205,125
MBNA Corp. 12,500 518,750
-----------
$ 1,580,500
-----------
Food and Beverage Products -- 0.3%
Earthgrains Co. 13,300 $ 694,925
-----------
Machinery -- 0.1%
SI Handling Systems, Inc. 15,000 $ 225,938
-----------
Medical and Health Products -- 0.1%
Ventritex, Inc.* 11,400 $ 280,725
-----------
Medical and Health Technology
and Services -- 6.9%
Columbia Healthcare Corp. 600 $ 24,450
Foundation Health Corp.* 600 19,050
HealthSource, Inc.* 41,100 539,438
HealthSouth Corp.* 116,100 4,484,362
Pacificare Health Systems, Inc., "B"* 35,500 3,026,375
St. Jude Medical, Inc.* 22,700 967,587
United Healthcare Corp. 184,800 8,316,000
-----------
$17,377,262
-----------
Oils -- 0.3%
Barrett Resources Corp.* 14,200 $ 605,275
National Oilwell, Inc.* 1,400 43,050
Offshore Energy Development Corp.* 200 3,050
Titan Exploration, Inc.* 6,800 81,600
-----------
$ 732,975
-----------
U.S. Stocks -- continued
Pollution Control -- 0.8%
Republic Industries, Inc.* 700 $ 21,831
USA Waste Services, Inc.* 63,020 2,008,763
------------
$ 2,030,594
------------
Railroads -- 0.5%
Kansas City Southern Industries, Inc. 5,100 $ 229,500
Wisconsin Central Transportation Corp.* 22,200 879,675
------------
$ 1,109,175
------------
Restaurants and Lodging -- 6.0%
Applebee's International, Inc. 71,100 $ 1,955,250
HFS, Inc.* 204,200 12,200,950
Promus Hotel Corp.* 12,250 362,906
Renaissance Hotel Group N.V.* 26,000 611,000
U.S. Franchise Systems, Inc.* 1,400 14,175
------------
$ 15,144,281
------------
Stores -- 3.4%
BT Office Products International, Inc.* 10,700 $ 94,963
Corporate Express, Inc.* 77,900 2,293,181
General Nutrition Cos., Inc.* 67,300 1,135,688
Linens 'N Things, Inc.* 9,000 176,625
Mazel Stores, Inc.* 1,000 22,500
Micro Warehouse, Inc.* 4,600 54,050
Office Depot, Inc.* 55,400 983,350
Staples, Inc.* 204,200 3,688,362
------------
$ 8,448,719
------------
Telecommunications -- 10.6%
3Com Corp.* 48,700 $ 3,573,362
Bay Networks, Inc.* 800 16,700
Cabletron Systems, Inc.* 110,900 3,687,425
Cisco Systems, Inc.* 148,200 9,429,225
Glenayre Technologies, Inc.* 85,600 1,845,750
Lucent Technologies, Inc. 40,300 1,863,875
Tel-Save Holdings, Inc.* 1,050 30,450
WorldCom, Inc.* 233,100 6,075,169
------------
$ 26,521,956
------------
Total U.S. Stocks $202,596,980
------------
Foreign Stocks -- 5.6%
Canada -- 1.5%
BioChem Pharma, Inc. (Biotechnology)* 58,900 $ 2,959,725
Loewen Group, Inc. (Special Products and
Services)## 20,200 788,659
------------
$ 3,748,384
------------
Germany -- 1.5%
Sap AG (Computer Software -- Systems) 23,200 $ 3,242,119
Sap AG, ADR (Computer Software --
Systems)## 14,700 678,038
------------
$ 3,920,157
------------
Italy -- 0.7%
Fila Holdings S.p.A., ADR
(Apparel and Textiles) 27,400 $ 1,592,625
Gucci Group Designs N.V., ADR (Apparel
and Textiles) 3,600 229,950
------------
$ 1,822,575
------------
23
<PAGE>
Foreign Stocks -- continued
Issuer Shares Value
United Kingdom -- 1.9%
Danka Business Systems, ADR (Business
Machines) 79,200 $ 2,801,700
Pace Micro Technology PLC (Electronics) 500,900 1,973,726
------------
$ 4,775,426
------------
Total Foreign Stocks $ 14,266,542
------------
Total Stocks
(Identified Cost, $196,117,907) $216,863,522
------------
Warrants -- 2.0%
Intel Corp. 53,400 $ 4,926,150
Thermo Fibergen, Inc. 19,800 49,500
------------
Total Warrants
(Identified Cost, $3,387,894) $ 4,975,650
------------
Convertible Bond -- 0.1%
Principal Amount
(000 Omitted)
Ventritex, Inc., 5.75s, 2001
(Medical and Health Products)
(Identified Cost, $70,000) $ 70 $ 110,425
------------
Short Term Obligations -- 11.3%
Federal Farm Credit Bank, due
2/3/97 $ 495 $ 492,627
Federal Home Loan Mortgage Corp.,
due 1/3/97-1/21/97 13,900 13,873,956
Federal National Mortgage Assn.,
due 1/14/97-1/15/97 7,880 7,863,950
Ford Motor Credit Corp.,
due 1/2/97 6,095 6,093,798
------------
Total Short Term Obligations,
at Amortized Cost $ 28,324,331
------------
Total Investments
(Identified Cost, $227,900,132) $250,273,928
Other Assets,
Less Liabilities -- 0.2% 552,297
------------
Net Assets -- 100.0% $250,826,225
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
Government Securities Series
U.S. Federal Agencies -- 32.1%
Principal Amount
Issuer (000 Omitted) Value
AID Israel, 8s, 2001 $ 5,000 $ 5,331,200
AID Israel, 5.625s, 2003 2,000 1,907,400
AID Israel, 5.89s, 2005 3,000 2,847,600
American Heavy Lift Shipping, 7.18s,
1999 4,850 4,825,750
Farm Credit Systems Financial
Assistance, 9.375s, 2003 3,950 4,546,213
Federal Agricultural Mortgage Corp.,
7.02s, 1998 1,000 1,012,030
Federal Agricultural Mortgage Corp.,
7.25s, 1999 2,000 2,046,240
Federal Agricultural Mortgage Corp.,
7.63s, 2001 6,000 6,280,320
Federal Agricultural Mortgage Corp.,
6.417s, 2003 2,986 2,942,129
Federal Agricultural Mortgage Corp.,
8.07s, 2006 1,000 1,092,340
Federal Home Loan Bank,
4.25s, 1997 7,000 6,959,540
Federal Home Loan Mortgage Corp.,
8.5s, 2022 32 32,786
Federal Home Loan Mortgage Corp.,
9s, 2001 - 2021 2,160 2,260,277
Federal National Mortgage
Association, 7s, 2026 8,080 7,900,319
Federal National Mortgage
Association, 7.268s, 2020 1,301 1,303,090
Federal National Mortgage
Association, 7.27s, 2005 6,124 6,078,217
Federal National Mortgage
Association, 8s, 2005 - 2023 8,810 9,131,165
Federal National Mortgage
Association, 8.25s, 2001 3,945 3,958,507
Federal National Mortgage
Association, 8.5s, 2001 - 2006 1,266 1,317,041
Federal National Mortgage
Association, 9s, 2006 - 2007 2,938 3,064,255
Financing Corp., 9.4s, 2018 4,845 6,086,531
Financing Corp., 9.8s, 2018 5,600 7,275,632
North Pacific Fishing, 5.9s, 2006 3,650 3,572,681
Private Export Funding Corp.,
8.4s, 2001 3,000 3,234,480
Private Export Funding Corp.,
6.24s, 2002 8,000 7,916,480
Resolution Funding Corp.,
8.875s, 2020 6,000 7,303,140
U.S. Department of Housing & Urban
Development, 6.83s, 2003 8,025 8,148,505
U.S. Department of Housing & Urban
Development, 6.92s, 2004 4,525 4,605,092
------------
Total U.S. Federal Agencies (Identified Cost,
$122,425,781) $122,978,960
------------
U.S. Government Guaranteed -- 65.0%
Government National Mortgage Association -- 31.3%
GNMA, 6.5s, 2023 - 2026 $ 13,614 $ 12,984,216
GNMA, 7s, 2022 - 2026 27,081 26,488,705
GNMA, 7.5s, 2008 - 2026 48,485 48,589,592
GNMA, 8s, 2022 - 2026 24,489 24,979,158
GNMA, 9s, 2017 - 2023 6,706 6,936,998
GNMA, 12.25s, 2015 16 18,180
------------
$119,996,849
------------
24
<PAGE>
U.S. Government Guaranteed -- continued
Principal Amount
Issuer (000 Omitted) Value
Small Business Administration -- 3.0%
SBA, 8.2s, 2005 $ 1,636 $ 1,722,462
SBA, 8.4s, 2007 636 670,685
SBA, 8.7s, 2009 3,765 4,038,953
SBA, 9.05s, 2009 618 666,806
SBA, 9.65s, 2007 - 2010 1,876 2,066,734
SBA, 10.05s, 2009 861 960,886
SBA, 10.1s, 2009 1,301 1,443,563
------------
$ 11,570,089
------------
U.S. Treasury Obligations -- 29.0%
U.S. Treasury Notes, 5.375s, 1998 $ 3,700 $ 3,680,908
U.S. Treasury Notes, 6.125s, 1998 6,000 6,029,040
U.S. Treasury Notes, 9.25s, 1998 19,250 20,251,577
U.S. Treasury Notes, 5.875s, 1999 9,200 9,191,352
U.S. Treasury Notes, 6.75s, 1999 -
2000 24,750 25,193,647
U.S. Treasury Notes, 9.125s, 1999 10,950 11,701,061
U.S. Treasury Bonds, 12s, 2013 6,500 9,298,055
U.S. Treasury Bonds, 9s, 2018 4,000 5,019,360
U.S. Treasury Bonds, 8.125s, 2019 7,175 8,299,466
U.S. Treasury Bonds, 8.75s, 2020 10,000 12,310,900
------------
$110,975,366
------------
Other -- 1.7%
Bay Transportation Corp., 7.3s, 2021 $ 5,345 $ 5,438,538
U.S. Department of Veterans Affairs,
7.75s, 2014 1,000 995,620
------------
$ 6,434,158
------------
Total U.S. Government Guaranteed (Identified
Cost, $247,827,741) $248,976,462
------------
Repurchase Agreement -- 1.7%
Investments in repurchase agreements
with Goldman Sachs, in a joint
trading account ($6,399,000 par)
dated 12/31/96, total to be
received by the Fund, $6,401,346,
collateralized by various U.S.
Treasury and Federal Agency
Obligations (with $64,464,000 par
and valued at $65,488,003), at
cost $ 6,399,000 $ 6,399,000
------------
Total Investments
(Identified Cost, $376,652,522) $378,354,422
Other Assets,
Less Liabilities -- 1.2% 4,752,488
------------
Net Assets -- 100.0% $383,106,910
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
High Yield Series
Non-Convertible Bonds -- 90.1%
Principal Amount
Issuer (000 Omitted) Value
Aerospace -- 0.8%
BE Aerospace, Inc., 9.875s, 2006 $ 975 $1,023,750
CHC Helicopter Corp., 11.5s, 2002 550 561,000
----------
$1,584,750
----------
Airlines -- 2.0%
Airplane Pass-Thru Trust,
10.875s, 2019 $ 700 $ 768,250
Continental Airlines, Inc.,
11.75s, 1995** 700 70
K & F Industries, Inc.,
10.375s, 2004 1,350 1,424,250
MOOG, Inc., 10s, 2006 1,700 1,785,000
----------
$3,977,570
----------
Automotive -- 2.5%
Exide Corp., 10s, 2005 $1,200 $1,245,000
Harvard Industries, Inc., 12s, 2004 275 237,875
Harvard Industries, Inc., 11.125s, 2005 925 767,750
Hayes Wheels International, Inc.,
11s, 2006 1,850 2,018,813
Motors & Gears, Inc., 10.75s,
2006## 675 695,250
----------
$4,964,688
----------
Building -- 4.4%
American Standard, Inc., 10.5s, 2005 $2,275 $2,115,750
Building Materials Corp., 11.75s, 2004 2,250 1,946,250
Building Materials Corp.,
8.625s, 2006## 200 199,500
Lone Star Industries, Inc., 10s, 2003 850 863,812
Nortek, Inc., 9.875s, 2004 1,700 1,717,000
UDC Homes, Inc., 12.5s, 2000 7 3,644
USG Corp., 9.25s, 2001 1,700 1,810,500
----------
$8,656,456
----------
Cellular Telephones -- 0.9%
Millicom International Cellular
Communications, 13.5s, 2006 $1,800 $1,116,000
Rogers Cantel, Inc., 9.375s, 2008 600 630,000
----------
$1,746,000
----------
Chemicals -- 2.9%
Harris Chemical North America, Inc.,
10.25s, 2001 $ 1,000 $1,038,750
Indspec Chemical Corp., 11.5s, 2003 800 722,000
NL Industries, Inc., 11.75s, 2003 1,855 1,966,300
UCC Investors Holdings, Inc.,
10.5s, 2002 1,350 1,471,500
UCC Investors Holdings, Inc.,
12s, 2005 500 430,000
----------
$5,628,550
----------
Consumer Goods and Services -- 9.9%
Consolidated Cigar Corp.,
10.5s, 2003 $ 250 $ 261,250
E & S Holdings Corp., 10.375s,
2006## 1,775 1,841,562
25
<PAGE>
Non-Convertible Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Consumer Goods and Services -- continued
FoodBrands America, Inc.,
10.75s, 2006 $1,600 $ 1,680,000
Genmar Holdings, Inc., 13.5s, 2001 500 485,000
International Semi-Tech
Microelectronics, Inc., 11.5s, 2003 1,050 677,250
Iron Mountain, Inc., 10.125s, 2006 1,300 1,378,000
Pierce Leahy Corp., 11.125s, 2006 1,450 1,584,125
Reeves Industries, Inc., 11s, 2002 1,580 1,508,900
Remington Arms, Inc., 9.5s, 2003## 850 716,125
Revlon, Inc., 10.5s, 2003 1,780 1,869,000
Samsonite Corp., 11.125s, 2005 2,050 2,244,750
Sealy Corp., 9.5s, 2003 2,050 2,070,500
Westpoint Stevens, Inc.,
9.375s, 2005 3,075 3,167,250
------------
$ 19,483,712
------------
Containers -- 4.6%
Atlantis Group, Inc., 11s, 2003 $ 900 $ 913,500
Calmar, Inc., 11.5s, 2005 1,300 1,347,125
Ivex Packaging Corp., 12.5s, 2002 1,430 1,547,975
Owens-Illinois, Inc., 11s, 2003 450 500,625
Owens-Illinois, Inc., 9.95s, 2004 1,800 1,908,000
Silgan Corp., 11.75s, 2002 1,570 1,672,050
U.S. Can Corp., 10.125s, 2006## 1,000 1,051,250
------------
$ 8,940,525
------------
Corporate Asset Backed -- 0.2%
Merrill Lynch Mortgage Investors,
Inc., 8.1421s, 2022+ $ 500 $ 420,313
------------
Electronics -- 0.4%
Clark Schwebel, Inc., 10.5s, 2006 $ 800 $ 848,000
------------
Entertainment -- 0.9%
Albritton Communications Corp.,
11.5s, 2004 $ 600 $ 636,000
Cinemark USA, Inc., 9.625s, 2008 1,000 1,000,000
Marvel Holdings, Inc., 9.125s, 1998 1,425 213,750
------------
$ 1,849,750
------------
Food and Beverage Products -- 2.8%
Coca Cola Bottling Group Southwest,
Inc., 9s, 2003 $ 250 $ 254,375
Delta Beverage Group, Inc.,
9.75s, 2003## 550 563,750
Keebler Corp., 10.75s, 2006## 700 764,750
PMI Acquisition Corp., 10.25s, 2003 1,250 1,275,000
Specialty Foods Corp., 10.25s, 2001 1,550 1,433,750
Texas Bottling Group, Inc., 9s, 2003 1,250 1,265,625
------------
$ 5,557,250
------------
Forest and Paper Products -- 3.3%
Gaylord Container Corp., 12.75s, 2005 $3,025 $ 3,342,625
Pacific Lumber Co., 10.5s, 2003 1,400 1,421,000
Specialty Paperboard, Inc., 9.375s,
2006## 400 401,000
Stone Container Corp., 10.75s, 2002 1,195 1,259,231
------------
$ 6,423,856
------------
Machinery -- 0.4%
AGCO Corp., 8.5s, 2006 $ 700 $ 718,375
------------
Medical and Health Products -- 0.3%
Quest Diagnostics, Inc.,
10.75s, 2006 $ 500 $ 525,000
------------
Medical and Health Technology and Services -- 3.7%
Beverly Enterprises, Inc., 9s, 2006 $1,900 $ 1,909,500
Genesis Health Ventures, Inc., 9.75s,
2005 1,500 1,575,000
Quorum Health Group, 8.75s, 2005 1,500 1,537,500
Tenet Healthcare Corp.,
10.125s, 2005 1,750 1,938,125
Unilab Corp., 11s, 2006 325 219,375
------------
$ 7,179,500
------------
Oil Services -- 4.9%
AmeriGas Partners, LP,
10.125s, 2007 $1,600 $ 1,686,000
Clark USA, Inc., 10.875s, 2005 1,300 1,345,500
Falcon Drilling, Inc., 8.875s, 2003 950 969,000
Ferrell Gas LP, 10s, 2001 1,200 1,254,000
Giant Industries, Inc., 9.75s, 2003 1,950 2,018,250
Mesa Operating Co., 10.625s, 2006 2,200 2,387,000
------------
$ 9,659,750
------------
Oils -- 0.6%
Gulf Canada, 9.25s, 2004 $1,150 $ 1,216,125
------------
Printing and Publishing -- 0.7%
Day International Group, Inc.,
11.125s, 2005 $ 90 $ 949,500
Golden Books Publishing, Inc., 7.65s,
2002 400 348,000
------------
$ 1,297,500
------------
Restaurants and Lodging -- 6.1%
Aztar Corp., 11s, 2002 $ 800 $ 774,000
Boomtown, Inc., 11.5s, 2003 375 394,687
Coast Hotels & Casinos, Inc.,
13s, 2002 600 662,250
Eldorado Resorts LLC, 10.5s,
2006## 1,700 1,795,625
Four Seasons Hotels, Inc., 9.125s,
2000## 1,100 1,130,250
Grand Casinos, Inc., 10.125s, 2003 1,800 1,809,000
Griffin Gaming & Entertainment, Inc.,
0s, 2000 300 294,000
Harrah's Jazz Co., 14.25s, 2001 650 319,313
Harvey's Casinos Resorts,
10.625s, 2006 650 695,500
26
<PAGE>
Non-Convertible Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Restaurants and Lodging -- continued
Red Roof Inns, Inc., 9.625s, 2003 $1,400 $ 1,400,000
Sam Houston Race Park, Inc.,
11s, 2001** 168 67,317
Santa Fe Hotel, Inc., 11s, 2000 745 547,575
Station Casinos, Inc., 9.625s, 2003 2,000 1,990,000
-----------
$11,879,517
-----------
Special Products and Services -- 8.4%
AAF-Mcquay, Inc., 8.875s, 2003 $1,400 $ 1,396,500
Buckeye Cellulose Corp., 8.5s, 2005 850 850,000
Central Transport Rental Finance
Corp., 9.5s, 2003 700 661,773
Fairfield Manufacturing Corp.,
11.375s, 2001 450 470,250
Haynes International, Inc., 11.625s,
2004 1,700 1,793,500
Howmet Corp., 10s, 2003 1,000 1,100,000
IMO Industries, Inc., 11.75s, 2006 1,825 1,697,250
Interlake Corp., 12s, 2001 600 642,000
Interlake Corp., 12.125s, 2002 1,950 2,018,250
Interlake Revolver, "B", 8.375s,
1997## 194 191,591
International Knife & Saw, Inc.,
11.375s, 2006## 1,000 1,032,500
Mettler Toledo Inc., 9.75s, 2006 300 315,000
Polymer Group, Inc., 12.25s, 2002 1,084 1,184,270
Synthetic Industries, Inc., 12.75s,
2002 1,850 2,039,625
Thermadyne Industries Holdings Corp.,
10.25s, 2002 350 358,750
Thermadyne Industries Holdings Corp.,
10.75s, 2003 800 824,000
-----------
$16,575,259
-----------
Steel -- 4.7%
AK Steel Corp., 9.125s, 2006## $ 475 $ 488,062
Algoma Steel, Inc., 12.375s, 2005 1,200 1,296,000
Armco, Inc., 11.375s, 1999 700 724,500
Carbide/Graphite Group, Inc., 11.5s,
2003 250 271,250
Commonwealth Aluminum Corp., 10.75s,
2006 1,175 1,210,250
Gulf States Steel, Inc., 13.5s, 2003 225 213,750
Jorgensen (Earle M.) Co., 10.75s,
2000 1,025 1,045,500
Kaiser Aluminum & Chemical Corp.,
9.875s, 2002 1,400 1,435,000
Kaiser Aluminum & Chemical Corp.,
12.75s, 2003 450 483,750
WCI Steel, Inc., 10s, 2004## 2,000 2,040,000
-----------
$ 9,208,062
-----------
Stores -- 3.2%
Finlay Enterprises, Inc., 12s, 2005 $1,200 $ 1,026,000
Finlay Fine Jewelry, 10.625s, 2003 1,400 1,407,000
Jitney Jungle Stores America Inc.,
12s, 2006 1,950 2,062,125
Lear Corp., 9.5s, 2006 800 864,000
Parisian, Inc., 9.875s, 2003 1,000 1,010,000
-----------
$ 6,369,125
-----------
Supermarkets -- 4.1%
Carr-Gottstein Foods Co., 12s, 2005 $ 400 $ 427,000
Dominick's Finer Foods Co., 10.875s,
2005 1,300 1,439,750
Fleming Cos., Inc., 10.625s, 2001 300 304,500
Grand Union Co., 12s, 2004 1,400 1,477,000
Pathmark Stores, Inc., 9.625s, 2003 1,400 1,340,500
Ralph's Grocery Co., 10.45s, 2004 1,350 1,436,063
Smiths Food & Drug Centers, 11.25s,
2007 1,200 1,326,000
Star Market, Inc., 13s, 2004 200 225,000
-----------
$ 7,975,813
-----------
Telecommunications -- 17.2%
American Radio Systems Corp., 9s,
2006 $1,950 $ 1,911,000
Bell Cablemedia PLC, 11.875s, 2005 1,250 1,003,125
Brooks Fiber Properties, Inc.,
10.875s, 2006 550 352,000
Brooks Fiber Properties, Inc.,
11.875s, 2006## 1,250 796,875
Cablevision Systems Corp.,
9.25s, 2005 1,100 1,089,000
Charter Communications Southeast LP,
11.25s, 2006 1,000 1,045,000
Colt Telecom Group PLC, 12s, 2006 1,300 770,250
Comcast Corp., 9.375s, 2005 1,400 1,452,500
Diamond Cable Communications Corp.,
11.75s, 2005 1,200 864,000
EchoStar Communications Corp.,
12.875s, 2004 575 472,937
EchoStar Satellite Broadcasting
Corp., 13.125s, 2004 1,200 909,000
Falcon Holdings Group, Inc.,
11s, 2003 1,074 961,055
Granite Broadcasting Corp., 10.375s,
2005 850 871,250
ICG Holdings Inc., 12.5s, 2006 1,700 1,100,750
Intermedia Capital Partners LP,
11.25s, 2006## 175 182,875
Jones Intercable, Inc., 9.625s, 2002 550 577,500
Jones Intercable, Inc., 11.5s, 2004 100 108,625
Jones Intercable, Inc., 10.5s, 2008 1,000 1,080,000
27
<PAGE>
Non-Convertible Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Telecommunications -- continued
Lodgenet Entertainment Corp., 10.25s,
2006## $ 475 $ 475,000
Marcus Cable Operating Co., 13.5s, 2004 875 717,500
MFS Communications, Inc., 8.875s, 2006 2,700 1,964,250
Mobile Telecommunication Technologies
Corp., 13.5s, 2002 550 550,000
Mobilemedia Communications, Inc.,
10.5s, 2003 850 178,500
Newsquest Capital PLC, 11s, 2006## 1,150 1,190,250
Newsquest Capital PLC, 11s, 2006## 225 232,875
Paging Network, Inc., 8.875s, 2006 1,900 1,809,750
Park Broadcasting, Inc., 11.75s, 2004 800 940,000
Rifkin Acquisition Partners LP,
11.125s, 2006 300 312,750
Rogers Cablesystems Ltd., 9.625s, 2002 250 260,625
Rogers Cablesystems Ltd., 10.125s, 2012 1,150 1,193,125
Sprint Spectrum LP, 11s, 2006 950 1,028,375
Sprint Spectrum LP, 12.5s, 2006 2,050 1,399,125
Sygnet Wireless Inc, 11.5s, 2006 1,000 1,025,000
Teleport Communications Group, Inc.,
11.125s, 2007 3,450 2,363,250
USA Mobil Communication, Inc., 9.5s, 2004 250 237,500
Videotron Holdings PLC, 11s, 2005 1,500 1,207,500
Western Wireless Corp., "A", 10.5s, 2007 900 943,875
------------
$ 33,576,992
------------
Transportation -- 0.2%
Moran Transportation Co.,
11.75s, 2004 $ 300 $ 324,000
------------
Total Non-Convertible Bonds
(Identified Cost, $171,838,663) $176,586,438
------------
Stocks -- 0.5% Shares
U.S. Stocks -- 0.4%
Apparel and Textiles -- 0.2%
Ithaca Industries, Inc.* 60,000 $ 480,000
Building ------------
Atlantic Gulf Communities Corp.+* 30 $ 129
Consumer Goods and Services ------------
Ranger Industries, Inc.* 8,952 $ 2,507
Entertainment -- 0.2% ------------
Gillett Holdings, Inc.+* 9,414 $ 357,732
Sam Houston Race Park, Inc.* 45 225
------------
$ 357,957
------------
Total U.S. Stocks $ 840,593
Foreign Stocks -- 0.1% ------------
United Kingdom -- 0.1%
Central Transport Rental Group PLC,
ADR (Special Products and
Services)* 343,751 $ 128,907
------------
Total Stocks
(Identified Cost, $1,154,691) $ 969,500
------------
Preferred Stock -- 2.9%
Issuer Shares Value
Consumer Goods and Services -- 0.3%
Renaissance Cosmetics, Inc., 14s+ 525 $ 530,250
------------
Entertainment -- 1.2%
Time Warner, Inc., "K", 10.25s#,
## 2,290 $ 2,484,650
------------
Special Products and Services -- 0.8%
K-III Communications Corp., "B",
11.625s#* 15,271 $ 1,542,366
------------
Telecommunications -- 0.6%
Cablevision Systems Corp., 11.125s* 13,130 $ 1,178,418
------------
Total Preferred Stock
(Identified Cost, $5,193,807) $ 5,735,684
------------
Warrants
Oil Services
Crystal Oil Co., $0.10,* 36,780 $ --
Crystal Oil Co., $0.125, 1999* 36,779 --
ICO, Inc.* 25,000 16,250
------------
Total Warrants
(Identified Cost, $1,011) $ 16,250
------------
Short-Term Obligations -- 5.0%
Principal Amount
(000 Omitted)
Federal Home Loan Bank, due
1/02/97 $ 5,875 $ 5,874,143
Federal National Mortgage
Association, due 1/13/97 3,900 3,893,136
------------
Total Short-Term Obligations, at Amortized
Cost $ 9,767,279
------------
Total Investments
(Identified Cost, $187,955,451) $193,075,151
Other Assets,
Less Liabilities -- 1.5% 3,423,106
------------
Net Assets -- 100.0% $196,498,257
============
See portfolio footnotes and notes to financial statements
28
<PAGE>
Portfolio of Investments -- December 31, 1996
Managed Sectors Series
Stocks -- 97.0%
Issuer Shares Value
Energy -- 9.7%
BJ Services Co.* 74,800 $ 3,814,800
Camco International, Inc. 75,000 3,459,375
Cooper Cameron Corp.* 71,000 5,431,500
Occidental Petroleum Corp. 270,000 6,311,250
Tidewater, Inc. 85,000 3,846,250
Weatherford International, Inc.* 97,300 2,919,000
-----------
$25,782,175
-----------
Financial Services -- 3.7%
Advanta Corp., "B" 85,000 $ 3,474,375
Equitable of Iowa Cos 136,000 6,239,000
-----------
$ 9,713,375
-----------
Leisure -- 18.4%
American Radio Systems Corp., "A"* 38,600 $ 1,051,850
Argosy Gaming Corp.* 91,900 425,037
Harrah's Entertainment, Inc.* 416,200 8,271,975
HFS, Inc.* 35,000 2,091,250
Host Marriott Corp.* 239,700 3,835,200
LIN Television Corp.* 53,600 2,264,600
Louisiana Quinta Inns, Inc. 100,000 1,912,500
MGM Grand, Inc.* 68,000 2,371,500
Promus Hotel Corp.* 124,900 3,700,162
Showboat, Inc. 98,900 1,706,025
Telephone & Data Systems, Inc. 588,000 21,315,000
-----------
$48,945,099
-----------
Retail -- 4.0%
Gymboree Corp.* 4,000 $ 91,500
Office Depot, Inc.* 300,000 5,325,000
Sears, Roebuck & Co. 106,300 4,903,088
Staples, Inc.* 18,400 332,350
-----------
$10,651,938
-----------
Technology -- 34.8%
ADT Ltd.* 396,500 $ 9,069,937
Aerial Communications, Inc.* 200,000 1,625,000
AirTouch Communications, Inc.* 76,400 1,929,100
Analog Devices, Inc.* 86,400 2,926,800
Atmel Corp.* 160,000 5,300,000
Cabletron Systems, Inc.* 150,700 5,010,775
Cisco Systems, Inc.* 20,000 1,272,500
Computer Associates International, Inc. 85,000 4,228,750
Digital Equipment Corp.* 180,000 6,547,500
Electronic Arts, Inc.* 173,400 5,191,162
Glenayre Technologies, Inc.* 161,800 3,488,813
Intel Corp. 116,200 15,214,937
Loral Space & Communications Corp.* 215,000 3,950,625
MCI Communications Corp. 87,000 2,843,813
Microsoft Corp.* 39,000 3,222,375
National Semiconductor Corp.* 222,600 5,425,875
Oracle Systems Corp.* 45,000 1,878,750
Sun Microsystems, Inc.* 325,000 8,348,437
Sybase, Inc.* 117,000 1,952,438
VLSI Technology, Inc.* 138,000 3,294,750
-----------
$92,722,337
-----------
Other -- 26.4%
AGCO Corp. 165,000 $ 4,723,125
Colgate-Palmolive Co. 38,000 3,505,500
Coventry Corp.* 475,000 4,401,172
Genesis Health Ventures, Inc.* 70,000 2,178,750
HBO & Co. 23,000 1,365,625
HealthSource, Inc.* 335,000 4,396,875
Issuer Shares Value
Other -- continued
HealthSouth Corp.* 98,000 $ 3,785,250
McDonnell-Douglas Corp. 63,000 4,032,000
Pacificare Health Systems, Inc.,
"B"* 56,000 4,774,000
Pharmacia & Upjohn, Inc. 101,000 4,002,125
PowerGen PLC (United Kingdom) 449,024 4,400,213
Rhone-Poulenc Rorer, Inc. (France) 28,000 2,187,500
Spectrum Holobyte, Inc.* 570,000 4,275,000
St. Jude Medical, Inc.* 78,500 3,346,062
Tyco International Ltd. 140,000 7,402,500
United Healthcare Corp. 163,300 7,348,500
Ventritex, Inc.* 34,600 852,025
Wisconsin Central Transportation
Corp.* 86,300 3,419,637
------------
$ 70,395,859
------------
Total Stocks
(Identified Cost, $237,479,035) $258,210,783
Principal Amount ------------
(000 Omitted)
Convertible Bonds -- 0.1%
Ventritex, Inc., 5.75s, 2001 $ 80 $ 126,200
Spectrum Holobyte, Inc., 6.5s,
2002## 270 174,488
------------
Total Convertible Bonds
(Identified Cost, $350,000) $ 300,688
------------
Short-Term Obligations -- 3.2%
Federal National Mortgage Assn.,
due 1/13/97 $ 3,000 $ 2,994,720
Ford Motor Credit Corp., due
1/02/97 5,685 5,683,879
------------
Total Short-Term Obligations, at Amortized
Cost $ 8,678,599
------------
Total Investments
(Identified Cost, $246,507,634) $267,190,070
Other Assets,
Less Liabilities -- (0.3)% (822,156)
------------
Net Assets -- 100.0% $266,367,914
============
See portfolio notes and notes to financial statements
29
<PAGE>
Portfolio of Investments -- December 31, 1996
MFS/Foreign & Colonial Emerging Markets
Equity Series
Stocks -- 82.9%
Issuer Shares Value
Argentina -- 3.0%
Banco de Galicia y Buenos Aires S.A
de C.V., ADR (Banks and Credit Cos.) 500 $ 12,125
Perez Companc S.A. (Oil and Gas) 3,000 21,094
Telefonica de Argentina, ADR
(Utilities -- Telephone) 700 18,113
YPF Sociedad Anonima, ADR (Oil and
Gas) 1,900 47,975
---------
$ 99,307
---------
Brazil -- 11.4%
CEMIG (Utilities -- Electric) 1,180,000 $ 40,208
Centrais Eletricas Brasileiras S.A. --
Eletrobras, Preferred, "B"
(Utilities -- Electric) 125,000 46,443
Itausa Investimentos Itau S.A
(Conglomerate)* 38,000 28,530
Petroleo Brasileiro S.A., Preferred
(Oils) 670,000 106,733
Telecomunicacoes Braileiras S.A
(Utilities--Telephone) 2,081,000 149,230
---------
$ 371,144
---------
Chile -- 2.4%
Cia de Telecomunicaciones de Chile
S.A., ADR (Telecommunications) 400 $ 40,450
Enersis S.A., ADR (Utilities --
Electric) 1,400 38,850
---------
$ 79,300
---------
China -- 2.1%
Huaneng Power International, Inc., ADR
(Utilities -- Electric)* 1,100 $ 24,750
Qingling Motors Co., "H" (Automotive)* 40,000 22,110
Yizheng Chemical Fibre Co. Ltd.
(Textiles) 92,000 22,364
---------
$ 69,224
---------
Colombia -- 1.5%
Banco Ganadero S.A., ADR (Financial
Institutions) 1,800 $ 47,475
---------
Egypt -- 3.7%
Commercial International Bank of Egypt
(Banks and Credit Cos.)* 4,200 $ 59,220
Suez Cement Co. S A E, GDR (Building
Materials)##* 4,000 62,400
---------
$ 121,620
---------
Hong Kong -- 5.3%
Cheung Kong Holdings Ltd. (Real
Estate) 7,000 $ 62,225
HSBC Holdings PLC (Finance) 2,800 59,917
Swire Pacific Air Ltd., "A"
(Transportation)* 5,500 52,447
---------
$ 174,589
---------
India -- 6.6%
Bajaj Auto Ltd., GDR (Automotive) 1,400 $ 46,550
East India Hotels (Lodging) 2,500 58,750
Industrial Credit & Investment Corp.
of India Ltd. (Financial
Institutions)* 3,300 32,175
State Bank of India, GDR (Banks and
Credit Cos.)* 3,000 52,110
Issuer Shares Value
India -- continued
Tata Engineering & Locomotive Co.
Ltd. (Autos and Trucks) 2,600 $ 27,625
--------
$217,210
--------
Israel -- 0.7%
Koors Industries Ltd., ADR
(Conglomerate) 600 $ 10,200
Teva Pharmaceutical Industries
Ltd., ADR (Pharmaceuticals) 250 12,562
--------
$ 22,762
--------
Malaysia -- 6.9%
Genting Berhad (Entertainment) 5,000 $ 34,456
Malayan Banking Berhad (Finance) 4,000 44,356
Sime Darby Berhad (Holding Company) 12,000 47,287
Sungei Way Holdings Berhad
(Diversified Operations) 14,000 41,584
Tenaga Nasional Berhad (Utilities
-- Electric) 12,000 57,505
--------
$225,188
--------
Mexico -- 7.6%
Apasco S.A. (Building Materials) 1,500 $ 10,294
Cemex S.A., "B" (Construction) 10,000 36,027
Empresas ICA Sociedad Controladora
S.A., ADR
(Engineering/Construction)* 1,300 19,013
Gruma S.A.,"B" (Food)* 3,000 18,300
Grupo Carso, "A1" (Conglomerate) 9,000 47,693
Grupo Financiero Banamex, "B"
(Finance) 6,000 12,673
Kimberly-Clark de Mexico S.A. de
C.V. (Forest and Paper Products) 2,000 39,522
Telefonos de Mexico S.A. (Utilities
-- Telephone) 40,000 65,980
--------
$249,502
--------
Morocco -- 4.0%
ONA S.A. (Conglomerate)* 1,125 $ 67,072
Societe Nationale Dinvestiss
(Conglomerate) 1,000 62,480
--------
$129,552
--------
Pakistan -- 2.0%
Hub Power Co. Ltd., GDR (Utilities
-- Electric)* 2,100 $ 41,474
Pakistan Telecommunications Corp.,
GDR (Utilities-- Telephone)* 400 24,000
--------
$ 65,474
--------
Peru -- 2.5%
Compania de Minas Buenaventura, ADR
(Mining) 1,500 $ 25,311
Credicorp Ltd. (Holding Company) 1,500 27,750
Telefonica del Peru S.A., ADR
(Telecommunications) 1,500 28,313
--------
$ 81,374
--------
Philippines -- 1.7%
Philippine National Bank (Banks and
Credit Cos.)* 2,800 $ 33,321
30
<PAGE>
Stocks -- continued
Issuer Shares Value
Philippines -- continued
Pilipino Telegraph & Telephone Corp.
(Telecommunications)* 27,000 $ 22,876
-----------
$ 56,197
-----------
Portugal -- 5.8%
Banco Espirito Santo e Comercial de
Lisboa S.A. (Banks and Credit Cos.) 1,743 $ 30,677
Banco Totta e Acores (Finance)## 588 11,092
Cimentos de Portugal S.A. (Building
Materials) 600 12,920
Portugal Telecom S.A
(Telecommunications)* 1,500 42,774
Telecel -- Comunicacaoes Pessoais
S.A. (Cellular Telecommunications)* 1,431 91,400
-----------
$ 188,863
-----------
Russia -- 4.1%
Lukoil Oil Co., ADR (Oil and Gas) 1,100 $ 50,050
Mosenergo, ADR (Utilities --
Electric)## 1,200 36,360
Rostelecom, RDC (Telecommunications)* 248,000
-----------
$ 134,410
-----------
South Africa -- 3.7%
Liberty Life Association of Africa
Ltd. (Insurance) 1,500 $ 37,612
Sasol Ltd. (Oils)* 3,900 46,290
South African Breweries Ltd.
(Brewery) 1,500 38,012
-----------
$ 121,914
-----------
South Korea -- 1.3%
New Korea Trust (Finance)* 4,000 $ 41,000
-----------
Taiwan -- 2.2%
Taipei Fund (Financial Services)* 8 $ 72,000
-----------
Thailand -- 2.2%
Siam Cement Public Co. Ltd. (Building
Materials) 900 $ 28,213
TelecomAsia Corp. Ltd. (Utilities --
Telephone)* 21,000 43,806
-----------
$ 72,019
-----------
Venezuela -- 2.2%
Compania Anonima Nacional Telefonos
de Venezuela, ADR
(Telecommunications)* 2,600 $ 73,124
-----------
Total Stocks
(Identified Cost, $2,670,502) $ 2,713,248
Warrants -----------
Sungei Way Holdings Berhad
(Diversified Operations)* 1,400 $ 1,491
-----------
Short-Term Obligation -- 19.9%
Principal Amount
(000 Omitted)
Federal Home Loan Bank, due
1/02/97, at Amortized Cost $650 $ 649,906
-----------
Total Investments (Identified Cost, $ 3,320,408) $ 3,364,645
Other Assets,
Less Liabilities -- (2.8)% (93,208)
-----------
Net Assets -- 100.0% $ 3,271,437
===========
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
MFS/Foreign & Colonial International Growth Series
Stocks -- 84.9%
Issuer Shares Value
Broken Hill Proprietary (Mining) 3,528 $ 50,185
Futuris Corp. Ltd. (Commercial
Services) 45,798 62,530
--------
$112,715
--------
Austria -- 1.0%
Boehler-Uddeholm AG (Steel) 440 $ 31,495
OMV AG (Oil and Gas) 200 22,555
--------
$ 54,050
--------
Belgium -- 0.6%
Generale de Banque (Finance) 100 $ 35,865
--------
Denmark -- 0.3%
Tele Danmark A/S (Telecommunications) 300 $ 16,558
--------
Finland -- 0.3%
Oy Tamro AB (Pharmaceuticals)## 2,460 $ 16,410
--------
France -- 5.2%
Accor (Lodging) 140 $ 17,736
Compagnie de St. Gobain (Building
Materials) 200 28,307
Credit Local de France (Finance) 300 26,147
Filipacchi Medias (Publishing) 100 22,271
Guilbert S.A. (Distributing) 140 27,401
IMETAL (Building Materials) 120 17,725
Lafarge-Coppee, Bearer Shares
(Building Materials) 300 18,008
Legrand, Preference Shares
(Electrical Equipment) 100 11,068
SEB S.A. (Household Goods) 100 19,610
Societe Nationale Elf Aquitaine
(Oils) 300 27,322
Strafor-Facom S.A. (Office Equipment) 260 19,252
TOTAL S.A., "B" (Oils) 200 16,275
Union des Assurances Federales S.A
(Insurance) 300 37,023
--------
$288,145
--------
Germany -- 5.2%
Bayer AG (Chemicals) 600 $ 24,491
Berentzen Gruppe AG (Beverages) 888 33,477
Buderus AG (Manufacturing) 60 29,639
Deutsche Telekom AG (Utilities --
Telephone)* 2,375 50,094
Fresenius AG (Medical Supplies) 160 33,071
Mannesmann AG (Diversified Machinery) 50 21,677
Siemens AG (Electrical Equipment) 500 23,562
VEBA AG (Oil and Gas) 500 28,924
Volkswagen AG (Automobiles) 100 41,599
--------
$286,534
--------
Hong Kong -- 4.2%
Associated International Hotels
(Lodging) 60,000 $ 44,996
Cheung Kong Holdings Ltd. (Real
Estate) 5,000 44,447
Dah Sing Financial Group (Banks) 12,000 48,720
Li & Fung Ltd. (Toys) 52,000 46,056
Swire Pacific Air Ltd., "A"
(Transportation) 5,000 47,679
--------
$231,898
--------
31
<PAGE>
Stocks -- 84.9%
Issuer Shares Value
Italy -- 1.5%
Industrie Natuzzi S.p.A., ADR
(Furniture) 1,400 $ 32,200
Italgas (Utilities -- Gas) 5,300 22,115
Telecom Italia S.p.A
(Telecommunications) 10,000 25,951
--------
$ 80,266
--------
Japan -- 34.1%
Aeon Credit Service Co. Ltd.
(Financial Services) 1,000 $ 62,230
Aiphone Co. Ltd. (Telecommunications) 2,000 39,758
ALBIS Co. Ltd. (Food) 3,000 35,782
Ariake Japan Co. Ltd. (Food) 1,000 32,152
Canon, Inc. (Consumer Goods) 3,000 66,379
Chofu Seisakusho Co. (Machines) 1,100 22,818
Dai-Ichi Kangyo Bank Ltd. (Banks) 2,000 28,868
Daimei Telecom Engineer Corp.
(Telecommunications) 3,000 22,688
Daiwa Industries Co. Ltd.
(Distributor) 2,000 15,212
DDI Corp. (Telecommunications) 8 52,965
Diamond Computer Service Co.
(Computers -- Software) 2,000 31,806
Exedy Corp. (Automotive Parts) 3,000 37,338
Fujisawa Pharmaceuticals
(Pharmaceuticals) 11,000 98,877
Fukuda Denshi (Electronics) 2,000 44,079
Hitachi Zosen Tomioka (Automotive) 9,000 35,004
Homac Corp. (Retail) 1,000 18,150
Industrial Bank of Japan (Finance) 3,000 52,118
Itariyard Co. Ltd. (Textiles) 1,000 27,053
Ito-Yokado Co. Ltd. (Retail) 1,000 43,561
Kasumi Convenience Networks (Retail) 1,000 8,479
Kato Denki (Retail) 1,000 10,977
Kyocera Corp. (Electronics) 2,000 124,806
Mandom (Cosmetics) 2,000 30,078
Marubeni Corp. (Distribution/
Wholesale) 14,000 60,259
Matsuda Sangyo Co. Ltd. (Food) 1,000 25,843
Mitsubishi Estate Co. Ltd. (Real
Estate) 4,000 41,141
Mitsubishi Heavy Industries Ltd.
(Aerospace/Defense) 6,000 47,710
Miura Co. (Machines) 2,000 25,410
NAC Co. Ltd. (Commercial Services) 2,000 43,215
Nichiha (Building and Construction) 2,000 35,436
Nippon Yusen Kabushiki Kaish
(Transportation -- Marine) 11,000 49,818
Nissha Printing Co. (Manufacturing) 2,000 19,015
NKK Corp. (Steel) 19,000 42,861
Nomura Securities Co. Ltd. (Finance) 2,000 30,078
Oi Electric Co. (Electronics) 3,000 38,634
Oji Paper Co. Ltd. (Paper Products) 7,333 46,457
Omron Corp. (Electronics) 3,000 56,525
Japan -- continued
Pioneer Electronic Corp.
(Electronics)* 3,000 $ 57,303
Ricoh Co. Ltd. (Office/Business
Equipment) 8,000 91,962
Sanshin Electronics Co. Ltd.
(Electronics) 2,000 27,139
Sato Corp. (Machines) 2,000 39,067
Sawai Pharmaceutical Co. Ltd.
(Pharmaceuticals) 1,000 11,927
Sawako Corp. (Engineering/
Construction) 1,000 19,879
Seiyo Food Systems (Restaurants) 3,000 26,707
Sodick Co. (Electrical Equipment)* 2,000 16,595
Sundrug Co. Ltd. (Retail) 1,000 33,276
TKC Corp. (Computer Software and
Services) 1,100 26,145
Tsukishima Kikai (Machines) 1,000 16,508
Yaoko Co. (Retail) 1,000 15,990
----------
$1,886,078
----------
Malaysia -- 1.7%
Malayan Banking Berhad (Finance) 4,600 $ 51,010
Malaysian Industrial Development
Finance Berhad (Finance) 24,000 44,673
----------
$ 95,683
----------
Netherlands -- 4.0%
ABN Amro Holdings N.V. (Finance) 400 $ 26,040
Ahrend Groep N.V. (Furniture) 540 30,118
Akzo Nobel (Chemicals)* 100 13,668
Grolsch N.V. (Brewery) 540 20,955
Hagemeyer N.V. (Distributing) 300 23,995
Royal Dutch Petroleum Co. (Oils) 200 35,085
Stork N.V. (Machinery) 980 34,566
Vendex International N.V. (Retail) 700 29,961
----------
$ 214,388
----------
Singapore -- 1.7%
Overseas-Chinese Banking Corp. Ltd.
(Finance) 4,000 $ 49,757
Wing Tai Holdings Ltd. (Holding
Company) 16,000 45,753
----------
$ 95,510
----------
Spain -- 0.7%
Repsol S.A. (Oils) 400 $ 15,339
Telefonica de Espana (Utilities --
Telephone) 1,100 25,537
----------
$ 40,876
----------
Sweden -- 3.5%
Autoliv AB (Automotive) 660 $ 28,957
Enator AB (Computer Services)* 1,400 35,848
Ericsson LM, "B" (Telecommunications) 1,000 30,961
Munksjo AB (Forest and Paper
Products) 2,380 24,097
Nobel Biocare AB (Medical Supplies) 1,020 17,960
PLM AB (Packaging and Containers) 1,160 20,085
Sparbanken Sverige AB (Banks) 1,000 17,168
Volvo AB, "B" (Automobiles) 900 19,875
----------
$ 194,951
----------
Switzerland -- 3.6%
Fotolabo S.A. (Leisure) 120 $ 46,637
32
<PAGE>
Stocks -- continued
Issuer Shares Value
Switzerland -- continued
Kuoni Reisen Holdings AG (Travel
Services) 14 $ 34,006
Lindt & Spruengli AG (Food) 2 36,173
Nestle AG, Registered Shares (Food
and Beverage Products) 20 21,480
Novartis AG (Pharmaceuticals)* 30 34,372
Roche Holdings AG (Pharmaceuticals) 3 23,352
----------
$ 196,020
----------
United Kingdom -- 15.3%
Allied Domecq PLC (Food and Beverage
Products) 2,800 $ 21,970
Asda Property Holdings PLC (Real
Estate) 8,240 22,869
BAT Industries PLC (Tobacco) 3,500 29,022
Blick PLC (Electrical) 2,480 14,955
British Gas PLC (Utilities -- Gas)* 6,800 26,095
British Telecommunications PLC
(Telecommunications) 4,000 27,069
BTR PLC (Holding Company) 5,000 24,413
Bullough PLC (Manufacturing) 10,620 13,282
Caradon PLC (Holding Company) 5,200 21,381
Carlton Communicatons PLC
(Broadcasting) 1,900 16,653
Courtaulds Textiles PLC (Textiles) 2,300 8,748
Dalgety PLC (Food Products) 3,900 24,254
David Brown Group PLC
(Engineering/Construction) 4,720 17,871
Devro International PLC (Food) 5,060 23,319
Forth Ports PLC (Harbor
Transportation Services) 5,100 53,997
General Accident PLC (Insurance) 2,000 26,178
Glaxo Wellcome PLC (Pharmaceuticals) 1,600 26,041
Hazlewood Foods PLC (Food) 8,220 14,998
Inchcape PLC (Commercial Services) 4,600 21,357
Independent Insurance Group PLC
(Insurance) 2,720 27,820
Johnson Matthey PLC (Metals) 2,300 21,751
Land Securities PLC (Real Estate) 2,000 25,561
London Electricity PLC (Utilities --
Electric) 2,100 24,482
Marley PLC (Building Materials) 7,820 16,813
Meggitt Holdings PLC (Engineering) 10,200 17,824
National Westminster (Finance) 1,700 19,979
Nelson Hurst PLC (Insurance) 5,240 13,555
Peninsular & Oriental Steam
Navigation Co. (Transportation --
Marine) 1,600 16,200
RJB Mining PLC (Mining) 2,640 19,303
Roxboro Group PLC (Manufacturing) 4,100 13,697
Sainsbury (J.) PLC (Retail) 3,400 22,542
Scapa Group PLC (Building Materials) 4,800 20,188
Serco Group PLC (Commercial Services) 2,100 24,213
Shell Transport & Trading Co. PLC
(Oil and Gas) 1,500 26,006
SIG PLC (Building Materials) 5,900 24,360
Smith (W.H.) Group PLC (Retail) 1,500 10,999
T & S Stores PLC (Retail) 5,760 18,256
United Kingdom -- continued
Wagon Industrial Holdings PLC
(Maufacturing) 3,640 $ 18,770
Walker Greenbank PLC (Maufacturing) 11,880 10,990
Wimpey (George) PLC (Construction) 7,600 16,275
----------
$ 844,056
----------
Total Stocks
(Identified Cost, $4,604,164) $4,690,003
----------
Short-Term Obligation -- 38.2%
Principal Amount
(000 Omitted)
Federal Home Loan Bank, due
1/02/97, at Amortized Cost $2,110 $ 2,109,692
-----------
Total Investments
(Identified Cost, $6,713,856) $ 6,799,695
Other Assets,
Less Liabilities -- (23.1)% (1,274,472)
-----------
Net Assets -- 100.0% $ 5,525,223
===========
See portfolio footnotes and notes to financial statements
33
<PAGE>
Portfolio of Investments -- December 31, 1996
MFS/Foreign & Colonial International Growth
and Income Series
Stocks -- 73.7%
Issuer Shares Value
Australia -- 1.5%
Broken Hill Proprietary (Mining) 23,276 $ 331,099
Westpac Bank Corp. (Finance) 37,400 212,567
----------
$ 543,666
----------
Austria -- 0.4%
OMV AG (Oil and Gas) 1,195 $ 134,764
----------
Belgium -- 0.7%
Generale de Banque (Finance) 500 $ 179,326
Solvay et Cie (Chemicals) 100 61,247
----------
$ 240,573
----------
France -- 5.0%
Accor (Lodging) 1,480 $ 187,497
Compagnie de St. Gobain (Building
Materials) 1,600 226,456
Credit Local de France (Finance) 2,100 183,031
Credit Local de France (Finance) 570 49,680
Eaux (Cie Generale) (Utilities --
Water) 660 81,832
Lafarge-Coppee, Bearer Shares
(Building Materials) 3,120 187,284
Legrand, Preference Shares
(Electrical Equipment) 1,820 201,442
Michelin (C.G.D.E.), "B" (Tire and
Rubber) 4,100 221,444
Societe Nationale Elf Aquitaine
(Oils) 2,200 200,359
TOTAL S.A., "B" (Oils) 3,220 262,021
----------
$1,801,046
----------
Germany -- 5.6%
Bayer AG (Chemicals) 12,200 $ 497,992
Deutsche Bank AG (Banks) 320 14,955
Deutsche Telekom AG (Utilities --
Telephone) 4,745 100,081
Dresdner Bank AG (Banks) 5,100 152,818
Mannesmann AG (Diversified Machinery) 700 303,477
Preussag AG (Metals/Hardware) 200 45,304
Siemens AG (Electrical Equipment) 5,600 263,893
VEBA AG (Oil and Gas) 6,190 358,083
Volkswagen AG (Stores) 640 266,233
----------
$2,002,836
----------
Hong Kong -- 4.0%
Cheung Kong Holdings Ltd. (Real
Estate) 38,000 $ 337,794
Hong Kong Electric Holdings Ltd.
(Utilities -- Electric) 61,500 204,364
HSBC Holdings PLC (Finance) 8,800 188,311
New World Development Co. (Real
Estate) 25,000 168,897
Swire Pacific Air Ltd., "A"
(Transportation) 21,000 200,252
Wharf Holdings Ltd. (Real Estate) 67,000 334,394
----------
$1,434,012
----------
Italy -- 0.8%
Fiat S.p.A. (Automobiles) 21,340 $ 64,515
Italgas (Utilities -- Gas) 36,710 153,175
Telecom Italia S.p.A
(Telecommunications) 20,450 53,070
----------
$ 270,760
----------
Issuer Shares Value
Japan -- 28.7%
Asahi Chemical Industry Co. Ltd.
(Chemicals) 54,000 $ 306,171
Canon, Inc. (Consumer Goods and
Services) 27,000 597,407
Dai-Ichi Kangyo Bank Ltd. (Banks) 37,000 534,054
DDI Corp. (Telecommunications) 82 542,887
Fujisawa Pharmaceuticals
(Pharmaceuticals) 40,000 359,550
Hitachi (Electronics) 6,000 56,007
Hitachi Zosen Tomioka (Automotive) 79,000 307,260
Industrial Bank of Japan (Finance) 23,000 399,568
Isetan Co. (Retail) 23,000 298,185
Ito-Yokado Co. Ltd. (Retail) 9,000 392,048
Kajima Corp. (Engineering/
Construction) 44,000 314,883
Kyocera Corp. (Electronics) 9,000 436,819
Marubeni Corp. (Distribution/
Wholesale) 116,000 499,291
Matsushita Electric Industrial Co.
(Electrical Equipment) 16,000 261,366
Mitsubishi Estate Co. Ltd. (Real
Estate) 32,000 329,127
Mitsubishi Heavy Industries Ltd.
(Aerospace/Defense) 51,000 405,532
Mitsubishi Trust & Banking (Banks) 14,000 187,554
Nippon Yusen Kabushiki Kaish
(Transportation -- Marine) 88,000 398,548
NKK Corp. (Steel) 149,000 336,119
Nomura Securities Co. Ltd. (Finance) 23,000 345,895
Oji Paper Co. Ltd. (Paper Products) 50,000 316,767
Omron Corp. (Electronics) 39,000 734,831
Pioneer Electronic Corp.
(Electronics) 33,000 630,337
Ricoh Co. Ltd. (Office/Business
Equipment) 49,000 563,267
Sakura Bank Ltd. (Banks) 8,000 57,252
Tokyo Broadcasting System
(Broadcasting) 3,000 45,895
Toyo Trust & Banking (Banks) 54,000 436,387
-----------
$10,093,007
-----------
Malaysia -- 1.4%
Genting Berhad (Entertainment) 18,000 $ 124,040
Malayan Banking Berhad (Finance) 11,000 121,980
Petronas Gas Berhad (Oil and
Gas)## 33,000 137,228
Sime Darby Berhad (Holding Company) 29,000 114,277
-----------
$ 497,525
-----------
Netherlands -- 4.3%
ABN Amro Holdings N.V. (Finance) 3,340 $ 217,431
Ahold Kon N.V. (Food -- Retail) 2,100 131,356
Akzo Nobel (Chemicals) 1,460 199,560
Philips Electronics N.V
(Manufacturing) 3,950 160,141
Royal Dutch Petroleum Co. (Oils) 400 70,173
Vendex International N.V. (Retail) 7,300 312,447
34
<PAGE>
Stocks -- continued
Issuer Shares Value
Netherlands -- continued
Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit
(Publishing) 20,920 $ 437,398
$1,528,506
----------
Singapore -- 1.8%
City Developments Ltd. (Real Estate) 22,000 $ 198,170
Development Bank of Singapore Ltd.
(Banks) 9,000 121,604
Keppel Corp. Ltd. (Transportation --
Marine) 22,000 171,432
Overseas-Chinese Banking Corp. Ltd.
(Finance) 12,100 150,515
----------
$ 641,721
----------
Spain -- 1.6%
Repsol S.A. (Oils) 5,490 $ 210,520
Telefonica de Espana (Utilities --
Telephone) 15,700 364,483
----------
$ 575,003
----------
Sweden -- 2.0%
Ericsson LM, "B" (Telecommunications) 8,900 $ 275,554
Sparbanken Sverige AB (Banks) 10,200 175,114
Swedish Match AB (Tobacco) 3,480 12,255
Volvo AB, "B" (Automobiles) 11,980 264,562
----------
$ 727,485
----------
Switzerland -- 2.8%
Nestle AG, Registered Shares (Food
and Beverage Products) 250 $ 268,498
Novartis AG (Pharmaceuticals)* 150 171,861
Roche Holdings AG (Pharmaceuticals) 45 350,280
Winterthur (Insurance) 340 196,682
----------
$ 987,321
----------
United Kingdom -- 13.1%
Allied Domecq PLC (Food and Beverage
Products) 31,400 $ 246,379
Bass PLC (Brewery) 2,970 41,825
BAT Industries PLC (Tobacco) 25,800 213,931
British Gas PLC (Utilities -- Gas) 39,300 150,816
British Petroleum PLC (Oils) 11,900 142,710
British Telecommunications PLC
(Telecommunications) 35,070 237,324
BTR PLC (Holding Company) 58,740 286,805
Caradon PLC (Holding Company) 47,600 195,716
Carlton Communicatons PLC
(Broadcasting) 21,500 188,442
Dalgety PLC (Food Products) 36,350 226,058
General Accident PLC (Insurance) 13,490 176,568
General Electric Co. PLC
(Electronics) 18,650 122,373
Glaxo Wellcome PLC (Pharmaceuticals) 12,100 196,932
Granada Group PLC (Leisure) 10,410 153,911
Inchcape PLC (Commercial Services) 81,800 379,779
Johnson Matthey PLC (Metals) 11,200 105,917
Kingfisher PLC (Retail) 8,800 94,980
Stocks -- continued
United Kingdom -- continued
Land Securities PLC (Real Estate) 14,130 $180,588
London Electricity PLC (Utilities --
Electric) 8,800 102,593
National Westminster (Finance) 14,200 166,886
NFC PLC (Transportation) 58,270 184,682
Peninsular & Oriental Steam
Navigation Co. (Transportation --
Marine) 19,670 199,159
Sainsbury (J.) PLC (Retail) 28,380 188,162
Shell Transport & Trading Co. PLC
(Oil and Gas) 3,800 65,883
Smith (W.H.) Group PLC (Retail) 50,900 373,224
Wimpey (George) PLC (Construction) 35,600 76,237
-----------
$ 4,697,880
-----------
Total Stocks
(Identified Cost, $25,671,468) $26,176,105
-----------
Bonds -- 18.1%
Principal
Amount
(000 Omitted)
Australia -- 2.4%
Commonwealth of Australia,
9.75s, 2002 AUD 700 $ 619,561
Commonwealth of Australia,
9.5s, 2003 250 221,272
----------
$ 840,833
----------
Belgium -- 1.2%
Kingdom of Belgium, 8.75s, 2002 BEF 2,222 $ 82,656
Kingdom of Belgium, 7.25s, 2004 10,010 348,595
----------
$ 431,251
----------
Canada -- 3.2%
Government of Canada, 7.5s,
2003 CAD 1,165 $ 919,468
Government of Canada, 7s, 2006 300 228,344
----------
$1,147,812
----------
Denmark -- 1.5%
Kingdom of Denmark, 6s, 1999 DKK 1,098 $ 193,831
Kingdom of Denmark, 8s, 2001 935 176,282
Kingdom of Denmark, 7s, 2007 967 167,010
----------
$ 537,123
----------
France -- 0.6%
Government of France, 7s, 2000 FRF 965 $ 203,848
----------
Germany -- 2.8%
Federal Republic of Germany,
7.125s, 2002 DEM 472 $ 336,705
Federal Republic of Germany,
6.5s, 2005 504 343,316
Treuhandanstalt Obligationen,
6.375s, 1999 491 338,450
----------
$1,018,471
----------
35
<PAGE>
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Ireland -- 1.2%
Republic of Ireland, 6.25s, 1999 IEP 40 $ 68,161
Republic of Ireland, 8s, 2000 55 99,314
Republic of Ireland, 6.5s, 2001 160 275,490
----------
$ 442,965
----------
Italy -- 2.0%
Republic of Italy, 8.313s, 1999 ITL 485,000 $ 338,805
Republic of Italy, 8.313s, 2001 510,000 369,337
----------
$ 708,142
----------
Spain -- 1.1%
Government of Spain, 8.4s, 2001 ESP 23,020 $ 193,828
Government of Spain, 10.5s, 2003 21,510 201,270
----------
$ 395,098
----------
Sweden -- 0.8%
Kingdom of Sweden, 10.25s, 2000 SEK 1,600 $ 270,814
----------
United Kingdom -- 1.3%
United Kingdom Treasury, 7s, 2001 GBP 200 $ 339,108
United Kingdom Treasury, 9.75s, 2002 70 132,891
----------
$ 471,999
----------
Total Bonds
(Identified Cost, $6,397,204) $6,468,356
----------
Short-Term Obligation -- 7.0%
Federal Home Loan Bank, due
1/02/97, at Amortized Cost $ 2,500 $2,499,635
----------
Call Options Purchased -- 2.7%
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
Italian Lire/Deutsche Marks
January/995 ITL 213,734 $ 1,069
Japanese Government Bonds
January/104.076 JPY 42,000 3,360
February/116.80 37,000 2,701
March/114.25 39,000 1,560
March/115.106 38,000 1,862
-----------
Total Call Options Purchased
(Premiums Paid, $20,452) $ 10,552
-----------
Put Options Purchased -- 0.2%
Deutsche Marks/British Pounds
January/2.45 DEM 566 $ 27,234
January/2.56 592 11,267
Swiss Francs/Deutsche Marks
January/0.829 CHF 222 7,955
February/0.84 225 5,749
February/0.84 377 9,627
Put Options Purchased -- continued
March/0.86 616 6,684
-----------
Total Put Options Purchased
(Premiums Paid, $14,609) $ 68,516
------------
Total Investments
(Identified Cost, $34,603,368) $ 35,223,164
------------
Principal
Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
Put Options Purchased -- continued
Call Options Written
Deutsche Marks/British Pounds
January/2.3682 DEM 547 $ --
Swiss Francs/Deutsche Marks
February/0.8265 CHF 371 (3)
------------
Total Call Options Written
(Premiums Received, $3,222) $ (3)
------------
Put Options Written
Deutsche Marks/British Pounds
January/2.45 DEM 566 $ (27,122)
Japanese Government Bonds
January/104.076 JPY 42,000 (1,302)
February/116.8 37,000 (1,295)
March/114.25 39,000 (6,084)
March/115.106 38,000 (6,156)
Swiss Francs/Deutsche Marks
January/0.829 CHF 222 (7,960)
February/0.84 602 (15,383)
--------------
Total Put Options Written
(Premiums Received, $27,895) $ (65,302)
--------------
Other Assets,
Less Liabilities -- (1.7)% $ 551,724
------------
Net Assets -- 100.0% $ 35,709,583
============
See portfolio footnotes and notes to financial statements
36
<PAGE>
Portfolio of Investments -- December 31, 1996
Money Market Series
Commercial Paper -- 37.8%
Principal Amount
Issuer (000 Omitted) Value
Abbott Labs, due 1/03/97 $ 6,000 $ 5,998,223
American Express Credit Corp., due
1/21/97 5,000 4,985,222
Associates Corp. of North America,
due 1/28/97 - 2/26/97 15,000 14,904,862
AT&T Corp., due 2/27/97 10,000 9,914,658
Bank of America, due 3/27/97 7,000 6,911,577
BankAmerica Corp., due 3/05/97 5,100 5,052,876
Bankers Trust of New York Corp., due
6/13/97 6,000 5,855,473
Beneficial Corp., due 2/20/97 6,000 5,955,083
Carolina Power & Light Co., due
3/07/97 6,000 5,942,583
Coca-Cola Co., due 2/28/97 6,000 5,949,250
du Pont (E. I.) de Nemours & Co.,
due 1/22/97 6,400 6,380,363
Ford Motor Credit Corp., due 1/24/97 11,650 11,610,478
General Motors Acceptance Corp., due
2/03/97 5,000 4,975,021
Kellogg Co., due 3/26/97 10,000 9,875,167
Knight-Ridder, Inc., due 3/12/97 9,300 9,202,350
Pacific Gas & Electric Co., due
1/15/97 8,000 7,982,982
Raytheon Co., due 1/07/97 6,000 5,994,710
TransAmerica Co., due 1/10/97 10,000 9,986,500
Weyerhaeuser Co., due
1/14/97 - 2/14/97 17,500 17,429,317
------------
$154,906,695
------------
U.S. Government and Agency
Obligations -- 61.4%
Federal Farm Credit Bank, due
1/27/97 - 2/13/97 $21,705 $ 21,598,292
Federal Home Loan Bank, due 1/02/97
- 5/05/97 69,470 69,103,059
Federal Home Loan Mortgage Corp.,
due 1/07/97 - 3/03/97 37,225 37,028,855
Federal National Mortgage Assn., due
1/09/97 - 6/10/97 88,494 87,492,031
Student Loan Marketing Assn., due
1/02/97 30,000 29,994,792
Tennessee Valley Authority, due
2/19/97 6,000 5,957,534
------------
$251,174,563
------------
Total Investments, at Amortized Cost $406,081,258
Other Assets,
Less Liabilities -- 0.8% 3,084,068
------------
Net Assets -- 100.0% $409,165,326
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
Research Series
Stocks -- 97.1%
Issuer Shares Value
U.S. Stocks -- 87.0%
Aerospace -- 5.7%
General Dynamics Corp. 37,700 $ 2,657,850
Lockheed Martin Corp. 51,900 4,748,850
McDonnell-Douglas Corp. 80,900 5,177,600
United Technologies Corp. 89,900 5,933,400
-----------
$18,517,700
-----------
Agricultural Products -- 1.7%
Case Corp. 100,200 $ 5,460,900
-----------
Apparel and Textiles -- 0.7%
Nike, Inc., "B" 24,000 $ 1,434,000
Reebok International Ltd. 22,600 949,200
-----------
$ 2,383,200
-----------
Automotive -- 0.5%
Goodrich (B.F.) Co. 39,200 $ 1,587,600
-----------
Banks and Credit Companies -- 3.2%
Bank of Boston Corp. 38,400 $ 2,467,200
Chase Manhattan Corp. 52,312 4,668,846
Compass Bancshares Incorporated 6,900 274,275
Crestar Financial Corp. 14,700 1,093,313
Fleet/Norstar Financial Group, Inc. 40,200 2,004,975
-----------
$10,508,609
-----------
Building -- 0.7%
Newport News Shipbuilding Inc. 155,100 $ 2,326,500
-----------
Business Machines -- 0.9%
Affiliated Computer Services, Inc.,
"A"* 9,700 $ 288,575
Sun Microsystems, Inc.* 107,600 2,763,975
-----------
$ 3,052,550
-----------
Business Services -- 3.4%
AccuStaff, Inc.* 179,200 $ 3,785,600
ALCO Standard Corp. 62,600 3,231,725
DST Systems, Inc.* 73,700 2,312,338
Technology Solutions Co.* 38,800 1,610,200
-----------
$10,939,863
-----------
Chemicals -- 4.1%
Air Products & Chemicals, Inc. 81,900 $ 5,661,338
Betzdearborn, Inc. 11,700 684,450
Praxair, Inc. 154,200 7,112,475
-----------
$13,458,263
-----------
Computer Software -- Personal Computers -- 3.2%
Electronic Arts, Inc.* 79,400 $ 2,377,038
First Data Corp. 70,500 2,573,250
Microsoft Corp.* 67,200 5,552,400
-----------
$10,502,688
-----------
Computer Software -- Systems -- 6.3%
Adobe Systems, Inc. 56,600 $ 2,115,425
BMC Software, Inc.* 74,100 3,065,887
Cadence Design Systems, Inc.* 75,200 2,989,200
Computer Associates International, Inc. 42,700 2,124,325
Compuware Corp.* 22,200 1,112,775
Oracle Systems Corp.* 146,250 6,105,937
Sybase, Inc.* 43,400 724,238
Synopsys, Inc.* 49,200 2,275,500
-----------
$20,513,287
-----------
Consumer Goods and Services -- 9.9%
Colgate-Palmolive Co. 60,300 $ 5,562,675
Estee Lauder Cos., "A" 34,100 1,734,837
Gillette Co. 67,800 5,271,450
37
<PAGE>
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- continued
Consumer Goods and Services -- continued
Philip Morris Cos., Inc. 57,600 $ 6,487,200
Procter & Gamble Co. 51,700 5,557,750
Revlon, Inc., "A"* 48,100 1,436,988
Sherwin Williams Co. 51,800 2,900,800
Tyco International Ltd. 61,500 3,251,812
-----------
$32,203,512
-----------
Defense Electronics -- 0.7%
Loral Space & Communications Corp.* 128,400 $ 2,359,350
-----------
Electronics -- 1.1%
Analog Devices, Inc.* 43,600 $ 1,476,950
Lattice Semiconductor Corporation 13,200 607,200
Xilinx, Inc.* 44,100 1,623,431
-----------
$ 3,707,581
-----------
Entertainment -- 2.3%
Clear Channel Communications, Inc.* 18,100 $ 653,863
Hollywood Entertainment Corp. 37,700 697,450
Jacor Communications, Inc., "A"* 81,500 2,231,062
Showboat, Inc. 59,700 1,029,825
Viacom, Inc., "B"* 77,000 2,685,375
-----------
$ 7,297,575
-----------
Financial Institutions -- 2.0%
Advanta Corp., "B" 83,800 $ 3,425,325
Union Planters Corp. 80,610 3,143,790
-----------
$ 6,569,115
-----------
Food and Beverage Products -- 2.7%
Earthgrains Co. 36,200 $ 1,891,450
McCormick & Co., Inc. 79,300 1,868,506
PepsiCo, Inc. 57,800 1,690,650
Tyson Foods , Inc. 94,800 3,246,900
-----------
$ 8,697,506
-----------
Forest and Paper Products -- 1.8%
Kimberly-Clark Corp. 60,600 $ 5,772,150
-----------
Insurance -- 6.9%
Allstate Corp. 56,300 $ 3,258,362
Amerin Corp.* 31,400 808,550
Chubb Corp. 37,900 2,037,125
Cigna Corp. 38,800 5,301,050
Conseco, Inc. 27,100 1,727,625
Equitable of Iowa Cos 37,500 1,720,313
ITT Hartford Group, Inc. 41,400 2,794,500
PennCorp Financial Group, Inc. 129,500 4,662,000
-----------
$22,309,525
-----------
Medical and Health Products -- 3.4%
Pfizer, Inc. 29,600 $ 2,453,100
Pharmacia & Upjohn, Inc. 55,400 2,195,225
Rhone-Poulenc Rorer, Inc. 21,600 1,687,500
Uromed Corp. 165,000 1,608,750
Ventritex, Inc.* 111,000 2,733,375
Zoll Medical Corp. 21,000 225,750
-----------
$10,903,700
-----------
Medical and Health Technology and Services -- 4.6%
Coventry Corp.* 64,200 $ 594,853
Pacificare Health Systems, Inc., "A"* 30,100 2,445,625
Pacificare Health Systems, Inc., "B"* 22,800 1,943,700
Riscorp, Inc., "A" 23,900 86,638
St. Jude Medical, Inc.* 122,800 5,234,350
United Healthcare Corp. 100,100 4,504,500
-----------
$14,809,666
-----------
Issuer Shares Value
U.S. Stocks -- continued
Oils -- 2.6%
Barrett Resouces Corp.* 47,400 $ 2,020,425
Mobil Corp. 28,200 3,447,450
Newfield Exploration Co. 42,600 1,107,600
Transocean Offshore, Inc. 32,100 2,010,263
------------
$ 8,585,738
------------
Railroads -- 3.2%
Burlington Northern Santa Fe Railway Co. 34,600 $ 2,988,575
Conrail, Inc. 20,676 2,059,847
Wisconsin Central Transportation
Corp.* 135,500 5,369,187
------------
$ 10,417,609
------------
Restaurants and Lodging -- 3.5%
HFS, Inc.* 89,900 $ 5,371,525
Host Marriott Corp. 222,000 3,552,000
MGM Grand, Inc.* 59,900 2,089,013
Promus Hotel Corp.* 16,850 499,181
------------
$ 11,511,719
------------
Special Products and Services -- 0.9%
Stanley Works 101,400 $ 2,737,800
------------
Stores -- 3.3%
Ann Taylor Stores Corp.* 89,800 $ 1,571,500
CompUSA, Inc. 119,600 2,466,750
Gymboree Corp.* 83,600 1,912,350
Home Depot, Inc. 38,800 1,944,850
Lowes Co., Inc. 45,300 1,608,150
Staples, Inc.* 73,650 1,330,303
------------
$ 10,833,903
------------
Supermarkets -- 1.3%
Safeway, Inc.* 97,200 $ 4,155,300
------------
Telecommunications -- 4.2%
Ascend Communications , Inc.* 13,500 $ 838,687
Cabletron Systems, Inc.* 54,200 1,802,150
Cisco Systems, Inc.* 46,600 2,964,925
Glenayre Technologies, Inc.* 101,100 2,179,969
Lucent Technologies, Inc. 47,500 2,196,875
MCI Communications Corp. 115,100 3,762,331
------------
$ 13,744,937
------------
Utilities -- Gas -- 2.2%
Coastal Corp. 73,800 $ 3,606,975
PanEnergy Corp. 76,600 3,447,000
------------
$ 7,053,975
------------
Total U.S. Stocks $282,921,821
------------
Foreign Stocks -- 10.1%
Denmark -- 0.3%
ISS International Service System, "B"
(Commercial Services) 32,400 $ 852,849
------------
Finland -- 0.8%
Huhtamaki OY (Conglomerates) 45,300 $ 2,106,473
TT Tieto OY (Computer Software --
Systems) 7,100 599,985
------------
$ 2,706,458
------------
France -- 0.5%
Union des Assurances Federales S.A
(Insurance) 12,700 $ 1,567,297
------------
Germany -- 0.2%
Sap AG, Preferred (Computer Software
-- Systems) 3,800 $ 531,037
------------
38
<PAGE>
Stocks -- continued
Foreign Stocks -- continued
Issuer Shares Value
Greece -- 0.3%
Hellenic Telecom (Telecommunications) 52,100 $ 891,023
-------------
Hong Kong -- 2.1%
Giordano International Ltd. (Stores) 1,776,000 $ 1,515,593
Wharf Holdings Ltd. (Real Estate) 901,000 4,496,845
Wing Hang Bank Ltd. (Banks and Credit
Companies) 191,000 866,835
-------------
$ 6,879,273
-------------
Italy -- 0.6%
Telecom Italia S.p.A
(Telecommunications) 1,469,600 $ 2,095,625
-------------
Philippines -- 0.2%
Pilipino Telegraph & Telephone Corp.
(Telecommunications) 797,800 $ 675,973
-------------
South Korea -- 0.4%
Korea Mobile Telecom, ADR
(Telecommunications) 100,857 $ 1,298,534
-------------
Sweden -- 2.1%
Astra AB, Free Shares, "B"
(Pharmaceuticals) 90,700 $ 4,378,621
Enator AB (Computer Software --
Systems) 5,540 139,821
Enator AB (Computer Software --
Systems)* 33,000 844,974
Nobel Biocare AB (Medical and Health
Products) 77,250 1,360,235
-------------
$ 6,723,651
-------------
Switzerland -- 0.3%
Novartis AG (Pharmaceuticals)* 927 $ 1,061,688
-------------
United Kingdom -- 2.3%
British Petroleum PLC, ADR (Oils) 27,160 $ 3,839,745
Jarvis Hotels PLC (Restaurants and
Lodging)*+ 627,700 1,731,355
Kwik-Fit Holdings PLC (Retail) 418,000 1,557,556
Storehouse PLC (Retail) 91,900 406,990
-------------
$ 7,535,646
-------------
Total Foreign Stocks $ 32,819,054
-------------
Total Stocks
(Identified Cost, $283,393,336) $ 315,740,875
-------------
Short-Term Obligations -- 7.3%
Principal Amount
(000 Omitted)
Federal Home Loan Bank, due 1/02/97 $10,382 $ 10,380,486
Federal Home Loan Mortgage Corp.,
due 1/07/97 - 1/17/97 6,880 6,863,650
Federal National Mortgage Assn.,
due 1/14/97 6,580 6,566,931
-------------
Total Short-Term Obligations, at Amortized
Cost $ 23,811,067
-------------
Total Investments
(Identified Cost, $307,204,403) $ 339,551,942
Other Assets,
Less Liabilities -- (4.4)% (14,162,729)
-------------
Net Assets -- 100.0% $ 325,389,213
-------------
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
Total Return Series
Non-Convertible Bonds -- 34.7%
Principal Amount
Issuer (000 Omitted) Value
Aerospace -- 0.1%
Northrop Grumman Corp., 9.375s, 2024 $1,145 $ 1,265,809
-----------
Airlines -- 1.2%
Continental Airlines Pass-Thru Trust,
9.5s, 2013 $ 850 $ 955,188
Continental Airlines Pass-Thru Trust,
10.22s, 2014 2,000 2,342,019
Delta Air Lines, Inc., 8.5s, 2002 1,600 1,694,096
Delta Air Lines, Inc., 10.375s, 2022 1,625 2,045,664
Jet Equipment Trust, 9.41s, 2010## 1,000 1,153,850
Jet Equipment Trust, 8.64s, 2012## 972 1,061,924
Jet Equipment Trust, 11.44s, 2014## 1,200 1,422,288
Jet Equipment Trust, 10.69s, 2015## 1,000 1,216,910
Qantas Airways, Ltd., 7.5s, 2003## 1,405 1,436,922
United Airlines Pass-Thru Trust,
7.27s, 2013 1,500 1,452,465
United Airlines, Inc., 9.125s, 2012 800 893,344
-----------
$15,674,670
-----------
Banks and Credit Companies -- 1.8%
Advanta Capital Trust, 8.99s,
2026## $1,650 $ 1,652,558
Advanta Corp., 7.47s, 2001 1,500 1,525,860
BankAmerica Corp., 8s, 2026 2,125 2,154,113
BT Institutional Capital Trust, 8.09s, 2026 1,600 1,608,000
Capital One Bank, 6.75s, 2000 4,800 4,794,000
Capital One Financial Corp., 7.25s, 2003 1,500 1,481,250
First Chicago NBD Institutional
Capital, 7.95s, 2026## 850 835,125
First USA Capital Trust, 9.33s, 2027 2,500 2,497,425
MBNA Capital, 8.278s, 2026 1,700 1,706,375
Mellon Capital II, 7.995s, 2027 2,200 2,200,000
NationsBank Capital Trust, 7.83s, 2026 1,860 1,854,327
Peoples Bank of Bridgeport, 7.2s, 2006 500 488,830
State Street Institutional Capital,
7.94s, 2026 1,700 1,659,625
-----------
$24,457,488
-----------
Building -- 0.1%
Owens Corning Fiberglass Corp.,
8.875s, 2002 $ 800 $ 867,512
Owens Corning Fiberglass Corp., 9.9s,
2015## 800 882,000
-----------
$ 1,749,512
-----------
Business Machines -- 0.1%
International Business Machines Corp.,
7.125s, 2096 $1,400 $ 1,331,162
-----------
Business Services -- 0.4%
Loewen Group International, Inc.,
7.5s, 2001 $4,100 $ 4,105,125
Loewen Group International, Inc.,
7.75s, 2001## 1,800 1,831,500
-----------
$ 5,936,625
-----------
39
<PAGE>
Non-Convertible Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Cellular Telephones -- 0.1%
360 Communications, 7.5s, 2006 $ 800 $ 793,528
-----------
Construction Services -- 0.2%
Georgia Pacific Corp., 9.875s, 2021 $ 2,825 $ 3,157,813
-----------
Consumer Goods and Services -- 0.2%
Philip Morris Cos., Inc., 7.65s, 2008 $ 2,800 $ 2,859,556
-----------
Corporate Asset Backed -- 1.7%
AT&T Universal Card Master Trust,
5.6508s, 2003 $18,000 $17,994,240
BCF LLC, 7.75s, 2026## 797 779,518
Continental Airlines, Inc., 9.5s, 2001## 2,375 2,422,500
Merrill Lynch Mortgage Investors,
Inc., 8.1421s, 2022+ 514 432,081
Merrill Lynch Mortgage Investors,
Inc., 91-C, "B", 8.9s, 2011 347 366,340
-----------
$21,994,679
-----------
Entertainment -- 0.9%
Circus Circus Enterprises, Inc., 6.7s, 2096 $ 1,700 $ 1,671,984
Time Warner Entertainment, Inc., 8.375s, 2023 3,175 3,219,037
Time Warner, Inc., 7.45s, 1998 4,025 4,069,315
Time Warner, Inc., 7.95s, 2000 1,600 1,652,304
Time Warner, Inc., 9.15s, 2023 1,396 1,513,250
-----------
$12,125,890
-----------
Financial Institutions -- 2.1%
ABN Amro Bank, 7.3s, 2026 $ 3,200 $ 3,042,560
Alex Brown, Inc., 7.625s, 2005 1,300 1,326,325
Auburn Hills Trust, 12s, 2020 2,935 4,449,284
Contifinancial Corp., 8.375s, 2003 1,275 1,313,250
First Merchants Acceptance Corp., 9.5s, 2006 800 784,000
Humpuss Funding Corp., 7.72s, 2009## 800 789,704
Lehman Brothers, Inc., 7.5s, 2026 4,830 4,897,089
Lehman Brothers Holdings, Inc., 6.4s, 1999 3,000 2,984,400
Lehman Brothers Holdings, Inc.,
7.125s, 2003 1,600 1,598,768
Salton Sea Funding Corp., 7.37s, 2005 1,575 1,572,748
Salton Sea Funding Corp., 7.84s, 2010 1,575 1,583,615
Salton Sea Funding Corp., 8.3s, 2011 800 828,520
Tosco Corp., 7.625s, 2006 1,900 1,961,598
United Cos. Financial Corp., 7.7s, 2004 850 854,250
-----------
$27,986,111
-----------
Food and Beverage Products -- 0.5%
Nabisco, Inc., 7.55s, 2015 $ 3,345 $ 3,317,471
RJR Nabisco, Inc., 8.75s, 2004 1,000 1,009,260
RJR Nabisco, Inc., 8.75s, 2007 1,800 1,797,228
-----------
$ 6,123,959
-----------
Foreign - U.S. Dollar Denominated -- 2.0%
Canadian Pacific Forest Products Ltd.,
9.25s, 2002 $ 3,200 $ 3,251,136
City of Naples, 7.52s, 2006 1,415 1,459,318
Principal Amount
Issuer (000 Omitted) Value
Foreign -- U.S. Dollar Denominated -- continued
Crown Cork & Seal Finance PLC, 7s, 2006 $ 825 $ 817,872
Empresa Electric del Norts, 7.75s, 2006## 575 586,500
Enersis S.A., 6.9s, 2006 750 731,993
Fairfax Financial Holdings Ltd., 8.3s, 2026 1,500 1,562,400
Financiera Energetica Nacional
Colombia, 9.375s, 2006## 550 584,375
Gulf Canada Resources Ltd., 8.35s, 2006 1,400 1,440,250
Hidroelectrica Alicura, 8.375s, 1999## 2,200 2,178,000
Oleoducto Central S.A., 9.35s, 2005## 1,200 1,212,000
Petroliam Nasional Berhad, 7.625s, 2026## 1,600 1,612,912
Province of Quebec, Canada, 6.5s, 2006 938 905,020
Republic of Argentina, 9.25s, 2001 910 923,650
Republic of Colombia, 8.75s, 1999 1,000 1,045,000
Republic of Colombia, 8.66s, 2016## 600 630,000
Republic of Colombia, 8.7s, 2016 2,340 2,256,953
Republic of South Africa, 8.375s, 2006 3,100 3,099,938
Total Access Communication, 8.375s, 2006## 1,600 1,605,296
-----------
$25,902,613
-----------
Forest and Paper Products -- 0.5%
Boise Cascade Corp., 9.85s, 2002 $2,440 $ 2,759,323
Boise Cascade Corp., 7.35s, 2004 1,500 1,520,625
Boise Cascade Corp., 7.43s, 2005 1,000 1,015,000
Champion International Corp., 6.4s, 2026 1,600 1,527,504
-----------
$ 6,822,452
-----------
Insurance -- 1.6%
American Realty Corp., 7.45s, 2026## $1,600 $ 1,598,000
Equitable Life Assurance Society, 7.7s, 2015 3,800 3,798,404
Liberty Mutual Insurance Co., 7.875s, 2026## 800 802,792
Liberty Mutual Insurance Co., 8.2s, 2007## 4,007 4,255,194
Metropolitan Life Insurance Co., 7.7s, 2015## 1,600 1,603,984
Nationwide Mutual Life Insurance Co.,
7.5s, 2024## 3,200 2,982,464
New York Life Insurance Co., 7.5s, 2023 1,200 1,162,704
Travelers Capital, 7.75s, 2036 4,065 3,908,741
Travelers Group, Inc., 7.875s, 2025 1,075 1,122,827
-----------
$21,235,110
-----------
Oil Services -- 0.1%
Transcontinental Gas Pipe Line, 7.25s, 2026 $1,500 $ 1,477,500
-----------
Oils -- 0.8%
CITGO Petroleum, 7.875s, 2006 $ 800 $ 815,680
40
<PAGE>
Non-Convertible Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Oils -- continued
Enserch Exploration, Inc., 7.54s, 2009## $ 1,500 $ 1,477,500
Husky Oil Ltd., 7.125s, 2006 1,600 1,600,064
Mitchell Energy & Development Corp.,
5.1s, 1997 1,750 1,747,935
Mitchell Energy & Development Corp.,
6.75s, 2004 800 747,120
Oryx Energy Co., 10s, 2001 900 987,921
Oryx Energy Co., 8s, 2003 1,000 1,011,750
Oryx Energy Co., 8.375s, 2004 2,300 2,376,774
------------
$ 10,764,744
------------
Real Estate -- 0.2%
Taubman Realty Group Ltd., 8s, 2001 $ 2,300 $ 2,373,899
------------
Special Products and Services -- 0.2%
Mark IV Industries, Inc., 7.75s, 2006 $ 2,100 $ 2,063,250
Stewart Enterprises, Inc., 6.7s, 2003 1,225 1,212,983
------------
$ 3,276,233
------------
Stores -- 0.1%
Price/Costco, Inc., 7.125s, 2005 $ 1,000 $ 1,000,120
------------
Telecommunications -- 1.8%
American Portable Telecom, Inc., 0s,
2006## $ 3,850 $ 1,733,116
Continental Cablevision, Inc., 8.3s, 2006 1,350 1,452,938
Tele-Communications, Inc., 7.375s, 2000 6,790 6,753,470
Tele-Communications, Inc., 7.38s, 2001 1,500 1,514,550
Tele-Communications, Inc., 6.185s, 2003 2,730 2,716,350
Tele-Communications, Inc., 7.49s, 2003 3,400 3,431,586
Tele-Communications, Inc., 10.125s, 2022 5,000 5,490,100
Viacom, Inc., 7.625s, 2016 1,200 1,102,500
------------
$ 24,194,610
------------
U.S. Government Agencies
Federal National Mortgage Association -- 4.7%
FNMA, 7s, 2026 $ 5,957 $ 5,824,443
FNMA, 7.5s, 2010 - 2011 5,511 5,586,930
FNMA, 8s, 2026 50,498 51,445,261
------------
$ 62,856,634
------------
U.S. Government Guaranteed
U.S. Treasury Obligations -- 9.2%
U.S. Treasury Notes, 9.125s, 1999 $17,950 $ 19,181,191
U.S. Treasury Notes, 6.5s, 2001 5,200 5,256,888
U.S. Treasury Notes, 6.625s, 2001 9,600 9,754,464
U.S. Treasury Notes, 7.5s, 2001 24,900 26,211,234
U.S. Treasury Notes, 6.5s, 2006 13,762 13,837,278
U.S. Treasury Bonds, 12s, 2005 7,980 10,835,324
U.S. Treasury Bonds, 12s, 2013 5,697 8,149,388
U.S. Treasury Bonds, 6.5s, 2026 2,050 2,011,891
U.S. Treasury Bonds, 6.75s, 2026 27,054 27,256,905
------------
$122,494,563
Utilities -- Electric -- 3.4% ------------
Arkansas Power & Light Co., 8.75s, 2026 $ 300 $ 309,060
Principal Amount
Issuer (000 Omitted) Value
Utilities -- Electric -- continued
Central Maine Power Co., 7.45s, 1999 $ 800 $ 796,048
Cleveland Electric Illuminating Co.,
9.25s, 1999 4,000 4,175,840
Cleveland Electric Illuminating Co.,
9.375s, 2017 2,700 2,769,147
Cleveland Electric Illuminating Co.,
9s, 2023 1,550 1,554,154
Coastal Corp., 7.75s, 2035 2,600 2,646,982
Edison Mission Energy Funding Corp.,
7.33s, 2008 ## 475 481,522
El Paso Electric Co., 8.9s, 2006 2,175 2,267,742
First PV Funding Corp., 10.3s, 2014 1,120 1,192,800
First PV Funding Corp., 10.15s, 2016 1,448 1,538,500
Long Island Lighting Co., 8.75s, 1997 2,000 2,005,220
Long Island Lighting Co., 7.5s, 2007 1,000 931,300
Long Island Lighting Co., 8.9s, 2019 4,370 4,458,493
Long Island Lighting Co., 9s, 2022 3,370 3,546,925
Long Island Lighting Co., 8.2s, 2023 400 395,964
Long Island Lighting Co., 9.625s, 2024 2,950 3,137,355
Louisiana Power & Light Co., 10.67s, 2017 400 428,120
Louisiana Power & Light Co., 10.67s, 2017 1,075 1,150,540
Louisiana Power & Light Co., 8.75s, 2026 325 327,031
Midland Cogeneration Venture Corp.,
10.33s, 2002 648 688,975
Midland Funding Corp. II, "A", 11.75s, 2005 1,750 1,937,530
Montana Power Co., 7.875s, 2026 200 201,750
Niagara Mohawk Power Corp., 8s, 2004 2,200 2,113,496
Pacificorp Holdings, 7.2s, 2006## 2,850 2,835,750
System Energy Resources, 7.38s, 2000 1,800 1,794,690
Texas & New Mexico Power Co., 12.5s, 1999 1,400 1,520,890
------------
$ 45,205,824
------------
Utilities -- Gas -- 0.7%
California Energy, Inc., 10.25s, 2004 $1,900 $ 2,002,125
Louis Dreyfus Natural Gas Corp.,
9.25s, 2004 850 893,886
NGC Corp., 7.625s, 2026 875 888,081
Ras Laffan Liquefied Natural Gas,
8.294s, 2014## 1,350 1,353,375
UtiliCorp. United, Inc., 8.45s, 1999 3,790 3,964,833
------------
$ 9,102,300
------------
Total Non-Convertible Bonds
(Identified Cost, $460,504,152) $462,163,404
------------
41
<PAGE>
Convertible Bonds -- 0.7%
Principal Amount
Issuer (000 Omitted) Value
Advertising -- 0.1%
Omnicom Group, Inc., 4.25s, 2007## $ 640 $ 656,800
-----------
Electronics -- 0.2%
ADT Operations, Inc., 0s, 2010 $4,385 $ 2,850,250
-----------
Insurance -- 0.1%
Equitable Cos., Inc., 6.125s, 2024 $1,300 $ 1,503,125
-----------
Medical and Health Technology and Services -- 0.1%
Ciba-Geigy AG, 6.25s, 2016## $ 500 $ 504,375
Roche Holdings, Inc., 0s, 2010## 3,127 1,414,968
-----------
$ 1,919,343
-----------
Special Products and Services -- 0.1%
Cemex, 4.25s, 1997## $2,000 $ 1,932,500
-----------
Steel -- 0.1%
USX-Marathon Group, 0s, 2005 $2,400 $ 1,122,000
-----------
Total Convertible Bonds
(Identified Cost, $9,051,997) $ 9,984,018
-----------
U.S. Stocks -- continued
U.S. Stocks -- 50.0%
Shares
Aerospace -- 3.7%
Allied Signal, Inc. 163,500 $10,954,500
General Dynamics Corp. 63,450 4,473,225
Lockheed Martin Corp. 47,000 4,300,500
Raytheon Co. 189,400 9,114,875
United Technologies Corp. 308,800 20,380,800
-----------
$49,223,900
-----------
Apparel and Textiles -- 0.5%
VF Corp. 97,000 $ 6,547,500
-----------
Automotive -- 1.9%
Dana Corp. 147,000 $ 4,795,875
Ford Motor Co. 198,289 6,320,462
General Motors Corp. 44,236 2,466,157
Goodrich (B.F.) Co. 286,100 11,587,050
-----------
$25,169,544
-----------
Banks and Credit Companies -- 5.5%
Bank of Boston Corp. 123,800 $ 7,954,150
Bank of New York, Inc. 263,760 8,901,900
Chase Manhattan Corp. 159,032 14,193,606
Comerica, Inc. 22,000 1,152,250
Fleet Financial Group, Inc. 173,000 8,628,375
National City Corp. 234,200 10,509,725
NationsBank Corp. 121,000 11,827,750
Northern Trust Corp. 57,000 2,066,250
Norwest Corp. 142,000 6,177,000
Washington Mutual, Inc. 38,708 1,676,540
-----------
$73,087,546
-----------
Building
Newport News Shipbuilding Inc. 7,200 $ 108,000
-----------
Business Machines -- 0.9%
Digital Equipment Corp. 150,500 $ 5,474,438
International Business Machines
Corp 39,500 5,964,500
-----------
$11,438,938
-----------
Cellular Telephones -- 0.2%
Telephone & Data Systems, Inc. 72,900 $ 2,642,625
-----------
Chemicals -- 2.2%
Air Products & Chemicals, Inc. 20,000 $ 1,382,500
Dow Chemical Co. 56,000 4,389,000
du Pont (E. I.) de Nemours & Co.,
Inc 87,000 8,210,625
Issuer Shares Value
Chemicals -- continued
Praxair, Inc. 89,200 $ 4,114,350
Rohm & Haas Co. 95,400 7,787,025
Witco Corp. 127,000 3,873,500
-----------
$29,757,000
-----------
Consumer Goods and Services -- 3.4%
American Brands, Inc. 102,700 $ 5,096,488
Colgate-Palmolive Co. 69,000 6,365,250
Dow-Corning LP 42,500 2,704,063
Olin Corp. 112,000 4,214,000
Philip Morris Cos., Inc. 157,000 17,682,125
Rubbermaid, Inc. 119,300 2,714,075
Sherwin Williams Co. 117,400 6,574,400
-----------
$45,350,401
-----------
Electrical Equipment -- 1.8%
Cooper Industries, Inc. 84,000 $ 3,538,500
General Electric Co. 158,000 15,622,250
Honeywell, Inc. 66,400 4,365,800
-----------
$23,526,550
-----------
Electronics -- 0.1%
Analog Devices, Inc. 44,900 $ 1,520,988
-----------
Financial Institutions -- 1.9%
American Express Co. 163,000 $ 9,209,500
Federal Home Loan Mortgage Corp. 64,800 7,136,100
Southern National Corp. 264,000 9,570,000
-----------
$25,915,600
-----------
Food and Beverage Products -- 1.3%
Anheuser Busch Cos., Inc. 47,000 $ 1,880,000
Dimon, Inc. 124,100 2,869,813
General Mills, Inc. 122,000 7,731,750
McCormick & Co., Inc. 77,500 1,826,094
PepsiCo, Inc. 98,600 2,884,050
-----------
$17,191,707
-----------
Forest and Paper Products -- 0.3%
Weyerhaeuser Co. 95,000 $ 4,500,625
-----------
Insurance -- 3.5%
Allstate Corp. 148,100 $ 8,571,288
Chubb Corp. 96,700 5,197,625
Cigna Corp. 72,500 9,905,313
St. Paul Cos., Inc. 134,000 7,855,750
Torchmark Corp. 155,000 7,827,500
Travelers Group, Inc. 149,236 6,771,584
-----------
$46,129,060
-----------
Machinery -- 0.9%
Deere & Co., Inc. 213,500 $ 8,673,438
York International Corp. 69,300 3,872,138
-----------
$12,545,576
-----------
Medical and Health Products -- 1.9%
American Home Products Corp. 146,400 $ 8,582,700
Baxter International, Inc. 100,700 4,128,700
Pharmacia & Upjohn, Inc. 153,000 6,062,625
Rhone-Poulenc Rorer, Inc. 84,800 6,625,000
-----------
$25,399,025
-----------
Medical and Health Technology and Services -- 0.9%
Columbia Healthcare Corp. 108,000 $ 4,401,000
St. Jude Medical, Inc. 51,800 2,207,975
United Healthcare Corp. 133,400 6,003,000
-----------
$12,611,975
-----------
Metals and Minerals -- 0.6%
Aluminum Cos. of America 99,000 $ 6,311,250
42
<PAGE>
U.S. Stocks -- continued
Issuer Shares Value
Metals and Minerals -- continued
Phelps Dodge Corp. 26,800 $ 1,809,000
-----------
$ 8,120,250
-----------
Oil Services -- 0.8%
Schlumberger Ltd. 87,000 $ 8,689,125
Tenneco, Inc. 36,000 1,624,500
-----------
$10,313,625
-----------
Oils -- 4.8%
Amoco Corp. 107,000 $ 8,613,500
Atlantic Richfield Co. 59,500 7,883,750
Exxon Corp. 94,000 9,212,000
Mobil Corp. 71,800 8,777,550
Occidental Petroleum Corp. 343,000 8,017,625
Sun Co., Inc. 25,558 622,976
Texaco, Inc. 86,000 8,438,750
Ultramar Diamond Shamrock Corp. 63,700 2,014,513
USX-Marathon Group 437,000 10,433,375
-----------
$64,014,039
-----------
Photographic Products -- 0.9%
Eastman Kodak Co. 149,000 $11,957,250
-----------
Pollution Control -- 0.5%
Browning-Ferris Industries, Inc. 126,800 $ 3,328,500
WMX Technologies, Inc. 109,000 3,556,125
-----------
$ 6,884,625
-----------
Railroads -- 1.4%
Burlington Northern Santa Fe 98,000 $ 8,464,750
CSX Corp. 75,300 3,181,425
Illinois Central Corp. 237,500 7,600,000
-----------
$19,246,175
-----------
Real Estate -- 1.0%
Arden Realty, Inc. 58,200 $ 1,615,050
Hospitality Properties Trust 175,000 5,075,000
Meditrust Corp. 108,200 4,328,000
National Health Investors, Inc. 51,600 1,954,350
-----------
$12,972,400
-----------
Special Products and Services -- 0.4%
Stanley Works 188,300 $ 5,084,100
-----------
Stores -- 1.2%
May Department Stores Co. 91,000 $ 4,254,250
Rite Aid Corp. 39,400 1,566,150
Sears, Roebuck & Co. 153,000 7,057,125
Wal-Mart Stores, Inc. 142,000 3,248,250
-----------
$16,125,775
-----------
Telecommunications
Tele-Communications, Inc. 20,625 $ 589,102
-----------
Utilities -- Electric -- 3.0%
Allegheny Power Systems, Inc. 93,600 $ 2,843,100
Carolina Power & Light Co. 140,000 5,110,000
CMS Energy Corp. 85,000 2,858,125
Coastal Corp. 165,000 8,064,375
DPL, Inc. 72,000 1,764,000
FPL Group, Inc. 159,000 7,314,000
Peco Energy Co. 89,100 2,249,775
Pinnacle West Capital Corp. 120,000 3,810,000
Portland General Corp. 88,700 3,725,400
Texas Utilities Co. 55,500 2,261,625
-----------
$40,000,400
-----------
Utilities -- Gas -- 2.0%
Eastern Enterprises 91,700 $ 3,243,888
El Paso Natural Gas Co. 3,348 169,074
Enron Corp. 30,000 720,000
Pacific Enterprises 80,000 2,430,000
Issuer Shares Value
U.S. Stocks -- continued
Utilities -- Gas -- continued
PanEnergy Corp. 187,000 $ 8,415,000
Sonat, Inc. 70,000 3,605,000
UGI Corp. 75,000 1,678,125
Williams Cos., Inc. 187,500 7,031,250
------------
$ 27,292,337
------------
Utilities -- Telephone -- 2.5%
Ameritech Corp. 76,800 $ 4,656,000
AT&T Corp. 33,200 1,444,200
BellSouth Corp. 160,100 6,464,038
GTE Corp. 200,600 9,127,300
MCI Communications Corp. 360,000 11,767,500
------------
$ 33,459,038
------------
Total U.S. Stocks $668,725,676
------------
Foreign Stocks -- 5.1%
Canada -- 0.1%
Canadian National Railway Co. (Railroads) 28,100 $ 1,067,800
------------
Germany -- 0.4%
Henkel Kgaa, Preferred (Consumer Goods and
Services) 96,200 $ 4,833,448
------------
Netherlands -- 0.9%
Royal Dutch Petroleum Co., ADR (Oils) 71,100 $ 12,140,325
------------
New Zealand
Lion Nathan Ltd. (Food and Beverage Products) 235,500 $ 564,031
------------
Spain -- 0.3%
Repsol S.A., ADR (Oils) 122,000 $ 4,651,250
------------
Sweden -- 0.5%
Astra AB, "A", ADR (Pharmaceuticals) 91,200 $ 4,468,800
Volvo AB, ADR (Automotive) 111,000 2,414,250
------------
$ 6,883,050
------------
Switzerland -- 0.8%
Novartis AG (Pharmaceuticals) 9,533 $ 10,922,109
------------
United Kingdom -- 2.1%
British Petroleum PLC, ADR (Oils) 114,337 $ 16,164,393
SmithKline Beecham PLC, ADR (Medical and Health
Products) 165,000 11,220,000
------------
$ 27,384,393
------------
Total Foreign Stocks $ 68,446,406
------------
Total Stocks
(Identified Cost, $584,145,577) $737,172,082
------------
Preferred Stocks -- 0.4%
Financial Institutions
Salomon, Inc. 6,800 $ 409,700
------------
Oils -- 0.1%
USX-Marathon Capital, LLC, 8.75s 63,100 $ 1,601,163
------------
Utilities - Electric -- 0.2%
Long Island Lighting Co., 7.95s 80,000 $ 2,030,000
------------
Utilities - Gas -- 0.1%
El Paso Tennessee Gas Pipeline Co., 8.25s 16,000 $ 818,000
------------
Total Preferred Stock
(Identified Cost, $4,712,200) $ 4,858,863
------------
Convertible Preferred Stocks - 1.8%
Agricultural Products - 0.4%
Case Corp., $4.50 35,300 $ 4,686,075
------------
43
<PAGE>
Convertible Preferred Stocks -- continued
Issuer Shares Value
Defense Electronics - 0.3%
Loral Space & Communications## 68,600 $ 3,875,900
--------------
Financial Institutions - 0.1%
Finova Finance Trust 21,200 $ 1,113,000
Tosco Financing Trust## 6,000 308,250
--------------
$ 1,421,250
--------------
Medical and Health Technology and Services - 0.1%
Service Corp. International Finance, LLC 15,000 $ 1,411,875
--------------
Metals and Minerals - 0.2%
Timet Capital Trust I## 43,600 $ 2,354,400
--------------
Precious Metals and Minerals
Freeport-McMoRan Copper & Gold 25,000 $ 693,750
--------------
Real Estate Investment Trusts
Security Capital Pacific Trust 25,000 $ 765,625
--------------
Restaurants and Lodging - 0.5%
Host Marriott Financial Trust## 116,700 $ 6,199,688
--------------
Utilities - Gas - 0.2%
Unocal Corp. 47,900 $ 2,754,250
--------------
Total Convertible Preferred Stocks
(Identified Cost, $21,787,479) $ 24,162,813
--------------
Short-Term Obligations -- 6.9%
Principal Amount
(000 Omitted)
Federal Farm Credit Bank,
due 1/07/97 - 1/29/97 $ 6,260 $ 6,254,404
Federal Home Loan Bank,
due 1/2/97 - 2/14/97 29,545 29,471,854
Federal Home Loan Mortgage Corp.,
due 1/6/97 - 2/13/97 38,900 38,755,170
Federal National Mortgage Assn.,
due 1/14/97 - 2/14/97 16,940 16,880,212
--------------
Total Short-Term Obligations,
at Amortized Cost $ 91,361,640
--------------
Total Investments
(Identified Cost $1,171,563,058) $1,329,702,820
Other Assets,
Less Liabilities -- 0.4% 5,319,343
--------------
Net Assets -- 100.0% $1,335,022,163
==============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
Utilities Series
Stocks -- 79.0%
Issuer Shares Value
Foreign Stocks -- 18.4%
Argentina -- 1.0%
Central Costanera, ADR (Utilities --
Electric)## 22,100 $ 679,575
-----------
Brazil -- 1.9%
Centrais Eletricas Brasileiras, ADR,
(Utilities -- Electric) 27,000 $ 499,500
Telecomunicacoes Brasileiras S.A., ADR,
(Telecommunications) 11,100 851,925
-----------
$ 1,351,425
-----------
Canada -- 1.1%
TransCanada Pipelines Ltd., (Oils) 22,000 $ 385,000
BCE, Inc., (Telecommunications) 8,000 382,000
-----------
$ 767,000
-----------
Chile -- 2.0%
Chilectra S.A., ADR, (Utilities --
Electric) 15,000 $ 798,750
Chilgener S.A., ADR, (Utilities --
Electric) 17,000 354,875
Empresa Nacional de Electricidad, ADR,
(Utilities -- Electric) 14,700 227,850
-----------
$ 1,381,475
-----------
Italy -- 1.2%
Telecom Italia S.p.A.,
(Telecommunications) 596,100 $ 850,029
-----------
Peru -- 2.0%
CPT Telefonica del Peru S.A., "B",
(Utilities -- Telephone) 139,200 $ 259,997
Telefonica del Peru S.A., ADR,
(Telecommunications) 61,250 1,156,094
-----------
$ 1,416,091
-----------
Philippines -- 0.3%
Pilipino Telegraph & Telephone Corp.,
(Telecommunications) 255,000 $ 216,060
-----------
Portugal -- 1.1%
Portugal Telecom S.A.,
(Telecommunications) 13,200 $ 376,413
Portugal Telecom S.A., ADR,
(Telecommunications) 14,900 420,925
-----------
$ 797,338
-----------
South Korea -- 1.0%
Korea Mobile Telecom, ADR,
(Telecommunications) 54,899 $ 706,825
-----------
Spain -- 2.4%
Iberdrola S.A., (Telecommunications) 46,000 $ 651,729
Empresa Nacional de Electricidad, ADR,
(Utilities -- Electric) 10,500 735,000
Telefonica de Espana S.A., ADR,
(Utilities -- Telephone) 4,600 318,550
-----------
$ 1,705,279
-----------
United Kingdom -- 4.4%
National Grid Group, (Utilities --
Electric) 195,000 $ 651,444
National Power, (Utilities -- Electric) 87,300 729,865
PowerGen PLC, (Utilities -- Electric) 179,000 1,754,111
-----------
$ 3,135,420
-----------
Total Foreign Stocks $13,006,517
-----------
44
<PAGE>
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- 60.6%
Business Services -- 1.6%
Storage Trust Realty 41,000 $ 1,107,000
-----------
Cellular Telephones -- 1.1%
Telephone & Data Systems, Inc. 21,000 $ 761,250
-----------
Consumer Goods and Services -- 1.4%
Philip Morris Cos., Inc. 8,800 $ 991,100
-----------
Oils -- 1.2%
Noble Affiliates, Inc. 7,000 $ 335,125
Union Pacific Resources Group, Inc. 18,000 526,500
-----------
$ 861,625
-----------
Real Estate Investment Trusts -- 5.0%
Brandywine Realty Trust 39,900 $ 778,050
First Industrial Realty Trust, Inc. 5,900 179,213
Hospitality Properties Trust 28,850 836,650
National Health Investors, Inc. 15,600 590,850
Oasis Residential, Inc. 22,000 500,500
Prentiss Properties Trust* 25,600 640,000
-----------
$ 3,525,263
-----------
Restaurants and Lodging -- 3.9%
American General Hospitality Corp. 40,700 $ 966,625
Boykin Lodging Co.* 23,700 568,800
Innkeepers USA Trust 50,900 706,237
Winston Hotels, Inc. 39,100 532,738
-----------
$ 2,774,400
-----------
Special Products and Services -- 0.9%
Shurgard Storage Centers Inc. 6,000 $ 177,750
Sovran Self Storage, Inc. 15,000 468,750
-----------
$ 646,500
-----------
Telecommunications -- 3.1%
ICG Communications, Inc.* 36,000 $ 634,500
MFS Communications Co., Inc.* 28,300 1,542,350
-----------
$ 2,176,850
-----------
Utilities -- Electric -- 21.9%
Allegheny Power Systems, Inc. 14,500 $ 440,438
Boston Edison Co. 31,300 841,187
Cinergy Corp. 22,016 734,784
CMS Energy Corp. 45,700 1,536,662
Edison International 36,300 721,463
FPL Group, Inc. 9,500 437,000
GPU, Inc. 35,300 1,186,962
Illinova Corp. 43,950 1,208,625
Nipsco Industries, Inc. 18,100 717,213
Pacific Gas & Electric Co. 27,800 583,800
Pinnacle West Capital Corp. 20,850 661,988
Portland General Corp. 23,800 999,600
Public Service Company of Colorado 20,300 789,162
Public Service Company of New Mexico* 89,800 1,762,325
Sierra Pacific Resources 71,100 2,044,125
Texas Utilities Co. 11,300 460,475
Unicom Corp. 13,000 352,625
-----------
$15,478,434
-----------
Utilities -- Gas -- 12.6%
Atmos Energy Corp. 6,000 $ 143,250
Coastal Corp. 13,100 640,262
Columbia Gas Systems, Inc. 17,600 1,119,800
El Paso Natural Gas Co. 15,200 767,600
Energen Corp. 4,500 136,125
KN Energy, Inc. 23,000 902,750
Issuer Shares Value
U.S. Stocks -- continued
Utilities -- Gas -- continued
PanEnergy Corp. 27,400 $ 1,233,000
Sonat, Inc. 13,000 669,500
Tejas Gas Corp.* 6,000 285,750
Utilicorp United, Inc. 33,700 909,900
Westcoast Energy, Inc. 26,900 450,575
Western Gas Resources, Inc. 41,800 804,650
Williams Cos., Inc. 22,950 860,625
-----------
$ 8,923,787
-----------
Utilities -- Telephone -- 7.9%
BellSouth Corp. 7,900 $ 318,963
Frontier Corp. 17,100 386,887
GTE Corp. 28,500 1,296,750
MCI Communications Corp. 46,000 1,503,625
NYNEX Corp. 16,000 770,000
Pacific Telesis Group 25,100 922,425
SBC Communications, Inc. 7,400 382,950
-----------
$ 5,581,600
-----------
Total U.S. Stocks $42,827,809
-----------
Total Common Stocks
(Identified Cost, $48,966,770) $55,834,326
-----------
Convertible Preferred Stocks -- 0.3%
Argentina
Compania Inversiones Telephone, 7%,
(Utilities -- Telephone)##
(Identified Cost, $202,450) 3,800 $ 197,600
-----------
Non-Convertible Bonds -- 18.0%
Principal Amount
(000 Omitted)
Airlines -- 0.4%
Delta Air Lines, Inc., 8.5s, 2002 $ 250 $ 264,703
-----------
Business Services -- 0.3%
Loewen Group International, Inc.,
7.75s, 2001## $ 250 $ 254,375
-----------
Foreign -- U.S. Dollar Denominated -- 1.2%
Empresa Electric Del Norte, 7.75s, 2006## $ 300 $ 306,000
Empresa Electric Guacolda S.A., 7.6s, 2001## 250 253,443
Enersis S.A., 6.9s, 2006 250 243,997
Hidroelectrica Alicura, 8.375s, 1999## 25 24,750
-----------
$ 828,190
-----------
Forest and Paper Products -- 0.3%
Boise Cascade Co., 7.43s, 2005 $ 225 $ 228,375
-----------
Oils -- 1.8%
Husky Oil Ltd., 7.125s, 2006 $ 500 $ 500,020
Tosco Corp., 7.625s, 2006 750 774,315
-----------
$ 1,274,335
-----------
Telecommunications -- 0.4%
Continental Cablevision, Inc., 8.3s, 2006 $ 250 $ 269,062
-----------
U.S. Treasury Obligations -- 9.5%
U.S. Treasury Notes, 9.125s, 1999 $ 900 $ 961,731
U.S. Treasury Notes, 7.5s, 2001 1,615 1,700,046
U.S. Treasury Notes, 7.875s, 2004 1,500 1,636,875
U.S. Treasury Notes, 6.5s, 2006 400 402,188
U.S. Treasury Notes, 7s, 2006 100 103,891
45
<PAGE>
Non-Convertible Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
U.S. Treasury Obligations -- continued
U.S. Treasury Bonds, 12s, 2005 $180 $ 244,406
U.S. Treasury Bonds, 12s, 2013 830 1,187,290
U.S. Treasury Bonds, 6.75s, 2026 474 477,555
-----------
$ 6,713,982
-----------
Utilities -- Electric -- 3.4%
Arkansas Power & Light Co., 8.75s, 2026 $250 $ 257,550
Coastal Corp., 7.75s, 2035 250 254,517
First PV Funding Corp., 10.3s, 2014 224 238,560
First PV Funding Corp., 10.15s, 2016 270 286,875
Long Island Lighting Co., 9s, 2022 250 263,125
Louisiana Power & Light Co., 8.75s, 2026 125 125,781
Montana Power Co., 7.875s, 2026 250 252,188
Oryx Energy Co., 10s, 2001 250 274,422
System Energy Resources, 7.38s, 2000 250 249,263
Texas & New Mexico Power Co., 12.5s, 1999 50 54,318
UtiliCorp. United, Inc., 8.45s, 1999 100 104,613
-----------
$ 2,361,212
-----------
Utilities -- Gas -- 0.7%
Louis Dreyfus Natural Gas Corp.,
9.25s, 2004 $250 $ 262,907
Transcontinental Gas Pipe Line,
7.25s, 2026 250 246,250
-----------
$ 509,157
-----------
Total Non-Convertible Bonds
(Identified Cost, $13,045,365) $12,703,391
-----------
Short-Term Obligation -- 0.3%
Ford Motor Credit Corp., due
1/2/97, at Amortized Cost $230 $ 229,955
-----------
Total Investments
(Identified Cost, $62,444,540) $68,965,272
Other Assets,
Less Liabilities -- 2.4% 1,714,906
-----------
Net Assets -- 100.0% $70,680,178
===========
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
Value Series
Stocks -- 75.0%
Issuer Shares Value
U.S. Stocks -- 66.3%
Aerospace -- 3.0%
AlliedSignal, Inc. 2,000 $134,000
B.E. Aerospace, Inc.* 11,100 301,087
Raytheon Co. 1,500 72,188
--------
$507,275
--------
Advertising -- 0.8%
Outdoor Systems, Inc. 4,550 $127,969
--------
Agricultural Products -- 1.4%
AGCO Corp. 4,500 $128,813
Case Corp. 1,800 98,100
--------
$226,913
--------
Airlines
Midwest Express Holdings, Inc. 200 $ 7,200
--------
Automotive -- 2.3%
Ford Motor Co. 4,400 $140,250
Goodrich (B.F.) Co. 3,500 141,750
Harvard Industries, Inc., "B"* 22,800 102,600
--------
$384,600
--------
Banks and Credit Companies -- 1.3%
Wells Fargo & Co. 800 $215,800
--------
Building -- 0.6%
Newport News Shipbuilding Inc. 7,100 $106,500
--------
Business Machines -- 0.8%
Sun Microsystems, Inc.* 4,900 $125,869
--------
Business Services -- 3.2%
ADT Ltd.* 15,700 $359,137
ALCO Standard Corp. 3,300 170,362
Sabre Group Holding, Inc., "A"* 100 2,788
--------
$532,287
--------
Cellular Telephones -- 0.7%
Telephone & Data Systems, Inc. 3,200 $116,000
--------
Chemicals -- 1.2%
Betzdearborn, Inc. 300 $ 17,550
Dexter Corp. 4,500 143,438
NL Industries, Inc. 3,600 39,150
--------
$200,138
--------
Computer Software -- Systems -- 2.6%
Adobe Systems, Inc. 2,600 $ 97,175
Cerner Corp. 4,800 74,400
Sybase, Inc.* 15,600 260,325
--------
$431,900
--------
Consumer Goods and Services -- 3.3%
Philip Morris Cos., Inc. 1,620 $182,452
Tyco International Ltd. 6,200 327,825
UST, Inc. 1,200 38,850
--------
$549,127
--------
Containers -- 0.3%
Stone Container Corp. 3,800 $ 56,525
--------
Defense Electronics -- 0.1%
Loral Space & Communications Corp.* 900 $ 16,538
--------
Electrical Equipment -- 0.2%
Honeywell, Inc. 200 $ 13,150
Rofin-Sinar Technologies Inc. 2,000 23,500
--------
$ 36,650
--------
Electronics -- 2.4%
Analog Devices, Inc.* 1,300 $ 44,037
Atmel Corp.* 5,400 178,875
Intel Corp. 900 117,844
46
<PAGE>
Stocks -- continued
Issuer Shares Value
U.S. Stocks -- continued
Electronics -- continued
Kulicke & Soffa Industries Inc. 1,200 $ 22,800
LTX Corp. 6,200 36,425
--------
$399,981
--------
Entertainment -- 4.6%
American Radio Systems Corp., "A"* 3,700 $100,825
Casino America, Inc. 5,200 16,575
Central European Media Enterprises Ltd. 4,500 142,875
Chancellor Broadcast Corp., "A"* 2,100 49,875
Cox Radio, Inc., "A"* 1,500 26,250
EZ Communications, Inc., "A" 2,000 73,250
Golden Bear Golf, Inc.* 300 3,375
Harrah's Entertainment, Inc.* 7,900 157,012
Harveys Casino Resorts 1,300 21,938
LIN Television Corp.* 3,400 143,650
Showboat, Inc. 1,700 29,325
Univision Communications, Inc., "A"* 100 3,700
--------
$768,650
--------
Financial Institutions -- 3.2%
Beneficial Corp. 2,500 $158,438
Federal Home Loan Mortgage Corp. 2,100 231,262
Union Planters Corp. 3,600 140,400
--------
$530,100
--------
Food and Beverage Products -- 0.9%
Earthgrains Co. 600 $ 31,350
Interstate Bakeries Corp. 2,400 117,900
--------
$149,250
--------
Forest and Paper Products -- 1.1%
Kimberly-Clark Corp. 2,000 $190,500
--------
Insurance -- 3.5%
Chubb Corp. 2,300 $123,625
Cigna Corp. 700 95,637
ITT Hartford Group, Inc. 1,900 128,250
PennCorp Financial Group, Inc. 6,400 230,400
--------
$577,912
--------
Machinery -- 0.7%
Greenfield Industries Inc. 500 $ 15,313
Stewart & Stevenson Services, Inc. 3,700 107,762
--------
$123,075
--------
Medical and Health Products -- 2.4%
Lilly (Eli) & Co. 400 $ 29,200
Pharmacia & Upjohn, Inc. 4,200 166,425
Rhone-Poulenc Rorer, Inc. 2,200 171,875
Uromed Corp. 3,400 33,150
--------
$400,650
--------
Medical and Health Technology and Services -- 2.8%
Beverly Enterprises, Inc. 1,000 $ 12,750
Pacificare Health Systems, Inc., "A"* 800 65,000
Regency Health Services, Inc. 3,500 33,687
St. Jude Medical, Inc.* 5,600 238,700
United Healthcare Corp. 2,700 121,500
--------
$471,637
--------
Oil Services -- 0.3%
Tidewater, Inc. 1,000 $ 45,250
--------
Oils -- 2.2%
Atlantic Richfield Co. 200 $ 26,500
Occidental Petroleum Corp. 5,500 128,563
Issuer Shares Value
U.S. Stocks -- continued
Oils -- continued
SEACOR Holdings, Inc. 1,200 $ 75,600
Texaco, Inc. 1,400 137,375
-----------
$ 368,038
-----------
Photographic Products -- 0.5%
Eastman Kodak Co. 1,000 $ 80,250
-----------
Printing and Publishing -- 1.7%
Gannett Co., Inc. 1,700 $ 127,287
Pulitzer Publishing Co. 2,066 95,811
Scripps (E.W.) Howard, Inc. 1,900 66,500
-----------
$ 289,598
-----------
Railroads -- 1.8%
Burlington Northern Santa Fe Railway
Co 1,600 $ 138,200
Wisconsin Central Transportation Corp.* 3,900 154,538
-----------
$ 292,738
-----------
Restaurants and Lodging -- 5.2%
FelCor Suite Hotels, Inc. 1,200 $ 42,450
Host Marriott Corp. 25,000 400,000
Prime Hospitality Corp. 12,100 195,112
Promus Hotel Corp.* 4,400 130,350
Renaissance Hotel Group N.V.* 1,300 30,550
Servico, Inc. 4,000 64,500
-----------
$ 862,962
-----------
Stores -- 2.8%
Ann Taylor Stores Corp.* 4,500 $ 78,750
Gymboree Corp.* 3,100 70,912
Rite Aid Corp. 4,300 170,925
Sears, Roebuck & Co. 2,800 129,150
Talbots, Inc. 800 22,900
-----------
$ 472,637
-----------
Supermarkets -- 1.1%
Vons Cos., Inc.* 3,200 $ 191,600
-----------
Telecommunications -- 7.1%
Cabletron Systems, Inc.* 3,700 $ 123,025
Cellular Communications International 24,200 701,800
MCI Communications Corp. 9,300 303,994
U.S. Robotics Corp.* 700 50,400
-----------
$ 1,179,219
-----------
Utilities -- Electric -- 0.2%
CMS Energy Corp. 800 $ 26,900
Illinova Corp. 400 11,000
-----------
$ 37,900
-----------
Total U.S. Stocks $11,073,238
-----------
Foreign Stocks -- 8.7%
Finland -- 0.2%
Huhtamaki OY (Conglomerates) 800 $ 37,200
-----------
France -- 0.8%
Union des Assurances Federales S.A
(Insurance) 1,100 $ 135,750
-----------
Hong Kong -- 1.2%
Cafe De Coral Holding (Electrical
Equipment) 166,000 $ 44,537
Giordano International Ltd. (Stores) 30,000 25,601
Wharf Holdings Ltd. (Real Estate) 12,000 59,891
Wing Hang Bank Ltd. (Banks and Credit
Companies) 13,500 61,269
-----------
$ 191,298
-----------
47
<PAGE>
Stocks -- continued
Issuer Shares Value
Foreign Stocks -- continued
Italy -- 0.3%
Fila Holdings S.p.A., ADR (Apparel and
Textiles) 500 $ 29,063
Olivetti Group (Office Equipment) 61,100 21,530
-----------
$ 50,593
-----------
New Zealand -- 1.9%
Lion Nathan Ltd. (Food and Beverage
Products) 19,200 $ 45,985
Liu Chong Hing Bank (Financial
Institutions) 16,000 26,687
Sky City Ltd. (Entertainment) 5,700 31,049
Tranz Rail Holdings Ltd. ADR,
(Railroads) 11,800 208,712
-----------
$ 312,433
-----------
Philippines -- 0.1%
Pilipino Telegraph & Telephone Corp.
(Telecommunications) 27,000 $ 22,877
-----------
Portugal -- 0.1%
Banco Totta e Acores (Financial
Institutions)## 800 $ 15,092
-----------
South Korea -- 1.1%
Korea Electric Power Corp., ADR
(Utilities -- Electric) 4,700 $ 96,350
Korea Mobile Telecom, ADR
(Telecommunications) 6,180 79,568
-----------
$ 175,918
-----------
Sweden -- 0.9%
Enator AB (Computer Software --
Systems) 580 $ 14,638
Enator AB (Computer Software --
Systems)* 3,500 89,619
Nobel Biocare AB (Medical and Health
Products) 2,800 49,303
-----------
$ 153,560
-----------
United Kingdom -- 2.1%
British Petroleum PLC, ADR (Oils) 1,050 $ 148,444
Jarvis Hotels PLC (Restaurants and
Lodging)*+ 27,600 76,128
Kwik-Fit Holdings PLC (Retail) 9,400 35,026
Storehouse PLC (Retail) 8,200 36,315
PowerGen PLC (Utilities -- Electric) 5,663 55,494
-----------
$ 351,407
-----------
Total Foreign Stocks $ 1,446,128
-----------
Total Stocks
(Identified Cost, $12,036,837) $12,519,366
-----------
Bonds -- 1.4%
Entertainment
Principal Amount
(000 Omitted)
Harrah's Jazz Co., 14.25s, 2001
(Identified Cost, $257,020) $ 494 $ 242,677
-----------
Equity Put Options Purchased -- 1.1%
Description/Expiration Month/Strike Price
Standard & Poor's 500 Index/
September/800 $ 2 $ 93,750
Standard & Poor's 500 Index/
September/775 2 83,513
-----------
Total Equity Put Options Purchased
(Premiums Paid, $171,447) $ 177,263
-----------
Principal Amount
Issuer (000 Omitted) Value
Short-Term Obligation -- 20.9%
Federal Home Loan Bank, due
1/02/97, at Amortized Cost 3,500 $ 3,499,490
-----------
Total Investments
(Identified Cost, $15,964,794) $16,438,796
Other Assets,
Less Liabilities -- 1.6% 261,059
-----------
Net Assets -- 100.0% $16,699,855
===========
See portfolio footnotes and notes to financial statements
48
<PAGE>
Portfolio of Investments -- December 31, 1996
World Asset Allocation Series
Stocks -- 59.2%
Issuer Shares Value
Foreign Stocks -- 43.7%
Australia -- 1.6%
Q.B.E. Insurance Group Ltd.
(Insurance) 132,245 $ 695,991
Seven Network Ltd. (Entertainment) 156,000 531,243
----------
$1,227,234
----------
Canada -- 1.3%
Canadian National Railway Co.
(Railroads) 27,000 $1,026,000
----------
Chile -- 0.4%
Chilectra S.A., ADR (Utilities --
Electric) 6,500 $ 346,125
----------
Finland -- 1.4%
Aamulehti Yhtymae OY II (Publishing) 8,500 $ 258,578
Huhtamaki OY (Conglomerates) 7,000 325,503
TT Tieto OY (Computer Software --
Systems) 5,700 481,678
----------
$1,065,759
----------
France -- 2.9%
Michelin (C.G.D.E.), "B" (Tire and
Rubber) 7,600 $ 410,482
Rhone-Poulenc Rorer, Inc. (Medical
and Health Products) 10,300 804,688
TOTAL S.A., "B" (Oils) 4,200 341,766
Union des Assurances Federales S.A
(Insurance) 5,500 678,750
----------
$2,235,686
----------
Germany -- 2.0%
Adidas AG (Apparel and Textiles) 9,300 $ 803,965
Henkel Kgaa, Preferred (Consumer
Goods and Services) 8,150 409,487
Volkswagen AG (Automotive) 825 343,191
----------
$1,556,643
----------
Greece -- 0.3%
Hellenic Telecom (Telecommunications) 14,600 $ 249,692
----------
Hong Kong -- 2.4%
Asia Satellite Telecommunications
(Telecommunications) 11,800 $ 275,825
Giordano International Ltd. (Stores) 361,000 308,068
Hong Kong Electric Holdings Ltd.
(Utilities -- Electric) 78,000 259,193
Hong Kong Land Holdings Ltd. (Real
Estate) 112,515 312,792
Peregrine Investment Holdings
(Finance) 131,000 224,431
Wing Hang Bank Ltd. (Banks and Credit
Companies) 111,000 503,763
----------
$1,884,072
----------
Indonesia -- 0.2%
Semen Gresik (Building Materials) 36,500 $ 117,493
----------
Italy -- 1.0%
Telecom Italia S.p.A
(Telecommunications) 432,000 $ 616,025
Telecom Italia S.p.A., Saving Shares
(Telecommunications) 57,000 143,978
----------
$ 760,003
----------
Issuer Shares Value
Foreign Stocks -- continued
Japan -- 8.6%
Bridgestone Corp. (Tire and Rubber) 23,000 $ 437,338
Canon, Inc. (Consumer Goods and
Services) 32,000 708,038
DDI Corp. (Telecommunications) 137 907,018
East Japan Railway Co. (Railroads) 70 315,212
Eisai Co., Ltd. (Pharmaceuticals) 14,000 275,886
Kinki Coca-Cola Bottling (Beverages) 15,000 177,615
Kirin Beverage Corp. (Beverages) 24,000 323,595
Matsushita Electric Industrial Co.
(Electrical Equipment) 18,000 294,036
Murata Manufacturing Co., Ltd.
(Electrical Equipment) 8,000 266,206
Nitto Denko Corp. (Industrials) 33,000 484,875
Omron Corp. (Electronics) 19,000 357,995
Osaka Sanso Kogyo Ltd. (Chemicals) 77,000 226,275
Takeda Chemical Industries
(Chemicals) 36,000 756,093
TDK Corp. (Special Products and
Services) 8,000 522,040
Ushio, Inc. (Electronics) 49,000 533,621
----------
$6,585,843
----------
Malaysia -- 0.5%
New Straits Times Press Berhad
(Printing and Publishing) 67,500 $ 390,297
----------
Netherlands -- 1.1%
IHC Caland NV (Transportation) 5,700 $ 325,837
Royal Dutch Petroleum Co. (Oils) 3,000 526,294
----------
$ 852,131
----------
New Zealand -- 1.4%
Lion Nathan Ltd. (Food and Beverage
Products) 66,700 $ 159,749
Liu Chong Hing Bank (Financial
Institutions) 221,000 368,619
Sky City Ltd. (Entertainment) 98,300 535,451
----------
$1,063,819
----------
Peru -- 0.4%
Telefonica del Peru S.A., ADR
(Telecommunications) 14,350 $ 270,856
----------
Philippines -- 0.5%
Alsons Cement Corp. (Construction
Services)## 498,000 $ 194,383
Pilipino Telegraph & Telephone Corp.
(Telecommunications) 242,000 205,046
----------
$ 399,429
----------
Portugal -- 0.4%
Banco Totta e Acores (Financial
Institutions)## 17,000 $ 320,697
----------
Singapore -- 0.9%
Hong Leong Finance Ltd. (Financial
Institutions)+ 5,000 $ 17,372
Mandarin Oriental International, Ltd.
(Restaurants and Lodging) 176,000 248,160
Singapore Finance (Financial
Institutions) 268,000 431,084
----------
$ 696,616
----------
49
<PAGE>
Stocks -- continued
Issuer Shares Value
Foreign Stocks -- continued
South Korea -- 1.1%
Korea Electric Power Corp. (Utilities
-- Electric) 13,500 $ 394,184
Korea Mobile Telecommunications
(Telecommunications) 450 450,588
-----------
$ 844,772
-----------
Spain -- 2.0%
Acerinox S.A. (Iron and Steel) 4,430 $ 639,923
Cubiertas y Mzov S.A. (Consumer Goods
and Services) 4,600 354,200
Repsol S.A. (Oils) 13,700 525,341
-----------
$ 1,519,464
-----------
Sweden -- 4.0%
ABB AB, "B", (Electrical Equipment) 8,200 $ 928,892
Astra AB, Free Shares, "B"
(Pharmaceuticals) 18,100 873,793
Enator AB (Computer Software --
Systems) 3,260 82,278
Enator AB (Computer Software --
Systems)* 16,300 417,366
Nobel Biocare AB (Medical and Health
Products) 11,400 200,734
Sparbanken Sverige AB (Banks) 32,000 549,376
-----------
$ 3,052,439
-----------
Switzerland -- 0.7%
Novartis AG (Pharmaceuticals)* 469 $ 537,700
-----------
Thailand -- 0.4%
Siam City Cement Co. Ltd. (Building
Materials) 13,400 $ 70,012
Total Access Communications Public
Co., Ltd. (Telecommunications) 35,000 241,500
-----------
$ 311,512
-----------
United Kingdom -- 8.0%
ASDA Group PLC (Retail) 382,000 $ 804,964
British Aerospace PLC (Aerospace) 32,700 715,957
British Petroleum PLC (Oils) 48,373 580,108
British Petroleum PLC, ADR (Oils) 1,700 240,338
Capital Radio PLC (Broadcasting) 19,200 178,611
Jarvis Hotels PLC (Restaurants and
Lodging)*+ 96,500 266,171
Kwik-Fit Holdings PLC (Retail) 117,000 435,967
Lloyds TSB Group PLC (Banks and
Credit Companies) 62,676 462,793
PowerGen PLC (Utilities -- Electric) 194,544 1,906,435
Storehouse PLC (Retail) 127,750 565,756
-----------
$ 6,157,100
-----------
Venezuela -- 0.2%
Compania Anonima Nacional Telefonos
de Venezuela, ADR
(Telecommunications)* 5,900 $ 165,937
-----------
Total Foreign Stocks $33,637,319
-----------
Issuer Shares Value
U.S. Stocks -- 15.5%
Aerospace -- 0.5%
AlliedSignal, Inc. 2,000 $134,000
Boeing Co. 1,700 180,837
Raytheon Co. 1,500 72,188
--------
$387,025
--------
Apparel and Textiles -- 0.2%
Nike, Inc., "B" 2,600 $155,350
--------
Automotive -- 0.5%
Ford Motor Co. 4,600 $146,625
Goodrich (B.F.) Co. 5,100 206,550
--------
$353,175
--------
Banks and Credit Companies -- 0.3%
Wells Fargo & Co. 800 $215,800
--------
Building -- 0.2%
Newport News Shipbuilding Inc. 8,300 $124,500
--------
Business Machines -- 0.1%
Sun Microsystems, Inc.* 4,600 $118,163
--------
Business Services -- 0.5%
ADT Ltd.* 10,200 $233,325
ALCO Standard Corp. 3,200 165,200
--------
$398,525
--------
Cellular Telephones -- 0.3%
Telephone & Data Systems, Inc. 5,400 $195,750
--------
Chemicals -- 0.3%
Betzdearborn, Inc. 600 $ 35,100
du Pont (E. I.) de Nemours & Co.,
Inc 2,100 198,188
--------
$233,288
--------
Computer Software -- Systems -- 0.9%
Adobe Systems, Inc. 800 $ 29,900
Oracle Systems Corp.* 7,400 308,950
Sybase, Inc.* 20,600 343,762
--------
$682,612
--------
Consumer Goods and Services -- 1.1%
Colgate-Palmolive Co. 1,300 $119,925
Philip Morris Cos., Inc. 2,600 292,825
Tyco International Ltd. 6,900 364,837
UST, Inc. 2,400 77,700
--------
$855,287
--------
Containers -- 0.1%
Stone Container Corp. 4,200 $ 62,475
--------
Electronics -- 0.5%
Atmel Corp.* 7,900 $261,687
Intel Corp. 900 117,844
--------
$379,531
--------
Entertainment -- 1.2%
Casino America, Inc. 1,931 $ 6,155
Chancellor Broadcast Corp., "A"* 100 2,375
Clear Channel Communications, Inc.* 3,600 130,050
Harrah's Entertainment, Inc.* 24,300 482,963
LIN Television Corp.* 6,300 266,175
Showboat, Inc. 4,100 70,725
--------
$958,443
--------
Financial Institutions -- 0.8%
Beneficial Corp. 3,300 $209,138
Federal Home Loan Mortgage Corp. 1,650 181,706
Union Planters Corp. 6,700 261,300
--------
$652,144
--------
50
<PAGE>
Issuer Shares Value
U.S. Stocks -- continued
Food and Beverage Products -- 0.5%
Interstate Bakeries Corp. 1,500 $ 73,687
PepsiCo, Inc. 9,500 277,875
--------
$351,562
--------
Forest and Paper Products -- 0.2%
Kimberly-Clark Corp. 1,400 $133,350
--------
Insurance -- 0.8%
Chubb Corp. 2,700 $145,125
Cigna Corp. 900 122,962
ITT Hartford Group, Inc. 1,600 108,000
Highlands Insurance Group, Inc. 200 4,050
PennCorp Financial Group, Inc. 7,600 273,600
--------
$653,737
--------
Leisure
Argosy Gaming Corp.* 1,900 $ 8,788
--------
Machinery -- 0.2%
Stewart & Stevenson Services, Inc. 4,800 $139,800
--------
Medical and Health Products -- 0.7%
Pharmacia & Upjohn, Inc. 14,400 $570,600
--------
Medical and Health Technology and Services -- 1.0%
Pacificare Health Systems, Inc., "B"* 1,400 $119,350
St. Jude Medical, Inc.* 11,600 494,450
United Healthcare Corp. 2,900 130,500
--------
$744,300
--------
Oil Services -- 0.2%
Tidewater, Inc. 3,200 $144,800
--------
Oils -- 0.6%
Mobil Corp. 1,300 $158,925
Occidental Petroleum Corp. 6,200 144,925
Texaco, Inc. 1,700 166,812
--------
$470,662
--------
Photographic Products -- 0.3%
Eastman Kodak Co. 2,700 $216,675
--------
Printing and Publishing -- 0.3%
Gannett Co., Inc. 1,900 $142,263
Scripps (E.W.) Howard, Inc. 1,700 59,500
--------
$201,763
--------
Railroads -- 0.5%
Burlington Northern Santa Fe Railway Co 2,300 $198,662
Wisconsin Central Transportation Corp.* 3,800 150,575
--------
$349,237
--------
Restaurants and Lodging -- 0.8%
FelCor Suite Hotels, Inc. 400 $ 14,150
Host Marriott Corp. 26,400 422,400
Promus Hotel Corp.* 7,400 219,225
--------
$655,775
--------
Stores -- 0.4%
Rite Aid Corp. 5,100 $202,725
Sears, Roebuck & Co. 2,800 129,150
--------
$331,875
--------
Supermarkets -- 0.4%
Vons Cos., Inc.* 4,900 $293,388
--------
Telecommunications -- 0.3%
Cabletron Systems, Inc.* 4,900 $162,925
Cellular Communications International 1,700 49,300
--------
$212,225
--------
Issuer Shares Value
Stocks -- continued
U.S. Stocks -- continued
Utilities -- Electric -- 0.3%
CMS Energy Corp. 2,600 $ 87,425
Illinova Corp. 6,700 184,250
--------
$271,675
--------
Utilities -- Telephone -- 0.5%
MCI Communications Corp. 12,800 $418,400
-----------
Total U.S. Stocks $11,940,680
-----------
Total Stocks
(Identified Cost, $42,313,677) $45,577,999
-----------
Bonds -- 16.8%
Principal
Amount
(000 Omitted)
Foreign Bonds -- 7.7%
Australia -- 0.9%
Commonwealth of Australia, 9.75s, 2002 AUD 650 $575,307
Commonwealth of Australia, 9.5s, 2003 150 132,763
--------
$708,070
--------
Belgium -- 0.5%
Kingdom of Belgium, 8.75s, 2002 BEF 1,495 $ 55,612
Kingdom of Belgium, 7.25s, 2004 8,910 310,288
--------
$365,900
--------
Canada -- 1.2%
Government of Canada, 7.5s, 2003 CAD 715 $564,309
Government of Canada, 7s, 2006 500 380,573
--------
$944,882
--------
Denmark -- 0.6%
Kingdom of Denmark, 6s, 1999 DKK 719 $126,925
Kingdom of Denmark, 9s, 2000 444 85,882
Kingdom of Denmark, 8s, 2001 725 136,689
Kingdom of Denmark, 7s, 2007 614 106,044
--------
$455,540
--------
France -- 0.5%
Government of France, 7s, 2000 FRF 1,649 $348,338
--------
Germany -- 1.1%
Federal Republic of Germany, 7.125s, 2002 DEM 401 $286,056
Federal Republic of Germany, 6.5s, 2005 428 291,547
Treuhandanstalt Obligationen, 6.375s, 1999 417 287,441
--------
$865,044
--------
Ireland -- 0.5%
Republic of Ireland, 6.25s, 1999 IEP 50 $ 85,201
Republic of Ireland, 8s, 2000 150 270,856
Republic of Ireland, 6.5s, 2001 10 17,218
--------
$373,275
--------
51
<PAGE>
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- continued
Italy -- 0.8%
Republic of Italy, 9.5s, 2001 ITL 825,000 $ 597,456
Republic of Italy, 9.5s, 2006 5,000 3,732
----------
$ 601,188
----------
Mexico -- 0.3%
United Mexican States, 7.563s, 2001## $ 250 $ 250,575
----------
Spain -- 0.5%
Government of Spain, 8.4s, 2001 ESP 19,610 $ 165,115
Government of Spain, 10.5s, 2003 18,330 171,515
----------
$ 336,630
----------
Sweden -- 0.3%
Kingdom of Sweden, 10.25s, 2000 SEK 1,400 $ 236,963
----------
United Kingdom -- 0.5%
United Kingdom Treasury, 7s, 2001 GBP 110 $ 186,509
United Kingdom Treasury, 9.75s, 2002 115 218,322
----------
$ 404,831
----------
Total Foreign Bonds $5,891,236
----------
U.S. Bonds -- 9.1%
Aerospace -- 0.3%
BE Aerospace, Inc., 9.875s, 2006 $250 $ 262,500
----------
Automotive -- 0.7%
Exide Corp., 10s, 2005 $250 $ 259,375
SPX Corp., 11.75s, 2002 250 279,375
----------
$ 538,750
----------
Building -- 1.0%
American Standard, Inc., 1s, 2005 $250 $ 232,500
Building Materials Corp., 1s, 2004 300 259,500
Nortek, Inc., 9.875s, 2004 250 252,500
----------
$ 744,500
----------
Chemicals -- 0.3%
NL Industries, Inc., 11.75s, 2003 $250 $ 265,000
----------
Conglomerates -- 0.3%
E & S Holdings Corp., 10.375s, 2006## $200 $ 207,500
----------
Consumer Goods and Services -- 1.6%
FoodBrands America, Inc., 10.75s, 2006 $400 $ 420,000
Revlon, Inc., 10.5s, 2003 200 210,000
Sealy Corp., 9.5s, 2003 350 353,500
Westpoint Stevens, Inc., 9.375s, 2005 250 257,500
----------
$1,241,000
----------
Containers -- 1.0%
Owens-Illinois, Inc., 11s, 2003 $200 $ 222,500
Silgan Corp., 11.75s, 2002 250 266,250
Stone Container Corp., 10.75s, 2002 250 263,437
----------
$ 752,187
----------
Principal Amount
Issuer (000 Omitted) Value
U.S. Bonds -- continued
Entertainment -- 0.3%
Cinemark USA, Inc., 9.625s, 2008 $250 $ 250,000
-----------
Machinery -- 0.3%
AGCO Corp., 8.5s, 2006 $250 $ 256,563
-----------
Medical and Health Technology and Services -- 0.3%
Tenet Healthcare Corp., 10.125s, 2005 $200 $ 221,500
-----------
Oil Services -- 0.4%
Mesa Operating Co., 10.625s, 2006 $250 $ 271,250
-----------
Oils -- 0.3%
Gulf Canada, 9.25s, 2004 $250 $ 264,375
-----------
Special Products and Services -- 0.7%
IMO Industries, Inc., 11.75s, 2006 $250 $ 232,500
Synthetic Industries, Inc., 12.75s, 2002 $250 275,625
-----------
$ 508,125
-----------
Steel -- 0.7%
Kaiser Aluminum & Chemical Corp., 9.875s, 2002 $500 $ 512,500
-----------
Stores -- 0.3%
Jitney Jungle Stores of America, Inc., 12s, 2006 $250 $ 264,375
Supermarkets -- 0.6% -----------
Grand Union Co., 12s, 2004 $250 $ 263,750
Ralph's Grocery Co., 10.45s, 2004 200 212,750
$ 476,500
-----------
Total U.S. Bonds $ 7,036,625
-----------
Total Bonds
(Identified Cost, $12,166,060) $12,927,861
-----------
Preferred Stock -- 0.3%
Shares
Entertainment
Time Warner, Inc., "K", 10.25%
(Identified Cost, $267,187) 250 $ 271,250
-----------
Warrants
Finance --
Peregrine Investment Holdings
(Identified Cost, $1,215) 9,800 $ 3,136
-----------
Short-Term Obligations -- 23.1%
Federal Home Loan Bank, due 1/02/97 3,475 $ 3,474,493
Federal Home Loan Mortgage Corp.,
due 1/03/97-1/07/97 9,670 9,663,074
Federal National Mortgage Assn.,
due 1/14/97 4,650 4,640,765
-----------
Total Short-Term Obligations, at
Amortized Cost $17,778,332
-----------
52
<PAGE>
Call Options Purchased
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
Italian Lire/Deutsche Marks January/995 ITL 373,127 $ 1,866
Japanese Government Bonds January/104.076 JPY 35,000 2,800
February/116.8 32,000 2,336
March/114.25 33,000 1,320
March/115.106 32,000 1,568
-----------
Total Call Options
Purchased (Premiums Paid, $13,566) $ 9,890
-----------
Total Investments
(Identified Cost, $72,540,037) $ 76,568,468
-----------
Put Options Written
Japanese Government Bonds
January/104.076 JPY 35,000 $ (1,085)
February/116.8 32,000 (1,120)
March/114.25 33,000 (5,148)
March/115.106 32,000 (5,184)
-----------
Total Put Options Written
(Premiums Received, $12,640) $ (12,537)
-----------
Other Assets,
Less Liabilities -- 0.6% $ 459,854
-----------
Net Assets -- 100.0% $ 77,015,785
============
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1996
World Governments Series
Bonds -- 96.6%
Bonds -- continued
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- 78.2%
Australia -- 6.3%
Commonwealth of Australia,
8.75s, 2001 AUD 3,985 $ 3,370,489
Commonwealth of Australia,
9.75s, 2002 6,350 5,620,303
-----------
$ 8,990,792
-----------
Belgium -- 2.8%
Kingdom of Belgium, 9s, 1998 BEF 35,000 $ 1,197,897
Kingdom of Belgium, 8.75s, 2002 25,000 929,972
Kingdom of Belgium, 7.25s, 2004 30,000 1,044,741
Kingdom of Belgium, 8.5s, 2007 20,000 751,986
-----------
$ 3,924,596
-----------
Canada -- 3.2%
Government of Canada, 9s, 2004 CAD 5,300 $ 4,538,050
-----------
Denmark -- 5.1%
Kingdom of Denmark, 6s, 1999 DKK 8,313 $ 1,467,498
Kingdom of Denmark, 8s, 2001 27,332 5,153,093
Kingdom of Denmark, 7s, 2007 4,038 697,401
-----------
$ 7,317,992
-----------
Germany -- 12.9%
Federal Republic of Germany,
6.875s, 1999 DEM 5,350 $ 3,708,661
Federal Republic of Germany,
7.125s, 2002 6,143 4,382,153
German Unity Fund, 8.75s, 2000 1,334 990,637
Treuhandanstalt Obligationen,
6.375s, 1999 13,288 9,159,522
-----------
$18,240,973
-----------
Ireland -- 9.3%
Republic of Ireland, 6.25s, 1999 IEP 3,800 $ 6,475,279
Republic of Ireland, 9.25s, 2003 3,400 6,671,796
-----------
$13,147,075
-----------
Italy -- 10.7%
Republic of Italy, 8.313s, 1999 ITL 8,275,000 $ 5,780,645
Republic of Italy, 8.313s, 1999 2,595,000 1,823,209
Republic of Italy, 8.313s, 2006 10,095,000 7,536,093
-----------
$15,139,947
-----------
Japan -- 10.1%
Export Import Bank of Japan,
4.375s, 2003 JPY 710,000 $ 6,915,903
International Bank of
Reconstruction &
Development, 4.5s, 2000 481,000 4,620,843
53
<PAGE>
Foreign Bonds -- continued
Japan -- continued
International Bank of
Recontruction &
Developement, 5.25s, 2002 JPY 270,000 $ 2,731,504
------------
$14,268,250
------------
New Zealand -- 2.7%
Government of New Zealand,
8s, 2004 NZD 5,200 $ 3,829,937
------------
Spain -- 7.2%
Government of Spain, 8.4s, 2001 ESP 9,600 $ 80,832
Government of Spain, 10.1s, 2001 650,000 5,760,260
Government of Spain, 7.9s, 2002 526,700 4,332,185
------------
$10,173,277
------------
Sweden -- 3.0%
Kingdom of Sweden, 11s, 1999 SEK 16,000 $ 2,636,302
Kingdom of Sweden, 10.25s, 2000 9,600 1,624,886
------------
$ 4,261,188
------------
United Kingdom -- 4.9%
United Kingdom Treasury, 9s, 2000 GBP 1,900 $ 3,425,972
United Kingdom Treasury,
9.75s, 2002 1,900 3,607,052
------------
$ 7,033,024
------------
Total Foreign Bonds $110,865,101
------------
U.S. Bonds -- 18.4%
U.S. Treasury Notes, 6.625s, 2001 $ 12,200 $ 12,394,468
U.S. Treasury Notes, 6.25s, 2003 13,700 13,682,875
------------
Total U.S. Bonds $ 26,077,343
Total Bonds
(Identified Cost, $136,113,933) $136,942,444
------------
Short Term Obligation -- 0.8%
Federal Home Loan Bank, due
1/02/97, at Amortized Cost $ 1,155 $ 1,154,832
------------
Call Options Purchased
Principal
Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
Italian Lire/Deutsche Marks
January/995
(Premium Paid, $18,078) ITL 7,284,975 $ 36,425
------------
Put Options Purchased -- continued
Put Options Purchased -- 2.1%
Deutsche Marks/British Pounds
January/2.45 DEM 19,370 $ 931,710
January/2.56 20,240 385,470
January/2.51 19,845 623,540
Swiss Francs/Deutsche Marks
January/0.829 CHF 7,578 271,658
February/0.84 7,678 196,337
February/0.84 12,984 331,776
Put Options Purchased-continued
Principal
Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
March/0.86 CHF 21,155 $ 229,571
---------------
Total Put Options Purchased
(Premiums Paid, $658,940) $ 2,970,062
---------------
Total Investments
(Identified Cost, $137,945,784) $ 141,103,763
---------------
Call Options Written
Deutsche Marks/British Pounds
January/2.3682 DEM 18,724 $ --
Swiss Francs/Deutsche Marks
February/0.8265 CHF 12,776 (77)
---------------
Total Call Options Written
(Premiums Received, $110,515) $ (77)
---------------
Put Options Written -- (1.6)%
Deutsche Marks/British Pounds
January/2.45 DEM 19,370 $ (927,874)
January/2.5105 19,849 (621,043)
Swiss Francs/Deutsche Marks
January/0.829 CHF 7,578 (271,848)
February/0.84 20,663 (528,346)
---------------
Total Put Options Written
(Premiums Received, $957,278) $ (2,349,111)
---------------
Other Assets,
Less Liabilities -- 2.1% $ 3,009,857
---------------
Net Assets -- 100.0% $ 141,764,432
===============
See portfolio footnotes and notes to financial statements
54
<PAGE>
Portfolio of Investments -- December 31, 1996
World Growth Series
Stocks -- 92.4%
Stocks -- continued
Issuer Shares Value
Foreign Stocks -- 58.4%
Argentina -- 0.7%
Banco de Galicia y Buenos Aires S.A. de
C.V., ADR (Banks and Credit Cos.) 10,822 $ 262,433
Mirgor Sacifia, ADR (Auto Parts)*## 46,000 89,700
Perez Companc S.A. (Oils) 31,215 219,485
Siderar S.A.I.C. (Steel)* 7,200 167,400
Telefonica de Argentina, ADR (Utilities
-- Telephone) 7,700 199,238
YPF Sociedad Anonima, ADR (Oils) 17,120 432,280
----------
$1,370,536
----------
Australia -- 0.4%
Q.B.E. Insurance Group Ltd. (Insurance) 157,000 $ 826,274
----------
Brazil -- 3.4%
Centrais Eletricas Brasile, ADR
(Utilities -- Electric) 41,600 $ 769,598
Cia Siderurgica de Tubarao (Steel) 10,146 181,358
Companhia Energetica S.A., ADR
(Utilities -- Electric) 10,400 348,398
Companhia Vale do Rio Doce, Preferred
(Iron and Steel) 19,400 371,023
Itausa Investimentos Itau S.A
(Conglomerate) 600,000 450,474
Petroleo Brasileiro S.A., Preferred
(Oils) 8,500,000 1,354,074
Refrigeracao Parana S.A., ADR (Home
Appliances) 31,000 348,748
Rhodia-Ster S.A., GDR (Chemicals)## 24,300 69,861
Telecomunicacoes Brasileiras S.A., ADR
(Telecommunications) 31,850 2,444,486
Usinas Siderurgicas de Minas Gerais
S.A., ADR (Steel)## 48,400 494,888
----------
$6,832,908
----------
Canada -- 0.9%
BioChem Pharma, Inc. (Biotechnology)* 15,900 $ 798,975
Canadian National Railway Co.
(Railroads) 18,810 714,780
Loewen Group, Inc. (Business
Services)## 6,900 269,394
----------
$1,783,149
----------
Chile -- 0.2%
Chilectra S.A., ADR (Utilities-
Electric) 7,690 $ 409,493
----------
China -- 0.4%
Huaneng Power International, Inc., ADR
(Utilities -- Electric) * 10,000 $ 225,000
Qingling Motors Co., "H" (Automotive)* 368,000 203,413
Shanghai Petrochemical Co. Ltd.
(Chemicals)* 646,000 196,289
Yizheng Chemical Fibre Co. Ltd.
(Textiles) 552,000 134,182
----------
$ 758,884
----------
Colombia -- 0.5%
Banco Ganadero S.A., ADR (Financial
Institutions) 8,800 $ 232,100
Foreign Stocks -- continued
Colombia -- continued
Banco Industrial Colombiano, ADR (Banks
and Credit Cos.) 22,900 $ 475,175
Cementos Diamante S.A., ADR
(Construction)## 26,800 335,000
----------
$1,042,275
----------
Denmark -- 0.4%
ISS International Service System, "B"
(Commercial Services) 29,300 $ 771,249
----------
Egypt -- 0.2%
Suez Cement Co. S A E, GDR (Building
Materials)## 26,000 $ 405,600
----------
Finland -- 0.7%
Huhtamaki Oy (Conglomerates) 28,400 $1,320,615
TT Tieto Oy (Computer Software --
Systems) 2,100 177,460
----------
$1,498,075
----------
France -- 2.3%
Assurance General de France
(Insurance)## 14,100 $ 455,407
Michelin (C.G.D.E.), "B" (Tire and
Rubber) 8,500 459,090
Rhone-Poulenc Rorer, Inc.
(Pharmaceuticals) 4,600 359,374
Rhone Poulenc SA (Pharmaceuticals) 27,870 950,673
Societe Nationale Elf Aquitaine (Oils) 9,900 901,612
TOTAL S.A., "B" (Oils) 10,500 854,413
Union des Assurances Federales S.A
(Insurance) 5,300 654,067
----------
$4,634,636
----------
Germany -- 2.8%
Adidas AG (Apparel and Textiles) 14,138 $1,222,195
Henkel Kgaa, Preferred (Consumer Goods
and Services) 26,870 1,350,044
Hoechst AG (Chemicals) 10,822 511,376
SAP AG, Preferred (Computer Software --
Systems) 12,600 1,760,801
SAP AG, ADR (Computer Software --
Systems)## 7,900 364,387
Volkswagen AG (Automotive) 1,054 438,453
----------
$5,647,256
----------
Greece -- 0.3%
Hellenic Telecom (Telecommunications) 18,200 $ 311,260
Papastratos Cigarettes S.A. (Tobacco
Products) 18,500 339,284
----------
$ 650,544
----------
Hong Kong -- 4.9%
Asia Satellite Telecommunications
Holdings Ltd., ADR
(Telecommunications) 352,500 $ 818,124
Bank of East Asia Ltd. (Banks and Credit Cos.) 72,480 322,382
Cheung Kong Holdings Ltd. (Real Estate) 68,000 604,473
Citic Pacific Ltd. (Conglomerate) 56,000 325,109
Dah Sing Financial Group (Banks) 189,600 769,774
Giordano International Ltd. (Stores) 398,000 339,642
55
<PAGE>
Stocks -- continued
Issuer Shares Value
Foreign Stocks -- continued
Hong Kong -- continued
Great Eagle Holdings (Real Estate) 221,000 $ 911,544
Hong Kong Electric Holdings Ltd.
(Utilities -- Electric) 258,000 857,330
Hysan Development (Real Estate) 210,000 836,306
Li & Fung Ltd. (Toys) 141,000 124,883
Liu Chong Hing Bank (Finance) 283,000 472,032
New World Development Co. (Real Estate) 77,000 520,202
Nu Skin Asia Pacific, Inc. (Consumer Goods) 500 15,436
Peregrine Investment Holdings (Finance) 63,000 107,931
Swire Pacific Air Ltd., "A"
(Transportation) 51,000 486,326
Wharf Holdings Ltd. (Real Estate) 401,000 2,001,369
Wing Hang Bank Ltd. (Banks and Credit
Companies) 70,000 317,687
Zhenhai Refining and Chemical Co., Ltd.,
"H" (Oils) 240,000 88,440
----------
$9,918,990
----------
India -- 1.9%
Bajaj Auto Ltd., GDR (Automotive)* 20,000 $ 665,000
East India Hotels (Lodging) 13,000 305,500
India Gateway Fund Ltd. (Finance)+ 34,925 157,162
India Gateway Fund Ltd., Warrants
(Finance)+ 4,000 --
Industrial Credit & Investment Corp. of
India Ltd. (Financial Institutions) 58,000 565,500
ITC Ltd. (Conglomerate) 90,000 933,750
State Bank of India, GDR (Banks and
Credit Cos.) 39,000 677,430
Tata Engineering & Locomotive Co. Ltd.
(Autos and Trucks) 56,000 595,000
----------
$3,899,342
----------
Indonesia -- 0.5%
Bank International Indonesia (Finance) 176,390$ 173,700
Indocement Tunggal Prakar (Retail) 117,000 178,399
Mayora Indah (Food Processing) 99,000 46,125
PT Gudang Garam (Tobacco) 64,000 276,493
PT Indofoods Suksesi Makmur (Food
Processing)* 65,000 129,394
Semen Gresik (Building Materials) 64,500 207,624
----------
$1,011,735
----------
Ireland -- 0.4%
Allied Irish Banks (Banks and Credit
Companies) 117,200$ 787,085
----------
Israel -- 0.1%
Koor Industries Ltd., ADR (Conglomerate) 4,600$ 78,200
Teva Pharmaceutical Industries Ltd., ADR
(Pharmaceuticals) 1,700 85,425
----------
$ 163,625
----------
Italy -- 1.6%
Fila Holdings S.p.A., ADR (Apparel and
Textiles) 9,700 $ 563,812
Issuer Shares Value
Foreign Stocks -- continued
Italy -- continued
Gucci Group Designs N.V
(Retail--Apparel)* 11,000 $ 702,625
Industrie Natuzzi S.p.A., ADR
(Furniture) 17,600 404,800
Instituto Nazionale delle Assicurazioni
(Insurance) 270,200 351,665
Telecom Italia S.p.A
(Telecommunications) 829,000 1,182,141
----------
$3,205,043
----------
Japan -- 8.6%
Bank of Tokyo Mits (Banks and Credit
Companies) 40,000 $ 743,302
Bridgestone Corp. (Tire and Rubber) 47,000 893,689
Canon, Inc. (Consumer Goods and
Services) 63,000 1,393,948
Daikin Industries (Special Products) 81,000 721,087
DDI Corp. (Telecommunications) 150 993,084
East Japan Railway Co. (Railroads) 164 738,494
Hirose Electric (Utilities Electric) 6,600 382,763
Jusco Company (Consumer Goods) 26,000 883,144
Keyence Corp. (Electronics) 6,700 828,088
Kinki Coca-Cola Bottling (Beverages) 33,000 390,750
Kirin Beverage Corp. (Beverages) 53,000 714,605
Matsushita Electric Industrial Co.
(Electrical Equipment) 50,000 816,765
Mitsubishi Heavy Industries Ltd.
(Aerospace/Defense) 105,000 834,916
Nippon Telephone & Telegraph Co.
(Telecommunications) 29 220,066
Nitto Denko Corp. (Industrials) 54,000 793,430
Omron Corp., (Electronics) 47,000 885,564
Osaka Sanso Kogyo Ltd. (Chemicals) 107,000 314,432
Rohm Co. (Electronics) 8,000 525,495
Secom Co. (Electronics) 14,000 848,225
Sony Corp. (Electronics) 14,100 924,970
Takeda Chemical Industries (Chemicals) 47,000 987,121
TDK Corp. (Special Products and
Services) 14,000 913,568
Ushio, Inc. (Electronics) 75,000 816,767
----------
$17,564,273
----------
Malaysia -- 1.7%
DCB Holdings Berhad (Finance) 129,000 $ 441,921
Genting Berhad (Entertainment) 111,200 766,289
Malayan Banking Berhad (Finance) 12,000 133,069
Petronas Gas Berhad (Oil and Gas)## 57,000 237,030
Rothmans of Pall Mall (Tobacco Products) 24,000 251,881
Sime Darby Berhad (Holding Company) 180,000 709,307
Sungei Way Holdings Berhad (Diversified
Operations) 42,000 124,752
Tenaga Nasional Berhad (Utilities --
Electric) 120,000 575,050
56
<PAGE>
Stocks -- continued
Issuer Shares Value
Foreign Stocks -- continued
Malaysia -- continued
United Engineers Berhad (Construction
and Engineering) 27,000 $ 243,802
----------
$3,483,101
----------
Mexico -- 2.4%
Cemex S.A., "B" (Construction) 105,687 $ 380,762
Cifra S.A. de C.V. (Retail) 152,300 185,802
Control Common Mex (Retail) 242,000 224,500
Corporacion GEO S.A. de C.V. (Home
Builders)## 24,500 495,928
Desc S.A. de C.V. (Conglomerate) 19,000 103,824
Empresas ICA Sociedad Controladora S.A.,
ADR (Engineering/Construction)* 20,000 292,499
Fomento Economico Mexicano S.A., "B"
(Brewery) 148,400 509,186
Gruma S.A.,"B" (Food)* 68,000 414,791
Grupo Carso S.A. de C.V. (Conglomerate) 49,700 118,107
Grupo Carso, "A1" (Conglomerate)* 78,700 417,052
Grupo Financiero Banamex (Finance)## 8,255 16,259
Grupo Financiero Banamex, "B" (Finance) 101,300 213,953
Grupo Financiero Inbursa S.A. de C.V
(Finance) 1,734 5,927
Kimberly-Clark de Mexico S.A. de C.V
(Forest and Paper Products) 22,000 434,742
Telefonos de Mexico S.A. (Utilities --
Telephone) 438,460 723,242
Tubos de Acero de Mexico S.A. (Steel)* 23,500 373,061
----------
$4,909,635
----------
Netherlands -- 0.8%
IHC Caland NV (Transportation) 7,220 $ 412,727
Royal Dutch Petroleum Co. (Oils) 4,800 842,071
Stork N.V. (Machinery) 10,800 380,933
----------
$1,635,731
----------
New Zealand -- 0.1%
Lion Nathan Ltd. (Food and Beverage
Products) 62,700 $ 150,169
----------
Norway -- 0.2%
Orkla Asa (Food Products) 6,385 $ 440,939
----------
Pakistan -- 0.5%
Hub Power Co. Ltd., GDR (Utilities --
Electric)* 33,800 $ 667,550
Pakistan Telecommunications Corp., GDR
(Utilities -- Telephone)* 7,290 437,400
----------
$1,104,950
----------
Peru -- 1.2%
Compania de Minas Buenaventura S.A
(Mining) 60,000 $ 438,125
CPT Telefonica del Peru S.A., "B"
(Utilities -- Telephone) 332,374 620,806
Credicorp Ltd. (Holding Company)* 26,446 489,251
Minsur S.A. (Metals) 22,165 77,092
Telefonica del Peru S.A., ADR
(Telecommunications) 38,000 717,250
----------
$2,342,524
----------
Foreign Stocks -- continued
Philippines -- 0.2%
Alsons Cement Corp. (Construction
Services)## 969,100 $ 378,266
----------
Poland -- 0.9%
Bank Rozwoju Eksportu S.A. (Banks and
Credit Cos.) 12,000 $ 359,582
Bank Slaski S.A. w Katowicach (Banks and
Credit Cos.) 3,800 386,620
Bydgoska Fabryka Kabli S.A. (Electrical
Equipment) 57,500 350,610
Elektrim Spolka Akcyjna S.A. (Electrical
Equipment) 49,500 448,432
Stomil Olsztyn S.A. (Tires and Rubber)* 27,000 348,084
----------
$1,893,328
----------
Portugal -- 1.4%
Banco Espirito Santo e Comercial de
Lisboa S.A. (Banks and Credit Cos.) 12,586 $ 221,514
Banco Totta e Acores (Financial
Institutions)## 41,500 782,878
Cimentos de Portugal S.A. (Building
Materials) 12,746 274,491
Engil SGPS (Engineering and
Construction) 9,079 104,379
Jeronimo Martins & Filho S.A. (Retail) 1,640 84,613
Portugal Telecom S.A
(Telecommunications) 16,200 457,650
Portugal Telecom S.A
(Telecommunications) 22,710 647,601
Sonae Investimentos-Sociedade Gestora de
Participacoes Sociais, S.A. (Retail) 2,400 76,026
Telecel -- Comunicacaoes Pessoais S.A
(Cellular Telecommunications) 2,250 143,710
----------
$2,792,862
----------
Russia -- 0.6%
Irkutskenergo (Utilities -- Electric) 4 $114,000
Lukoil Oil Co., ADR (Oil and Gas) 10,600 482,300
Mosenergo, ADR (Utilities --
Electric)## 12,000 363,600
Rostelecom, RDC (Telecommunications) 7 168,000
----------
$1,127,900
----------
Singapore -- 0.7%
City Developments Ltd. (Real Estate) 110,000 $ 990,849
Hong Leong Finance Ltd. (Financial
Institutions)+ 51,000 177,195
Mandarin Oriental International, Ltd.
(Restaurants and Lodging) 218,000 307,380
----------
$1,475,424
----------
South Africa -- 0.6%
Anglo American Corp. of South Africa
Ltd. (Mining) 4,000 $ 220,274
De Beers Centenary AG (Diamonds --
Precious Stones) 7,500 214,927
Iscor Ltd. (Steel) 183,984 131,417
Liberty Life Association of Africa Ltd.
(Insurance) 12,633 316,771
57
<PAGE>
Foreign Stocks -- continued
South Africa -- continued
Sasol Ltd. (Oils) 20,000 $ 237,382
South African Breweries Ltd. (Brewery) 7,500 190,066
----------
$ 1,310,837
----------
South Korea -- 1.2%
Korea Electric Power Corp. (Utilities --
Electric) 1,000 $ 29,199
Korea Electric Power Corp., ADR
(Utilities -- Electric) 26,500 543,250
Korea Mobile Telecom, ADR
(Telecommunications) 96,099 1,237,275
New Korea Trust (Finance) 39,000 399,750
Samsung Display Devices Co. (Electrical
Equipment) 2,330 133,577
Samsung Electronics Co.
(Electronics)## 4,887 88,455
Samsung Electronics Co.
(Electronics)## 1,472 23,552
Samsung Electronics Co.
(Electronics)## 65 2,340
Samsung Electronics Co.
(Electronics)## 216 8,802
----------
$ 2,466,200
----------
Spain -- 1.5%
Cubiertas y Mzov S.A. (Consumer Goods
and Services) 8,700 $ 669,901
Telefonica de Espana (Utilities --
Telephone) 20,500 475,918
Acerinox S.A. (Iron and Steel) 6,947 1,003,509
Repsol S.A. (Oils) 24,900 954,816
----------
$ 3,104,144
----------
Sweden -- 2.3%
ABB AB, "B" (Electrical Equipment) 11,096 $ 1,256,947
Astra AB (Pharmaceuticals) 18,100 895,037
Astra AB, Free Shares, "B"
(Pharmaceuticals) 2,038 98,383
Enator AB (Computer Software -- Systems) 400 10,093
Enator AB (Computer Software --
Systems)* 34,500 883,380
Nobel Biocare AB (Medical and Health
Products) 39,400 693,761
Sparbanken Sverige AB (Banks) 46,200 793,159
----------
$ 4,630,760
----------
Switzerland -- 1.0%
Logitech International (Computer
Software) 2,800 $ 398,655
Nestle AG, Registered Shares (Food and
Beverage Products) 395 424,226
Novartis AG (Pharmaceuticals)* 1,087 1,244,962
----------
$2,067,843
----------
Taiwan -- 0.7%
Taipei Fund (Financial Services)* 147 $1,323,000
Yageo Corp. (Electronics)* 10,749 104,803
----------
$1,427,803
----------
Thailand -- 0.7%
Phatra Thanakit Co. (Finance) 9,300 $ 26,471
Siam Cement Public Co. Ltd. (Building
Materials) 1,800 56,428
Foreign Stocks -- continued
Thailand -- continued
Siam City Cement Co. Ltd. (Building
Materials) 50,000 $ 261,239
TelecomAsia Corp. Ltd. (Utilities --
Telephone)* 115,000 239,891
Thai Euro Fund (Finance)+ 27,000 803,790
----------
$ 1,387,819
----------
Turkey -- 0.4%
Alarko Holding A.S. (Diversified Holding
Company) 358,800 $ 57,150
Altinyildiz Men (Apparel and Textiles) 712,800 97,080
Ege Biracilik ve Malt Sanayii A.S
(Beverages) 287,150 61,646
Eregli Demir Celik (Manufacturing --
Metals) 676,900 81,253
Kaplamin Ambalaj (Forest and Paper
Products) 417,000 42,355
Migros Turk (Retail) 211,080 258,246
Netas Telekomunik (Telecommunications) 323,000 73,070
Turkiye Garanti Bankasi (Finance) 1,800,000 81,440
Yapi ve Kredi Bankasi (Finance) 4,030,000 100,471
----------
$ 852,711
----------
United Kingdom -- 7.4%
ASDA Group PLC (Retail) 447,500 $ 942,985
British Aerospace PLC (Aerospace) 65,080 1,424,904
British Petroleum PLC (Oils) 76,650 919,215
Capital Radio PLC (Broadcasting) 40,330 375,175
Danka Business Systems, ADR (Business
Services) 23,400 827,773
Dr. Solomons Group PLC (Computer
Software -- Systems) 23,900 409,286
Inchcape PLC (Commercial Services) 86,300 400,669
Jarvis Hotels PLC (Restaurants and
Lodging)*+ 477,600 1,317,338
Kwik-Fit Holdings PLC (Retail) 338,400 1,260,946
Lloyds TSB Group PLC (Banks and Credit
Companies) 104,757 773,512
Pace Micro Technology (Electronics) 507,100 1,998,154
PowerGen PLC (Utilities -- Electric) 153,400 1,503,241
Reuters Holdings, PLC, ADR (Broadcast
Media) 11,100 849,148
Smith (W.H.) Group PLC (Retail) 55,300 405,485
Storehouse PLC (Retail) 270,100 1,196,168
Wimpey (George) PLC (Construction) 198,100 424,229
-----------
$ 15,028,228
-----------
Venezuela -- 0.7%
Compania Anonima Nacional Telefonos de
Venezuela, ADR (Telecommunications)* 48,900 $ 1,375,313
------------
Total Foreign Stocks
(Identified Cost, $113,644,249) $118,567,459
------------
U.S. Stocks -- 34.0%
Apparel and Textiles -- 0.1%
Nine West Group, Inc.* 2,400 $ 111,300
Automotive -- 0.1% ----------
APS Holding Corp., "A"* 12,300 $ 190,650
----------
58
<PAGE>
Stocks -- continued
U.S. Stocks -- continued
Business Machines -- 1.1%
Affiliated Computer Services, Inc., "A"* 40,800 $ 1,213,800
Sun Microsystems, Inc.* 40,000 1,027,500
-----------
$ 2,241,300
-----------
Business Services -- 5.2%
AccuStaff, Inc.* 11,900 $ 251,387
ADT Ltd.* 35,100 802,912
ALCO Standard Corp. 5,100 263,286
Computer Sciences Corp.* 10,700 878,735
CUC International, Inc.* 52,700 1,251,623
DST Systems, Inc.* 26,100 818,886
Employee Solutions, Inc.* 27,600 565,799
Equity Corp. International* 2,700 54,000
Forrester Research, Inc. 300 7,724
International Network Services* 200 6,037
Learning Tree International, Inc.* 65,850 1,942,573
Loewen Group, Inc. 4,000 156,498
Sabre Group Holding, Inc., "A"* 4,200 117,074
Superior Consultant, Inc. 1,000 24,749
Technology Solutions Co.* 81,900 3,398,848
Thermo Fibergen Incorporated 7,900 82,949
-----------
$10,623,080
-----------
Chemicals -- 0.1%
Betzdearborn, Inc. 3,000 $ 175,500
Computer Software -- Personal Computers -- 0.7% ----------
Autodesk, Inc. 300 $ 8,400
First Data Corp. 31,802 1,160,773
Microsoft Corp.* 3,800 313,975
-----------
$ 1,483,148
-----------
Computer Software -- Systems -- 8.7%
Adobe Systems, Inc. 2,400 $ 89,698
BMC Software, Inc.* 85,400 3,533,419
Cadence Design Systems, Inc.* 97,150 3,861,706
Computer Associates International, Inc. 58,500 2,910,373
Compuware Corp.* 20,500 1,027,560
Information Management Resources, Inc. 500 10,561
Ingram Micro, Inc. 1,500 34,498
Oracle Systems Corp.* 102,250 4,268,931
Parametric Technology Corp.* 16,400 842,548
Sybase, Inc.* 19,800 330,411
Synopsys, Inc.* 4,400 203,498
USCS International, Inc.* 7,800 131,623
Viasoft, Inc.* 5,700 269,323
Xionics Document Technologies* 16,400 204,998
-----------
$17,719,147
-----------
Construction Services -- 0.4%
Shaw Group, Inc. 35,000 $ 818,125
Consumer Goods and Services -- 0.9% ----------
Carson, Inc. 37,100 $ 514,763
Service Corp. International 3,000 84,000
Tyco International Ltd. 24,300 1,284,862
----------
$ 1,883,625
-----------
Electronics -- 2.8%
Actel Corp. 7,800 $ 185,250
Altera Corp.* 16,000 1,163,000
Analog Devices, Inc.* 18,500 626,687
Atmel Corp.* 10,300 341,188
Intel Corp. 4,600 602,313
U.S. Stocks -- continued
Electronics -- continued
Lattice Semiconductor Corp. 10,600 $ 487,600
Linear Technology Corp. 12,700 557,212
LSI Logic Corp.* 11,000 294,250
Teradyne, Inc. 24,400 594,750
Ultratech Stepper, Inc. 5,400 128,250
VLSI Technology, Inc.* 16,500 393,938
Xilinx, Inc.* 6,100 224,556
-----------
$ 5,598,994
-----------
Entertainment -- 1.3%
Cox Radio, Inc., "A"* 22,800 $ 399,000
Harrah's Entertainment, Inc.* 42,700 848,663
Hollywood Entertainment Corp. 23,800 440,300
International Speedway Corp. 500 10,250
Jacor Communications, Inc., "A"* 3,000 82,125
LIN Television Corp.* 13,700 578,825
Sinclair Broadcast Group, Inc. 3,300 85,800
Univision Communications, Inc., "A"* 5,300 196,100
-----------
$2,641,063
----------
Financial Institutions -- 0.3%
Associates First Capital Corp., "A" 1,800 $ 79,425
Dean Witter Discover & Co., Inc. 3,100 205,375
Franklin ReSources, Inc. 2,200 150,425
MBNA Corp. 4,200 174,300
----------
$ 609,525
----------
Food and Beverage Products -- 0.1%
Earthgrains Co. 4,900 $ 256,025
Machinery -- 0.1% ----------
S I Handling Systems, Inc. 10,000 $ 150,625
Medical and Health Products -- 0.5% ----------
Pharmacia & Upjohn, Inc. 21,700 $ 859,863
Ventritex, Inc.* 4,200 103,425
-----------
$ 963,288
----------
Medical and Health Technology
and Services -- 1.7%
Columbia Healthcare Corp. 150 $ 6,113
Foundation Health Corp. 200 6,350
HealthSource, Inc.* 8,900 116,813
HealthSouth Corp.* 29,100 1,123,987
Pacificare Health Systems, Inc., "B"* 4,100 349,525
St. Jude Medical, Inc.* 3,700 157,712
United Healthcare Corp. 37,400 1,683,000
-----------
$3,443,500
----------
Oil Services
National Oilwell, Inc. 500 $ 15,375
Offshore Energy Development Corp. 100 1,525
-----------
$ 16,900
----------
Oils -- 0.1%
Barrett Resouces Corp.* 5,200 $ 221,650
Titan Exploration, Inc.* 2,000 24,000
-----------
$ 245,650
----------
Pollution Control -- 0.3%
Republic Industries, Inc. 300 $ 9,356
USA Waste Services, Inc.* 19,730 628,894
-----------
$ 638,250
----------
Printing and Publishing
Pulitzer Publishing Co. 1 $ 46
----------
59
<PAGE>
Stocks -- continued
U.S. Stocks -- continued
Railroads -- 0.3%
Kansas City Southern Industries, Inc. 4,900 $ 220,500
Wisconsin Central Transportation Corp.* 6,800 269,450
----------
$ 489,950
------------
Restaurants and Lodging -- 3.5%
Applebee's International, Inc. 17,500 $ 481,250
HFS, Inc.* 86,600 5,174,350
Promus Hotel Corp.* 31,300 927,262
Renaissance Hotel Group N.V.* 25,400 596,900
United States Franchise Services, Inc. 500 5,063
----------
$ 7,184,825
------------
Stores -- 1.1%
BT Office Products International, Inc. 6,000 $ 53,250
Corporate Express, Inc.* 19,400 571,087
General Nutrition Cos., Inc.* 19,500 329,062
Linens N Things, Inc.* 3,100 60,838
Mazel Stores, Inc. 300 6,750
Micro Warehouse, Inc.* 2,800 32,900
Office Depot, Inc.* 16,200 287,550
Staples, Inc.* 50,600 913,963
------------
$ 2,255,400
------------
Technology
Spectrum Holobyte, Inc.* 5,900 $ 44,250
Telecommunications -- 4.2% ----------
Bay Networks, Inc.* 300 $ 6,261
Cabletron Systems, Inc.* 31,000 1,030,748
Cisco Systems, Inc.* 45,900 2,920,385
Glenayre Technologies, Inc.* 34,100 735,279
Hertiage Media Corp. 15,800 177,748
International Business Communications
Systems, Inc.*+ 12,600 124,990
Lucent Technologies, Inc. 8,000 369,998
Tel-Save Holdings, Inc.* 300 8,698
3Com Corp.* 16,100 1,181,336
WorldCom, Inc.* 72,200 1,881,710
------------
$ 8,437,153
------------
Transportation -- 0.2%
Transaction System Architects, Inc.* 10,900 $ 362,425
------------
Utilities -- Telephone -- 0.2%
MCI Communications Corp. 14,650 $ 478,872
------------
Total U.S. Stocks $ 69,062,616
------------
Total Stocks
(Identified Cost, $168,069,375) $187,630,075
------------
Rights
Jeronimo Martins 1,640 $ 28,039
Thermo Fibergen, Inc. 7,900 19,750
------------
Total Rights
(Identified Cost, $15,589) $ 47,789
------------
Warrants -- 0.8%
Intel Corp. 17,000 $ 1,568,523
Sungei Way Holdings Berhad 4,200 4,449
Thai Farmers Bank 1,588 1,254
------------
Total Warrants
(Identified Cost, $996,000) $ 1,574,226
------------
Principal Amount
Issuer (000 Omitted) Value
Convertible Bonds -- 0.1%
Republic of Italy, 5s, 2001 $ 135 $ 132,300
Ventritex, Inc., 5.75s, 2001 30 47,325
Total Convertible Bonds ------------
(Identified Cost, $165,000) 179,625
Short-Term Obligations -- 6.5% ------------
Federal Home Loan Mortgage Corp.,
due 1/21/97-2/04/97 $3,890 $ 3,876,387
Ford Motor Credit Corp., due 1/02/97 9,325 9,323,161
------------
Total Short-Term Obligations,
at Amortized Cost $ 13,199,548
Total Investments ------------
(Identified Cost, $182,445,512) $202,631,263
------------
Other Assets,
Less Liabilities -- 0.2% 474,243
------------
Net Assets -- 100.0% $203,105,506
============
See portfolio footnotes and notes to financial statements
60
<PAGE>
Portfolio of Investments -- December 31, 1996
World Total Return Series
Stocks -- 57.6%
Issuer Shares Value
Foreign Stocks -- 37.6%
Australia -- 1.4%
Australia & New Zealand Banking Group
(Banks and Credit Cos.) 11,000 $ 69,243
Q.B.E. Insurance Group Ltd. (Insurance) 69,289 364,661
Seven Network Ltd. (Entertainment) 28,900 98,416
----------
$ 532,320
----------
Canada -- 1.6%
Canadian National Railway Co.
(Railroads) 10,400 $ 395,200
Westcoast Energy, Inc. (Utilities --
Gas) 11,750 196,813
----------
$ 592,013
----------
Chile -- 0.2%
Chilectra S.A., ADR (Utilities --
Electric) 800 $ 42,600
Enersis S.A., ADR (Utilities --
Electric) 1,300 36,075
----------
$ 78,675
----------
Finland -- 0.9%
Huhtamaki OY (Conglomerates) 6,000 $ 279,003
OY Tamro AB (Pharmaceuticals)## 8,000 53,367
----------
$ 332,370
----------
France -- 3.9%
Pin Printemps Redo (Real Estate
Investment Trusts) 860 $ 341,280
Rhone-Poulenc Rorer, Inc.
(Pharmaceuticals) 3,900 304,687
Societe Nationale Elf Aquitaine (Oils) 2,500 227,680
TOTAL S.A., ADR, (Oils) 5,545 223,186
TV Francaise (Entertainment) 2,460 235,280
Union des Assurances Federales S.A
(Insurance) 1,200 148,091
----------
$1,480,204
----------
Germany -- 1.1%
Adidas AG (Apparel and Textiles) 3,300 $ 285,278
Henkel Kgaa, Preferred (Consumer Goods
and Services) 2,400 120,585
----------
$ 405,863
----------
Greece -- 0.2%
Hellenic Telecom (Telecommunications) 5,300 $ 90,641
----------
Hong Kong -- 2.7%
Asia Satellite Telecommunications
(Telecommunications) 1,400 $ 32,725
Cafe de Coral Holding (Electrical
Equipment) 50,000 13,415
Hong Kong Electric Holdings Ltd.
(Utilities -- Electric) 32,000 106,335
Hong Kong Land Holdings Ltd. (Real
Estate) 77,000 214,060
Li & Fung Ltd. (Retail) 14,000 12,400
Swire Pacific Air Ltd., "A"
(Transportation) 21,000 200,252
Wharf Holdings Ltd. (Real Estate) 82,000 409,258
Wing Hang Bank Ltd. (Banks and Credit) 8,000 36,307
----------
$1,024,752
----------
Foreign Stocks -- continued
Italy -- 1.2%
Gucci Group Designs N.V. (Apparel and
Textiles) 1,600 $ 102,200
Instituto Nazionale delle Assicurazioni
(Insurance) 44,000 57,266
Luxottica Group S.p.A., ADR (Consumer
Goods and Services) 1,500 78,000
Telecom Italia S.p.A
(Telecommunications) 51,500 73,438
Telecom Italia S.p.A. (Utilities --
Telephone) 64,500 125,750
----------
$ 436,654
----------
Japan -- 5.9%
Canon, Inc. (Consumer Goods and
Services) 7,000 $ 154,883
DDI Corp. (Telecommunications) 20 132,411
East Japan Railway Co. (Railroads) 21 94,564
Eisai Co., Ltd. (Pharmaceuticals) 5,000 98,531
Hirose Electric (Electrical Equipment) 3,000 173,985
Kirin Beverage Corp. (Beverages) 17,000 229,214
Matsushita Electric Industrial Co.
(Electrical Equipment) 19,000 310,371
Murata Manufacturing Co., Ltd.
(Electrical Equipment) 6,000 199,654
Osaka Sanso Kogyo Ltd. (Chemicals) 18,000 52,895
Sony Corp. (Electronics) 5,000 328,003
Takeda Chemical Industries (Chemicals) 10,000 210,026
Toyota Motor Corp. (Automotive) 5,000 143,907
Ushio, Inc. (Electronics) 7,000 76,232
----------
$2,204,676
----------
Netherlands -- 2.0%
IHC Caland NV (Transportation) 3,400 $ 194,359
Koninklijke Ahold NV, ADR (Real Estate
Investment Trusts) 5,038 311,097
Royal Dutch Petroleum Co., ADR (Oils) 950 162,212
Wolters Kluwer (Publishing) 704 93,576
----------
$ 761,244
----------
New Zealand -- 1.4%
Lion Nathan Ltd. (Food and Beverage
Products) 98,200 $ 235,192
Sky City Ltd. (Entertainment) 19,900 108,398
Telecom Corporation of New Zealand
(Telecommunications) 2,415 195,615
----------
$ 539,205
----------
Peru -- 0.4%
Telefonica del Peru S.A., ADR
(Telecommunications) 6,900 $ 130,238
----------
Singapore -- 0.5%
Hong Leong Finance Ltd. (Financial
Services)+ 3,000 $ 10,423
Mandarin Oriental International, Ltd.
(Restaurants and Lodging) 29,000 40,890
Singapore Press Holdings (Publishing) 8,000 157,850
----------
$ 209,163
----------
61
<PAGE>
Stocks -- continued
Foreign Stocks -- continued
South Korea -- 0.6%
Korea Electric Power Corp., ADR
(Utilities -- Electric) 8,290 $ 169,945
Korea Mobile Telecom, ADR
(Telecommunications) 5,665 72,937
-----------
$ 242,882
-----------
Spain -- 1.9%
Acerinox S.A. (Iron and Steel) 900 $ 130,007
Iberdrola S.A. (Utilities -- Electric) 26,600 376,869
Repsol S.A. (Oils) 5,550 212,821
-----------
$ 719,697
-----------
Sweden -- 3.4%
ABB AB, "B" (Electrical Equipment) 3,480 $ 394,212
Astra AB, Free Shares, "B"
(Pharmaceuticals) 8,860 427,724
Enator AB (Computer Software -- Systems) 1,600 40,382
Enator AB (Computer Software --
Systems)* 8,000 204,842
Ericsson L M Telephone Co.
(Telecommunications) 5,600 169,050
Hennes & Mauritz, "B", Free Shares
(Retail) 405 56,100
-----------
$ 1,292,310
-----------
Switzerland -- 0.5%
Novartis AG (Pharmaceuticals)* 160 $ 183,318
-----------
United Kingdom -- 7.4%
ASDA Group PLC (Retail) 143,000 $ 301,335
British Aerospace PLC (Aerospace) 12,000 262,736
British Petroleum PLC, ADR (Oils) 2,844 402,070
Jarvis Hotels PLC (Restaurants and
Lodging)*+ 65,900 181,769
Kwik-Fit Holdings PLC (Retail) 40,500 150,911
Lloyds TSB Group PLC (Banks and Credit
Companies) 31,000 228,901
PowerGen PLC (Utilities -- Electric) 55,305 541,962
Reuters Holdings, PLC, ADR (Publishing) 2,350 179,775
Storehouse PLC (Retail) 69,600 308,232
Tomkins (Conglomerates) 45,600 210,929
-----------
$ 2,768,620
-----------
Venezuela -- 0.4%
Compania Anonima Nacional Telefonos de
Venezuela, ADR (Telecommunications)* 4,800 $ 135,000
-----------
Total Foreign Stocks $14,159,845
-----------
U.S. Stocks -- 20.0%
Aerospace -- 1.0%
General Dynamics Corp. 3,100 $ 218,550
Lockheed Martin Corp. 1,313 120,139
Martin Marietta, Inc. 1,354 31,481
-----------
$ 370,170
-----------
Banks and Credit Companies -- 1.4%
Barnett Banks, Inc. 8,180 $ 336,403
Norwest Corp. 4,800 208,800
-----------
$ 545,203
-----------
U.S. Stocks -- continued
Business Machines -- 0.7%
Digital Equipment Corp.* 2,200 $ 80,025
International Business Machines Corp. 1,125 169,875
-----------
$ 249,900
-----------
Chemicals -- 0.5%
Air Products & Chemicals, Inc. 1,600 $ 110,600
Praxair, Inc. 1,800 83,025
-----------
$ 193,625
-----------
Consumer Goods and Services -- 2.7%
Philip Morris Cos., Inc. 5,190 $ 584,524
Tyco International Ltd. 7,900 417,712
-----------
$ 1,002,236
-----------
Electrical Equipment -- 1.1%
General Electric Co. 4,350 $ 430,106
-----------
Financial Institutions -- 1.1%
American Express Co. 3,900 $ 220,350
Associates First Capital Corp., "A" 800 35,300
Federal Home Loan Mortgage Corp. 1,400 154,175
-----------
$ 409,825
-----------
Food and Beverage Products -- 0.3%
McCormick & Co., Inc. 4,500 $ 106,031
-----------
Insurance -- 1.9%
Allstate Corp. 4,400 $ 254,650
Cigna Corp. 2,300 314,238
Transamerica Corp. 1,800 142,200
-----------
$ 711,088
-----------
Machinery -- 0.3%
Deere & Co., Inc. 2,900 $ 117,813
-----------
Medical and Health Products -- 2.4%
Lilly (Eli) & Co. 2,996 $ 218,708
Pharmacia & Upjohn, Inc. 5,500 217,938
Schering Plough Corp. 4,600 297,850
Warner-Lambert Co. 2,280 171,000
-----------
$ 905,496
-----------
Oils -- 2.0%
Exxon Corp. 2,600 $ 254,800
Mobil Corp. 2,150 262,837
USX-Marathon Group 10,000 238,750
-----------
$ 756,387
-----------
Photographic Products -- 1.2%
Eastman Kodak Co. 5,480 $ 439,770
-----------
Printing and Publishing -- 0.7%
Gannett Co., Inc. 3,600 $ 269,550
-----------
Utilities -- Electric -- 2.7%
Coastal Corp. 5,600 $ 273,700
FPL Group, Inc. 4,400 202,400
Illinova Corp. 6,200 170,500
Portland General Corp. 3,400 142,800
Sierra Pacific Resources 8,200 235,750
-----------
$ 1,025,150
-----------
Total U.S. Stocks $ 7,532,350
-----------
Total Stocks
(Identified Cost, $20,191,385) $21,692,195
-----------
62
<PAGE>
Bonds -- 33.8%
Principal Amount
Issuer (000 Omitted) Value
Foreign Bonds -- 22.2%
Australia -- 3.6%
Commonwealth of Australia,
9.75s, 2002 AUD 450 $ 398,289
Commonwealth of Australia,
10s, 2002 550 494,656
Commonwealth of Australia,
9.5s, 2003 500 442,544
----------
$1,335,489
----------
Belgium -- 1.2%
Kingdom of Belgium, 8.75s, 2002 BEF 5,000 $ 185,995
Kingdom of Belgium, 7.25s, 2004 7,780 270,936
----------
$ 456,931
----------
Canada -- 4.3%
Government of Canada, 7.5s, 2003 CAD 1,105 $ 872,114
Government of Canada, 7s, 2006 1,000 761,147
----------
$1,633,261
----------
Denmark -- 1.9%
Kingdom of Denmark, 6s, 1999 DKK 1,625 $ 286,862
Kingdom of Denmark, 8s, 2001 985 185,709
Kingdom of Denmark, 7s, 2007 1,494 258,028
----------
$ 730,599
----------
Germany -- 4.7%
Federal Republic of Germany,
7.125s, 2002 DEM 793 $ 565,692
Federal Republic of Germany,
6.5s, 2005 872 593,992
Treuhandanstalt Obligationen,
6.375s, 1999 873 601,766
----------
$1,761,450
----------
Ireland -- 1.2%
Republic of Ireland, 6.25s, 1999 IEP 200 $ 340,804
Republic of Ireland, 8s, 2000 55 99,314
----------
$ 440,118
----------
Italy -- 2.0%
Republic of Italy, 8.313s, 1999 ITL 800,000 $ 558,854
Republic of Italy, 8.313s, 2001 35,000 25,346
Republic of Italy, 8.313s, 2006 220,000 164,234
----------
$ 748,434
----------
Spain -- 1.1%
Government of Spain, 8.4s, 2001 ESP 25,090 $ 211,257
Government of Spain, 10.5s, 2003 23,450 219,423
----------
$ 430,680
----------
Sweden -- 0.8%
Kingdom of Sweden, 10.25s, 2000 SEK 1,700 $ 287,740
----------
United Kingdom -- 1.4%
United Kingdom Treasury, 7s, 2001 GBP 300 $ 508,661
----------
Total Foreign Bonds $8,333,363
U.S. Bonds -- 11.6% ----------
U.S. Federal Agencies -- 3.2%
FNMA, 8s, 2026 $1,188 $1,210,275
----------
U.S. Treasury Obligations -- 8.4%
U.S. Treasury Notes, 5.875s, 1998 $1,700 $1,699,728
U.S. Treasury Notes, 6.25s, 2001 945 945,888
U.S. Treasury Notes, 6.875s, 2006 500 515,235
----------
$3,160,851
----------
Total U.S. Bonds $4,371,126
----------
Total Bonds (Identified Cost, $11,017,449) $12,704,489
----------
Short Term Obligations -- 8.3%
Federal Home Loan Bank, due
1/02/97, at Amortized Cost $3,135 $ 3,134,543
----------
Call Options Purchased
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
Italian Lire/Deutsche Marks/
January/995 ITL 738,607 $ 3,693
Japanese Government Bonds/
January/104.076 JPY 32,000 2,560
February/116.8 29,000 2,117
March/114.25 28,000 1,120
March/115.106 29,000 1,421
----------
Total Call Options Purchased
(Premiums Paid, $16,200) $ 10,911
----------
Put Options Purchased -- 0.6%
Deutsche Marks/British Pounds/
January/2.45 DEM 1,807 $ 86,932
January/2.56 1,888 35,966
Swiss Francs/Deutsche Marks/
January/0.829 CHF 708 25,376
February/0.84 717 18,340
February/0.84 1,213 31,003
March/0.86 1,977 21,449
----------
Total Put Options Purchased
(Premiums Paid, $46,737) $ 219,066
----------
Total Investments
(Identified Cost, $34,406,314) $37,761,204
----------
Call Options Written
Deutsche Marks/British Pounds/
January/2.3682 DEM 1,747 $ --
Swiss Francs/Deutsche Marks/
February/0.8265 CHF 1,194 (8)
----------
Total Call Options Written
(Premiums Received, $10,317) $ (8)
----------
Put Options Written -- (0.4)%
Deutsche Marks/British Pounds/
January/2.45 DEM 1,807 $ (86,574)
Japanese Government Bonds
January/104.076 JPY 32,000 (992)
February/116.8 29,000 (1,015)
March/114.25 28,000 (4,368)
March/115.106 29,000 (4,698)
Swiss Francs/Deutsche Marks
January/0.829 CHF 708 (25,394)
February/0.84 1,931 (49,364)
----------
Total Put Options Written
(Premiums Received, $64,875) $ (172,405)
----------
Other Assets, Less Liabilities -- 0.1% 49,101
----------
Net Assets -- 100.0% $37,637,892
===========
See portfolio footnotes and notes to financial statements
63
<PAGE>
Portfolio of Investments -- December 31, 1996
Zero Coupon Series 2000 Portfolio
U.S. Government Guaranteed -- 99.8%
Principal Amount
Issuer (000 Omitted) Value
Treasury Investment Growth Receipts -- 3.7%
Series 18, due 2/15/01 $ 97 $ 75,552
Series 12, due 5/15/01 22 16,869
Series 15, due 8/15/01 88 66,371
----------
Total Treasury Investment Growth
Receipts (Identified Cost, $139,574) $ 158,792
U.S. Treasury Securities Stripped Interest Payments -- ----------
96.1%
Generic Coupons, due
5/15/00 $ 742 $ 606,177
Generic Coupons, due
8/15/00 115 92,473
Generic Coupons, due
11/15/00 4,256 3,369,688
Generic Coupons, due
5/15/01 131 100,507
----------
Total U.S. Treasury Securities Stripped
Interest Payments (Identified Cost, $4,071,962) $4,168,845
----------
Total Investments
(Identified Cost, $4,211,536) $4,327,637
----------
Other Assets,
Less Liabilities -- 0.2% 9,405
----------
Net Assets -- 100.0% $4,337,042
==========
See portfolio footnotes and notes to financial statements
Portfolio Footnotes:
*Non-income producing security.
**Non-income producing security - in default.
#Payment-in-kind security.
##SEC Rule 144A restriction.
+Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. Dollar. A list of abbreviations is shown
below.
AUD = Australian Dollars GBP = British Pounds
BEF = Belgian Francs IEP = Irish Punts
CAD = Canadian Dollars ITL = Italian Lire
CHF = Swiss Francs JPY = Japanese Yen
DEM = Deutsche Marks NLG = Dutch Guilders
DKK = Danish Kroner NZD = New Zealand Dollars
ESP = Spanish Pesetas SEK = Swedish Kronor
FRF = French Francs
64
<PAGE>
MFS/Sun Life Series Trust
Statements of Assets and Liabilities -- December 31, 1996
<TABLE>
<CAPTION>
Capital Conservative
Assets: Appreciation Growth
Investments -- Series Series
----------------- ---------------
<S> <C> <C>
Unaffiliated issuers, at cost ........................ $ 838,663,185 $460,227,607
Unrealized appreciation .............................. 219,573,041 110,282,336
-------------- -------------
Total investments, at value ........................... $1,058,236,226 $570,509,943
Cash ................................................... 6,497 5,569
Receivable for investments sold ........................... 2,681,753 --
Receivable for Trust shares sold ........................ 445,494 449,879
Interest and dividends receivable ........................ 905,638 866,311
Other assets ............................................. 8,435 11,992
-------------- -------------
Total assets .......................................... $1,062,284,043 $571,843,694
============== =============
Liabilities:
Payable for investments purchased ........................ $ 325,298 $ 172,718
Payable for Trust shares reacquired ..................... 151,338 572,349
Payable to investment adviser ........................... 65,402 25,944
Accrued expenses and other liabilities .................. 110,574 64,648
-------------- -------------
Total liabilities .................................... $ 652,612 $ 835,659
-------------- -------------
Net assets .......................................... $1,061,631,431 $571,008,035
============== =============
Net assets consist of:
Paid-in capital .......................................... $ 738,885,344 $422,442,883
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies ............ 219,573,041 110,282,160
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions ............ 103,173,046 31,094,901
Accumulated undistributed net investment income ......... -- 7,188,091
-------------- -------------
Net assets .......................................... $1,061,631,431 $571,008,035
============== =============
Shares of beneficial interest outstanding ............... 29,628,372 21,549,255
============== =============
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) ................................. $35.83 $26.50
========== ========== .
<CAPTION>
Emerging Government High
Assets: Growth Securities Yield
Investments -- Series Series Series
--------------- --------------- --------------
<S> <C> <C> <C>
Unaffiliated issuers, at cost ........................ $227,900,132 $376,652,522 $187,955,451
Unrealized appreciation .............................. 22,373,796 1,701,900 5,119,700
------------- ------------ ------------
Total investments, at value ........................... $250,273,928 $378,354,422 $193,075,151
Cash ................................................... 906,051 455 7,678
Receivable for investments sold ........................... 66,852 574 --
Receivable for Trust shares sold ........................ 507,218 64,849 87,906
Interest and dividends receivable ........................ 32,586 4,793,032 3,917,489
Other assets ............................................. 4,180 3,982 1,646
------------- ------------ ------------
Total assets .......................................... $251,790,815 $383,217,314 $197,089,870
============= ============ ============
Liabilities:
Payable for investments purchased ........................ $ 900,100 $ -- $ --
Payable for Trust shares reacquired ..................... 5 28,868 529,019
Payable to investment adviser ........................... 15,284 17,347 12,035
Accrued expenses and other liabilities .................. 49,201 64,189 50,559
------------- ------------ ------------
Total liabilities .................................... $ 964,590 $ 110,404 $ 591,613
------------- ------------ ------------
Net assets .......................................... $250,826,225 $383,106,910 $196,498,257
============= ============ ============
Net assets consist of:
Paid-in capital .......................................... $228,002,771 $365,852,204 $185,308,581
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies ............ 22,373,796 1,701,900 5,119,700
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions ............ 260,974 (9,743,917) (8,935,904)
Accumulated undistributed net investment income ......... 188,684 25,296,723 15,005,880
------------- ------------ ------------
Net assets .......................................... $250,826,225 $383,106,910 $196,498,257
============= ============ ============
Shares of beneficial interest outstanding ............... 16,912,918 29,773,965 21,328,113
============= ============ ============
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) ................................. $14.83 $12.87 $9.21
========== ========== =========
</TABLE>
See notes to financial statements
65
<PAGE>
MFS/Sun Life Series Trust
Statements of Assets and Liabilities -- December 31, 1996 -- continued
<TABLE>
<CAPTION>
MFS/Foreign &
Colonial
Emerging
Managed Markets
Assets: Sectors Equity
Investments -- Series Series
--------------- ----------------
<S> <C> <C>
Unaffiliated issuers, at cost ........................ $246,507,634 $3,320,408
Unrealized appreciation (depreciation) .................. 20,682,436 44,237
------------- ----------
Total investments, at value ........................... $267,190,070 $3,364,645
Cash ................................................... 5,467 257
Foreign currency, at value
(identified cost, $193, $1,906 and $77,973, respectively) -- 193
Net receivable for forward foreign
currency exchange contracts sold ........................ -- --
Net receivable for closed forward foreign currency
exchange contracts .................................... -- --
Receivable for investments sold ........................... 2,361,097 --
Receivable for Trust shares sold ........................ 401,665 4,463
Interest and dividends receivable ........................ 121,331 815
Receivable from investment adviser ..................... -- 3,970
Other assets ............................................. 2,095 1,792
------------- ----------
Total assets .......................................... $270,081,725 $3,376,135
============= ==========
Liabilities:
Payable for investments purchased ........................ $ 3,554,638 $ 81,719
Payable for Trust shares reacquired ..................... 93,985 8,930
Written options outstanding, at value
(premiums received, $31,117) ........................... -- --
Net payable for open forward foreign currency exchange
contracts purchased .................................... -- --
Payable to investment adviser ........................... 16,424 --
Accrued expenses and other liabilities .................. 48,764 14,049
------------- ----------
Total liabilities .................................... $ 3,713,811 $ 104,698
------------- ----------
Net assets .......................................... $266,367,914 $3,271,437
============= ==========
Net assets consist of:
Paid-in capital .......................................... $214,079,577 $3,229,761
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign 20,682,436 44,230
currencies
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions ......... 31,409,315 (5,296)
Accumulated undistributed net investment income ......... 196,586 2,742
------------- ----------
Net assets .......................................... $266,367,914 $3,271,437
============= ==========
Shares of beneficial interest outstanding ............... 10,147,218 327,100
============= ==========
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) .................................... $26.25 $10.00
========== ==========
<CAPTION>
MFS/Foreign &
MFS/Foreign & Colonial
Colonial International
International Growth and Money
Assets: Growth Income Market
Investments -- Series Series Series
---------------- ---------------- --------------
<S> <C> <C> <C>
Unaffiliated issuers, at cost ........................ $6,713,856 $34,603,368 $406,081,258
Unrealized appreciation (depreciation) .................. 85,839 619,796 --
---------- ------------ -------------
Total investments, at value ........................... $6,799,695 $35,223,164 $406,081,258
Cash ................................................... 3,629 84,878 407,003
Foreign currency, at value
(identified cost, $193, $1,906 and $77,973, respectively) 1,871 77,482 --
Net receivable for forward foreign
currency exchange contracts sold ........................ -- 31,447 --
Net receivable for closed forward foreign currency
exchange contracts .................................... -- 9,922 --
Receivable for investments sold ........................... -- 162,061 --
Receivable for Trust shares sold ........................ 49,843 48,732 3,290,387
Interest and dividends receivable ........................ 4,501 188,194 --
Receivable from investment adviser ..................... -- -- --
Other assets ............................................. 502 26,211 4,083
---------- ------------ -------------
Total assets .......................................... $6,860,041 $35,852,091 $409,782,731
========== ============ =============
Liabilities:
Payable for investments purchased ........................ $1,319,143 $ -- $ --
Payable for Trust shares reacquired ..................... -- 5,820 523,555
Written options outstanding, at value
(premiums received, $31,117) ........................... -- 65,305 --
Net payable for open forward foreign currency exchange
contracts purchased .................................... -- 50,408 --
Payable to investment adviser ........................... -- 2,805 16,652
Accrued expenses and other liabilities .................. 15,675 18,170 77,198
---------- ------------ -------------
Total liabilities .................................... $1,334,818 $ 142,508 $ 617,405
---------- ------------ -------------
Net assets .......................................... $5,525,223 $35,709,583 $409,165,326
========== ============ =============
Net assets consist of:
Paid-in capital .......................................... $5,594,093 $34,644,825 $409,165,326
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign (77,930) 577,956 --
currencies
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions ......... (7,804) 95,605 --
Accumulated undistributed net investment income ......... 16,864 391,197 --
---------- ------------ -------------
Net assets .......................................... $5,525,223 $35,709,583 $409,165,326
========== ============ =============
Shares of beneficial interest outstanding ............... 562,577 3,361,010 409,165,326
========== ============ =============
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) .................................... $9.82 $10.62 $1.00
========== =========== =========
</TABLE>
See notes to financial statements
66
<PAGE>
MFS/Sun Life Series Trust
Statements of Assets and Liabilities -- December 31, 1996 -- continued
<TABLE>
<CAPTION>
Total
Assets: Research Return
Investments -- Series Series
--------------- -----------------
<S> <C> <C>
Unaffiliated issuers, at cost ........................... $307,204,403 $1,171,563,058
Unrealized appreciation ................................. 32,347,539 158,139,762
------------- ---------------
Total investments, at value ........................... $339,551,942 $1,329,702,820
Cash ...................................................... 10,955 62,384
Foreign currency, at value
(identified cost, $5, $178 and $63,002, respectively) ...... 5 --
Net receivable for forward foreign currency
exchange contracts purchased .............................. -- --
Receivable for investments sold ........................... 88,017 2,677,205
Receivable for Trust shares sold ........................... 544,394 222,350
Interest and dividends receivable ........................ 313,483 8,866,955
Other assets ............................................. 23,389 11,866
------------- ---------------
Total assets .......................................... $340,532,185 $1,341,543,580
============= ===============
Liabilities:
Payable for investments purchased ........................ $ 15,062,380 $ 5,917,697
Payable for Trust shares reacquired ........................ 5 440,031
Written options outstanding, at value
(premiums received, $12,640) .............................. -- --
Net payable for open forward foreign currency exchange
contracts sold ............................................. -- --
Net payable for closed forward foreign currency exchange
contracts ................................................ -- --
Payable to investment adviser ........................... 19,761 74,122
Accrued expenses and other liabilities ..................... 60,826 89,567
------------- ---------------
Total liabilities ....................................... $ 15,142,972 $ 6,521,417
------------- ---------------
Net assets .......................................... $325,389,213 $1,335,022,163
============= ===============
Net assets consist of:
Paid-in capital .......................................... $280,202,945 $1,030,730,042
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies ............ 32,347,316 158,138,193
Accumulated undistributed net realized gain on investments
and foreign currency transactions ........................ 11,885,207 96,073,810
Accumulated undistributed net investment income ......... 953,745 50,080,118
------------- ---------------
Net assets .......................................... $325,389,213 $1,335,022,163
============= ===============
Shares of beneficial interest outstanding .................. 19,633,104 68,675,042
============= ===============
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) .................................... $16.57 $19.44
============= ===============
<CAPTION>
World
Asset
Assets: Utilities Value Allocation
Investments -- Series Series Series
-------------- -------------- -------------
<S> <C> <C> <C>
Unaffiliated issuers, at cost ........................... $62,444,540 $15,964,794 $72,540,037
Unrealized appreciation ................................. 6,520,732 474,002 4,028,431
------------ ------------ ------------
Total investments, at value ........................... $68,965,272 $16,438,796 $76,568,468
Cash ...................................................... 1,633 1,395 2,784
Foreign currency, at value
(identified cost, $5, $178 and $63,002, respectively) ...... -- 187 62,447
Net receivable for forward foreign currency
exchange contracts purchased .............................. -- -- 55,093
Receivable for investments sold ........................... 1,840,050 -- 347,202
Receivable for Trust shares sold ........................... 80,723 266,446 42,209
Interest and dividends receivable ........................ 449,865 11,459 339,903
Other assets ............................................. 464 35 278
------------ ------------ ------------
Total assets .......................................... $71,338,007 $16,718,318 $77,418,384
============ ============ ============
Liabilities:
Payable for investments purchased ........................ $ 626,764 $ 1,595 $ 258,088
Payable for Trust shares reacquired ........................ 128 3 34
Written options outstanding, at value
(premiums received, $12,640) .............................. -- -- 12,537
Net payable for open forward foreign currency exchange
contracts sold ............................................. -- -- 41,111
Net payable for closed forward foreign currency exchange
contracts ................................................ -- -- 59,691
Payable to investment adviser ........................... 4,318 -- 4,699
Accrued expenses and other liabilities ..................... 26,619 16,865 26,439
------------ ------------ ------------
Total liabilities ....................................... $ 657,829 $ 18,463 $ 402,599
------------ ------------ ------------
Net assets .......................................... $70,680,178 $16,699,855 $77,015,785
============ ============ ============
Net assets consist of:
Paid-in capital .......................................... $54,896,571 $15,940,946 $68,247,960
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies ............ 6,521,071 474,019 3,983,459
Accumulated undistributed net realized gain on investments
and foreign currency transactions ........................ 6,952,226 219,157 3,191,446
Accumulated undistributed net investment income ......... 2,310,310 65,733 1,592,920
------------ ------------ ------------
Net assets .......................................... $70,680,178 $16,699,855 $77,015,785
============ ============ ============
Shares of beneficial interest outstanding .................. 5,053,114 1,517,402 5,589,209
============ ============ ============
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) .................................... $13.99 $11.01 $13.78
============ ============ ============
</TABLE>
See notes to financial statements
67
<PAGE>
MFS/Sun Life Series Trust
Statements of Assets and Liabilities -- December 31, 1996 -- continued
<TABLE>
<CAPTION>
Zero
World Coupon
World World Total Series
Assets: Governments Growth Return 2000
Investments -- Series Series Series Portfolio
--------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Unaffiliated issuers, at cost ........................ $137,945,784 $182,445,512 $34,406,314 $4,211,536
Unrealized appreciation .............................. 3,157,979 20,185,751 3,354,890 116,101
------------- ------------- ------------ ----------
Total investments, at value ........................... $141,103,763 $202,631,263 $37,761,204 $4,327,637
Cash ................................................... 1,411 17,568 6,640 12,957
Foreign currency, at value
(identified cost, $110,090 and $2, respectively) ......... -- 109,817 2 --
Net receivable for forward foreign currency
exchange contracts sold ................................. 1,196,207 -- 18,569 --
Receivable for investments sold ........................ -- 122,694 12,732 --
Receivable for Trust shares sold ........................ 58,459 179,643 47,356 --
Interest and dividends receivable ..................... 4,363,298 205,166 275,200 --
Receivable from investment adviser ..................... -- -- -- 4,099
Other assets ............................................. 1,643 1,579 147 50
------------- ------------- ------------ ----------
Total assets ....................................... $146,724,781 $203,267,730 $38,121,850 $4,344,743
============= ============= ============ ==========
Liabilities:
Payable for investments purchased ........................ $ -- $ 71,732 $ 123,395 $ --
Payable for Trust shares reacquired ..................... 216,584 1,769 4,454 1,070
Written options outstanding, at value
(premiums received, $1,067,793 and $75,192,
respectively) .......................................... 2,349,188 -- 172,413 --
Net payable for forward foreign currency exchange
contracts purchased .................................... 1,238,597 -- 77,759 --
Net payable for closed forward foreign currency exchange
contracts ............................................. 1,096,013 -- 87,421 --
Payable to investment adviser ........................... 8,684 14,825 2,304 89
Accrued expenses and other liabilities .................. 51,283 73,898 16,212 6,542
------------- ------------- ------------ ----------
Total liabilities .................................... $ 4,960,349 $ 162,224 $ 483,958 $ 7,701
------------- ------------- ------------ ----------
Net assets .......................................... $141,764,432 $203,105,506 $37,637,892 $4,337,042
============= ============= ============ ==========
Net assets consist of:
Paid-in capital .......................................... $135,421,697 $178,745,334 $33,148,403 $4,052,012
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies ............ 733,317 20,184,826 3,111,350 116,101
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions ......... 632,661 3,337,240 609,127 (61,962)
Accumulated undistributed net investment income ......... 4,976,757 838,106 769,012 230,891
------------- ------------- ------------ ----------
Net assets .......................................... $141,764,432 $203,105,506 $37,637,892 $4,337,042
============= ============= ============ ==========
Shares of beneficial interest outstanding ............... 12,592,121 15,583,012 2,837,231 488,282
============= ============= ============ ==========
Net asset value, offering price and redemption price
per share (net assets [dividedby] shares of beneficial
interest outstanding) ................................. $11.26 $13.03 $13.27 $8.88
============= ============= ============ ==========
</TABLE>
See notes to financial statements
68
<PAGE>
MFS/Sun Life Series Trust
Statements of Operations -- Year Ended December 31, 1996
<TABLE>
<CAPTION>
Net investment income: Capital Conservative
Appreciation Growth
Income -- Series Series
--------------- ---------------
<S> <C> <C>
Interest ................................................... $ 1,058,532 $1,360,788
Dividends ................................................... 5,967,048 8,465,393
Foreign taxes withheld .................................... (61,346) (78,356)
----------- ----------
Total investment income .................................... $ 6,964,234 $9,747,825
----------- ----------
Expenses --
Investment advisory fees .................................... $ 7,006,502 $2,320,310
Trustees' fees ............................................. 647 647
Custodian fees ............................................. 362,382 184,882
Printing expenses .......................................... 56,499 16,556
Auditing fees ................................................ 36,908 33,958
Legal fees ................................................... 1,844 2,339
Miscellaneous ................................................ -- --
----------- ----------
Total expenses ............................................. $ 7,464,782 $2,558,692
Waiver of expenses by investment adviser .................. -- --
Fees paid indirectly ....................................... (5,846) (7,397)
----------- ----------
Net expenses ............................................. $ 7,458,936 $2,551,295
----------- ----------
Net investment income (loss) .............................. $ (494,702) $7,196,530
----------- ----------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ....................................... $103,790,117 $31,422,180
Foreign currency transactions .............................. 19,482 (8,340)
Futures contracts .......................................... -- --
----------- ----------
Net realized gain (loss)
on investments and foreign currency
transactions ............................................. $103,809,599 $31,413,840
----------- ----------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $78,724,258 $58,921,678
Translation of assets and liabilities in foreign currencies (43,558) (1,086)
----------- ----------
Net unrealized gain (loss) on investments and
foreign currency translation .............................. $78,680,700 $58,920,592
----------- ----------
Net realized and unrealized gain (loss)
on investments and foreign currency ..................... $182,490,299 $90,334,432
----------- ----------
Increase in net assets
from operations .......................................... $181,995,597 $97,530,962
=========== ==========
<CAPTION>
Net investment income: Emerging Government High
Growth Securities Yield
Income -- Series Series Series
-------------- --------------- -------------
<S> <C> <C> <C>
Interest ................................................... $1,152,386 $ 27,854,463 $16,450,477
Dividends ................................................... 135,759 -- --
Foreign taxes withheld .................................... (6,164) -- --
---------- ------------ -----------
Total investment income .................................... $1,281,981 $ 27,854,463 $16,450,477
---------- ------------ -----------
Expenses --
Investment advisory fees .................................... $1,182,281 $ 2,121,808 $ 1,252,812
Trustees' fees ............................................. 647 647 647
Custodian fees ............................................. 68,612 202,457 86,709
Printing expenses .......................................... 8,882 41,731 17,927
Auditing fees ................................................ 63,408 43,208 51,483
Legal fees ................................................... 2,139 2,120 2,359
Miscellaneous ................................................ -- 6,190 516
---------- ------------ -----------
Total expenses ............................................. $1,325,969 $ 2,418,161 $ 1,412,453
Waiver of expenses by investment adviser .................. (225,349) -- --
Fees paid indirectly ....................................... (10,268) (1,920) (8,132)
---------- ------------ -----------
Net expenses ............................................. $1,090,352 $ 2,416,241 $ 1,404,321
---------- ------------ -----------
Net investment income (loss) .............................. $ 191,629 $ 25,438,222 $15,046,156
---------- ------------ -----------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ....................................... $ 281,508 $ (1,039,669) $ 1,384,999
Foreign currency transactions .............................. (2,841) -- --
Futures contracts .......................................... -- (1,464,071) --
---------- ------------ -----------
Net realized gain (loss)
on investments and foreign currency
transactions ............................................. $ 278,667 $ (2,503,740) $ 1,384,999
---------- ------------ -----------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $16,792,021 $(16,642,829) $ 3,497,778
Translation of assets and liabilities in foreign currencies -- -- --
---------- ------------ -----------
Net unrealized gain (loss) on investments and
foreign currency translation .............................. $16,792,021 $(16,642,829) $ 3,497,778
---------- ------------ -----------
Net realized and unrealized gain (loss)
on investments and foreign currency ..................... $17,070,688 $(19,146,569) $ 4,882,777
---------- ------------ -----------
Increase in net assets
from operations .......................................... $17,262,317 $ 6,291,653 $19,928,933
========== ============ ===========
</TABLE>
See notes to financial statements
69
<PAGE>
MFS/Sun Life Series Trust
Statements of Operations -- Year Ended December 31, 1996 -- continued
<TABLE>
<CAPTION>
MFS/Foreign &
Colonial
Emerging
Net investment income: Managed Markets
Sectors Equity
Income -- Series Series++
-------------- ----------------
<S> <C> <C>
Interest ................................................... $ 499,802 $ 15,225
Dividends ................................................... 1,624,629 5,860
Foreign taxes withheld .................................... (16,642) (157)
---------- --------
Total investment income .................................... $2,107,789 $ 20,928
---------- --------
Expenses --
Investment advisory fees .................................... $1,729,822 $ 11,151
Trustees' fees ............................................. 647 647
Custodian fees ............................................. 110,846 707
Printing expenses .......................................... 23,142 125
Auditing fees ................................................ 34,333 15,915
Legal fees ................................................... 1,310 2,321
Miscellaneous ................................................ 884 382
---------- --------
Total expenses ............................................. $1,900,984 $ 31,248
Waiver of expenses by investment adviser .................. -- (11,151)
Assumption of expenses by investment adviser ............... -- (5,761)
Fees paid indirectly ....................................... -- (508)
---------- --------
Net expenses ............................................. $1,900,984 $ 13,828
---------- --------
Net investment income .................................... $ 206,805 $ 7,100
---------- --------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ....................................... $31,514,301 $ (5,296)
Written option transactions ................................. -- --
Foreign currency transactions .............................. (10,219) (4,358)
---------- --------
Net realized gain (loss)
on investments and foreign currency
transactions ............................................. $31,504,082 $ (9,654)
---------- --------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $5,998,655 $ 44,237
Written options ............................................. -- --
Translation of assets and liabilities in foreign currencies 3,394 (7)
---------- --------
Net unrealized gain (loss) on investments and
foreign currency translation .............................. $6,002,049 $ 44,230
---------- --------
Net realized and unrealized gain (loss)
on investments and foreign currency ..................... $37,506,131 $ 34,576
---------- --------
Increase (decrease) in net assets
from operations .......................................... $37,712,936 $ 41,676
========== ========
+From June 3, 1996 (commencement of investment operations) to December 31, 1996.
++From June 5, 1996 (commencement of investment operations) to December 31, 1996.
See notes to financial statements
<CAPTION>
MFS/Foreign &
MFS/Foreign & Colonial
Colonial International
Net investment income: International Growth and Money
Growth Income Market
Income -- Series+ Series Series
---------------- --------------- -------------
<S> <C> <C> <C>
Interest ................................................... $ 31,675 $ 412,874 $17,863,613
Dividends ................................................... 15,807 384,846 --
Foreign taxes withheld .................................... (2,128) (49,559) --
-------- --------- -----------
Total investment income .................................... $ 45,354 $ 748,161 $17,863,613
-------- --------- -----------
Expenses --
Investment advisory fees .................................... $ 14,479 $ 230,054 $ 1,658,426
Trustees' fees ............................................. 647 647 647
Custodian fees ............................................. 1,488 26,333 140,498
Printing expenses .......................................... 135 2,315 43,459
Auditing fees ................................................ 18,365 11,958 28,633
Legal fees ................................................... 2,296 2,338 2,320
Miscellaneous ................................................ 924 342 4,034
-------- --------- -----------
Total expenses ............................................. $ 38,334 $ 273,987 $ 1,878,017
Waiver of expenses by investment adviser .................. (14,479) (44,482) --
Assumption of expenses by investment adviser ............... -- -- --
Fees paid indirectly ....................................... (921) (2,364) (4,957)
-------- --------- -----------
Net expenses ............................................. $ 22,934 $ 227,141 $ 1,873,060
-------- --------- -----------
Net investment income .................................... $ 22,420 $ 521,020 $15,990,553
-------- --------- -----------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ....................................... $ (7,804) $ 92,414 $ --
Written option transactions ................................. -- 20,285 --
Foreign currency transactions .............................. (5,556) (146,917) --
-------- --------- -----------
Net realized gain (loss)
on investments and foreign currency
transactions ............................................. $(13,360) $ (34,218) $ --
-------- --------- -----------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $(76,222) $ 497,605 --
Written options ............................................. -- (34,187) --
Translation of assets and liabilities in foreign currencies (1,708) (1,108) --
-------- --------- -----------
Net unrealized gain (loss) on investments and
foreign currency translation .............................. $(77,930) $ 462,310 $ --
-------- --------- -----------
Net realized and unrealized gain (loss)
on investments and foreign currency ..................... $(91,290) $ 428,092 $ --
-------- --------- -----------
Increase (decrease) in net assets
from operations .......................................... $(68,870) $ 949,112 $15,990,553
======== ========= ===========
</TABLE>
+From June 3, 1996 (commencement of investment operations) to
December 31, 1996.
++From June 5, 1996 (commencement of investment operations) to
December 31, 1996.
See notes to financial statements
70
<PAGE>
MFS/Sun Life Series Trust
Statements of Operations -- Year Ended December 31, 1996 -- continued
<TABLE>
<CAPTION>
Net investment income: Total
Research Return
Income -- Series Series
-------------- ---------------
<S> <C> <C>
Interest ................................................... $ 587,600 $37,520,040
Dividends ................................................... 2,002,469 21,544,307
Foreign taxes withheld .................................... (45,949) (257,151)
---------- -----------
Total investment income .................................... $2,544,120 $58,807,196
---------- -----------
Expenses --
Investment advisory fees .................................... $1,401,185 $ 8,228,127
Trustees' fees ............................................. 647 647
Custodian fees ............................................. 97,823 391,689
Printing expenses .......................................... 12,767 41,029
Auditing fees ................................................ 66,759 39,108
Legal fees ................................................... 2,339 2,339
Miscellaneous ................................................ -- --
---------- -----------
Total expenses ............................................. $1,581,520 $ 8,702,939
Waiver of expenses by investment adviser .................. -- --
Fees paid indirectly ....................................... (9,634) (29,644)
---------- -----------
Net expenses ............................................. $1,571,886 $ 8,673,295
---------- -----------
Net investment income .................................... $ 972,234 $50,133,901
---------- -----------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions .................................... $11,942,236 $96,355,250
Written option transactions ................................. -- --
Foreign currency transactions .............................. (18,442) (14,291)
---------- -----------
Net realized gain
on investments and foreign currency transactions . $11,923,794 $96,340,959
---------- -----------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $25,455,597 $15,775,795
Written options ............................................. -- --
Translation of assets and liabilities in foreign currencies (23) (2,012)
---------- -----------
Net unrealized gain on investments and foreign
currency translation ....................................... $25,455,574 $15,773,783
---------- -----------
Net realized and unrealized gain on investments
and foreign currency .................................... $37,379,368 $112,114,742
---------- -----------
Increase in net assets
from operations .......................................... $38,351,602 $162,248,643
========== ===========
+From June 3, 1996 (commencement of investment operations) to December 31, 1996.
See notes to financial statements
<CAPTION>
World
Net investment income: Asset
Utilities Value Allocation
Income -- Series Series+ Series
------------- ----------- ------------
<S> <C> <C> <C>
Interest ................................................... $ 860,056 $ 53,412 $1,372,805
Dividends ................................................... 2,111,852 36,159 660,414
Foreign taxes withheld .................................... (121,326) (604) (71,642)
---------- -------- ----------
Total investment income .................................... $2,850,582 $ 88,967 $1,961,577
---------- -------- ----------
Expenses --
Investment advisory fees .................................... $ 418,966 $ 27,382 $ 390,024
Trustees' fees ............................................. 647 647 647
Custodian fees ............................................. 30,393 2,436 49,878
Printing expenses .......................................... 7,305 236 2,240
Auditing fees ................................................ 32,158 15,915 44,568
Legal fees ................................................... 2,339 2,496 2,139
Miscellaneous ................................................ -- 2,240 --
---------- -------- ----------
Total expenses ............................................. $ 491,808 $ 51,352 $ 489,496
Waiver of expenses by investment adviser .................. -- (27,382) --
Fees paid indirectly ....................................... (2,703) (1,133) (4,994)
---------- -------- ----------
Net expenses ............................................. $ 489,105 $ 22,837 $ 484,502
---------- -------- ----------
Net investment income .................................... $2,361,477 $ 66,130 $1,477,075
---------- -------- ----------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions .................................... $6,985,037 $219,157 $3,482,635
Written option transactions ................................. -- -- 41,961
Foreign currency transactions .............................. (8,318) (397) (179,182)
---------- -------- ----------
Net realized gain
on investments and foreign currency transactions . $6,976,719 $218,760 $3,345,414
---------- -------- ----------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $1,889,069 $474,002 $2,615,713
Written options ............................................. -- -- 2,621
Translation of assets and liabilities in foreign currencies 1,652 17 (49,232)
---------- -------- ----------
Net unrealized gain on investments and foreign
currency translation ....................................... $1,890,721 $474,019 $2,569,102
---------- -------- ----------
Net realized and unrealized gain on investments
and foreign currency .................................... $8,867,440 $692,779 $5,914,516
---------- -------- ----------
Increase in net assets
from operations .......................................... $11,228,917 $758,909 $7,391,591
========== ======== ==========
</TABLE>
+From June 3, 1996 (commencement of investment operations) to December 31, 1996.
See notes to financial statements
71
<PAGE>
MFS/Sun Life Series Trust
Statements of Operations -- Year Ended December 31, 1996 -- continued
<TABLE>
<CAPTION>
Zero
World Coupon
Net investment income: World World Total Series
Governments Growth Return 2000
Income -- Series Series Series Portfolio
--------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Interest ................................................... $ 10,054,540 $ 577,764 $ 761,476 $ 253,107
Dividends ................................................... -- 1,794,294 383,942 --
Foreign taxes withheld .................................... -- (177,022) (33,077) --
------------ ---------- --------- ---------
Total investment income .................................... $ 10,054,540 $2,195,036 $1,112,341 $ 253,107
------------ ---------- --------- ---------
Expenses --
Investment advisory fees .................................... $ 1,091,953 $1,633,811 $ 194,413 $ 11,094
Trustees' fees ............................................. 647 647 647 647
Custodian fees ............................................. 156,973 160,731 24,919 1,919
Printing expenses .......................................... 17,624 25,690 3,227 251
Auditing fees ............................................. 39,409 70,008 24,408 11,108
Legal fees ................................................... 2,320 2,374 2,339 2,320
Miscellaneous ................................................ 3,042 -- -- 359
------------ ---------- --------- ---------
Total expenses ............................................. $ 1,311,968 $1,893,261 $ 249,953 $ 27,698
Waiver of expenses by investment adviser .................. -- -- -- --
Assumption of expenses by investment adviser ............... -- -- -- (4,099)
Fees paid indirectly ....................................... (260) (25,551) (1,216) (1,411)
------------ ---------- --------- ---------
Net expenses ............................................. $ 1,311,708 $1,867,710 $ 248,737 $ 22,188
------------ ---------- --------- ---------
Net investment income .................................... $ 8,742,832 $ 327,326 $ 863,604 $ 230,919
------------ ---------- --------- ---------
Realized and unrealized gain (loss)
on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions .................................... $ 1,990,362 $3,804,715 $ 871,568 $ (3,785)
Written option transactions ................................. 835,023 -- 60,641 --
Foreign currency transactions .............................. (10,600,477) 426,136 (418,166) --
------------ ---------- --------- ---------
Net realized gain (loss)
on investments and foreign currency transactions . $ (7,775,092) $4,230,851 $ 514,043 $ (3,785)
------------ ---------- --------- ---------
Change in unrealized appreciation (depreciation) on --
Investments ................................................ $ 539,904 $15,707,948 $2,627,607 $(145,491)
Written options ............................................. (1,401,705) -- (99,596) --
Translation of assets and liabilities in foreign currencies 6,393,306 (23,804) (73,461) --
------------ ---------- --------- ---------
Net unrealized gain (loss)
on investments and foreign currency translation ............ $ 5,531,505 $15,684,144 $2,454,550 $(145,491)
------------ ---------- --------- ---------
Net realized and unrealized gain (loss)
on investments and foreign currency ..................... $ (2,243,587) $19,914,995 $2,968,593 $(149,276)
------------ ---------- --------- ---------
Increase in net assets from operations .................. $ 6,499,245 $20,242,321 $3,832,197 $ 81,643
============ ========== ========= =========
</TABLE>
See notes to financial statements
72
<PAGE>
MFS/Sun Life Series Trust
Statements of Changes in Net Assets -- Year Ended December 31, 1996
<TABLE>
<CAPTION>
Capital Conservative
Increase (decrease) in net assets: Appreciation Growth
From operations -- Series Series
---------------- ---------------
<S> <C> <C>
Net investment income (loss) ........................ $ (494,702) $ 7,196,530
Net realized gain (loss) on investments and foreign
currency transactions .............................. 103,809,599 31,413,840
Net unrealized gain (loss) on investments and foreign
currency translation ................................. 78,680,700 58,920,592
------------- ------------
Increase in net assets from operations ............ $ 181,995,597 $ 97,530,962
------------- ------------
Distributions declared to shareholders --
From net investment income ........................... $ (850,749) $ (4,723,151)
From net realized gain on investments and foreign
currency transactions .............................. (75,199,375) (10,911,137)
------------- ------------
Total distributions declared to shareholders ...... $ (76,050,124) $(15,634,288)
------------- ------------
Trust share transactions --
Net proceeds from sale of shares ..................... $ 385,162,405 $190,035,383
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ 76,050,124 15,634,288
Cost of shares reacquired ........................... (302,628,263) (18,581,922)
------------- ------------
Increase in net assets from
Trust share transactions ........................... $ 158,584,266 $187,087,749
------------- ------------
Total increase in net assets ..................... $ 264,529,739 $268,984,423
Net assets:
At beginning of year ................................. 797,101,692 302,023,612
------------- ------------
At end of year ....................................... $1,061,631,431 $571,008,035
============= ============
Accumulated undistributed net investment income
included in net assets at end of year ............... $ -- $ 7,188,091
============= ============
<CAPTION>
Emerging Government High
Increase (decrease) in net assets: Growth Securities Yield
From operations -- Series Series Series
--------------- --------------- ----------------
<S> <C> <C> <C>
Net investment income (loss) ........................ $ 191,629 $ 25,438,222 $ 15,046,156
Net realized gain (loss) on investments and foreign
currency transactions .............................. 278,667 (2,503,740) 1,384,999
Net unrealized gain (loss) on investments and foreign
currency translation ................................. 16,792,021 (16,642,829) 3,497,778
------------ ------------- -------------
Increase in net assets from operations ............ $ 17,262,317 $ 6,291,653 $ 19,928,933
------------ ------------- -------------
Distributions declared to shareholders --
From net investment income ........................... $ (223,677) $ (22,253,356) $ (12,135,750)
From net realized gain on investments and foreign
currency transactions .............................. -- -- --
------------ ------------- -------------
Total distributions declared to shareholders ...... $ (223,677) $ (22,253,356) $ (12,135,750)
------------ ------------- -------------
Trust share transactions --
Net proceeds from sale of shares ..................... $196,450,554 $ 112,083,996 $ 125,642,522
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ 223,677 22,253,356 12,135,750
Cost of shares reacquired ........................... (30,141,433) (104,116,699) (102,873,353)
------------ ------------- -------------
Increase in net assets from
Trust share transactions ........................... $166,532,798 $ 30,220,653 $ 34,904,919
------------ ------------- -------------
Total increase in net assets ..................... $183,571,438 $ 14,258,950 $ 42,698,102
Net assets:
At beginning of year ................................. 67,254,787 368,847,960 153,800,155
------------ ------------- -------------
At end of year ....................................... $250,826,225 $ 383,106,910 $ 196,498,257
============ ============= =============
Accumulated undistributed net investment income
included in net assets at end of year ............... $ 188,684 $ 25,296,723 $ 15,005,880
============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
MFS/Foreign &
Colonial
Managed Emerging
Increase (decrease) in net assets: Sectors Markets
From operations -- Series Equity Series++
--------------- ------------------
<S> <C> <C>
Net investment income .............................. $ 206,805 $ 7,100
Net realized gain (loss) on investments and foreign
currency transactions .............................. 31,504,082 (9,654)
Net unrealized gain (loss) on investments and foreign
currency translation .............................. 6,002,049 44,230
------------ ---------
Increase (decrease) in net assets from operations $ 37,712,936 $ 41,676
------------ ---------
Distributions declared to shareholders --
From net investment income ........................... $ (637,050) $ --
From net realized gain on investments and foreign
currency transactions .............................. (28,755,283) --
------------ ---------
Total distributions declared to shareholders ...... $(29,392,333) $ --
------------ ---------
Trust share transactions --
Net proceeds from sale of shares ..................... $ 71,069,036 $3,745,777
Issued in connection with the acquisition of the Sun
Growth Variable Annuity Fund ........................ -- --
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ 29,392,333 --
Cost of shares reacquired ........................... (36,764,837) (516,016)
------------ ---------
Increase in net assets from
Trust share transactions ........................... $ 63,696,532 $3,229,761
------------ ---------
Total increase in net assets ..................... $ 72,017,135 $3,271,437
Net assets:
At beginning of year .............................. 194,350,779 --
------------ ---------
At end of year .................................... $266,367,914 $3,271,437
============ =========
Accumulated undistributed net investment income
included in net assets at end of year ............... $ 196,586 $ 2,742
============ =========
+From June 3, 1996 (commencement of investment operations) to December 31, 1996.
++From June 5, 1996 (commencement of investment operations) to December 31, 1996.
See notes to financial statements
<CAPTION>
MFS/Foreign &
MFS/Foreign & Colonial
Colonial International Money
Increase (decrease) in net assets: International Growth and Market
From operations -- Growth Series+ Income Series Series
----------------- ---------------- ----------------
<S> <C> <C> <C>
Net investment income .............................. $ 22,420 $ 521,020 $ 15,990,553
Net realized gain (loss) on investments and foreign
currency transactions .............................. (13,360) (34,218) --
Net unrealized gain (loss) on investments and foreign
currency translation .............................. (77,930) 462,310 --
----------- ----------- -------------
Increase (decrease) in net assets from operations $ (68,870) $ 949,112 $ 15,990,553
----------- ----------- -------------
Distributions declared to shareholders --
From net investment income ........................... $ -- $ -- $ (15,990,553)
From net realized gain on investments and foreign
currency transactions .............................. -- -- --
----------- ----------- -------------
Total distributions declared to shareholders ...... $ -- $ -- $ (15,990,553)
----------- ----------- -------------
Trust share transactions --
Net proceeds from sale of shares ..................... $ 7,169,348 $33,877,812 $ 753,646,599
Issued in connection with the acquisition of the Sun
Growth Variable Annuity Fund ........................ -- -- 666,549
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ -- -- 15,990,553
Cost of shares reacquired ........................... (1,575,255) (6,296,169) (643,892,483)
----------- ----------- -------------
Increase in net assets from
Trust share transactions ........................... $ 5,594,093 $27,581,643 $ 126,411,218
----------- ----------- -------------
Total increase in net assets ..................... $ 5,525,223 $28,530,755 $ 126,411,218
Net assets:
At beginning of year .............................. -- 7,178,828 282,754,108
----------- ----------- -------------
At end of year .................................... $ 5,525,223 $35,709,583 $ 409,165,326
=========== =========== =============
Accumulated undistributed net investment income
included in net assets at end of year ............... $ 16,864 $ 391,197 $ --
=========== =========== =============
</TABLE>
+From June 3, 1996 (commencement of investment operations) to
December 31, 1996.
++From June 5, 1996 (commencement of investment operations) to
December 31, 1996.
See notes to financial statements
73
<PAGE>
MFS/Sun Life Series Trust
Statements of Changes in Net Assets -- Year Ended December 31, 1996 -- continued
<TABLE>
<CAPTION>
World
Total Asset
Increase (decrease) in net assets: Research Return Utilities Value Allocation
From operations -- Series Series Series Series+ Series
--------------- ---------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net investment income ........................... $ 972,234 $ 50,133,901 $ 2,361,477 $ 66,130 $ 1,477,075
Net realized gain on investments and foreign
currency transactions ........................... 11,923,794 96,340,959 6,976,719 218,760 3,345,414
Net unrealized gain on investments and foreign
currency translation ........................... 25,455,574 15,773,783 1,890,721 474,019 2,569,102
----------- ------------- ----------- ---------- -----------
Increase in net assets from operations ......... $38,351,602 $ 162,248,643 $11,228,917 $ 758,909 $ 7,391,591
----------- ------------- ----------- ---------- -----------
Distributions declared to shareholders --
From net investment income ..................... $ (328,089) $ (44,516,908) $(1,325,715) $ -- $ (458,860)
From net realized gain on investments and foreign
currency transactions ........................... (1,843,286) (41,696,365) (1,440,891) -- (864,253)
----------- ------------- ----------- ---------- -----------
Total distributions declared to shareholders ... $(2,171,375) $ (86,213,273) $(2,766,606) $ -- $(1,323,113)
----------- ------------- ----------- ---------- -----------
Trust share transactions --
Net proceeds from sale of shares ............... $220,770,984 $ 164,902,813 $23,567,505 $16,436,287 $51,249,975
Net asset value of shares issued to shareholders
in reinvestment of distributions ............... 2,171,375 86,213,273 2,766,606 -- 1,323,113
Cost of shares reacquired ........................ (5,561,486) (92,016,690) (7,250,604) (495,341) (7,489,174)
----------- ------------- ----------- ---------- -----------
Increase in net assets from Trust share
transactions .................................... $217,380,873 $ 159,099,396 $19,083,507 $15,940,946 $45,083,914
----------- ------------- ----------- ---------- -----------
Total increase in net assets .................. $253,561,100 $ 235,134,766 $27,545,818 $16,699,855 $51,152,392
Net assets:
At beginning of year ........................... 71,828,113 1,099,887,397 43,134,360 -- 25,863,393
----------- ------------- ----------- ---------- -----------
At end of year ................................. $325,389,213 $1,335,022,163 $70,680,178 $16,699,855 $77,015,785
=========== ============= =========== ========== ===========
Accumulated undistributed net investment income
included in net assets at end of year ............ $ 953,745 $ 50,080,118 $ 2,310,310 $ 65,733 $ 1,592,920
=========== ============= =========== ========== ===========
</TABLE>
+From June 3, 1996 (commencement of investment operations) to December 31, 1996.
<TABLE>
<CAPTION>
Zero
World Coupon
World World Total Series
Increase (decrease) in net assets: Governments Growth Return 2000
From operations -- Series Series Series Portfolio
--------------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
Net investment income .................................... $ 8,742,832 $ 327,326 $ 863,604 $ 230,919
Net realized gain (loss) on investments and foreign
currency transactions .................................... (7,775,092) 4,230,851 514,043 (3,785)
Net unrealized gain (loss) on investments and foreign
currency translation .................................... 5,531,505 15,684,144 2,454,550 (145,491)
------------ ------------ ----------- ---------
Increase in net assets from operations .................. $ 6,499,245 $ 20,242,321 $ 3,832,197 $ 81,643
------------ ------------ ----------- ---------
Distributions declared to shareholders --
From net investment income ................................. $(20,261,198) $ (1,196,882) $ (432,723) $(168,674)
From net realized gain on investments and foreign currency
transactions ............................................. -- (11,275,915) -- --
------------ ------------ ----------- ---------
Total distributions declared to shareholders ............ $(20,261,198) $(12,472,797) $ (432,723) $(168,674)
------------ ------------ ----------- ---------
Trust share transactions --
Net proceeds from sale of shares ........................... $ 13,862,543 $ 81,483,550 $23,046,802 $ 188,206
Net asset value of shares issued to shareholders
in reinvestment of distributions ........................... 20,261,198 12,472,797 432,723 168,674
Cost of shares reacquired ................................. (31,084,548) (45,008,598) (3,027,045) (548,663)
------------ ------------ ----------- ---------
Increase (decrease) in net assets from Trust share
transactions ............................................. $ 3,039,193 $ 48,947,749 $20,452,480 $(191,783)
------------ ------------ ----------- ---------
Total increase (decrease) in net assets .................. $(10,722,760) $ 56,717,273 $23,851,954 $(278,814)
Net assets:
At beginning of year ....................................... 152,487,192 146,388,233 13,785,938 4,615,856
------------ ------------ ----------- ---------
At end of year .......................................... $141,764,432 $203,105,506 $37,637,892 $4,337,042
============ ============ =========== =========
Accumulated undistributed net investment income
included in net assets at end of year ..................... $ 4,976,757 $ 838,106 $ 769,012 $ 230,891
============ ============ =========== =========
</TABLE>
See notes to financial statements
74
<PAGE>
MFS/Sun Life Series Trust
Statements of Changes in Net Assets -- Year Ended December 31, 1995
<TABLE>
<CAPTION>
Increase (decrease) in net assets from: Capital
Operations -- Appreciation Series
----------------------
<S> <C>
Net investment income .......................................... $ 2,104,622
Net realized gain (loss) on investments and foreign currency
transactions ................................................... 74,291,934
Net unrealized gain on investments and foreign currency
translation ................................................... 109,290,728
-------------
Increase in net assets from operations ........................ $ 185,687,284
-------------
Distributions declared to shareholders --
From net investment income ....................................... $ (1,257,607)
From net realized gain on investments and foreign currency
transactions ................................................... (13,684,251)
-------------
Total distributions declared to shareholders .................. $ (14,941,858)
-------------
Trust share transactions --
Net proceeds from sale of shares ................................. $ 329,318,353
Net asset value of shares issued to shareholders in reinvestment
of distributions ................................................ 14,941,858
Cost of shares reacquired ....................................... (194,411,727)
-------------
Increase (decrease) in net assets from Trust share transactions $ 149,848,484
-------------
Total increase in net assets ................................. $ 320,593,910
Net assets:
Beginning of year ............................................. 476,507,782
-------------
End of year ................................................... $ 797,101,692
=============
Accumulated undistributed net investment income included in
net assets at end of year ....................................... $ 850,657
=============
<CAPTION>
Increase (decrease) in net assets from: Conservative Emerging Government
Operations -- Growth Series Growth Series+ Securities Series
---------------- ----------------- -------------------
<S> <C> <C> <C>
Net investment income .......................................... $ 4,732,099 $ 223,573 $ 22,449,604
Net realized gain (loss) on investments and foreign currency
transactions ................................................... 11,000,468 (20,534) (440,209)
Net unrealized gain on investments and foreign currency
translation ................................................... 50,605,952 5,581,775 33,522,922
------------ ------------ -------------
Increase in net assets from operations ........................ $ 66,338,519 $ 5,784,814 $ 55,532,317
------------ ------------ -------------
Distributions declared to shareholders --
From net investment income ....................................... $ (2,990,858) $ -- $ (19,677,831)
From net realized gain on investments and foreign currency
transactions ................................................... (1,805,444) -- --
------------ ------------ -------------
Total distributions declared to shareholders .................. $ (4,796,302) $ -- $ (19,677,831)
------------ -------------
------------
Trust share transactions --
Net proceeds from sale of shares ................................. $ 97,358,437 $ 78,579,346 $ 69,483,965
Net asset value of shares issued to shareholders in reinvestment
of distributions ................................................ 4,796,302 -- 19,677,831
Cost of shares reacquired ....................................... (11,991,144) (17,109,373) (103,318,428)
------------ ------------ -------------
Increase (decrease) in net assets from Trust share transactions $ 90,163,595 $ 61,469,973 $ (14,156,632)
------------ ------------ -------------
Total increase in net assets ................................. $151,705,812 $ 67,254,787 $ 21,697,854
Net assets:
Beginning of year ............................................. 150,317,800 -- 347,150,106
------------ ------------ -------------
End of year ................................................... $302,023,612 $ 67,254,787 $ 368,847,960
============ ============ =============
Accumulated undistributed net investment income included in
net assets at end of year ....................................... $ 4,723,052 $ 223,573 $ 22,253,104
============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Increase (decrease) in net assets from:
High Yield
Operations -- Series
----------------------------
<S> <C>
Net investment income .......................................... $ 12,087,771
Net realized gain (loss) on investments and foreign currency
transactions ................................................... (1,843,888)
Net unrealized gain on investments and foreign currency
translation ................................................... 9,954,655
-------------
Increase in net assets from operations ........................ $ 20,198,538
-------------
Distributions declared to shareholders --
From net investment income .................................... $ (8,657,037)
From net realized gain on investments and foreign currency
transactions ................................................... --
-------------
Total distributions declared to shareholders .................. $ (8,657,037)
-------------
Trust share transactions --
Net proceeds from sale of shares .............................. $ 97,407,906
Net asset value of shares issued to shareholders in reinvestment
of distributions ................................................ 8,657,037
Cost of shares reacquired ....................................... (66,000,142)
-------------
Increase in net assets from Trust share transactions ......... $ 40,064,801
-------------
Total increase in net assets ................................. $ 51,606,302
Net assets:
Beginning of year ............................................. 102,193,853
-------------
End of year ................................................... $ 153,800,155
=============
Accumulated undistributed net investment income included in
net assets at end of year ....................................... $ 12,049,652
=============
+From May 1, 1995 (commencement of investment operations) to December 31, 1995.
++From October 2, 1995 (commencement of investment operations) to December 31, 1995.
See notes to financial statements
<CAPTION>
MFS/Foreign &
Colonial
International
Increase (decrease) in net assets from: Managed Sectors Growth and Money Market
Operations -- Series Income Series++ Series
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net investment income .......................................... $ 666,775 $ 12,903 $ 12,727,293
Net realized gain (loss) on investments and foreign currency
transactions ................................................... 29,542,920 (17,271) --
Net unrealized gain on investments and foreign currency
translation ................................................... 11,155,881 115,646 --
------------ ----------- -------------
Increase in net assets from operations ........................ $ 41,365,576 $ 111,278 $ 12,727,293
------------ ----------- -------------
Distributions declared to shareholders --
From net investment income .................................... $ (342,457) $ -- $(12,727,293)
From net realized gain on investments and foreign currency
transactions ................................................... (4,215,692) -- --
------------ ----------- -------------
Total distributions declared to shareholders .................. $ (4,558,149) $ -- $(12,727,293)
------------ ----------- -------------
Trust share transactions --
Net proceeds from sale of shares .............................. $ 66,280,056 $ 7,079,388 $450,493,345
Net asset value of shares issued to shareholders in reinvestment
of distributions ................................................ 4,558,149 -- 12,727,293
Cost of shares reacquired ....................................... (32,281,926) (11,838) (432,641,522)
------------ ----------- -------------
Increase in net assets from Trust share transactions ......... $ 38,556,279 $ 7,067,550 $ 30,579,116
------------ ----------- -------------
Total increase in net assets ................................. $ 75,363,706 $ 7,178,828 $ 30,579,116
Net assets:
Beginning of year ............................................. 118,987,073 -- 252,174,992
------------ ----------- -------------
End of year ................................................... $194,350,779 $ 7,178,828 $282,754,108
============ =========== =============
Accumulated undistributed net investment income included in
net assets at end of year ....................................... $ 637,060 $ -- $ --
============ =========== =============
</TABLE>
+From May 1, 1995 (commencement of investment operations) to December 31, 1995.
++From October 2, 1995 (commencement of investment operations) to
December 31, 1995.
See notes to financial statements
75
<PAGE>
MFS/Sun Life Series Trust
Statements of Changes in Net Assets -- Year Ended December 31, 1995 -- continued
<TABLE>
<CAPTION>
Research Total Return
Series Series
-------------- ----------------
<S> <C> <C>
Increase (decrease) in net assets from:
Operations --
Net investment income ............................................. $ 330,174 $ 44,770,957
Net realized gain on investments and foreign currency transactions 1,799,538 45,877,957
Net unrealized gain on investments and foreign currency translation 6,876,576 133,970,269
----------- -------------
Increase in net assets from operations .............................. $ 9,006,288 $ 224,619,183
----------- -------------
Distributions declared to shareholders --
From net investment income .......................................... $ (5,213) $ (34,941,362)
From net realized gain on investments and foreign currency
transactions ...................................................... -- --
----------- -------------
Total distributions declared to shareholders ..................... $ (5,213) $ (34,941,362)
----------- -------------
Trust share transactions --
Net proceeds from sale of shares .................................... $62,420,583 $ 136,422,449
Net asset value of shares issued to shareholders in reinvestment of
distributions ...................................................... 5,213 34,941,362
Cost of shares reacquired .......................................... (3,467,672) (100,768,585)
----------- -------------
Increase (decrease) in net assets from Trust share transactions ... $58,958,124 $ 70,595,226
----------- -------------
Total increase in net assets .................................... $67,959,199 $ 260,273,047
Net assets:
Beginning of year ................................................... 3,868,914 839,614,350
----------- -------------
End of year ......................................................... $71,828,113 $1,099,887,397
=========== =============
Accumulated undistributed net investment income included in
net assets at end of year .......................................... $ 328,042 $ 44,654,745
=========== =============
<CAPTION>
Utilities World Asset
Series Allocation Series
-------------- -------------------
<S> <C> <C>
Increase (decrease) in net assets from:
Operations --
Net investment income ............................................. $ 1,349,687 $ 488,885
Net realized gain on investments and foreign currency transactions 1,964,180 800,505
Net unrealized gain on investments and foreign currency translation 5,215,776 1,398,356
----------- -----------
Increase in net assets from operations .............................. $ 8,529,643 $ 2,687,746
----------- -----------
Distributions declared to shareholders --
From net investment income .......................................... $ (673,961) $ (6,089)
From net realized gain on investments and foreign currency
transactions ...................................................... -- --
----------- -----------
Total distributions declared to shareholders ..................... $ (673,961) $ (6,089)
----------- -----------
Trust share transactions --
Net proceeds from sale of shares .................................... $21,368,373 $21,306,554
Net asset value of shares issued to shareholders in reinvestment of
distributions ...................................................... 673,961 6,089
Cost of shares reacquired .......................................... (8,212,008) (1,134,082)
----------- -----------
Increase (decrease) in net assets from Trust share transactions ... $13,830,326 $20,178,561
----------- -----------
Total increase in net assets .................................... $21,686,008 $22,860,218
Net assets:
Beginning of year ................................................... 21,448,352 3,003,175
----------- -----------
End of year ......................................................... $43,134,360 $25,863,393
=========== ===========
Accumulated undistributed net investment income included in
net assets at end of year .......................................... $ 1,347,427 $ 443,797
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
World
Governments Series
---------------------
<S> <C>
Increase (decrease) in net assets from:
Operations --
Net investment income ............................................. $ 10,077,304
Net realized gain (loss) on investments and foreign currency
transactions ...................................................... 14,107,660
Net unrealized gain (loss) on investments and foreign currency
translation ...................................................... (2,587,887)
------------
Increase in net assets from operations ........................... $ 21,597,077
------------
Distributions declared to shareholders --
From net investment income ....................................... $ (70,904)
From net realized gain on investments and foreign currency
transactions ...................................................... (7,889,471)
------------
Total distributions declared to shareholders ..................... $ (7,960,375)
------------
Trust share transactions --
Net proceeds from sale of shares ................................. $ 36,410,013
Net asset value of shares issued to shareholders in reinvestment of
distributions ...................................................... 7,960,375
Cost of shares reacquired .......................................... (44,674,805)
------------
Increase (decrease) in net assets from Trust share transactions $ (304,417)
------------
Total increase in net assets .................................... $ 13,332,285
Net assets:
Beginning of year ................................................ 139,154,907
------------
End of year ...................................................... $152,487,192
============
Accumulated undistributed net investment income included in
net assets at end of year .......................................... $ 25,666,880
============
<CAPTION>
Zero Coupon
World World Total Series
Growth Series Return Series 2000 Portfolio
---------------- ---------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in net assets from:
Operations --
Net investment income ............................................. $ 728,568 $ 261,133 $ 168,649
Net realized gain (loss) on investments and foreign currency
transactions ...................................................... 11,783,396 174,347 (20,451)
Net unrealized gain (loss) on investments and foreign currency
translation ...................................................... 6,613,757 652,694 461,824
------------- ---------- ---------
Increase in net assets from operations ........................... $ 19,125,721 $1,088,174 $ 610,022
------------- ---------- ---------
Distributions declared to shareholders --
From net investment income ....................................... $ (1,411,794) $ (2,399) $(173,697)
From net realized gain on investments and foreign currency
transactions ...................................................... (1,739,413) -- --
------------- ---------- ---------
Total distributions declared to shareholders ..................... $ (3,151,207) $ (2,399) $(173,697)
------------- ---------- ---------
Trust share transactions --
Net proceeds from sale of shares ................................. $ 52,969,836 $12,285,163 $1,609,509
Net asset value of shares issued to shareholders in reinvestment of
distributions ...................................................... 3,151,207 2,399 173,697
Cost of shares reacquired .......................................... (25,751,488) (971,428) (883,928)
------------- ---------- ---------
Increase (decrease) in net assets from Trust share transactions $ 30,369,555 $11,316,134 $ 899,278
------------- ---------- ---------
Total increase in net assets .................................... $ 46,344,069 $12,401,909 $1,335,603
Net assets:
Beginning of year ................................................ 100,044,164 1,384,029 3,280,253
------------- ---------- ---------
End of year ...................................................... $ 146,388,233 $13,785,938 $4,615,856
============= ========== =========
Accumulated undistributed net investment income included in
net assets at end of year .......................................... $ 1,148,560 $ 486,991 $ 168,949
============= ========== =========
</TABLE>
See notes to financial statements
76
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights
<TABLE>
<CAPTION>
Capital Appreciation
Series
------------------------
Year Ended December 31,
------------------------
Per share data (for a share outstanding throughout each year): 1996 1995
------------ -----------
<S> <C> <C>
Net asset value -- beginning of year ....................................... $ 31.9878 $24.4076
--------- --------
Income from investment operations# --
Net investment income (loss) ............................................. $ (0.0200) $ 0.0933
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................... 6.7422 8.1619
--------- --------
Total from investment operations ....................................... $ 6.7222 $ 8.2552
--------- --------
Less distributions --
From net investment income ................................................ $ (0.0322) $(0.0568)
From net realized gain on investments and foreign currency transactions ... (2.8462) (0.6182)
--------- --------
Total distributions ................................................... $ (2.8784) $(0.6750)
--------- --------
Net asset value -- end of year ............................................. $ 35.8316 $31.9878
========= ========
Total return[dbldag] ...................................................... 21.48% 34.46%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.80% 0.83%
Net investment income (loss) ............................................. (0.05)% 0.32%
Portfolio turnover ......................................................... 67% 89%
Average commission rate### ................................................ $ 0.0463 --
Net assets, end of year (000 omitted) .................................... $1,061,631 $797,102
<CAPTION>
Capital Appreciation Series
----------------------------------
Year Ended December 31,
----------------------------------
Per share data (for a share outstanding throughout each year): 1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Net asset value -- beginning of year ....................................... $28.1892 $24.8989 $23.0886
-------- -------- --------
Income from investment operations# --
Net investment income (loss) ............................................. $ 0.0523 $ 0.1036 $ 0.0909
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................... (1.1104) 4.2197 2.9238
-------- -------- --------
Total from investment operations ....................................... $(1.0581) $ 4.3233 $ 3.0147
-------- -------- --------
Less distributions --
From net investment income ................................................ $(0.1306) $(0.1095) $(0.1831)
From net realized gain on investments and foreign currency transactions ... (2.5929) (0.9235) (1.0213)
-------- -------- --------
Total distributions ................................................... $(2.7235) $(1.0330) $(1.2044)
-------- -------- --------
Net asset value -- end of year ............................................. $24.4076 $28.1892 $24.8989
======== ======== ========
Total return[dbldag] ...................................................... (3.60)% 18.00% 13.61%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.83% 0.83% 0.87%
Net investment income (loss) ............................................. 0.24% 0.48% 0.50%
Portfolio turnover ......................................................... 52% 70% 69%
Average commission rate### ................................................ -- -- --
Net assets, end of year (000 omitted) .................................... $476,508 $420,552 $262,645
</TABLE>
<TABLE>
<CAPTION>
Conservative Growth Series
-----------------------------------------------------------
Year Ended December 31,
-----------------------------------------------------------
Per share data
(for a share outstanding throughout each year): 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value -- beginning of year .................. $22.0182 $16.4563 $16.9289 $16.0717 $16.8547
-------- -------- -------- -------- --------
Income from investment operations# --
Net investment income[sec] ........................... $ 0.4100 $ 0.4318 $ 0.2942 $ 0.2041 $ 0.1810
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ..................... 5.0415 5.6172 (0.4790) 1.1280 0.6747
-------- -------- -------- -------- --------
Total from investment operations .................. $ 5.4515 $ 6.0490 $(0.1848) $ 1.3321 $ 0.8557
-------- -------- -------- -------- --------
Less distributions --
From net investment income ........................... $(0.2936) $(0.3037) $(0.1996) $(0.1509) $(0.1387)
From net realized gain on investments and foreign
currency transactions ................................. (0.6783) (0.1834) (0.0882) (0.3240) (1.5000)
-------- -------- -------- -------- --------
Total distributions ................................. $(0.9719) $(0.4871) $(0.2878) $(0.4749) $(1.6387)
-------- -------- -------- -------- --------
Net asset value -- end of year ........................ $26.4978 $22.0182 $16.4563 $16.9289 $16.0717
======== ======== ======== ======== ========
Total return[dbldag] ................................. 25.41% 37.41% (1.10)% 8.43% 5.71%
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## .......................................... 0.61% 0.64% 0.64% 0.66% 0.80%
Net investment income ................................. 1.71% 2.25% 2.42% 2.05% 1.84%
Portfolio turnover .................................... 51% 60% 146% 19% 40%
Average commission rate### ........................... $ 0.0502 -- -- -- --
Net assets, end of year (000 omitted) .................. $571,008 $302,024 $150,318 $95,770 $44,455
<CAPTION>
Emerging Growth Series
-------------------------------
Year Period
Ended Ended
December 31, December 31,
Per share data
(for a share outstanding throughout each year): 1996 1995*
--------------- --------------
<S> <C> <C>
Net asset value -- beginning of year .................. $12.6867 $10.0000**
-------- -----------
Income from investment operations# --
Net investment income[sec] ........................... $ 0.0175 $ 0.0788
Net realized and unrealized gain (loss) on investments
and foreign currency transactions ..................... 2.1506 2.6079
-------- -----------
Total from investment operations .................. $ 2.1681 $ 2.6867
-------- -----------
Less distributions --
From net investment income ........................... $(0.0243) $ --
From net realized gain on investments and foreign
currency transactions ................................. -- --
-------- -----------
Total distributions ................................. $(0.0243) $ --
-------- -----------
Net asset value -- end of year ........................ $14.8305 $ 12.6867
======== ===========
Total return[dbldag] ................................. 17.15% 26.80%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## .......................................... 0.70% 0.24%+
Net investment income ................................. 0.12% 1.13%+
Portfolio turnover .................................... 88% 28%
Average commission rate### ........................... $ 0.0346 --
Net assets, end of year (000 omitted) .................. $250,826 $67,255
</TABLE>
*From May 1, 1995 (commencement of investment operations) to December 31,
1995.
**Net asset value on date of commencement of operations.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning
on or after September 1, 1995.
[dbldag]The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.) and Sun
Life (N.Y.). Inclusion of these charges would reduce the total return figures
for all periods shown.
[sec]The investment adviser voluntarily waived all or a portion of its advisory
fee for the Emerging Growth Series for the periods indicated. If the waiver had
not been in place, the net investment income (loss) per share and the ratios
would have been:
<TABLE>
<CAPTION>
Emerging Growth Series
-------------------------------------------
Year Ended Period Ended
December 31, 1996 December 31, 1995*
-------------------- --------------------
<S> <C> <C>
Net investment income (loss) ...... $(0.0406) $0.0265
Ratios (to average net assets):
Expenses## ........................ 0.84% 1.00%+
Net investment income (loss) ...... (0.02)% 0.38%+
</TABLE>
See notes to financial statements
77
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
Government Securities
Series
-----------------------
Year Ended December 31,
-----------------------
Per share data (for a share outstanding throughout each year): 1996 1995
----------- -----------
<S> <C> <C>
Net asset value -- beginning of year ....................................... $13.3900 $12.1219
-------- --------
Income from investment operations# --
Net investment income ................................................... $ 0.8445 $ 0.8311
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.6620) 1.2183
-------- --------
Total from investment operations ....................................... $ 0.1825 $ 2.0494
-------- --------
Less distributions --
From net investment income ................................................ $(0.7053) $(0.7813)
From net realized gain on investments and foreign currency transactions ... -- --
-------- --------
Total distributions ...................................................... $(0.7053) $(0.7813)
-------- --------
Net asset value -- end of year ............................................. $12.8672 $13.3900
======== ========
Total return[dbldag] ...................................................... 1.65% 17.66%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.63% 0.63%
Net investment income ................................................... 6.60% 6.59%
Portfolio turnover ......................................................... 57% 80%
Net assets, end of year (000 omitted) .................................... $383,107 $368,848
<CAPTION>
Government Securities Series
----------------------------------
Year Ended December 31,
----------------------------------
Per share data (for a share outstanding throughout each year): 1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Net asset value -- beginning of year ....................................... $13.0951 $13.0059 $13.0369
-------- -------- --------
Income from investment operations# --
Net investment income ................................................... $ 0.6366 $ 0.5742 $ 0.7170
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.9238) 0.5220 0.0976
-------- -------- --------
Total from investment operations ....................................... $(0.2872) $ 1.0962 $ 0.8146
-------- -------- --------
Less distributions --
From net investment income ................................................ $(0.4959) $(0.6603) $(0.8027)
From net realized gain on investments and foreign currency transactions ... (0.1901) (0.3467) (0.0429)
-------- -------- --------
Total distributions ...................................................... $(0.6860) $(1.0070) $(0.8456)
-------- -------- --------
Net asset value -- end of year ............................................. $12.1219 $13.0951 $13.0059
======== ======== ========
Total return[dbldag] ...................................................... (2.21)% 8.70% 6.81%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.62% 0.63% 0.66%
Net investment income ................................................... 6.01% 5.92% 6.56%
Portfolio turnover ......................................................... 90% 96% 304%
Net assets, end of year (000 omitted) .................................... $347,150 $310,521 $203,739
</TABLE>
<TABLE>
<CAPTION>
High Yield Series
-----------------------
Year Ended December 31,
-----------------------
Per share data (for a share outstanding throughout each year): 1996 1995
----------- -----------
<S> <C> <C>
Net asset value -- beginning of year ....................................... $ 8.9222 $ 8.1860
-------- --------
Income from investment operations# --
Net investment income ................................................... $ 0.8012 $ 0.7891
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ 0.2131 0.5494
-------- --------
Total from investment operations ....................................... $ 1.0143 $ 1.3385
-------- --------
Less distributions from net investment income .............................. $(0.7234) $(0.6023)
-------- --------
Net asset value -- end of year ............................................. $ 9.2131 $ 8.9222
======== ========
Total return[dbldag] ...................................................... 12.12% 16.93%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.84% 0.87%
Net investment income ................................................... 9.01% 9.17%
Portfolio turnover ......................................................... 88% 66%
Net assets, end of year (000 omitted) .................................... $196,498 $153,800
<CAPTION>
High Yield Series
------------------------------------
Year Ended December 31,
------------------------------------
Per share data (for a share outstanding throughout each year): 1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Net asset value -- beginning of year ....................................... $ 9.1120 $ 8.3279 $ 8.1299
-------- -------- --------
Income from investment operations# --
Net investment income ................................................... $ 0.8226 $ 0.5915 $ 0.7314
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (1.0387) 0.8242 0.3823
-------- -------- --------
Total from investment operations ....................................... $(0.2161) $ 1.4157 $ 1.1137
-------- -------- --------
Less distributions from net investment income .............................. $(0.7099) $(0.6316) $(0.9157)
-------- -------- --------
Net asset value -- end of year ............................................. $ 8.1860 $ 9.1120 $ 8.3279
======== ======== ========
Total return[dbldag] ...................................................... (2.16)% 17.68% 14.99%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.86% 0.88% 0.97%
Net investment income ................................................... 8.94% 8.76% 9.07%
Portfolio turnover ......................................................... 82% 53% 73%
Net assets, end of year (000 omitted) .................................... $102,194 $97,884 $54,564
</TABLE>
# Per share data for the periods subsequent to December 31, 1992 is based
on average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
[dbldag]The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.)
and Sun Life (N.Y.). Inclusion of these charges would reduce the total
return figures for all periods shown.
See notes to financial statements
78
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
Managed Sectors Series
-----------------------
Year Ended December 31,
-----------------------
Per share data (for a share outstanding throughout each year): 1996 1995
----------- -----------
<S> <C> <C>
Net asset value -- beginning of year ....................................... $25.4468 $19.8823
-------- --------
Income from investment operations# --
Net investment income (loss) ............................................. $ 0.0200 $ 0.0979
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ 4.2817 6.1880
-------- --------
Total from investment operations ....................................... $ 4.3017 $ 6.2859
-------- --------
Less distributions --
From net investment income ................................................ $(0.0758) $(0.0542)
From net realized gain on investments and foreign currency transactions ... (3.4224) (0.6672)
-------- --------
Total distributions ...................................................... $(3.4982) $(0.7214)
-------- --------
Net asset value -- end of year ............................................. $26.2503 $25.4468
======== ========
Total return[dbldag] ...................................................... 17.58% 32.29%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.82% 0.84%
Net investment income (loss) ............................................. 0.09% 0.42%
Portfolio turnover ......................................................... 121% 113%
Average commission rate### ................................................ $ 0.0475 --
Net assets, end of year (000 omitted) .................................... $266,368 $194,351
<CAPTION>
Managed Sectors Series
-------------------------------------
Year Ended December 31,
-------------------------------------
Per share data (for a share outstanding throughout each year): 1994 1993 1992
----------- ----------- -------------
<S> <C> <C> <C>
Net asset value -- beginning of year ....................................... $23.2419 $22.3342 $ 21.0115
-------- -------- ---------
Income from investment operations# --
Net investment income (loss) ............................................. $ 0.0982 $ 0.0027 $ (0.0565)
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.6610) 0.9050 1.4184
-------- -------- ---------
Total from investment operations ....................................... $(0.5628) $ 0.9077 $ 1.3619
-------- -------- ---------
Less distributions --
From net investment income ................................................ $(0.0239) $ -- $ (0.0392)
From net realized gain on investments and foreign currency transactions ... (2.7729) -- --
-------- -------- ---------
Total distributions ...................................................... $(2.7968) $ -- $ (0.0392)
-------- -------- ---------
Net asset value -- end of year ............................................. $19.8823 $23.2419 $ 22.3342
======== ======== =========
Total return[dbldag] ...................................................... (1.94)% 4.08% 6.48%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.87% 0.84% 0.93%
Net investment income (loss) ............................................. 0.53% 0.01% (0.35)%
Portfolio turnover ......................................................... 103% 116% 22%
Average commission rate### ................................................ -- -- --
Net assets, end of year (000 omitted) .................................... $118,987 $104,964 $ 83,413
</TABLE>
<TABLE>
<CAPTION>
MFS/Foreign
& Colonial
Emerging
Markets
Equity Series
-----------------
Period Ended
December 31,
1996***
-----------------
<S> <C>
Per share data (for a share outstanding throughout each year):
Net asset value -- beginning of year ....................................... $10.0000****
------------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.0706
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.0693)
------------
Total from investment operations ....................................... $ 0.0013
------------
Net asset value -- end of year ............................................. $10.0013
============
Total return[dbldag] ...................................................... 0.00%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ............................................................... 1.50%+
Net investment income ................................................... 0.77%+
Portfolio turnover ......................................................... 4%
Average commission rate### ................................................ $ 0.0011
Net assets, end of year (000 omitted) .................................... $ 3,271
<CAPTION>
MFS/Foreign
& Colonial
International
Growth Series
-
Period Ended
December 31,
1996*
-
<S> <C>
Per share data (for a share outstanding throughout each year):
Net asset value -- beginning of year ....................................... $10.0000****
------------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.0748
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.2535)
--------
Total from investment operations ....................................... $(0.1787)
--------
Net asset value -- end of year ............................................. $ 9.8213
========
Total return[dbldag] ...................................................... (1.70)%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ............................................................... 1.50%+
Net investment income ................................................... 1.47%+
Portfolio turnover ......................................................... 3%
Average commission rate### ................................................ $ 0.0252
Net assets, end of year (000 omitted) .................................... $5,525
<CAPTION>
MFS/Foreign & Colonial
International Growth and
Income Series
Year Ended Period E
December 31, December
1996 1995**
<S> <C> <C>
Per share data (for a share outstanding throughout each year):
Net asset value -- beginning of year ....................................... $10.1282 $10.0000****
-------- --------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.2326 $ 0.0295
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ 0.2639 0.0987
-------- ---------
Total from investment operations ....................................... $ 0.4965 $ 0.1282
-------- ---------
Net asset value -- end of year ............................................. $10.6247 $10.1282
======== ========
Total return[dbldag] ...................................................... 4.84% 1.30%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ............................................................... 0.97% 1.50%+
Net investment income ................................................... 2.21% 1.64%+
Portfolio turnover ......................................................... 51% --
Average commission rate### ................................................ $ 0.0173 --
Net assets, end of year (000 omitted) .................................... $ 35,710 $7,179
</TABLE>
*From June 3, 1996 (commencement of investment operations) to December 31,
1996.
**From October 2, 1995 (commencement of investment operations) to December 31,
1995.
***From June 5, 1996 (commencement of investment operations) to December 31,
1996.
****Net asset value on date of commencement of operations.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning
on or after September 1, 1995.
[dbldag]The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.) and Sun
Life (N.Y.). Inclusion of these charges would reduce the total return figures
for all periods shown.
[sec]The investment adviser voluntarily agreed to maintain the expenses of the
MFS/Foreign & Colonial Emerging Markets Equity Series, MFS/Foreign & Colonial
International Growth Series and MFS/Foreign & Colonial International Growth and
Income Series at not more than 1.50% of average daily net assets. In addition,
the investment adviser voluntarily waived all or a portion of its advisory fee
for the periods indicated. To the extent actual expenses were over these
limitations, the net investment income (loss) per share and the ratios would
have been:
<TABLE>
<CAPTION>
MFS/Foreign
& Colonial MFS/Foreign
Emerging & Colonial MFS/Foreign & Colonial
Markets International International Growth and
Equity Series Growth Series Income Series
--------------- ---------------- --------------------------------
Period Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1996*** 1996* 1996 1995**
--------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Net investment income (loss) ...... $(0.0975) $0.0265 $0.2101 $0.0119
Ratios (to average net assets):
Expenses## ........................ 3.38%+ 2.50%+ 1.16% 2.48%+
Net investment income (loss) ...... (1.12)%+ 0.46%+ 2.02% 0.66%+
</TABLE>
See notes to financial statements
79
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
Money Market Series
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each year):
Net asset value -- beginning of year ........................ $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
-------- -------- -------- -------- --------
Income from investment operations ........................... $ 0.0483 $ 0.0520 $ 0.0363 $ 0.0256 $ 0.0325
-------- -------- -------- -------- --------
Less distributions from net investment income .................. $(0.0483) $(0.0520) $(0.0363) $(0.0256) $(0.0325)
-------- -------- -------- -------- --------
Net asset value -- end of year .............................. $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000
======== ======== ======== ======== ========
Total return[dbldag] .......................................... 4.95% 5.44% 3.69% 2.59% 3.30%
Ratios (to average net assets)/Supplemental data:
Expenses## ................................................... 0.56% 0.59% 0.58% 0.58% 0.60%
Net investment income ....................................... 4.82% 5.30% 3.74% 2.60% 3.29%
Net assets, end of year (000 omitted) ........................ $409,165 $282,754 $252,175 $142,464 $134,799
</TABLE>
<TABLE>
<CAPTION>
Research Series
------------------------------------------
Period Ended
Year Ended December 31, December 31,
-----------------------
1996 1995 1994*
----------- ----------- -----------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each year):
Net asset value -- beginning of year ...... $13.5777 $ 9.8761 $10.0000**
-------- -------- ----------
Income from investment operations# --
Net investment income[sec] ............... $ 0.0797 $ 0.1401 $ 0.0131
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .............................. 3.1330 3.5651 (0.1370)
-------- -------- ----------
Total from investment operations ...... $ 3.2127 $ 3.7052 $ (0.1239)
-------- -------- ----------
Less distributions --
From net investment income ............... $(0.0328) $(0.0036) $ --
From net realized gain on investments and
foreign currency transactions ............ (0.1841) -- --
-------- -------- ----------
Total distributions ..................... $(0.2169) $(0.0036) $ --
-------- -------- ----------
Net asset value -- end of year ............ $16.5735 $13.5777 $ 9.8761
======== ======== ==========
Total return[dbldag] ..................... 23.76% 37.50% (1.20)%++
Ratios (to average net assets)/Supplemental
data[sec]:
Expenses## .............................. 0.84% 0.58% 1.50%+
Net investment income ..................... 0.52% 1.16% 1.80%+
Portfolio turnover ........................ 70% 81% 3%
Average commission rate### ............... $ 0.0280 -- --
Net assets, end of year (000 omitted) ...... $325,389 $ 71,828 $ 3,869
<CAPTION>
Total Return Series
---------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each year):
Net asset value -- beginning of year ...... $18.3848 $15.0862 $16.0946 $14.7219 $14.2209
--------- --------- ---------- -------- --------
Income from investment operations# --
Net investment income[sec] ............... $ 0.7677 $ 0.7824 $ 0.5639 $ 0.4319 $ 0.5389
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .............................. 1.6795 3.1527 (0.9310) 1.5044 0.6247
--------- --------- ---------- -------- --------
Total from investment operations ...... $ 2.4472 $ 3.9351 $(0.3671) $ 1.9363 $ 1.1636
--------- --------- ---------- -------- --------
Less distributions --
From net investment income ............... (0.7189) $(0.6365) (0.4344) (0.4798) (0.5673)
From net realized gain on investments and
foreign currency transactions ............ (0.6734) -- (0.2069) (0.0838) (0.0953)
--------- --------- ---------- -------- --------
Total distributions ..................... $(1.3923) $(0.6365) $(0.6413) $(0.5636) $(0.6626)
--------- --------- ---------- -------- --------
Net asset value -- end of year ............ $19.4397 $18.3848 $15.0862 $16.0946 $14.7219
========= ========= ========== ======== ========
Total return[dbldag] ..................... 14.10% 26.71% (2.22)% 13.37% 8.57%
Ratios (to average net assets)/Supplemental
data[sec]:
Expenses## .............................. 0.72% 0.76% 0.76% 0.78% 0.85%
Net investment income ..................... 4.15% 4.70% 4.34% 4.06% 4.96%
Portfolio turnover ........................ 134% 108% 66% 102% 71%
Average commission rate### ............... $ 0.0539 -- -- -- --
Net assets, end of year (000 omitted) ...... $1,335,022 $1,099,887 $839,614 $696,496 $397,385
</TABLE>
*From November 7, 1994 (commencement of investment operations) to December 31,
1994.
**Net asset value on date of commencement of operations.
+Annualized.
++Not annualized.
#Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning
on or after September 1, 1995.
[dbldag]The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.) and Sun
Life (N.Y.). Inclusion of these charges would reduce the total return figures
for all periods shown.
[sec]The investment adviser voluntarily waived a portion of its advisory fee
for the Research Series for the period indicated. If the waiver had not been in
place, the net investment income per share and the ratios would have been:
Research Series
------------------------------
Year Ended Period Ended
December 31, December 31,
1995 1994*
------------- -------------
Net investment income ......... $0.0954 $(0.0145)
Ratios (to average net assets):
Expenses## .................. 0.95% 3.49%+
Net investment income ...... 0.79% (0.19)%+
See notes to financial statements
80
<PAGE>
<TABLE>
<CAPTION>
Utilities Series
---------------------------------------------
Period Ended
Year Ended December 31, December 31,
------------------------------- -------------
Per share data (for a share outstanding
throughout each year): 1996 1995 1994 1993*
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $12.2598 $ 9.5209 $10.0164 $10.0000****
--------- --------- --------- -------------
Income from investment operations# --
Net investment incomeS. $ 0.5322 $ 0.4918 $ 0.2899 $ 0.0128
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.8548 2.5197 (0.7817) 0.0036
--------- --------- --------- -------------
Total from investment operations $ 2.3870 $ 3.0115 $(0.4918) $ 0.0164
--------- --------- --------- -------------
Less distributions --
From net investment income $(0.3160) $(0.2726) $(0.0037) $ --
From net realized gain on investments and
foreign currency transactions (0.3434) -- -- --
--------- --------- --------- -------------
Total distributions $(0.6594) $(0.2726) $(0.0037) $ --
--------- --------- --------- -------------
Net asset value -- end of year $13.9874 $12.2598 $ 9.5209 $10.0164
========= ========= ========= =============
Total return++ 20.37% 32.36% (4.96)% 1.59%+
Ratios (to average net assets)/Supplemental
dataS.:
Expenses## 0.88% 0.44% 0.39% 1.50%+
Net investment income 4.23% 4.62% 4.59% 2.58%+
Portfolio turnover 131% 119% 103% --
Average commission rate### $0.0435 -- -- --
Net assets, end of year (000 omitted) $70,680 $43,134 $21,448 $2,798
</TABLE>
<TABLE>
<CAPTION>
Value Series World Asset Allocation Series
------------- -----------------------------------
Period Ended Year Ended December Period Ended
December 31, 31, December 31,
------------- -------------------- -------------
Per share data (for a share outstanding
throughout each year): 1996*** 1996 1995 1994**
------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net asset value -- beginning of year $10.0000**** $12.2250 $10.0579 $10.0000****
------------- --------- --------- -------------
Income from investment operations# --
Net investment incomeS. $ 0.0916 $ 0.3731 $ 0.4205 $ 0.0220
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.9139 1.5563 1.7540 0.0359
------------- --------- --------- -------------
Total from investment operations $ 1.0055 $ 1.9294 $ 2.1745 $ 0.0579
------------- --------- --------- -------------
Less distributions --
From net investment income $ -- $(0.1300) $(0.0074) $ --
From net realized gain on investments and
foreign currency transactions -- (0.2450) -- --
------------- --------- --------- -------------
Total distributions $ -- $(0.3750) $(0.0074) $ --
------------- --------- --------- -------------
Net asset value -- end of year $11.0055 $13.7794 $12.2250 $10.0579
============= ========= ========= =============
Total return++ 10.10%+++ 16.04% 21.56% 0.60%+++
Ratios (to average net assets)/Supplemental
dataS.:
Expenses## 0.60%+ 0.94% 0.67% 1.50%+
Net investment income 1.75%+ 2.84% 3.70% 3.13%+
Portfolio turnover 52% 154% 146% 2%
Average commission rate### $0.0228 $0.0233 -- --
Net assets, end of year (000 omitted) $16,700 $77,016 $25,863 $3,003
</TABLE>
*From November 16, 1993 (commencement of investment operations) to
December 31, 1993.
**From November 7, 1994 (commencement of investment operations) to
December 31, 1994.
***From June 3, 1996 (commencement of investment operations) to
December 31, 1996.
****Net asset value on date of commencement of operations.
+Annualized.
+++Not annualized.
#Per share data is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years beginning
on or after September 1, 1995.
++The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.) and
Sun Life (N.Y.). Inclusion of these charges would reduce the total return
figures for all periods shown.
Sec.The investment adviser voluntarily waived all or a portion of its advisory
fee for the Utilities Series, Value Series and World Asset Allocation Series
for the periods indicated. In addition, the investment adviser voluntarily
agreed to maintain the expenses of the Value Series at not more than 1.00% of
average daily net assets. If the waivers had not been in place and, with
respect to the Value Series, to the extent actual expenses were over these
limitations, the net investment income per share and the ratios would have
been:
<TABLE>
<CAPTION>
World Asset
Utilities Series Value Series Allocation Series
-------------------------------------- --------------- -------------------------
Year Ended Period Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31, December 31,
-------------------
1995 1994 1993* 1996*** 1995 1994**
----------- ----------------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income $0.4375 $0.2412 $(0.0407) $0.0537 $0.3716 $0.0041
Ratios (to average net assets):
Expenses## 0.95% 1.14% 9.71%+ 1.35%+ 1.11% 4.05%+
Net investment income 4.12% 3.84% (5.63)%+ 1.02%+ 3.27% 0.58%+
</TABLE>
81
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
World Governments
Series
-----------------------
Year Ended December 31,
-----------------------
Per share data (for a share outstanding throughout each year): 1996 1995
----------- -----------
<S> <C> <C>
Net asset value -- beginning of year ....................................... $12.4866 $11.3769
-------- --------
Income from investment operations# --
Net investment income ...................................................... $ 0.6882 $ 0.8031
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.2081) 0.9511
-------- --------
Total from investment operations ....................................... $ 0.4801 $ 1.7542
-------- --------
Less distributions --
From net investment income ................................................ $(1.7085) $(0.0058)
From net realized gain on investments and foreign currency transactions ... -- (0.6387)
-------- --------
Total distributions ................................................... $(1.7085) $(0.6445)
-------- --------
Net asset value -- end of year ............................................. $11.2582 $12.4866
======== ========
Total return[dbldag] ...................................................... 4.66% 15.69%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.90% 0.89%
Net investment income ................................................... 6.00% 6.67%
Portfolio turnover ......................................................... 390% 329%
Net assets, end of year (000 omitted) .................................... $141,764 $152,487
<CAPTION>
World Governments Series
----------------------------------
Year Ended December 31,
----------------------------------
Per share data (for a share outstanding throughout each year): 1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
Net asset value -- beginning of year ....................................... $13.0212 $11.7966 $12.7397
-------- -------- --------
Income from investment operations# --
Net investment income ...................................................... $ 0.6095 $ 0.5352 $ 0.6429
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (1.2295) 1.5819 (0.6141)
-------- -------- --------
Total from investment operations ....................................... $(0.6200) $ 2.1171 $ 0.0288
-------- -------- --------
Less distributions --
From net investment income ................................................ $(0.8823) $(0.8925) $(0.6581)
From net realized gain on investments and foreign currency transactions ... (0.1420) -- (0.3138)
-------- -------- --------
Total distributions ................................................... $(1.0243) $(0.8925) $(0.9719)
-------- -------- --------
Net asset value -- end of year ............................................. $11.3769 $13.0212 $11.7966
======== ======== ========
Total return[dbldag] ...................................................... (4.46)% 18.84% 0.54%
Ratios (to average net assets)/Supplemental data:
Expenses## ............................................................... 0.90% 0.95% 1.03%
Net investment income ................................................... 6.06% 6.01% 7.02%
Portfolio turnover ......................................................... 269% 173% 147%
Net assets, end of year (000 omitted) .................................... $139,155 $135,085 $73,540
</TABLE>
#Per share data for the periods subsequent to December 31, 1992 is based on
average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are calculated
without reduction for fees paid indirectly.
[dbldag]The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.) and Sun
Life (N.Y.). Inclusion of these charges would reduce the total return figures
for all periods shown.
See notes to financial statements
82
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
World Growth Series Period Ended
----------------------------------- ---------------
Per share data Year Ended December 31, December 31,
----------------------------------- ---------------
<S> <C> <C> <C> <C>
(for a share outstanding throughout each year): 1996 1995 1994 1993*
-------- -------- -------- ------------
Net asset value -- beginning of year ............ $12.3464 $10.9425 $10.6366 $ 10.0000***
-------- -------- -------- ------------
Income from investment operations# --
Net investment income[sec] ........................ $ 0.0232 $ 0.0689 $ 0.1506 $ 0.0088
Net realized and unrealized gain on
investments and foreign currency transactions ... 1.5878 1.6388 0.1590 0.6278
-------- -------- -------- ------------
Total from investment operations ............... $ 1.6110 $ 1.7077 $ 0.3096 $ 0.6366
-------- -------- -------- ------------
Less distributions --
From net investment income ..................... $(0.0886) $(0.1361) $(0.0037) $ --
From net realized gain on investments and foreign
currency transactions ........................... (0.8350) (0.1677) -- --
-------- -------- -------- -------------
Total distributions ........................... $(0.9236) $(0.3038) $(0.0037) $ --
-------- -------- -------- -------------
Net asset value -- end of year .................. $13.0338 $12.3464 $10.9425 $ 10.6366
======== ======== ======== =============
Total return[dbldag] .............................. 13.02% 16.06% 2.86% 50.78%+
Ratios (to average net assets)/Supplemental
data[sec]:
Expenses## ....................................... 1.04% 1.07% 0.47% 1.02%+
Net investment income ........................... 0.18% 0.60% 2.20% 1.23%+
Portfolio turnover .............................. 81% 162% 231% 2%
Average commission rate### ........................ $ 0.0142 -- -- --
Net assets, end of year (000 omitted) ............ $203,106 $146,388 $100,045 $ 18,879
<CAPTION>
World Total Return Series
-----------------------------------------
Per share data Year Ended Period Ended
December 31, December 31,
(for a share outstanding throughout each year): 1996 1995 1994**
-------- --------- ------------
<S> <C> <C> <C>
Net asset value -- beginning of year ............ $11.8346 $10.0405 $10.0000***
-------- --------- ------------
Income from investment operations# --
Net investment income[sec] ........................ $ 0.4131 $ 0.4437 $ 0.0247
Net realized and unrealized gain on
investments and foreign currency transactions ... 1.2480 1.3564 0.0158
-------- --------- ------------
Total from investment operations ............... $ 1.6611 $ 1.8001 $ 0.0405
-------- --------- ------------
Less distributions --
From net investment income ..................... $(0.2300) $(0.0060) $ --
From net realized gain on investments and foreign
currency transactions ........................... -- -- --
-------- --------- ------------
Total distributions ........................... $(0.2300) $(0.0060) $ --
-------- --------- ------------
Net asset value -- end of year .................. $13.2657 $11.8346 $ 10.0405
======== ========= ============
Total return[dbldag] .............................. 14.33% 17.89% 0.40%++
Ratios (to average net assets)/Supplemental
data[sec]:
Expenses## ....................................... 0.96% 0.77% 1.50%+
Net investment income ........................... 3.33% 4.01% 3.31%+
Portfolio turnover .............................. 148% 146% 1%
Average commission rate### ........................ $ 0.0229 -- --
Net assets, end of year (000 omitted) ............ $ 37,638 $13,786 $1,384
</TABLE>
*From November 16, 1993 (commencement of investment operations) to
December 31, 1993.
**From November 7, 1994 (commencement of investment operations) to
December 31, 1994.
***Net asset value on date of commencement of operations.
+Annualized.
++Not annualized.
#Per share data is based on average shares outstanding.
##For fiscal years ending after September 1, 1995, expenses are
calculated without reduction for fees paid indirectly.
###Average commission rate is calculated for Series with fiscal years
beginning on or after September 1, 1995.
[dbldag] The total return information shown above does not reflect expenses that
apply to the separate accounts established charges would reduce the
total return figures for all periods shown.
[sec] The investment adviser voluntarily waived all or a portion of its
advisory fee for the World Growth Series and World been in place, the
net investment income per share and the ratios would have been:
<TABLE>
<CAPTION>
World Total
World Growth Series Return Series
----------------------------------- -- ----------------------------------
Year Ended Period Ended Year Ended Period Ended
December 31, December 31, December 31, December 31,
1994 1993* 1995 1994**
------------- --------------- -- ------------- -------------
<S> <C> <C> <C> <C>
Net investment income ......... $0.0989 $0.0022 $0.3972 $(0.0405)
Ratios (to average net assets):
Expenses## .................. 1.20% 1.92%+ 1.19% 6.93%+
Net investment income ...... 1.47% 0.33%+ 3.59% (2.12)%+
</TABLE>
See notes to financial statements
83
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
Zero Coupon Series
2000 Portfolio
-----------------------
Year Ended December 31,
-----------------------
Per share data (for a share outstanding throughout each year): 1996 1995
----------- -----------
<S> <C> <C>
Net asset value -- beginning of year ....................................... $ 9.0619 $ 7.9573
-------- --------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.2094 $ 0.4340
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (0.0528) 1.1038
-------- --------
Total from investment operations ....................................... $ 0.1566 $ 1.5378
-------- --------
Less distributions --
From net investment income ................................................ $(0.3363) $(0.4332)
From net realized gain on investments .................................... -- --
-------- --------
Total distributions ...................................................... $(0.3363) $(0.4332)
-------- --------
Net asset value -- end of year ............................................. $ 8.8822 $ 9.0619
======== ========
Total return[dbldag] ...................................................... 1.91% 19.88%
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ............................................................... 0.50% 0.50%
Net investment income ................................................... 5.20% 5.16%
Portfolio turnover ......................................................... 2% 27%
Net assets, end of year (000 omitted) .................................... $ 4,337 $ 4,616
<CAPTION>
Zero Coupon Series
2000 Portfolio
--------------------------------------
Year Ended December 31,
--------------------------------------
Per share data (for a share outstanding throughout each year): 1994 1993 1992
----------- ----------- --------------
<S> <C> <C> <C>
Net asset value -- beginning of year ....................................... $11.1167 $11.0966 $ 11.3060
-------- -------- -----------
Income from investment operations# --
Net investment income[sec] ................................................ $ 0.3807 $ 0.6921 $ 0.8970
Net realized and unrealized gain (loss) on investments and foreign currency
transactions ............................................................ (1.1094) 0.8997 (0.0904)*
-------- -------- -----------
Total from investment operations ....................................... $(0.7287) $ 1.5918 $ 0.8066
-------- -------- -----------
Less distributions --
From net investment income ................................................ $(0.6250) $(0.8915) $ (0.8539)
From net realized gain on investments .................................... (1.8057) (0.6802) (0.1621)
-------- -------- -----------
Total distributions ...................................................... $(2.4307) $(1.5717) $ (1.0160)
-------- -------- -----------
Net asset value -- end of year ............................................. $ 7.9573 $11.1167 $ 11.0966
======== ======== ===========
Total return[dbldag] ...................................................... (6.99)% 15.03% 8.18%
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ............................................................... 0.50% 0.50% 0.50%
Net investment income ................................................... 4.93% 5.48% 7.08%
Portfolio turnover ......................................................... 12% 65% 16%
Net assets, end of year (000 omitted) .................................... $ 3,280 $ 3,547 $ 3,713
</TABLE>
* The per share amount is not in accord with the net realized and
unrealized loss for the period because of the timing of sales of Trust
shares and the amount of per share realized and unrealized gains and
losses at such time.
# Per share data for the periods subsequent to December 31, 1992 is based
on average shares outstanding.
## For fiscal years ending after September 1, 1995, expenses should be
calculated without the reduction of fees paid indirectly, however, the
investment adviser has voluntarily agreed to maintain the net expenses
of the Zero Coupon Series 2000 Portfolio at not more than 0.50% of
average daily net assets.
[dbldag] The total return information shown above does not reflect expenses that
apply to the separate accounts established by Sun Life of Canada (U.S.
and Sun Lfe (N.Y.). Inclusion of these charges would reduce the total
return figures for all periods shown.
[sec] The investment adviser voluntarily waived all or a portion of its
advisory fee for the Zero Coupon Series 2000 Portfolio for the period
indicated. If the waiver had not beein in place, the net investment
income per share and the ratios would have been:
Year Ended
December 31,
1996
-------------
Net investment income ......... $ 0.2045
Ratios (to average net assets):
Expenses## .................. 0.62%
Net investment income ...... 5.08%
See notes to financial statements
84
<PAGE>
MFS/Sun Life Series Trust
Notes to Financial Statements
(1) Organization
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 consisting of nineteen separate Series (the Series) of
shares: Capital Appreciation Series, Conservative Growth Series, Emerging Growth
Series, Government Securities Series, High Yield Series, Managed Sectors Series,
MFS/Foreign & Colonial Emerging Markets Equity Series, MFS/Foreign & Colonial
International Growth Series, MFS/Foreign & Colonial International Growth and
Income Series, Money Market Series, Research Series, Total Return Series,
Utilities Series, Value Series, World Asset Allocation Series, World Governments
Series, World Growth Series, World Total Return Series and Zero Coupon Series
2000 Portfolio. The High Yield Series, Managed Sectors Series, Utilities Series,
World Asset Allocation Series, World Governments Series, World Growth Series and
World Total Return Series are non-diversified as that term is defined in the
Investment Company Act of 1940, as amended. The shares of each Series are sold
only to variable accounts established by Sun Life Assurance Company of Canada
(U.S.) and Sun Life Insurance and Annuity Company of New York to Trust benefits
under variable contracts issued by such companies.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with 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. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. Debt securities (other than
short-term obligations which mature in 60 days or less), including listed issues
and forward contracts, are valued on the basis of valuations furnished by
dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates market value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Money market
instruments are valued at amortized cost, which the Trustees have determined in
good faith constitutes fair value. The Trust's use of amortized cost is subject
to the Trust's compliance with certain conditions as specified under Rule 2a-7
of the Investment Company Act of 1940. Futures contracts, options and options on
futures contracts listed on commodities exchanges are valued at closing
settlement prices. Over-the-counter options are valued by brokers through the
use of a pricing model which takes into account closing bond valuations, implied
volatility and short-term repurchase rates. Securities for which there are no
such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
Repurchase Agreements - Certain Series of the Trust may enter into repurchase
agreements with institutions that the Trust's investment adviser has determined
are creditworthy. Each repurchase agreement is recorded at cost. Such Series
require that the securities purchased in a repurchase transaction be transferred
to the custodian in a manner sufficient to enable the Trust to obtain those
securities in the event of a default under the repurchase agreement. The
investment adviser monitors, on a daily basis, the value of the securities
transferred to ensure that the value, including accrued interest, of the
securities under each repurchase agreement is greater than amounts owed to the
Series under each such repurchase agreement. Certain Series of the Trust, along
with other affiliated entities of Massachusetts Financial Services Company
(MFS), may utilize a joint trading account for the purpose of entering into one
or more repurchase agreements.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that result from fluctuations in foreign currency exchange rates is not
separately disclosed.
Written Options - Certain Series of the Trust may write covered call or put
options for which premiums are received and are recorded as liabilities, and are
subsequently adjusted to the current value of the options written. Premiums
received from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are closed are
offset against the proceeds or amount paid on the transaction to determine the
realized gain or loss. If a put option is exercised, the premium reduces the
cost basis of the security purchased. The Series, as writer of an option, may
have no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable change
in the price of the securities underlying the written option. In general,
written call options may serve as a partial hedge against decreases in value in
the underlying securities to the extent of the premium received. Written options
may also be used as part of an income-producing strategy reflecting the view of
the Series' management on the direction of interest rates.
Futures Contracts - Certain Series of the Trust may enter into futures contracts
for the delayed delivery of securities, currency or contracts based on financial
indices at a fixed price on a future date. Upon entering such contracts, the
Series are required to deposit either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Series each day, depending on the
85
<PAGE>
Notes to Financial Statements -- continued
daily fluctuations in the value of the underlying security, and are recorded for
financial statement purposes as unrealized gains or losses by the Series. The
Series' investment in futures contracts is designed to hedge against anticipated
future changes in interest or exchange rates or securities prices. Investments
in interest rate futures for purposes other than hedging may be made to modify
the duration of the portfolio without incurring the additional transaction costs
involved in buying and selling the underlying securities. Investments in
currency futures for purposes other than hedging may be made to change the
Series' relative position in one or more currencies without buying and selling
portfolio assets. Investments in equity index contracts, or contracts on related
options, for purposes other than hedging may be made when the Series has cash on
hand and wishes to participate in anticipated market appreciation while the cash
is being invested. Should interest or exchange rates or securities prices move
unexpectedly, the Series may not achieve the anticipated benefits of the futures
contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - Certain Series of the Trust may
enter into forward foreign currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks may
arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. The
Series will enter into forward contracts for hedging purposes as well as for
non-hedging purposes. For hedging purposes, the Series may enter into contracts
to deliver or receive foreign currency it will receive from or require for its
normal investment activities. It may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-
hedging purposes, the Series may enter into contracts with the intent of
changing the relative exposure of the Series' portfolio of securities to
different currencies to take advantage of anticipated changes. The forward
foreign currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for financial
statement purposes as unrealized until the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
original issue discount are amortized or accreted for financial statement and
tax reporting purposes as required by federal income tax regulations. Dividend
income is recorded on the ex-dividend date for dividends received in cash.
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 High Yield Series can invest up to 100% of its portfolio in high-yield
securities rated below investment grade. Investments in high-yield securities
involve greater degrees of credit and market risk than investments in
higher-rated securities, and tend to be more sensitive to economic conditions.
As appropriate based on its investments, certain Series of the Trust use the
effective interest method for reporting interest income on payment-in-kind (PIK)
bonds, whereby interest income on PIK bonds is recorded ratably by the Series at
a constant yield to maturity. Legal fees and other related expenses incurred to
preserve and protect the value of a security owned are added to the cost of the
security; other legal fees are expensed. Capital infusions, which are generally
non-recurring, incurred to protect or enhance the value of high-yield debt
securities, are reported as an addition to the cost basis of the security. Costs
that are incurred to negotiate the terms or conditions of capital infusions or
that are expected to result in a plan of reorganization are reported as realized
losses. Ongoing costs incurred to protect or enhance an investment, or costs
incurred to pursue other claims or legal actions, are reported as operating
expenses.
Fees Paid Indirectly - The Series' custodian bank calculates its fee based on
the Series' average daily net assets. The fee is reduced according to a fee
arrangement, which provides for custody fees to be reduced based on a formula
developed to measure the value of cash deposited with the custodian by the
Series. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - Each Series or portfolio of the Trust intends to
comply with the provisions of the Internal Revenue Code (the Code) applicable to
regulated investment companies and to distribute to shareholders all of its
taxable income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is necessary. Foreign taxes have been
provided for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. Distributions to
shareholders are recorded on the ex-dividend date.
The Trust distinguishes between distributions on a tax basis and a financial
reporting basis and requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. For the year ended December 31, 1996, the following amounts were
reclassified due to permanent differences between book and tax accounting for
currency transactions and paydown securities. These changes had no effect on the
net assets or net asset value per share.
<TABLE>
<CAPTION>
Capital Conservative Emerging
Appreciation Growth Growth
Series Series Series
--------------- --------------- -----------
<S> <C> <C> <C>
Increase (decrease):
Paid-in capital .......................................... $ -- $ -- $ --
Accumulated undistributed net realized gain on investments
and foreign currency transactions ........................ (494,794) 8,340 2,841
Accumulated undistributed net investment income ......... 494,794 (8,340) (2,841)
<CAPTION>
Government High Managed
Securities Yield Sectors
Series Series Series
------------- ------------ ----------
<S> <C> <C> <C>
Increase (decrease):
Paid-in capital .......................................... $ -- $ 9,864 $ --
Accumulated undistributed net realized gain on investments
and foreign currency transactions ........................ 141,247 (55,686) 10,229
Accumulated undistributed net investment income ......... (141,247) 45,822 (10,229)
<CAPTION>
MFS/Foreign MFS/Foreign MFS/Foreign
& Colonial & Colonial & Colonial
Emerging International International
Markets Growth Growth and Research
Equity Series Series Income Series Series
---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Increase (decrease):
Paid-in capital .......................................... $ -- $ -- $ -- $ --
Accumulated undistributed net realized gain on investments
and foreign currency transactions ........................ 4,358 5,556 129,823 18,442
Accumulated undistributed net investment income ......... (4,358) (5,556) (129,823) (18,442)
</TABLE>
86
<PAGE>
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
Total World Asset
Return Utilities Value Allocation
Series Series Series Series
------------- ------------ --------- --------------
<S> <C> <C> <C> <C>
Increase (decrease):
Paid-in capital ...................................................... $ -- $ -- $ -- $ --
Accumulated undistributed net realized gain on investments and foreign
currency transactions ................................................ 191,620 72,879 397 (130,908)
Accumulated undistributed net investment income ..................... (191,620) (72,879) (397) 130,908
<CAPTION>
World World
Governments Growth
Series Series
-------------- -------------
<S> <C> <C>
Increase (decrease):
Paid-in capital ...................................................... $ -- $ --
Accumulated undistributed net realized gain on investments and foreign
currency transactions ................................................ 9,171,757 (559,102)
Accumulated undistributed net investment income ..................... (9,171,757) 559,102
<CAPTION>
World Zero Coupon
Total Return Series
Series 2000 Portfolio
--------------- ----------------
<S> <C> <C>
Increase (decrease):
Paid-in capital ...................................................... $ -- $ (19)
Accumulated undistributed net realized gain on investments and foreign
currency transactions ................................................ 148,860 322
Accumulated undistributed net investment income ..................... (148,860) (303)
</TABLE>
At December 31, 1996, the following Series had capital loss carryforwards for
federal income tax purposes which may be applied against any net taxable
realized gains of each succeeding year until the earlier of their utilization or
expiration.
<TABLE>
<CAPTION>
Portion Expiring December 31,
----------------------------------------------------
Total Carryover 1997 1998 1999
- ------------------------------------------------------ --------------- ------ ------- -------
<S> <C> <C> <C> <C>
Government Securities Series ........................ $ 8,934,869 $ -- $ -- $ --
============== ======== ========== ==========
High Yield Series .................................... 8,682,830 553,314 2,535,112 1,654,123
============== ======== ========== ==========
MFS/Foreign & Colonial Emerging Markets Equity Series 5,296 -- -- --
============== ======== ========== ==========
MFS/Foreign & Colonial International Growth Series ... 7,804 -- -- --
============== ======== ========== ==========
Zero Coupon Series 2000 Portfolio .................. 46,129 -- -- --
============== ======== ========== ==========
<CAPTION>
Portion Expiring December 31,
------------------------------------------------------------
2000 2001 2002 2003 2004
- ------------------------------------------------------ -------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Government Securities Series ........................ $ -- $ -- $7,137,094 $ 76,697 $1,721,078
======== ========= =========== ========== ===========
High Yield Series .................................... 786,156 -- 960,740 2,193,385 --
======== ========= =========== ========== ===========
MFS/Foreign & Colonial Emerging Markets Equity Series -- -- -- -- 5,296
======== ========= =========== ========== ===========
MFS/Foreign & Colonial International Growth Series ... -- -- -- -- 7,804
======== ========= =========== ========== ===========
Zero Coupon Series 2000 Portfolio .................. -- -- 21,892 20,451 3,786
======== ========= =========== ========== ===========
</TABLE>
3. Transactions with Affiliates
The Trust has investment advisory agreements with Massachusetts Financial
Services Company (MFS), a wholly-owned subsidiary
of Sun Life Assurance Company of Canada (U.S.), to provide overall investment
advisory and administrative services, and general office facilities. Investment
advisory fees are computed daily and paid monthly at an effective annual rate
based on a percentage of each Series' average daily net assets. The agreements
also provide that each Series will be reimbursed for expenses in excess of the
expense limitation indicated below, calculated based on the average daily net
assets of each Series for the fiscal year. Investment advisory fees and expense
limitations are as follows:
<TABLE>
<CAPTION>
Investment Expense
Advisory Fees Limitations
---------------- -------------
<S> <C> <C>
Capital Appreciation Series ....................................... 0.75% 1.25%
Conservative Growth Series .......................................... 0.55% 1.25%
Emerging Growth Series ............................................. 0.75%* 1.50%
Government Securities Series ....................................... 0.55% 1.25%
High Yield Series ................................................... 0.75% 1.25%
Managed Sectors Series ............................................. 0.75%* 1.25%
MFS/Foreign & Colonial Emerging Markets Equity Series ............... 1.25% 1.50%
MFS/Foreign & Colonial International Growth Series .................. 0.975%* 1.50%
MFS/Foreign & Colonial International Growth and Income Series ...... 0.975%* 1.50%
Money Market Series ................................................ 0.50% 0.60%
Research Series ................................................... 0.75%* 1.50%
Total Return Series ................................................ 0.75%* 1.25%
Utilities Series ................................................... 0.75%* 1.00%
Value Series ...................................................... 0.75%* 1.00%
World Asset Allocation Series ....................................... 0.75%* 1.50%
World Governments Series .......................................... 0.75%* 1.00%
World Growth Series ................................................ 0.90% 1.50%
World Total Return Series .......................................... 0.75%* 1.50%
Zero Coupon Series 2000 Portfolio ................................. 0.25% 0.50%
</TABLE>
* The advisory fee for the Emerging Growth Series, Managed Sectors Series,
Research Series, Total Return Series, Utilities Series, Value Series, World
Asset Allocation Series, World Governments Series and World Total Return Series
is 0.75% of the first $300 million of average daily net assets of each of the
Series and 0.675% of the average daily net assets of each Series in excess of
$300 million. The advisory fee for the Total Return Series is reduced to 0.60%
of the average daily net assets in excess of $1 billion. The advisory fee for
the MFS/Foreign & Colonial International Growth Series and MFS/Foreign &
Colonial International Growth and Income Series is reduced to 0.925% of the
average daily net assets in excess of $500 million.
The investment advisory agreements with respect to the MFS/Foreign & Colonial
Emerging Markets Equity Series, MFS/Foreign & Colonial International Growth
Series and MFS/Foreign & Colonial International Growth and Income Series permit
MFS to engage one or more sub-advisers and MFS has engaged Foreign & Colonial
Management Limited (FCM), an England and Wales Company, and its subsidiary
Foreign & Colonial Emerging Markets Limited (FCEM) to assist in the performance
of its services. In addition, the investment advisory agreement with respect to
the World Growth Series permits MFS to engage one or more sub-advisers and MFS
has engaged Oechsle International Advisors, L.P. (Oechsle), a Delaware limited
partnership, and Batterymarch Financial Management, Inc. (Batterymarch), a
Maryland corporation, to assist in the performance of its services. Effective
May 1, 1996, FCM and FCEM replaced Batterymarch as sub-advisers to the World
Growth Series. Effective November 1, 1996, Oechsle was terminated as a
sub-adviser to the World Growth Series.
MFS has agreed to waive its advisory fee for an indefinite period for the
MFS/Foreign & Colonial Emerging Markets Equity Series, MFS/Foreign & Colonial
International Growth Series and Value Series. The amounts waived under this
agreement for the period ended December 31, 1996 were $11,151, $14,479 and
$27,382, respectively. MFS waived a portion of its advisory fee for the Emerging
Growth Series and MFS/Foreign & Colonial
87
<PAGE>
Notes to Financial Statements -- continued
International Growth and Income Series. The amounts waived under this agreement
for the year ended December 31, 1996 were $225,349 and $44,482, respectively. In
addition, under an expense limitation agreement, MFS has assumed expenses for
the period ended December 31, 1996 amounting to $5,761 for the MFS/Foreign &
Colonial Emerging Markets Equity Series and $4,099 for the Zero Coupon Series
2000 Portfolio.
The Trust pays no compensation directly to its Trustees or officers who are
affiliated with MFS or Sun Life Assurance Company of Canada (U.S.), all of whom
receive remuneration for their services to the Trust from MFS or Sun Life
Assurance Company of Canada. Certain of the officers and Trustees of the Trust
are officers or directors of MFS or Sun Life Assurance Company of Canada.
4. Portfolio Securities
For the year ended December 31, 1996, purchases and sales of investments, other
than purchased option transactions and short-term obligations, were as follows:
<TABLE>
<CAPTION>
Capital Conservative
Appreciation Growth
Series Series
----------------- ---------------
<S> <C> <C>
Purchases
U.S. government securities ........................ $ -- $ 244,997
============ ============
Investments (non-U.S. government securities) ...... $689,235,186 $354,300,779
============ ============
Sales
U.S. government securities ........................ $ -- $ 56,980
============ ============
Investments (non-U.S. government securities) ...... $609,317,757 $201,876,350
============ ============
<CAPTION>
Emerging Government High
Growth Securities Yield
Series Series Series
----------------
<S> <C> <C> <C>
Purchases
U.S. government securities ........................ $ -- $248,143,005 $ --
============ ============= ============
Investments (non-U.S. government securities) ...... $267,487,133 $ -- $171,858,169
============ ============= ============
Sales
U.S. government securities ........................ $ -- $211,789,638 $ --
============ ============= ============
Investments (non-U.S. government securities) ...... $121,492,861 $ -- $137,950,996
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
MFS/Foreign &
Managed Colonial
Sectors Emerging Markets
Series Equity Series
--------------- ---------------
<S> <C> <C>
Purchases
U.S. government securities ........................ $ -- $ --
============ ==========
Investments (non-U.S. government securities) ...... $299,144,790 $2,878,200
============ ==========
Sales
U.S. government securities ........................ $ -- $ --
============ ==========
Investments (non-U.S. government securities) ...... $235,245,660 $ 207,698
============ ==========
</TABLE>
+Purchases and sales of investments for the Money Market Series consist
solely of short-term obligations
<TABLE>
<CAPTION>
MFS/Foreign &
MFS/Foreign & Colonial
Colonial International Money
International Growth and Market
Growth Series Income Series Series+
------------- ------------- ---------------
<S> <C> <C> <C>
Purchases
U.S. government securities ........................ $ -- $ -- $10,227,586,362
========== =========== ================
Investments (non-U.S. government securities) ...... $4,828,516 $37,603,559 $ 3,072,400,736
========== =========== ================
Sales
U.S. government securities ........................ $ -- $ -- $10,158,750,900
========== =========== ================
Investments (non-U.S. government securities) ...... $ 54,487 $ 10,547,564 $ 3,037,318,000
========== =========== ================
</TABLE>
+Purchases and sales of investments for the Money Market Series consist solely
of short-term obligations
<TABLE>
<CAPTION>
Total
Research Return
Series Series
------ ------
<S> <C> <C>
Purchases
U.S. government securities ........................ $ -- $602,720,907
============ =============
Investments (non-U.S. government securities) ...... $773,170,804 $986,622,896
============ =============
Sales
U.S. government securities ........................ $ -- $573,936,810
============ =============
Investments (non-U.S. government securities) ...... $ 125,146,464 $900,955,376
============ =============
<CAPTION>
World Asset
Utilities Value Allocation
Series Series Series
------ ------ ------
<S> <C> <C> <C>
Purchases
U.S. government securities ........................ $7,398,784 $ -- $16,296,111
=========== =========== ============
Investments (non-U.S. government securities) ...... $82,738,536 $15,072,202 $75,667,779
=========== =========== ============
Sales
U.S. government securities ........................ $5,872,979 $ -- $14,720,153
=========== =========== ============
Investments (non-U.S. government securities) ...... $65,224,143 $3,026,129 $47,399,476
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Zero Coupon
World World World Series
Governments Growth Total Return 2000
Series Series Series Portfolio
--------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Purchases
U.S. government securities ........................ $215,628,790 $ -- $12,192,963 $100,217
============= ============ ============ =========
Investments (non-U.S. government securities) ...... $327,501,308 $225,502,745 $41,093,686 $ --
============= ============ ============ =========
Sales
U.S. government securities ........................ $215,725,059 $ -- $ 7,599,324 $463,909
============= ============ ============ =========
Investments (non-U.S. government securities) ...... $319,062,753 $190,481,331 $23,921,588 $ --
============= ============ ============ =========
</TABLE>
88
<PAGE>
Notes to Financial Statements -- continued
At December 31, 1996, the cost and unrealized appreciation or depreciation in
value of the investment securities owned by each series of the Trust, as
computed on the federal income tax basis, are as follows:
<TABLE>
<CAPTION>
Capital
Appreciation
Series
-----------------------------
<S> <C>
Aggregate cost ..................... $ 839,863,374
=============
Gross unrealized appreciation ...... $ 259,056,444
Gross unrealized depreciation ...... (40,683,592)
-------------
Net unrealized appreciation ...... $ 218,372,852
=============
<CAPTION>
Conservative Emerging Government High
Growth Growth Securities Yield
Series Series Series Series
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate cost ..................... $460,628,661 $228,788,293 $376,652,522 $188,137,143
============ ============ ============ ============
Gross unrealized appreciation ...... $111,572,298 $ 30,446,955 $ 5,611,898 $ 8,383,049
Gross unrealized depreciation ...... (1,691,016) (8,961,320) (3,909,998) (3,445,041)
------------ ------------ ------------ ------------
Net unrealized appreciation ...... $109,881,282 $ 21,485,635 $ 1,701,900 $ 4,938,008
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MFS/Foreign &
MFS/Foreign & MFS/Foreign & Colonial
Managed Colonial Colonial International Money
Sectors Emerging Markets International Growth and Market
Series Equity Series Growth Series Income Series Series
--------------- ------------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Aggregate cost ..................... $246,745,573 $3,325,408 $6,720,455 $34,648,458 $406,081,258
============ ========== ========== =========== =============
Gross unrealized appreciation ...... $ 38,284,074 $ 183,370 $ 299,654 $ 2,394,644 $ --
Gross unrealized depreciation ...... (17,839,577) (144,133) (220,414) (1,819,938) --
------------ ---------- ---------- ----------- -------------
Net unrealized appreciation ...... $ 20,444,497 $ 39,237 $ 79,240 $ 574,706 $ --
============ ========== ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
World
Total Asset
Research Return Utilities Value Allocation
Series Series Series Series Series
--------------- ----------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Aggregate cost ..................... $307,329,608 $1,171,661,432 $62,503,660 $15,967,564 $72,588,680
============ ============== =========== =========== ===========
Gross unrealized appreciation ...... $ 38,294,967 $ 167,241,763 $ 7,502,995 $ 798,923 $ 5,536,127
Gross unrealized depreciation ...... (6,072,633) (9,200,375) (1,041,383) (327,691) (1,556,339)
------------ -------------- ----------- ----------- -----------
Net unrealized appreciation ...... $ 32,222,334 $ 158,041,388 $ 6,461,612 $ 471,232 $ 3,979,788
============ ============== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Zero Coupon
World World World Series
Governments Growth Total Return 2000
Series Series Series Portfolio
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Aggregate cost ..................... $138,014,615 $183,378,105 $34,422,082 $4,227,371
============ ============ =========== ===========
Gross unrealized appreciation ...... $ 4,303,198 $ 27,319,394 $ 3,730,894 $ 100,266
Gross unrealized depreciation ...... (1,214,050) (8,066,236) (391,772) --
------------ ------------ ----------- -----------
Net unrealized appreciation ...... $ 3,089,148 $ 253,158 $ 3,339,122 $ 100,266
============ ============ =========== ===========
</TABLE>
5. Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares during the year ended December 31, 1996 are
presented below and on the following page.
<TABLE>
<CAPTION>
Capital Conservative
Appreciation Growth
Series Series
--------------- ---------------
<S> <C> <C>
Shares sold ................................................... 11,443,621 7,921,733
Shares issued to shareholders in reinvestment of distributions 2,235,453 677,102
Shares reacquired ............................................. (8,969,620) (766,565)
----------- ----------
Net increase ................................................ 4,709,454 7,832,270
=========== ==========
<CAPTION>
Emerging Government High
Growth Securities Yield
Series Series Series
------ ------ ------
<S> <C> <C> <C>
Shares sold ................................................... 13,818,601 8,676,674 14,159,075
Shares issued to shareholders in reinvestment of distributions 15,052 1,815,119 1,441,300
Shares reacquired ............................................. (2,221,950) (8,264,354) (11,510,196)
----------- ----------- ------------
Net increase ................................................ 11,611,703 2,227,439 4,090,179
=========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
MFS/Foreign &
Managed Colonial
Sectors Emerging Markets
Series Equity Series
--------------- -------------------
<S> <C> <C>
Shares sold ............................................................... 2,818,152 379,243
Shares issued in connection with the acquisition of the Sun Growth Variable
Annuity Fund ............................................................ -- --
Shares issued to shareholders in reinvestment of distributions ............ 1,176,164 --
Shares reacquired ......................................................... (1,484,629) (52,143)
----------- --------
Net increase ............................................................ 2,509,687 327,100
=========== ========
<CAPTION>
MFS/Foreign & MFS/Foreign &
Colonial International Money
International Growth and Market
Growth Series Income Series Series
---------------
<S> <C> <C> <C>
Shares sold ............................................................... 720,467 3,257,415 753,646,599
Shares issued in connection with the acquisition of the Sun Growth Variable
Annuity Fund ............................................................ -- -- 666,549
Shares issued to shareholders in reinvestment of distributions ............ -- -- 15,990,553
Shares reacquired ......................................................... (157,890) (605,202) (643,892,483)
--------- ---------- -------------
Net increase ............................................................ 562,577 2,652,213 126,411,218
========= ========== =============
</TABLE>
<TABLE>
<CAPTION>
Total
Research Return
Series Series
------------- ---------------
<S> <C> <C>
Shares sold ................................................... 14,559,925 8,956,855
Shares issued to shareholders in reinvestment of distributions 143,325 4,879,076
Shares reacquired ............................................. (360,295) (4,986,660)
----------- -----------
Net increase ................................................ 14,342,955 8,849,271
=========== ===========
<CAPTION>
World Asset
Utilities Value Allocation
Series Series Series
------ ------ ------
<S> <C> <C> <C>
Shares sold ................................................... 1,883,446 1,564,290 3,944,274
Shares issued to shareholders in reinvestment of distributions 230,167 -- 102,487
Shares reacquired ............................................. (578,846) (46,888) (573,164)
---------- ---------- ----------
Net increase ................................................ 1,534,767 1,517,402 3,473,597
========== ========== ==========
</TABLE>
89
<PAGE>
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
Zero Coupon
World World World Series
Governments Growth Total Return 2000
Series Series Series Portfolio
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................................... 1,205,318 6,357,585 1,881,285 21,232
Shares issued to shareholders in reinvestment of distributions 1,907,834 961,665 36,211 19,961
Shares reacquired ............................................. (2,733,139) (3,593,022) (245,154) (62,281)
----------- ----------- ---------- --------
Net increase (decrease) ....................................... 380,013 3,726,228 1,672,342 (21,088)
=========== =========== ========== ========
</TABLE>
Transactions in Trust shares during the year ended December 31, 1995 are
presented below.
<TABLE>
<CAPTION>
Capital Conservative Emerging Government
Appreciation Growth Growth Securities
Series Series Series Series
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Shares sold ..................... 11,620,628 4,959,971 6,726,769 5,453,675
Shares issued to shareholders in
reinvestment of distributions ... 575,351 267,502 -- 1,637,090
Shares reacquired ............... (6,799,964) (644,875) (1,425,554) (8,182,612)
----------- ---------- ----------- -----------
Net increase (decrease) ...... 5,396,015 4,582,598 5,301,215 (1,091,847)
=========== ========== =========== ===========
<CAPTION>
MFS/Foreign
& Colonial
High Managed International Money
Yield Sectors Growth and Market
Series Series Income Series Series
------ ------ ------------- ------
<S> <C> <C> <C> <C>
Shares sold ..................... 11,405,259 2,814,579 710,005 450,493,345
Shares issued to shareholders in
reinvestment of distributions ... 1,058,317 211,025 -- 12,727,293
Shares reacquired ............... (7,709,622) (1,372,643) (1,208) (432,641,522)
----------- ----------- -------- -------------
Net increase (decrease) ...... 4,753,954 1,652,961 708,797 30,579,116
=========== =========== ======== =============
</TABLE>
<TABLE>
<CAPTION>
Total World Asset
Research Return Utilities Allocation
Series Series Series Series
------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold ..................... 5,208,741 8,109,408 1,993,567 1,917,796
Shares issued to shareholders in
reinvestment of distributions 485 2,212,879 68,772 573
Shares reacquired ............... (310,821) (6,150,918) (796,757) (101,344)
---------- ----------- ---------- ----------
Net increase (decrease) ...... 4,898,405 4,171,369 1,265,582 1,817,025
========== =========== ========== ==========
<CAPTION>
Zero Coupon
World World World Series
Governments Growth Total Return 2000
Series Series Series Portfolio
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Shares sold ..................... 3,031,637 4,670,829 1,117,597 180,804
Shares issued to shareholders in
reinvestment of distributions 667,817 291,239 222 21,339
Shares reacquired ............... (3,718,715) (2,248,059) (90,774) (105,004)
----------- ----------- ---------- ---------
Net increase (decrease) ...... (19,261) 2,714,009 1,027,045 97,139
=========== =========== ========== =========
</TABLE>
6. Financial Instruments
Certain Series of the Trust may trade financial instruments with off-balance
sheet risk in the normal course of their investing activities and to assist in
managing exposure to market risks such as interest rates and foreign currency
exchange rates. These financial instruments include indexed securities, written
options, forward foreign currency exchange contracts and futures contracts.
The notional or contractual amounts of these instruments represent the
investment the series have in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. A summary of
obligations under these financial instruments at December 31, 1996, is shown on
the following pages.
90
<PAGE>
Notes to Financial Statements -- continued
Written Option Transactions -- MFS/Foreign & Colonial International Growth and
Income Series
<TABLE>
<CAPTION>
1996 Calls 1996 Puts
------------------------------------ --------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
-------------------- ----------- ------------------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Options written --
Australian Dollars ........................... 91 $ 491 -- $ --
Canadian Dollars .............................. -- -- 1,137 2,984
Deutsche Marks .............................. 1,922 9,062 402 1,103
Deutsche Marks/British Pounds ............... 2,514 8,938 566 7,297
Italian Lire/Deutsche Marks .................. 2,361,708 18,547 -- --
Japanese Yen ................................. 132,077 3,666 258,307 16,505
New Zealand Dollars ........................... -- -- 432 643
Spanish Pesetas/Deutsche Marks ............... -- -- 45,589 1,134
Swiss Francs/Deutsche Marks .................. 371 1,125 824 10,166
Options terminated in closing transactions --
Australian Dollars ........................... (91) (491) -- --
Deutsche Marks .............................. (1,922) (9,062) (402) (1,103)
Deutsche Marks/British Pounds ............... (1,099) (3,336) -- --
Italian Lire/Deutsche Marks .................. (2,361,708) (18,547) -- --
Japanese Yen ................................. (132,077) (3,666) -- --
New Zealand Dollars ........................... -- -- (432) (643)
Options expired --
Canadian Dollars .............................. -- -- (1,137) (2,984)
Deutsche Marks/British Pounds ............... (868) (3,505) -- --
Japanese Yen ................................. -- -- (102,307) (6,073)
Spanish Pesetas/Deutsche Marks ............... -- -- (45,589) (1,134)
----------- -------- --------- -------
Outstanding, end of period ..................... 918 $ 3,222 157,390 $27,895
=========== ======== ========= =======
Options outstanding at end of period consist of:
Deutsche Marks/British Pounds ............... 547 $ 2,097 566 $ 7,297
Japanese Yen ................................. -- -- 156,000 10,432
Swiss Francs/Deutsche Marks .................. 371 1,125 824 10,166
----------- -------- --------- -------
Outstanding, end of period 918 $ 3,222 157,390 $27,895
=========== ======== ========= =======
</TABLE>
At December 31, 1996, the MFS/Foreign & Colonial International Growth and Income
Series had sufficient cash and/or securities at least equal to the value of the
written options.
<TABLE>
<CAPTION>
1996 Calls 1996 Puts
------------------------------------ --------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
-------------------- ----------- ------------------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Japanese Yen ................................. -- $ -- 30,700 $ 4,002
Options written --
Japanese Yen ................................. 49,000 3,532 798,000 67,599
Options terminated in closing transactions --
Japanese Yen ................................. (49,000) (3,532) (696,700) (58,961)
-------- ------- --------- --------
Outstanding, end of period ..................... -- $ -- 132,000 $ 12,640
======== ======= ========= ========
Options outstanding at end of period consist of:
Japanese Yen ................................. -- $ -- 132,000 $ 12,640
-------- ------- --------- --------
Outstanding, end of period -- $ -- 132,000 $ 12,640
======== ======= ========= ========
</TABLE>
At December 31, 1996, the World Asset Allocation Series had sufficient cash
and/or securities at least equal to the value of the written options.
91
<PAGE>
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
1996 Calls 1996 Puts
---------------------------------- -----------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
-------------------- ----------- ------------------- -------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Australian Dollars .............................. -- $ -- 4,117 $ 52,769
Deutsche Marks, British Pounds .................. 14,174 63,018 -- --
Italian Lire/Deutsche Marks ..................... 20,486,289 339,510 20,486,289 754,328
Japanese Yen .................................... -- -- 637,300 83,116
Options written --
Australian Dollars .............................. 3,924 21,265 -- --
Canadian Dollars .............................. 12,942 13,284 19,523 58,977
Deutsche Marks ................................. 122,098 638,525 13,706 37,624
Deutsche Marks/British Pounds .................. 70,415 258,724 39,219 608,589
Italian Lire/Deutsche Marks ..................... 17,955,515 141,008 -- --
Japanese Yen .................................... 1,931,684 93,742 1,821,128 118,425
New Zealand Dollars ........................... -- -- 10,198 15,165
Spanish Pesetas/Deutsche Marks .................. -- -- 1,486,488 36,755
Swiss Francs/Deutsche Marks ..................... 12,776 38,771 28,241 348,689
Options terminated in closing transactions --
Australian Dollars .............................. (3,924) (21,265) -- --
Deutsche Marks ................................. (122,098) (638,525) (13,706) (37,624)
Deutsche Marks/British Pounds .................. (28,837) (97,552) -- --
Italian Lire/Deutsche Marks ..................... (38,441,804) (480,518) (20,486,289) (754,328)
Japanese Yen .................................... (1,931,684) (93,742) (1,656,300) (153,926)
New Zealand Dollars ........................... -- -- (10,198) (15,165)
Options expired --
Australian Dollars .............................. -- -- (4,117) (52,769)
Canadian Dollars .............................. (12,942) (13,284) (19,523) (58,977)
Deutsche Marks/British Pounds .................. (37,028) (152,446) -- --
Japanese Yen .................................... -- -- (802,128) (47,615)
Spanish Pesetas/Deutsche Marks .................. -- -- (1,486,488) (36,755)
------------ --------- ------------ ---------
Outstanding, end of period ..................... 31,500 $ 110,515 67,460 $ 957,278
============ ========= ============ =========
Options outstanding at end of period consist of --
Deutsche Marks/British Pounds .................. 18,724 $ 71,744 39,219 $ 608,589
Swiss Francs/Deutsche Marks ..................... 12,776 38,771 28,241 348,689
------------ --------- ------------ ---------
31,500 $ 110,515 67,460 $ 957,278
============ ========= ============ =========
</TABLE>
At December 31, 1996, the World Governments Series had sufficient cash and/or
securities at least equal to the value of the written options.
92
<PAGE>
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
1996 Calls 1996 Puts
---------------------------------- -----------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
-------------------- ----------- ------------------- ----------
<S> <C> <C> <C> <C>
Outstanding, beginning of period --
Australian Dollars ........................... -- $ -- 105 $ 1,350
Deutsche Marks/British Pounds ............... 479 2,129 -- --
Italian Lire/Deutsche Marks .................. 423,930 7,026 423,930 15,610
Japanese Yen ................................. -- -- 19,450 2,538
Options written --
Australian Dollars ........................... 200 1,084 -- --
Canadian Dollars .............................. 517 530 1,140 3,480
Deutsche Marks .............................. 5,616 28,629 1,030 2,827
Deutsche Marks/British Pounds ............... 5,186 19,391 1,807 23,292
Italian Lire/Deutsche Marks .................. 1,066,605 8,376 -- --
Japanese Yen ................................. 187,623 11,402 565,251 44,373
New Zealand Dollars ........................... -- -- 842 1,252
Spanish Pesetas/Deutsche Marks ............... -- -- 90,296 2,238
Swiss Francs/Deutsche Marks .................. 1,194 3,623 2,639 32,577
Options terminated in closing transactions --
Australian Dollars ........................... (200) (1,084) -- --
Deutsche Marks .............................. (5,616) (28,629) (1,030) (2,827)
Deutsche Marks/British Pounds ............... (1,426) (4,665) -- --
Italian Lire/Deutsche Marks .................. (1,490,535) (15,402) (423,930) (15,610)
Japanese Yen ................................. (187,623) (11,402) (420,450) (35,159)
New Zealand Dollars ........................... -- -- (842) (1,252)
Options expired --
Australian Dollars ........................... -- -- (105) (1,350)
Canadian Dollars .............................. (517) (530) (1,140) (3,480)
Deutsche Marks/British Pounds ............... (2,492) (10,161) -- --
Japanese Yen ................................. -- -- (46,251) (2,746)
Spanish Pesetas/Deutsche Marks ............... -- -- (90,296) (2,238)
----------- -------- --------- --------
Outstanding, end of period ..................... 2,941 $ 10,317 122,446 $ 64,875
=========== ======== ========= ========
Options outstanding at end of period consist of:
Deutsche Marks/British Pounds ............... 1,747 $ 6,694 1,807 $ 23,292
Japanese Yen ................................. -- -- 118,000 9,006
Swiss Francs/Deutsche Marks .................. 1,194 3,623 2,639 32,577
----------- -------- --------- --------
Outstanding, end of period 2,941 $ 10,317 122,446 $ 64,875
=========== ======== ========= ========
</TABLE>
At December 31, 1996, the World Total Return Series had sufficient cash and/or
securities at least equal to the value of the written options.
93
<PAGE>
Notes to Financial Statements -- continued
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Contracts to
Series Transaction Settlement Date Deliver/Receive
- ------------------------- -------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
MFS/Foreign & Colonial Sales 2/24/97 BEF 3,898,838
International Growth and
2/07/97 CHF 216,153
Income Series
1/10/97 - 4/21/97 DEM 1,039,234
4/21/97 GBP 157,020
2/24/97 IEP 53,110
2/07/97 ITL 1,818,239,356
1/29/97 JPY 22,289,957
2/03/97 NLG 149,185
2/03/97 - 2/07/97 SEK 2,448,653
-----------
Purchases 2/07/97 - 4/21/97 CHF 450,493
2/07/97 - 4/21/97 DEM 2,326,982
1/10/97 ITL 108,452,787
1/21/97 - 1/29/97 JPY 80,456,122
2/03/97 NLG 157,605
2/03/97 SEK 1,983,228
<CAPTION>
Net Unrealized
Contracts at Appreciation
Series In Exchange for Value (Depreciation)
- ------ --------------- ----- --------------
<S> <C> <C> <C>
MFS/Foreign & Colonial $ 127,110 $ 123,414 $ 3,696
International Growth and
182,621 162,137 20,484
Income Series
680,794 679,202 1,592
261,757 268,257 (6,500)
85,060 89,967 (4,907)
1,191,913 1,194,583 (2,670)
201,537 193,365 8,172
91,111 86,583 4,528
366,889 359,837 7,052
---------- ---------- --------
$3,188,792 $3,157,345 $ 31,447
========== ========== ========
$ 347,034 $ 339,470 $ (7,564)
1,534,823 1,522,298 (12,525)
70,724 71,362 638
717,696 697,433 (20,263)
92,582 91,469 (1,113)
300,983 291,402 (9,581)
---------- ---------- --------
$3,063,842 $3,013,434 $(50,408)
========== ========== ========
</TABLE>
At December 31, 1996, forward foreign currency exchange contract purchases and
sales under master netting arrangements and closed forward foreign currency
exchange contracts, excluded above for the MFS/Foreign & Colonial International
Growth and Income Series amounted to a net payable of $11,503 with Bankers
Trust, $2,772 with Deutsche Bank, $80,464 with Swiss Bank Corporation
International, and a net receivable of $6,354 with Chase Manhattan Bank, $65,179
with First Boston and $33,128 with Merrill Lynch.
<TABLE>
<CAPTION>
Contracts to
Series Transaction Settlement Date Deliver/Receive
- ------------------------------- -------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
World Asset Allocation Series Sales 2/24/97 BEF 9,434,506
1/10/97 - 4/21/97 DEM 2,781,453
4/21/97 GBP 1,343,005
2/07/97 ITL 1,597,590,182
2/03/97 - 2/07/97 SEK 23,190,459
-----------
Purchases 4/21/97 CHF 2,330,657
2/03/97 - 4/21/97 DEM 9,262,010
1/10/97 ITL 92,860,658
2/03/97 NLG 21,331
2/03/97 SEK 2,144,458
<CAPTION>
Net Unrealized
Contracts at Appreciation
Series In Exchange for Value (Depreciation)
- ------ --------------- ------------ --------------
<S> <C> <C> <C>
World Asset Allocation Series $ 307,583 $ 298,640 $ 8,943
1,817,911 1,820,581 (2,670)
2,238,824 2,294,415 (55,591)
1,049,037 1,049,617 (580)
3,512,476 3,407,485 104,991
---------- ---------- --------
$8,925,831 $8,870,738 $ 55,093
========== ========== ========
$1,757,355 $1,761,743 $ 4,388
6,093,692 6,058,700 (34,992)
60,556 61,102 546
12,530 12,380 (150)
325,995 315,092 (10,903)
---------- ---------- --------
$8,250,128 $8,209,017 $(41,111)
========== ========== ========
</TABLE>
At December 31, 1996, forward foreign currency exchange contract purchases and
sales under master netting arrangements and closed forward foreign currency
exchange contracts excluded above for the World Asset Allocation Series amounted
to a net payable of $15,355 with Bankers Trust, $112,985 with Deutsche Bank,
$1,635 with First Boston, $421 with Morgan Stanley Company, $6,225 with Swiss
Bank Corporation International, and a net receivable of $9,962 with Chase
Manhattan Bank, $8,803 with JP Morgan Securities, and $58,165 with Merrill
Lynch.
94
<PAGE>
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
Contracts to
Series Transaction Settlement Date Deliver/Receive
- -------------------------- -------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
World Governments Series Sales 2/07/97 CHF 15,482,518
1/10/97 - 4/21/97 DEM 25,660,160
4/21/97 GBP 5,333,071
2/24/97 IEP 2,447,725
2/07/97 ITL 21,931,152,804
1/29/97 JPY 769,333,019
2/03/97 NLG 5,082,236
4/21/97 NZD 5,759,224
2/03/97 - 2/07/97 SEK 29,963,745
-----------
Purchases 4/21/97 AUD 4,607,000
2/07/97 - 4/21/97 CHF 10,517,835
1/21/97 - 4/21/97 DEM 58,378,209
2/07/97 DKK 12,192,180
1/10/97 - 2/07/97 ITL 6,942,634,462
1/21/97 - 1/29/97 JPY 1,755,366,199
2/03/97 NLG 5,369,077
2/03/97 SEK 9,946,344
<CAPTION>
Net Unrealized
Contracts at Appreciation
Series In Exchange for Value (Depreciation)
- ------ --------------- ------------ --------------
<S> <C> <C> <C>
World Governments Series $12,669,493 $11,613,468 $ 1,056,025
16,783,007 16,722,724 60,283
8,847,576 9,111,120 (263,544)
3,922,731 4,146,379 (223,648)
14,403,184 14,408,767 (5,583)
6,955,995 6,673,964 282,031
3,103,845 2,949,577 154,268
4,060,849 4,043,868 16,981
4,522,533 4,403,139 119,394
------------ ------------ ------------
$75,269,213 $74,073,006 $ 1,196,207
============ ============ ============
$ 3,661,537 $ 3,653,001 $ (8,536)
8,181,373 7,914,374 (266,999)
38,545,334 38,152,054 (393,280)
2,057,370 2,074,451 17,081
4,517,081 4,563,110 46,029
15,771,254 15,220,563 (550,691)
3,153,967 3,116,051 (37,916)
1,505,731 1,461,446 (44,285)
------------ ------------ ------------
$77,393,647 $76,155,050 $ (1,238,597)
============ ============ ============
</TABLE>
At December 31, 1996, forward foreign currency exchange contract purchases and
sales under master netting arrangements and closed forward foreign currency
exchange contracts excluded above for the World Governments Series amounted to a
net receivable of $181,698 with Chase Manhattan Bank, $67,369 with Deutsche
Bank, $738,258 with First Boston, $409,811 with Merrill Lynch, and a net payable
of $806,463 with Bankers Trust and $1,686,686 with Swiss Bank Corporation
International.
<TABLE>
<CAPTION>
Contracts to
Series Transaction Settlement Date Deliver/Receive
- --------------------------- -------------- -------------------- -----------------------
<S> <C> <C> <C> <C>
World Total Return Series Sales 2/07/97 CHF 1,020,885
1/10/97 - 4/21/97 DEM 711,577
4/21/97 GBP 261,050
2/24/97 IEP 159,449
2/07/97 ITL 1,259,857,851
1/29/97 JPY 72,704,403
2/03/97 - 2/07/97 SEK 3,615,741
-----------
Purchases 4/21/97 CHF 456,731
2/07/97 - 4/21/97 DEM 4,133,046
1/10/97 ITL 182,806,209
1/21/97 - 1/29/97 JPY 147,753,054
2/03/97 NLG 20,769
2/03/97 SEK 4,815,877
<CAPTION>
Net Unrealized
Contracts at Appreciation
Series In Exchange for Value (Depreciation)
- ------ --------------- ------------ --------------
<S> <C> <C> <C>
World Total Return Series $ 769,328 $ 765,768 $ 3,560
463,594 465,054 (1,460)
435,177 445,982 (10,805)
255,381 270,103 (14,722)
827,255 827,727 (472)
657,364 630,711 26,653
547,176 531,361 15,815
----------- ----------- ----------
$3,955,275 $3,936,706 $18,569
=========== =========== ==========
$ 344,383 $ 345,243 $ 860
2,699,126 2,691,637 (7,489)
119,211 120,286 1,075
1,330,045 1,281,085 (48,960)
12,201 12,054 (147)
730,709 707,611 (23,098)
----------- ----------- ----------
$5,235,675 $5,157,916 $ (77,759)
=========== =========== ==========
</TABLE>
At December 31, 1996, forward foreign currency exchange contract purchases and
sales under master netting arrangements and closed forward foreign currency
exchange contracts excluded above for the World Total Return Series amounted to
a net payable of $50,153 with Bankers Trust, $170,168 with Swiss Bank
Corporation International, a net receivable of $219 with Chase Manhattan Bank,
$27,682 with Deutsche Bank, $27,950 with First Boston, $18,329 with Goldman
Sachs, $8,572 with JP Morgan Securities, and $50,148 with Merrill Lynch.
95
<PAGE>
Notes to Financial Statements -- continued
At December 31, 1996, each Series had sufficient cash and/or securities to cover
any commitments under these contracts. See page 64 for an explanation of
abbreviations used to indicate amounts shown in currencies other than the U.S.
dollar.
7. Restricted Securities
Each Series of the Trust is restricted from investing more than a certain amount
in securities which are subject to legal or contractual restrictions on resale.
Such restrictions range from between 0% and 15% of the Series' net assets. At
December 31, 1996, High Yield Series, Research Series, Total Return Series,
Utilities Series, Value Series, World Asset Allocation Series, World Growth
Series and World Total Return Series owned the following restricted securities
(consisting of 0.67%, 0.53%, 0.03%, 0.46%, 0.37%, 1.27%, and 0.51%, of the net
assets of each Series, respectively) which may not be publicly sold without
registration under the Securities Act of 1933 (the 1933 Act). The Trust does not
have the right to demand that such securities be registered. The value of these
securities is determined by valuations supplied by a pricing service or brokers
or, if not available, in good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Series Description
- ------------------------------- -----------------------------------------------
<S> <C>
High Yield Series Atlantic Gulf Communities Corp. ............
Gillett Holdings ...........................
Merrill Lynch Mortgage Investors, Inc. ......
Renaissance Cosmetic ........................
Research Series Jarvis Hotels PLC ...........................
Total Return Series Merrill Lynch Mortgage Investors, Inc. ......
Value Series Jarvis Hotels PLC ...........................
World Asset Allocation Series Hong Leong Finance ........................
Jarvis Hotels PLC ...........................
World Growth Series Hong Leong Finance ........................
India Gateway Fund Ltd. .....................
India Gateway Fund Ltd., Warrants ............
International Business Communications
Systems, Inc. ..............................
Jarvis Hotels PLC ...........................
Thai Euro Fund ..............................
World Total Return Series Hong Leong Finance ...........................
Jarvis Hotels PLC ...........................
<CAPTION>
Date of Shares/
Series Acquisition Par Amount Cost Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield Series 9/25/95 30 $ -- $ 129
10/09/92 9,414 89,600 357,732
6/22/94 500,000 346,562 420,313
525 525,000 530,250
---------- ----------
$ 961,162 $1,308,424
========== ==========
Research Series 6/21/96 627,700 $1,682,337 $1,731,355
========== ==========
Total Return Series 6/22/94 514,000 $ 356,266 $ 432,081
========== ==========
Value Series 7/23/96 27,600 $ 71,640 $ 76,128
========== ==========
World Asset Allocation Series 12/23/96 5,000 $ 17,654 $ 17,372
7/02/96 96,500 248,255 266,171
---------- ----------
$ 265,909 $ 283,543
========== ==========
World Growth Series 11/01/96 51,000 $ 158,754 $ 177,195
6/02/94 34,925 286,668 157,162
6/02/94 4,000 -- --
8/29/95 12,600 124,992 124,990
6/21/96 477,600 1,262,376 1,317,338
10/18/96 27,000 704,500 803,790
---------- ----------
$2,537,290 $2,580,475
========== ==========
World Total Return Series 9/19/95 3,000 9,172 10,423
6/21/96 65,900 $ 173,898 $ 181,769
---------- ----------
$ 183,070 $ 192,192
========== ==========
</TABLE>
8. Acquisition
At the close of business on December 18, 1996, the Money Market Series acquired
all of the assets and liabilities of Sun Growth Variable Annuity Fund, Inc. The
acquisition was accomplished by a tax free exchange of 666,549 shares of the
Money Market Series (valued at $666,549) for 172,642 shares of Sun Growth
Variable Annuity Fund's net assets on that date ($666,549), which were combined
with those of the Money Market Series. The aggregate net assets of the Money
Market Series after the acquisition were $409,110,729.
96
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholders of MFS/Sun Life Series Trust:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of MFS/Sun Life Series Trust as of December 31,
1996, the related statements of operations for the year then ended, the
statements of changes in net assets for the years ended December 31, 1996 and
1995, and the financial highlights for each of the years in the five-year period
ended December 31, 1996. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
December 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Trust at
December 31, 1996, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1997
---------------------------------------------
The MFS/Sun Life Series Trust Annual Report is prepared for the general
information of contract owners. It is authorized for distribution to prospective
purchasers only when preceded or accompanied by the current prospectus for the
MFS/Sun Life Series Trust and any product being offered.
97
<PAGE>
MFS/Sun Life Series Trust
500 Boylston Street, Boston, MA 02116-3741
Trustees
JOHN D. McNEIL*, Chairman and Trustee
Chairman, Sun Life Assurance Company of Canada,
Toronto, Ontario, Canada
SAMUEL ADAMS, Trustee
Partner, Warner & Stackpole,
Boston, Massachusetts
GEOFFREY CROFTS, Trustee
Professor Emeritus, University of Hartford,
Hartford, Connecticut
DAVID D. HORN*, Trustee
Senior Vice President and General Manager,
Sun Life Assurance Company of Canada,
Wellesley Hills, Massachusetts
GARTH MARSTON, Trustee
Chairman, Retired, The Provident Institution for Savings,
Boston, Massachusetts
DERWYN F. PHILLIPS, Trustee
Vice Chairman, Retired, The Gillette Company,
Boston, Massachusetts
Officers
W. THOMAS LONDON+, Treasurer
JAMES O. YOST+, Assistant Treasurer
STEPHEN E. CAVAN+, Secretary and Clerk
JAMES R. BORDEWICK+, Assistant Secretary
Investment Adviser
Massachusetts Financial Services Company
500 Boylston Street, Boston, MA 02116-3741
Custodian and Dividend Disbursing Agent
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110-2875
Auditors
Deloitte & Touche LLP
125 Summer Street, Boston, MA 02110-1617
Portfolio Managers+
JOHN W. BALLEN
ARNAB K. BANERJI
STEPHEN C. BRYANT
DAVID M. CALABRO
JAMES J. CALMAS
MITCHELL D. DYNAN
KENNETH J. ENRIGHT
RICHARD O. HAWKINS
GEOFFREY L. KURINSKY
JOHN D. LAUPHEIMER, JR.
DAVID R. MANNHEIM
PAUL M. McMAHON
KEVIN R. PARKE
ATUL PATEL
JUNE SCOTT
BERNARD SCOZZAFAVA
MAURA S. SHAUGHNESSY
TONI Y. SHIMURA
FREDERICK J. SIMMONS
JAMES T. SWANSON
(on behalf of the MFS World
Asset Allocation Committee)
TONY THOMSON
The Research Committee
IAN K. WRIGHT
*Affiliated with the Sponsor.
+Affiliated with the Investment Adviser. SUN-2 2/97 185M
<PAGE>
PART C
------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements Included in Part A:
For the years or periods, as applicable to each series, ended
December 31 1987 through December 31, 1996:
Financial Highlights
Financial Statements Included in Part B:
Portfolios of Investments, December 31, 1996*
Statement of Assets and Liabilities, December 31, 1996*
Statements of Operations, year ended December 31, 1996*
Statements of Changes in Net Assets, years ended December 31,
1995 and 1996.*
- -----------------------
* Incorporated herein by reference to the Annual Report to Shareholders dated
December 31, 1996, filed with the SEC via EDGAR on March 10, 1997.
(b) Exhibits:
1 (a) Copy of Declaration of Trust of Registrant. (1)
(b) Copy of Amendment to Declaration of Trust and
Restated Declaration of Trust of Registrant.
(2)
(c) Amendment to Declaration of Trust of
Registrant. (4)
(d) Amendment to Declaration of Trust of
Registrant. (5)
(e) Amendment to Declaration of Trust of
Registrant. (6)
(f) Amendment to Declaration of Trust of
Registrant. (6)
(g) Amendment to Declaration of Trust of
Registrant. (7)
(h) Amendment to Declaration of Trust of
Registrant. (10)
2 By-Laws of Registrant. (1)
3 Not Applicable.
4 Not Applicable.
<PAGE>
5 Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company dated May 24, 1985.
(2)
(a) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company dated July 23, 1986.
(9)
(b) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company dated January 26,
1988. (11)
(c) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the World
Growth Series. (4)
(d) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the
Utilities Series. (4)
(e) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the
Research Series. (5)
(f) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the World
Asset Allocation Series. (5)
(g) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the World
Total Return Series. (5)
(h) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the
Emerging Growth Series. (6)
(i) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the
MFS/Foreign & Colonial International
Growth Series. (6)
(j) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the
MFS/Foreign & Colonial International
Growth and Income Series. (6)
(k) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company
<PAGE>
relating to the MFS/Foreign &
Colonial Emerging Markets Equity
Series. (6)
(l) Sub-Advisory Agreement by and between
Massachusetts Financial Services
Company and Foreign & Colonial
Management Ltd. relating to the
MFS/Foreign & Colonial International
Growth Series. (6)
(m) Sub-Advisory Agreement by and between
Massachusetts Financial Services
Company and Foreign & Colonial
Management Ltd. relating to the
MFS/Foreign & Colonial International
Growth and Income Series. (6)
(n) Sub-Advisory Agreement by and between
Massachusetts Financial Services
Company and Foreign & Colonial
Management Ltd. relating to the
MFS/Foreign & Colonial Emerging Markets
Equity Series. (6)
(o) Sub-Advisory Agreement between Foreign
& Colonial Management Ltd. and Foreign
& Colonial Emerging Markets Limited
relating to the MFS/Foreign & Colonial
International Growth Series. (6)
(p) Sub-Advisory Agreement between Foreign
& Colonial Management Ltd. and Foreign
& Colonial Emerging Markets Limited
relating to the MFS/Foreign & Colonial
International Growth and Income Series.
(6)
(q) Sub-Advisory Agreement between Foreign
& Colonial Management Ltd. and Foreign
& Colonial Emerging Markets Limited
relating to the MFS/Foreign & Colonial
Emerging Markets Equity Series. (6)
(r) Sub-Advisory Agreement by and between
Massachusetts Financial Services
Company and Foreign & Colonial
Management Limited relating to the
World Growth Series. (7)
(s) Sub-Advisory Agreement between Foreign
& Colonial Management Limited and
Foreign & Colonial Emerging Markets
Limited relating to the World Growth
Series. (7)
<PAGE>
(t) Investment Advisory Agreement between
Registrant and Massachusetts Financial
Services Company relating to the Value
Series. (7)
(u) Form of Investment Advisory Agreement
between Registrant , on behalf of the
Research Growth and Income Series, and
Massachusetts Financial Services
Company. (10)
(v) Amendment to the Investment Advisory
Agreement by and between Massachusetts
Financial Services Company and the
Registrant relating to the Capital
Appreciation Series; filed herewith.
6 Not Applicable.
7 Not Applicable.
8 Custodian Agreement between Registrant and
State Street Bank and Trust Company
dated May 24, 1985. (2)
(a) Amendment dated July 23, 1986 to
Custodian Agreement. (9)
9 (a) Shareholder Servicing Agent Agreement between
Registrant and Massachusetts Financial
Service Center, Inc. (3)
(b) Administrative Services Agreement
between the Trust, on behalf of its
series, and Massachusetts Financial
Services Company, dated March 1, 1997. (10)
10 Consent and Opinion of Counsel for the fiscal
year ended December 31, 1996,
previously filed with the Registrant's
Rule 24f-2 Notice on February 27, 1997.
11 Consent of Deloitte & Touche LLP; filed
herewith.
12 Not Applicable.
13 Investment representation letter from initial
shareholder. (8)
14 Not Applicable.
15 Not Applicable.
<PAGE>
16 Not Applicable.
17 Financial Data Schedules; filed herewith.
Power of Attorney dated February 6, 1997. (10)
- --------------------
(1) Incorporated by reference to the Registrant's Registration
Statement (File No. 2-83616), filed on September 9, 1983.
(2) Incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement , filed on March 25, 1985.
(3) Incorporated by reference to Post-Effective Amendment No. 2 to
the Registrant's Registration Statement filed on February 25,
1986.
(4) Incorporated by reference to Post-Effective Amendment No. 13 to
the Registrant's Registration Statement filed on October 26,
1993.
(5) Incorporated by reference to Post-Effective Amendment No. 15 to
the Registrant's Registration Statement filed on September 2,
1994.
(6) Incorporated by reference to Post-Effective Amendment No. 17 to
the Registrant's Registration Statement filed on August 23, 1995.
(7) Incorporated by reference to Post-Effective Amendment No. 18 to
the Registrant's Registration Statement filed on April 10, 1996.
(8) Incorporated by reference to Amendment No. 2 to the Registrant's
Registration Statement , filed on June 5, 1985.
(9) Incorporated by reference to Amendment No. 4 to the Registrant's
Registration Statement , filed on September 30, 1986.
(10) Incorporated by reference to Post-Effective Amendment No. 19 to
the Registrant's Registration Statement filed on March 18, 1997.
(11) Incorporated by reference to Post-Effective Amendment No. 7 to
the Registrant's Registration Statement filed on April 28, 1988.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
(1) (2)
Title of Class Number of Record Holders
Shares of Beneficial Interest 2
(without par value) (as of March 31, 1997)
Item 27. Indemnification
---------------
Reference is hereby made to (a) Article V of the Registrant's
Declaration of Trust, filed as an Exhibit to the Registrant's Registration
Statement on Form N-1 and (b) the undertaking of the Registrant regarding
indemnification set forth in Registrant's Registration Statement on Form N-1.
The Trustees and officers of the Registrant and the personnel of the
Registrant's investment adviser are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
MFS serves as investment adviser to the following open-end Funds
comprising the MFS Family of Funds: Massachusetts Investors Trust,
Massachusetts Investors Growth Stock Fund, MFS Growth Opportunities Fund, MFS
Government Securities Fund, MFS Government Limited Maturity Fund, MFS Series
Trust I (which has thirteen series: MFS Managed Sectors Fund, MFS Cash Reserve
Fund, MFS World Asset Allocation Fund, MFS Aggressive Growth Fund, MFS Research
Growth and Income Fund, MFS Core Growth Fund, MFS Equity Income Fund, MFS
Special Opportunities Fund, MFS Convertible Securities Fund, MFS Blue Chip Fund,
MFS New Discovery Fund, MFS Science and Technology Fund and MFS Research
International Fund), MFS Series Trust II (which has four series: MFS Emerging
Growth Fund, MFS Capital Growth Fund, MFS Intermediate Income Fund and MFS Gold
& Natural Resources Fund), MFS Series Trust III (which has two series: MFS High
Income Fund and MFS Municipal High Income Fund), MFS Series Trust IV (which has
four series: MFS Money Market Fund, MFS Government Money Market Fund, MFS
Municipal Bond Fund and MFS OTC Fund), MFS Series Trust V (which has two series:
MFS Total Return Fund and MFS Research Fund), MFS Series Trust VI (which has
three series: MFS World Total Return Fund, MFS Utilities Fund and MFS World
Equity Fund), MFS Series Trust VII (which has two series: MFS World Governments
Fund and MFS Value Fund), MFS Series Trust VIII (which has two series: MFS
Strategic Income Fund and MFS World Growth Fund), MFS Series Trust IX (which has
three series: MFS Bond Fund, MFS Limited Maturity Fund and MFS Municipal Limited
Maturity Fund), MFS Series Trust X (which has four series: MFS Government
Mortgage Fund, MFS/Foreign & Colonial Emerging Markets Equity Fund, MFS/Foreign
& Colonial International Growth Fund and MFS/Foreign & Colonial International
Growth and Income Fund), and MFS Municipal Series Trust (which has 16 series:
MFS Alabama Municipal Bond Fund, MFS Arkansas Municipal Bond Fund, MFS
California Municipal Bond Fund, MFS Florida Municipal Bond Fund, MFS Georgia
Municipal Bond Fund, MFS Maryland Municipal Bond Fund, MFS Massachusetts
Municipal Bond Fund, MFS Mississippi Municipal Bond Fund, MFS New York Municipal
Bond Fund, MFS North Carolina Municipal Bond Fund, MFS Pennsylvania Municipal
Bond Fund, MFS South Carolina Municipal Bond Fund, MFS Tennessee Municipal Bond
Fund, MFS Virginia Municipal Bond Fund, MFS West Virginia Municipal Bond Fund
and MFS Municipal Income Fund) (the "MFS Funds"). The principal business
address of each of the MFS Funds is 500 Boylston Street, Boston, Massachusetts
02116.
MFS also serves as investment adviser of the following no-load, open-
end Funds: MFS Institutional Trust ("MFSIT") (which has seven series), MFS
Variable Insurance Trust ("MVI") (which has twelve series) and MFS Union
Standard Trust ("UST"). The principal business address of each of the
aforementioned funds is 500 Boylston Street, Boston, Massachusetts 02116.
In addition, MFS serves as investment adviser to the following closed-
end funds: MFS Municipal Income Trust, MFS Multimarket Income Trust, MFS
Government Markets Income Trust, MFS Intermediate Income Trust, MFS Charter
Income Trust and MFS Special Value Trust (the "MFS Closed-End Funds"). The
principal business address of each of the MFS Closed-End Funds is 500 Boylston
Street, Boston, Massachusetts 02116.
Lastly, MFS serves as investment adviser to MFS/Sun Life Series Trust
("MFS/SL"), Money Market Variable Account, High Yield Variable Account, Capital
<PAGE>
Appreciation Variable Account, Government Securities Variable Account, World
Governments Variable Account, Total Return Variable Account and Managed Sectors
Variable Account. The principal business address of each of the aforementioned
funds is One Sun Life Executive Park, Wellesley Hills, Massachusetts 02181.
MFS International Ltd. ("MIL"), a limited liability company organized
under the laws of Bermuda and a subsidiary of MFS, whose principal business
address is Cedar House, 41 Cedar Avenue, Hamilton HM12 Bermuda, serves as
investment adviser to and distributor for MFS American Fund (which has six
portfolios: MFS American Funds-U.S. Equity Fund, MFS American Funds-U.S.
Emerging Growth Fund, MFS American Funds-U.S. High Yield Bond Fund, MFS American
Funds - U.S. Dollar Reserve Fund, MFS American Funds-Charter Income Fund and MFS
American Funds-U.S. Research Fund) (the "MIL Funds"). The MIL Funds are
organized in Luxembourg and qualify as an undertaking for collective investments
in transferable securities (UCITS). The principal business address of the MIL
Funds is 47, Boulevard Royal, L-2449 Luxembourg.
MIL also serves as investment adviser to and distributor for MFS
Meridian U.S. Government Bond Fund, MFS Meridian Charter Income Fund, MFS
Meridian Global Government Fund, MFS Meridian U.S. Emerging Growth Fund, MFS
Meridian Global Equity Fund, MFS Meridian Limited Maturity Fund, MFS Meridian
World Growth Fund, MFS Meridian Money Market Fund, MFS Meridian World Total
Return Fund, MFS Meridian U.S. Equity Fund, MFS Meridian Research Fund and MFS
Emerging Markets Debt Fund (collectively the "MFS Meridian Funds"). Each of the
MFS Meridian Funds is organized as an exempt company under the laws of the
Cayman Islands. The principal business address of each of the MFS Meridian
Funds is P.O. Box 309, Grand Cayman, Cayman Islands, British West Indies.
MFS International (U.K.) Ltd. ("MIL-UK"), a private limited company
registered with the Registrar of Companies for England and Wales whose current
address is 4 John Carpenter Street, London, England ED4Y 0NH, is involved
primarily in marketing and investment research activities with respect to
private clients and the MIL Funds and the MFS Meridian Funds.
MFS Fund Distributors, Inc. ("MFD"), a wholly owned subsidiary of MFS,
serves as distributor for the MFS Funds, MVI, UST and MFSIT.
Clarendon Insurance Agency, Inc. ("CIAI"), a wholly owned subsidiary
of MFS, serves as distributor for certain life insurance and annuity contracts
issued by Sun Life Assurance Company of Canada (U.S.).
MFS Service Center, Inc. ("MFSC"), a wholly owned subsidiary of MFS,
serves as shareholder servicing agent to the MFS Funds, the MFS Closed-End
Funds, MFSIT, MVI and UST.
MFS Institutional Advisors, Inc. ("MFSI"), a wholly owned subsidiary
of MFS, provides investment advice to substantial private clients.
<PAGE>
MFS Retirement Services, Inc. ("RSI"), a wholly owned subsidiary of MFS,
markets MFS products to retirement plans and provides administrative and record
keeping services for retirement plans.
MFS
---
The Directors of MFS are A. Keith Brodkin, Jeffrey L. Shames, Arnold D.
Scott, Donald A. Stewart and John D. McNeil. Mr. Brodkin is the Chairman, Mr.
Shames is the President, Mr. Scott is a Senior Executive Vice President and
Secretary, Bruce C. Avery, William S. Harris, William W. Scott, Jr., and
Patricia A. Zlotin are Executive Vice Presidents, Stephen E. Cavan is a Senior
Vice President, General Counsel and an Assistant Secretary, Robert T. Burns is a
Senior Vice President, Associate General Counsel and an Assistant Secretary of
MFS, and Thomas B. Hastings is a Vice President and Treasurer of MFS.
Massachusetts Investors Trust
-----------------------------
Massachusetts Investors Growth Stock Fund
-----------------------------------------
MFS Growth Opportunities Fund
-----------------------------
MFS Government Securities Fund
------------------------------
MFS Series Trust I
------------------
MFS Series Trust V
------------------
MFS Series Trust VI
-------------------
MFS Series Trust X
------------------
MFS Government Limited Maturity Fund
------------------------------------
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost, Vice President of
MFS, is the Assistant Treasurer, James R. Bordewick, Jr., Senior Vice President
and Associate General Counsel of MFS, is the Assistant Secretary.
MFS Series Trust II
-------------------
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Government Markets Income Trust
-----------------------------------
MFS Intermediate Income Trust
-----------------------------
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg,
Senior Vice President of MFS, is a Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer, and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Series Trust III
--------------------
A. Keith Brodkin is the Chairman and President, James T. Swanson, Robert
J. Manning, Cynthia M. Brown and Joan S. Batchelder, Senior Vice Presidents of
MFS, Bernard
<PAGE>
Scozzafava, Vice President of MFS, and Matthew Fontaine, Assistant
Vice President of MFS, are Vice Presidents, Sheila Burns-Magnan, Assistant Vice
President of MFS, and Daniel E. McManus, Vice President of MFS, are Assistant
Vice Presidents, Stephen E. Cavan is the Secretary, W. Thomas London is the
Treasurer, James O. Yost is the Assistant Treasurer, and James R. Bordewick,
Jr., is the Assistant Secretary.
MFS Series Trust IV
-------------------
MFS Series Trust IX
-------------------
A. Keith Brodkin is the Chairman and President, Robert A. Dennis and
Geoffrey L. Kurinsky, Senior Vice Presidents of MFS, are Vice Presidents,
Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O.
Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant
Secretary.
MFS Series Trust VII
--------------------
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
Stephen C. Bryant, Senior Vice Presidents of MFS, are Vice Presidents, Stephen
E. Cavan is the Secretary, W. Thomas London is the Treasurer, James O. Yost is
the Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Series Trust VIII
---------------------
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames,
Leslie J. Nanberg, Patricia A. Zlotin, James T. Swanson and John D. Laupheimer,
Jr., Vice President of MFS, are Vice Presidents, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Municipal Series Trust
--------------------------
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert A. Dennis are Vice Presidents, David B. Smith, Geoffrey L. Schechter and
David R. King, Vice Presidents of MFS, are Vice Presidents, Daniel E. McManus,
Vice President of MFS, is an Assistant Vice President, Stephen E. Cavan is the
Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Variable Insurance Trust
----------------------------
MFS Union Standard Trust
------------------------
MFS Institutional Trust
-----------------------
A. Keith Brodkin is the Chairman and President, Stephen E. Cavan is
the Secretary, W. Thomas London is the Treasurer, James O. Yost is the Assistant
Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
<PAGE>
MFS Municipal Income Trust
--------------------------
A. Keith Brodkin is the Chairman and President, Cynthia M. Brown and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS Multimarket Income Trust
----------------------------
MFS Charter Income Trust
------------------------
A. Keith Brodkin is the Chairman and President, Leslie J. Nanberg and
James T. Swanson are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, Vice President of MFS, is the
Assistant Treasurer and James R. Bordewick, Jr., is the Assistant Secretary.
MFS Special Value Trust
-----------------------
A. Keith Brodkin is the Chairman and President, Jeffrey L. Shames and
Robert J. Manning are Vice Presidents, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James O. Yost, is the Assistant Treasurer and
James R. Bordewick, Jr., is the Assistant Secretary.
MFS/Sun Life Series Trust
-------------------------
John D. McNeil, Chairman and Director of Sun Life Assurance Company of
Canada, is the Chairman, Stephen E. Cavan is the Secretary, W. Thomas London is
the Treasurer, James O. Yost, is the Assistant Treasurer and James R. Bordewick,
Jr., is the Assistant Secretary.
Money Market Variable Account
-----------------------------
High Yield Variable Account
---------------------------
Capital Appreciation Variable Account
-------------------------------------
Government Securities Variable Account
--------------------------------------
Total Return Variable Account
-----------------------------
World Governments Variable Account
----------------------------------
Managed Sectors Variable Account
--------------------------------
John D. McNeil is the Chairman, Stephen E. Cavan is the Secretary, and
James R. Bordewick, Jr., is the Assistant Secretary.
MIL
---
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott and
Jeffrey L. Shames are Directors, Ziad Malek, Senior Vice President of MFS, is
the President, Thomas J. Cashman, Jr., a Senior Vice President of MFS, is a
Senior Vice President, Stephen E. Cavan is a Director, Senior Vice President and
the Clerk, James R. Bordewick, Jr. is a Director, Vice President and an
Assistant Clerk, Robert T. Burns is an Assistant Clerk, Joseph W. Dello Russo,
<PAGE>
Senior Vice President and Chief Financial Officer of MFS, is the Treasurer and
Thomas B. Hastings is the Assistant Treasurer.
MIL-UK
------
A. Keith Brodkin is a Director and the Chairman, Arnold D. Scott,
Jeffrey L. Shames, and James R. Bordewick, Jr., are Directors, Stephen E. Cavan
is a Director and the Secretary, Ziad Malek is the President, James E. Russell
is the Treasurer, and Robert T. Burns is the Assistant Secretary.
MIL Funds
---------
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker and William F. Waters are
Directors, Stephen E. Cavan is the Secretary, W. Thomas London is the Treasurer,
James O. Yost is the Assistant Treasurer and James R. Bordewick, Jr., is the
Assistant Secretary, and Ziad Malek is a Senior Vice President.
MFS Meridian Funds
------------------
A. Keith Brodkin is the Chairman, President and a Director, Richard B.
Bailey, John A. Brindle, Richard W. S. Baker, Arnold D. Scott, Jeffrey L. Shames
and William F. Waters are Directors, Stephen E. Cavan is the Secretary, W.
Thomas London is the Treasurer, James R. Bordewick, Jr., is the Assistant
Secretary, James O. Yost is the Assistant Treasurer, and Ziad Malek is a Senior
Vice President.
MFD
---
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, William W. Scott, Jr., an Executive Vice
President of MFS, is the President, Stephen E. Cavan is the Secretary, Robert T.
Burns is the Assistant Secretary, Joseph W. Dello Russo is the Treasurer, and
Thomas B. Hastings is the Assistant Treasurer.
CIAI
----
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Cynthia Orcott is President, Bruce C. Avery is
the Vice President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings
is the Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T.
Burns is the Assistant Secretary.
MFSC
----
A. Keith Brodkin is the Chairman and a Director, Arnold D. Scott and
Jeffrey L. Shames are Directors, Joseph A. Recomendes, a Senior Vice President
of MFS, is Vice Chairman and a Director, Janet A. Clifford is the Executive Vice
President, Joseph W. Dello Russo is the Treasurer, Thomas B. Hastings is the
Assistant Treasurer, Stephen E. Cavan is the Secretary, and Robert T. Burns is
the Assistant Secretary.
<PAGE>
MFSI
----
A. Keith Brodkin is the Chairman and a Director, Jeffrey L. Shames,
and Arnold D. Scott are Directors, Thomas J. Cashman, Jr., is the President and
a Director, Leslie J. Nanberg is a Senior Vice President, a Managing Director
and a Director, George F. Bennett, Carol A. Corley, John A. Gee, Brianne Grady
and Kevin R. Parke are Senior Vice Presidents and Managing Directors, Joseph W.
Dello Russo is the Treasurer, Thomas B. Hastings is the Assistant Treasurer and
Robert T. Burns is the Secretary.
RSI
---
William W. Scott, Jr. and Bruce C. Avery are Directors, Arnold D.
Scott is the Chairman and a Director, Joseph W. Dello Russo is the Treasurer,
Thomas B. Hastings is the Assistant Treasurer, Stephen E. Cavan is the
Secretary, Robert T. Burns is the Assistant Secretary and Sharon A. Brovelli and
Martin E. Beaulieu are Senior Vice Presidents.
In addition, the following persons, Directors or officers of MFS, have
the affiliations indicated:
A. Keith Brodkin Director, Sun Life Assurance Company of Canada
(U.S.), One Sun Life Executive Park, Wellesley
Hills, Massachusetts
Director, Sun Life Insurance and Annuity Company
of New York, 80 Broad Street, New York, New
York
Donald A. Stewart President and a Director, Sun Life Assurance
Company of Canada, Sun Life Centre, 150 King
Street West, Toronto, Ontario, Canada (Mr.
Stewart is also an officer and/or Director of
various subsidiaries and affiliates of Sun
Life)
John D. McNeil Chairman, Sun Life Assurance Company of Canada,
Sun Life Centre, 150 King Street West,
Toronto, Ontario, Canada (Mr. McNeil is also
an officer and/or Director of various
subsidiaries and affiliates of Sun Life)
Joseph W. Dello Russo Director of Mutual Fund Operations, The Boston
Company, Exchange Place, Boston, Massachusetts
(until August, 1994)
Item 29. Distributors
------------
(a) Reference is hereby made to Item 28 above.
<PAGE>
(b) Reference is hereby made to Item 28 above; the principal business
address of each of these persons is 500 Boylston Street, Boston, Massachusetts
02116.
(c) Not applicable.
Item 30. Location of Accounts and Records
--------------------------------
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Massachusetts Financial Services 500 Boylston Street
Company (investment adviser) Boston, MA 02116
MFS Service Center, Inc. 500 Boylston Street
Boston, MA 02116
State Street Bank and Trust Company State Street South
5-North
North Quincy, MA 02171
Sun Life Annuity Service Center 50 Milk Street
Boston, MA 02109
</TABLE>
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
(a) Not applicable.
(b) Not applicable.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(d) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth in Item 27 of
this Part C, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in
<PAGE>
connection with the Securities being Registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Boston and The Commonwealth
of Massachusetts on the 25th day of April 1997.
MFS/SUN LIFE SERIES TRUST
By: James R. Bordewick, Jr.
-----------------------
Name: James R. Bordewick, Jr.
Title: Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to its Registration Statement has been signed below by the
following persons in the capacities indicated on April 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
JOHN D. MCNEIL* Chairman, Principal Executive Officer
- ------------------------------ and Trustee
John D. McNeil
W. THOMAS LONDON* Treasurer (Principal Financial Officer
- ------------------------------ and Principal Accounting Officer)
W. Thomas London
SAMUEL ADAMS* Trustee
- ------------------------------
Samuel Adams
GEOFFREY CROFTS* Trustee
- ------------------------------
Geoffrey Crofts
GARTH MARSTON* Trustee
- ------------------------------
Garth Marston
DAVID D. HORN* Trustee
- ------------------------------
David D. Horn
</TABLE>
<PAGE>
<TABLE>
<S> <C>
DERWYN F. PHILLIPS* Trustee
- ------------------------------
Derwyn F. Phillips
</TABLE>
*By: James R. Bordewick, Jr.
--------------------------------
Name: James R. Bordewick, Jr.
as Attorney-in-fact
Executed by James R. Bordewick, Jr.
on behalf of those indicated pursuant to
a Power of Attorney filed herewith.
<PAGE>
POWER OF ATTORNEY
-----------------
MFS/Sun Life Series Trust
The undersigned, Trustees and officers of MFS/Sun Life Series Trust (the
"Registrant"), hereby severally constitute and appoint James R. Bordewick, Jr.,
Stephen E. Cavan, David D. Horn, W. Thomas London and John D. McNeil, and each
of them singly, as true and lawful attorneys, with full power to them and each
of them to sign for each of the undersigned, in the names of, and in the
capacities indicated below, any Registration Statement and any and all
amendments thereto and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
for the purpose of registering the Registrant as a management investment company
under the Investment Company Act of 1940 and/or the shares issued by the
Registrant under the Securities Act of 1933 granting, unto our said attorneys,
and each of them, acting alone, full power and authority to do and perform each
and every act and thing requisite or necessary or desirable to be done in the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys or any of them
may lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hand on
this 6th day of February, 1997.
<TABLE>
<CAPTION>
Signatures Title(s)
- ---------- --------
<S> <C>
SAMUEL ADAMS
- ---------------------------
Samuel Adams Trustee
GEOFFREY CROFTS
- ---------------------------
Geoffrey Crofts Trustee
DAVID D. HORN
- ---------------------------
David D. Horn Trustee
GARTH MARSTON
- ---------------------------
Garth Marston Trustee
</TABLE>
<PAGE>
<TABLE>
<S> <C>
JOHN D. MCNEIL
- ---------------------------
John D. McNeil Chairman of the Board; Trustee; and Principal
Executive Officer
DERWYN PHILLIPS
- ---------------------------
Derwyn Phillips Trustee
W. THOMAS LONDON
- --------------------------
W. Thomas London Principal Financial and Accounting Officer
</TABLE>
<PAGE>
INDEX TO EXHIBITS
-----------------
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
5 (v) Amendment to the Investment Advisory
Agreement by and between Massachusetts
Financial Services Company and the
Registrant relating to the Capital
Appreciation Series.
11 Consent of Deloitte & Touche LLP.
17 Financial Data Schedules.
<PAGE>
EXHIBIT NO. 99.5(v)
AMENDMENT TO INVESTMENT
ADVISORY AGREEMENT
AMENDMENT dated as of January 1, 1997 to the Investment Advisory Agreement dated
May 24, 1985 by and between MFS/Sun Life Series Trust (the "Trust") on behalf of
the Capital Appreciation Series (the "Fund"), a series of the Trust, and
Massachusetts Financial Services Company, a Delaware corporation (the "Adviser")
(the "Agreement").
WITNESSETH
WHEREAS, the Trust on behalf of the Fund has entered into the Agreement with the
Adviser; and
WHEREAS, the Adviser has agreed to amend the Agreement as provided below;
NOW THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto as herein set forth, the parties covenant and agree as follows:
1. Amendment of the Agreement: The third clause of the second sentence of
--------------------------
Article 3 of the Agreement is deleted and replaced in its entirety as follows:
"(iii) 0.75% of the first $1 billion of the average net assets of
the Capital Appreciation Series and 0.675% of the amount in excess
of $1 billion for the Trust's then-current fiscal year;"
2. Miscellaneous: Except as set forth in this Amendment, the Agreement
-------------
shall remain in full force and effect, without amendment or modification.
3. Limitation of Liability of the Trustees and Shareholders: A copy of
--------------------------------------------------------
the Trust's Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts. The parties hereto acknowledge that the
obligations of or arising out of this instrument are not binding upon any of the
Trust's trustees, officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. If this instrument is executed by the
Trust on behalf of one or more series of the Trust, the parties hereto
acknowledge that the assets and liabilities of each series of the Trust are
separate and distinct and that the obligations of or arising out of this
instrument are binding solely upon the assets or property of the series on whose
behalf the Trust has executed this instrument. If the Trust has executed this
instrument on behalf of more than one series of the Trust, the parties hereto
also agree that the obligations of each series hereunder shall be several and
not joint, in accordance with its proportionate interest hereunder, and the
parties hereto agree not to proceed against any series for the obligations of
another series.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to the Agreement to
be executed and delivered in the names and on their behalf by the undersigned,
therewith duly authorized, all as of the day and year first above written.
MFS/SUN LIFE SERIES TRUST
on behalf of CAPITAL APPRECIATION SERIES
By: W. THOMAS LONDON
---------------------------------------
W. Thomas London
Treasurer
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By: ARNOLD D. SCOTT
---------------------------------------
Arnold D. Scott, Senior
Executive Vice President
-2-
<PAGE>
Exhibit 99.11
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in this Post-Effective
Amendment No. 20 to Registration Statement No. 2-83616 of MFS/Sun Life Series
Trust, of our report dated February 7, 1997, appearing in the annual report to
shareholders for the year ended December 31, 1996, and to the references to us
under the headings "Condensed Financial Information" in the Prospectus and
"Independent Accountants and Financial Statements" in the Statement of
Additional Information, both of which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> CAPITAL APPRECIATION SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 838,663,185
<INVESTMENTS-AT-VALUE> 1,058,236,226
<RECEIVABLES> 4,032,885
<ASSETS-OTHER> 8,435
<OTHER-ITEMS-ASSETS> 6,497
<TOTAL-ASSETS> 1,062,284,043
<PAYABLE-FOR-SECURITIES> 325,298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327,314
<TOTAL-LIABILITIES> 652,612
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 738,885,344
<SHARES-COMMON-STOCK> 29,628,372
<SHARES-COMMON-PRIOR> 24,918,918
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 103,173,046
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 219,573,041
<NET-ASSETS> 1,061,631,431
<DIVIDEND-INCOME> 5,967,048
<INTEREST-INCOME> 1,058,532
<OTHER-INCOME> (61,346)
<EXPENSES-NET> (7,458,936)
<NET-INVESTMENT-INCOME> (494,702)
<REALIZED-GAINS-CURRENT> 103,809,599
<APPREC-INCREASE-CURRENT> 78,680,700
<NET-CHANGE-FROM-OPS> 181,995,597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (850,749)
<DISTRIBUTIONS-OF-GAINS> (75,199,375)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,443,621
<NUMBER-OF-SHARES-REDEEMED> (8,969,620)
<SHARES-REINVESTED> 2,235,453
<NET-CHANGE-IN-ASSETS> 264,529,739
<ACCUMULATED-NII-PRIOR> 850,657
<ACCUMULATED-GAINS-PRIOR> 75,057,616
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,006,502
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,464,782
<AVERAGE-NET-ASSETS> 934,224,135
<PER-SHARE-NAV-BEGIN> 31.99
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 6.74
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (2.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.83
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 02
<NAME> CONSERVATIVE GROWTH SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 460,227,607
<INVESTMENTS-AT-VALUE> 570,509,943
<RECEIVABLES> 1,316,190
<ASSETS-OTHER> 11,992
<OTHER-ITEMS-ASSETS> 5,569
<TOTAL-ASSETS> 571,843,694
<PAYABLE-FOR-SECURITIES> 172,718
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 662,941
<TOTAL-LIABILITIES> 835,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 422,442,883
<SHARES-COMMON-STOCK> 21,549,255
<SHARES-COMMON-PRIOR> 13,716,985
<ACCUMULATED-NII-CURRENT> 7,188,091
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,094,901
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 110,282,160
<NET-ASSETS> 571,008,035
<DIVIDEND-INCOME> 8,465,393
<INTEREST-INCOME> 1,360,788
<OTHER-INCOME> (78,356)
<EXPENSES-NET> (2,551,295)
<NET-INVESTMENT-INCOME> 7,196,530
<REALIZED-GAINS-CURRENT> 31,413,840
<APPREC-INCREASE-CURRENT> 58,920,592
<NET-CHANGE-FROM-OPS> 97,530,962
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,723,151)
<DISTRIBUTIONS-OF-GAINS> (10,911,137)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,921,733
<NUMBER-OF-SHARES-REDEEMED> (766,565)
<SHARES-REINVESTED> 677,102
<NET-CHANGE-IN-ASSETS> 268,984,423
<ACCUMULATED-NII-PRIOR> 4,723,052
<ACCUMULATED-GAINS-PRIOR> 10,583,858
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,320,310
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,558,692
<AVERAGE-NET-ASSETS> 421,887,474
<PER-SHARE-NAV-BEGIN> 22.02
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 5.04
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (0.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.50
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 03
<NAME> GOVERNMENT SECURITIES SERIES
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 376,652,522
<INVESTMENTS-AT-VALUE> 378,354,422
<RECEIVABLES> 4,858,455
<ASSETS-OTHER> 3,982
<OTHER-ITEMS-ASSETS> 455
<TOTAL-ASSETS> 383,217,314
<PAYABLE-FOR-SECURITIES> 28,868
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,536
<TOTAL-LIABILITIES> 110,404
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 365,852,204
<SHARES-COMMON-STOCK> 29,773,965
<SHARES-COMMON-PRIOR> 27,546,525
<ACCUMULATED-NII-CURRENT> 25,296,723
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (9,743,917)
<ACCUM-APPREC-OR-DEPREC> 1,701,900
<NET-ASSETS> 383,106,910
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,854,463
<OTHER-INCOME> 0
<EXPENSES-NET> (2,416,241)
<NET-INVESTMENT-INCOME> 25,438,222
<REALIZED-GAINS-CURRENT> (2,503,740)
<APPREC-INCREASE-CURRENT> (16,642,829)
<NET-CHANGE-FROM-OPS> 6,291,653
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (22,253,356)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,676,674
<NUMBER-OF-SHARES-REDEEMED> (8,264,354)
<SHARES-REINVESTED> 1,815,119
<NET-CHANGE-IN-ASSETS> 14,258,950
<ACCUMULATED-NII-PRIOR> 22,253,104
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (7,381,424)
<GROSS-ADVISORY-FEES> 2,121,808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,418,161
<AVERAGE-NET-ASSETS> 385,791,799
<PER-SHARE-NAV-BEGIN> 13.39
<PER-SHARE-NII> 0.84
<PER-SHARE-GAIN-APPREC> (0.66)
<PER-SHARE-DIVIDEND> (0.70)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.87
<EXPENSE-RATIO> 63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
<SERIES>
<NUMBER> 04
<NAME> WORLD GOVERNMENTS SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 137,945,784
<INVESTMENTS-AT-VALUE> 141,103,763
<RECEIVABLES> 5,617,964
<ASSETS-OTHER> 1,643
<OTHER-ITEMS-ASSETS> 1,411
<TOTAL-ASSETS> 146,724,781
<PAYABLE-FOR-SECURITIES> 216,584
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,743,765
<TOTAL-LIABILITIES> 4,960,349
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 135,421,697
<SHARES-COMMON-STOCK> 12,592,121
<SHARES-COMMON-PRIOR> 12,212,108
<ACCUMULATED-NII-CURRENT> 4,976,757
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 632,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 733,317
<NET-ASSETS> 141,764,432
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,054,540
<OTHER-INCOME> 0
<EXPENSES-NET> (1,311,708)
<NET-INVESTMENT-INCOME> 8,742,832
<REALIZED-GAINS-CURRENT> (7,775,092)
<APPREC-INCREASE-CURRENT> 5,531,505
<NET-CHANGE-FROM-OPS> 6,499,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,261,198)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,205,318
<NUMBER-OF-SHARES-REDEEMED> (2,733,139)
<SHARES-REINVESTED> 1,907,834
<NET-CHANGE-IN-ASSETS> (10,722,760)
<ACCUMULATED-NII-PRIOR> 25,666,880
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (764,004)
<GROSS-ADVISORY-FEES> 1,091,953
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,311,968
<AVERAGE-NET-ASSETS> 145,596,895
<PER-SHARE-NAV-BEGIN> 12.49
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> (0.21)
<PER-SHARE-DIVIDEND> (1.71)
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<NAME> WORLD ASSET ALLOCATION SERIES
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<NUMBER> 17
<NAME> EMERGING GROWTH SERIES
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<NAME> MFS/F&C INTERNATIONAL GROWTH & INCOME SERIES
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<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
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<NAME> MFC/F&C INTERNATIONAL GROWTH SERIES
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<CIK> 0000719269
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<NAME> MFS/F&C EMERGING MARKETS EQUITY SERIES
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<CIK> 0000719269
<NAME> MFS SUN LIFE SERIES TRUST
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<NAME> VALUE SERIES
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