MFS[RegTM]/Sun Life Series Trust
ANNUAL REPORT o December 31, 1998
Capital Opportunities Series
(formerly Value Series)
Equity Income Series
International Growth Series
Massachusetts Investors Growth Stock Series
New Discovery Series
Research Growth and Income Series
Research International Series
<PAGE>
MFS Celebrates it's Diamond Anniversary!
March 21, 1999, marks the 75th anniversary of
MFS' invention of the mutual fund. The mutual
fund industry has brought the power of investing
to every American, offering them the opportunity
for college degrees, home ownership, and
comfortable retirement. Imagine today's world
without mutual funds. We
couldn't. And while the years
ahead will bring a number
of challenges, our 75 years
of experience will help
guide a new generation of
investors into the future.
[MFS 75 Years Logo]
EXPERIENCE THE FUTURE(SM)
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
Letter from the Chairman
Dear Contract Owners,
In 1999, MFS celebrates its 75th anniversary. The nation's first mutual fund --
our Massachusetts Investors Trust (MIT) -- was introduced to the public on
March 21, 1924. Since then, MFS Investment Management[RegTM], the company that
grew out of that original fund, has helped guide investors through many
economic and investment cycles, primarily by focusing on the long-term
opportunities created by an expanding global economy. As of December 31, 1998,
MFS manages nearly $100 billion, and the firm's 2,000 people serve almost four
million investors and their financial advisers worldwide.
One of the elements in the success of MIT did not exist before our founders
invented it in 1924. That is daily redemption. This feature, through which new
shares were created when people invested in MIT and were redeemed when people
sold, was an important change. As a result, the price of a mutual fund's shares
wasn't determined by supply and demand, but by the value of the securities
owned by the portfolio.
Another factor in our growth was the development of one of the industry's first
internal research departments in 1932. Unlike companies that rely on Wall
Street research reports, which can be used by many investors at the same time,
MIT's managers built its long-term track record by visiting companies, talking
to managers and competitors, and "kicking the tires" so they could judge the
quality and potential of each company's products and services for themselves.
Today, MFS has more than 100 full-time portfolio managers, stock analysts, and
credit analysts who track the equity and bond markets. That number includes
over 35 equity analysts who specialize in industries such as aviation, media,
technology, automobiles, and utilities.
While MIT introduced the daily redemption feature, that was not our only
invention. We also established the nation's first global bond fund, the first
high-yield municipal bond fund, and the first high-yield municipal closed-end
bond fund. MFS also was among the leaders in the mutual fund industry in
introducing variable annuity accounts.
We are proud of the record of MIT and of all the products offered by MFS, but
we are also proud of our long-standing relationship with financial advisers.
Not only do we believe investors can benefit from the advice of these experts
but, as was shown during the market volatility of 1998, people who work with
financial advisers are less likely to abandon their carefully designed, long-
term investment strategies.
Our ability to service your investment and information needs is also extremely
important to us. The Sun Life Annuity Service Center handles millions of
transactions and phone calls every year. Supporting the work of financial
advisers, promptly sending out statements and confirmations, and answering
hundreds of investors' questions every day are crucial elements in maintaining
long-term relationships with our contract owners.
If there is a common thread running through these milestones, it is our
unswerving commitment to providing you with the best possible investment
management and contract owner service, just as we have done for the past 75
years.
As we celebrate this anniversary, it is also a time for MFS to look ahead and
build on our 75 years of innovation and experience to help meet your investment
needs in the next century. We appreciate your confidence and welcome any
questions or comments you may have.
On behalf of the Board of Trustees,
/s/ John D. McNeil
- ------------------
John D. McNeil
Chairman
Board of Trustees
January 15, 1999
Management Review and Outlook
Capital Opportunities Series
For the 12 months ended December 31, 1998, the Series provided a total return
of 26.97%. This compares to a 28.58% return for the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance.
In general, the Series has benefited from good industry selection as well as
good stock selection. Although the Series was slightly underweighted relative
to the S&P 500 in technology and health care, which have been two of the
strongest-performing sectors in the index, it was significantly overweighted in
retailing, which was one of the best-performing sectors. At the same time, the
Series was significantly underweighted in basic materials, transportation, and
energy, all of which were among the worst-performing sectors.
Among stocks, the Series has had strong performance from several of its top
holdings, including Tyco, Federal Home Loan Mortgage Corp. (Freddie Mac), Fred
Meyer, CBS, and Compuware.
Changes in the portfolio included a reduction in the pharmaceutical weighting
because prices reached what we believe are full valuations and an increase in
the weighting in health maintenance organizations in anticipation of an
industry rebound. We've recently made purchases in the technology sector,
including BMC Software, Oracle, and Compuware, at attractive prices. In
financial services, the portfolio's largest sector, we reduced the Series'
regional bank exposure but added several companies, including Freddie Mac,
Associates First Capital, and State Street. We think many financial services
companies offer solid double-digit growth and attractive valuations. In
addition, the performance of these companies has tended to be good during
periods of declining interest rates and slow economic growth, particularly when
their asset quality has remained intact.
Our international investment approach parallels our domestic objective of
finding long-term growth at attractive valuations. The Series has gotten good
performance from some of its major European holdings, including Sanofi,
Mannesmann, and Cellular Communications International, a U.S. company with
extensive operations in Europe.
In general, while we believe current valuations have again reached excessive
levels, the market's volatility has presented us with several opportunities to
purchase what we view as good companies at attractive valuations.
1
<PAGE>
Management Review and Outlook -- continued
Equity Income Series
The Series commenced operations on May 6, 1998, and from that date through
December 31, 1998, provided a total return of 5.00%. From June 1, 1998, through
December 31, 1998, the S&P 500 returned 13.66%.
The Series' performance, particularly during the July-to-October 1998 market
volatility, was helped by the fact that it continued to be extremely
conservatively positioned. The utilities, particularly electrics, helped
performance, as these stocks have tended to hold up better during market
downturns. The Series was also helped by our shift out of banks. The collapse
of a major hedge fund contributed to fears of a global financial breakdown, and
almost all financial stocks were hurt because of problems that resulted in the
capital markets.
Although the utilities and communications sector makes up over a third of the
Series' assets, we are comfortable with that allocation because, while there
has been good growth among the telephone companies, including the regional Bell
operating companies, our electric and gas positions are more defensive. But
we're continuing to find electric and gas companies that have consistently
raised their growth rates and provided good yields. At the same time, we have
added some exposure to oil companies and water utilities that could benefit
from consolidation and from the number of municipalities looking to private
companies to outsource their water and sewer needs.
Meanwhile, one of the Series' larger holdings, Rubbermaid, is being purchased
by Newell, an acquisition that we believe helps both companies. Newell's
management has a proven track record, while Rubbermaid needs to be managed more
aggressively. Rubbermaid supports our theme of looking for undervalued, quality
franchises in which, if management doesn't work to extract full value, somebody
else will. Another holding taken over was Elsag Bailey, a process control
company that is being acquired by Asea Brown Boveri.
Looking forward, in spite of the market's rebound late in 1998 we still see
reason to be cautious. Also, the overall news in areas such as earnings and
emerging markets is not much better than a few months ago, and we think the
benefits of lower interest rates are largely behind us. That puts the focus on
earnings and, because the economy is slowing, we feel the near-term earnings
outlook is unfavorable.
International Growth Series
For the 12 months ended December 31, 1998, the Series provided a total return
of 1.94%, which compares to a 20.33% return for the Morgan Stanley Capital
International (MSCI) Europe, Australia, Far East (EAFE) Index, an unmanaged,
market-capitalization-weighted total return index of developed-country global
stock markets, excluding the United States, Canada, and the South African
mining component. Investments in foreign and emerging markets may provide
superior returns but also involve greater risk than U.S. investments. These
risks may increase share price volatility, please see a prospectus.
The equity markets worldwide have had one of the more volatile years in recent
history. In the market's downturn during the late summer and early fall of
1998, European equities were actually hit harder than those in the United
States. Though all markets have rebounded, foreign stocks have not come back
with the same strength as U.S. equities.
The primary reason for the Series' underperformance over the past year was the
difficult situation in the emerging markets. Our exposure there, which had run
at about 15% of the portfolio's assets, hurt performance overall. By the end of
1998, however, our emerging market exposure had been drastically reduced to
approximately 2% of assets. It is important to note, however, that the MSCI
EAFE Index does not take into account any emerging market stocks.
In developed markets, performance was impacted by investor flight to the
perceived quality of major European markets such as France and Germany and to
big-name stocks in those regions in the wake of the global market volatility
during the late summer and early fall. During this flight, investors sold off
in peripheral markets such as Italy, Ireland, and Portugal, where we have found
some attractive investments that we plan to stick with based on their
fundamental outlooks.
With regard to the Series' sector weightings, financial services is the top
sector. Even though we are underweighted in comparison to the MSCI EAFE Index,
we have built an overweighting in insurance stocks as opposed to banking
stocks. A good company here has been QBE Insurance, an Australian-based company
that boasts strong management and has shown consistent growth. In the consumer
staples sector we favor companies that can demonstrate steady earnings growth,
such as Benckiser, the world's leading manufacturer of dishwashing detergent.
Industrial goods and services is our third-largest sector and is largely made
up of European defense stocks such as British Aerospace, Saab, and Thomson CSF,
all of which have shown an ability to generate steady earnings and overcome
economic cycles. Utilities and communications, our fourth-largest sector, is
mostly made up of cellular telecommunications companies that we feel will
effectively compete in a dynamic market.
Turning to the troubled emerging markets, we have not invested in Russian
stocks, and we feel that the impact of Russia's problems on the world economy
will be minimal because it is only a small part of the global financial scene
despite its high geopolitical profile. Our exposure in Brazil hurt us in the
past six months, and we're closely monitoring that situation. We feel we have
selected good companies there, but we need to see if those stocks can overcome
the country's macroeconomic problems in the long term. The Series had minimal
investments in Southeast Asian companies because the macroeconomic situation
there has clearly overwhelmed even previously strong individual companies. We
expect negative growth there in 1999 and are likely to have limited holdings in
the immediate future.
In Japan, we are underweighted relative to the index and are in the "show me"
stage right now. Its economy is still in trouble, and now even the big global
exporting companies such as Sony and Canon are being impacted by the
strengthening yen, which has hurt exports and created a drag on corporate
earnings growth. While the various budget packages and remedies that the
Japanese government has proposed are a step in the right direction, we still
see a number of traditional barriers to economic reform. Until more is done to
move the country to a free-market system in which bad companies are allowed to
fail, restructuring and streamlining are encouraged, and barriers to investment
are removed, we believe that Japan will still have problems.
The recent drive toward European economic and monetary union (EMU) is a
positive event for investors. As currency risk is eliminated and the cost of
doing business evens out among EMU -- member nations, there will be heightened
cross-border competition within industry sectors and an intensified focus on
the performance of individual companies. As a fund that has always sought the
best individual companies in which to invest, as opposed to
2
<PAGE>
Management Review and Outlook -- continued
investing on a top-down regional allocation basis, we believe the Series is
perfectly positioned to thrive in the new environment. As far as currency
implications are concerned, we look at the euro, the common currency of the 11
member nations of the economic union, as just another currency that we need to
deal with, and we're relatively neutral on its impact.
Overall, our international earnings growth outlook in 1999 is lower than it was
six months ago. We now expect average earnings growth of approximately 6% to
8%, with Europe leading the way at about 6%, Japan flat to negative, and the
remainder of Asia negative. Latin America may be negative as well due to the
problems in Brazil.
Massachusetts Investors Growth Stock Series
The Series commenced operations on May 6, 1998, and from that date through
December 31, 1998, provided a total return of 20.70%. From June 1, 1998,
through December 31, 1998, the S&P 500 returned 13.66%.
The Series' performance has been helped by the fact that several companies in
the portfolio are still growing their earnings faster than the market. Beyond
that, several companies in the Series have been taken over. For example, AMP
has agreed to be taken over by Tyco, while Fred Meyer has been taken over by
Kroger, Jacor by Clear Channel Communications, and HBO by McKesson. Performance
has also been helped by avoiding companies that we don't think are going to
make their earnings estimates and looking for companies that can. For example,
we're still finding potentially strong profits in technology, retailing and,
recently, cable.
In cable, we have been focusing on some of the newer aspects of the industry
that we think will take up a greater part of the consumer's dollar. That means
companies supplying the cable infrastructure for Internet access and cable
telephony, such as MediaOne and Time Warner. We're also buying companies that
supply broadband services to the cable market. These include companies like
3Com for modems, Tellabs for cable telephony, and Amdocs for billing.
For many technology companies, the growth of the Internet is changing
everything and has given companies like Oracle, Microsoft, Cisco Systems, Sun
Microsystems, and Lucent new leases on life. Oracle also dominates the database
market, an area in which Microsoft isn't a big player yet, and it has a big
applications business, which allows companies to download information from the
factory floor and manage it.
Although several financial services stocks were hurt by hedge fund
liquidations, most of the Series' holdings, including Morgan Stanley and
Associates First Capital, were not. Morgan was the best performer among the
major underwriters. The company has good risk-control systems and has remained
conservative. Associates First Capital, a consumer finance company, has grown
its earnings in excess of 17% over 20 years, and we think the company should
have no problem growing again next year. It is a recent spin-off of the Ford
Motor Corp., and we believe its recent acquisitions of Avco Financial and SPS
Transactions Services should help it grow its earnings over the next
three-to-five years.
Going forward, we see little, if any, increase in profits for the market as a
whole in 1999. However, we think the companies in the Series, led by
technology, retailing, cable, and financial services firms, will grow earnings
by 15% or 20% during the year, which we think will be well ahead of the S&P
500.
New Discovery Series
The Series commenced operations on May 6, 1998, and from that date through
December 31, 1998, provided a total return of 6.20%. From June 1, 1998, through
December 31, 1998, the Russell 2000 Total Return Index, an unmanaged index
comprised of 2,000 of the smallest U.S.-domiciled company common stocks (on the
basis of capitalization) that are traded in the United States on the NYSE,
AMEX, and NASDAQ, returned -6.93%.
We feel the portfolio's strong performance results from our focus on seeking
companies that we believe can produce sustainable and predictable growth in
unit sales, revenue, and earnings. To find such companies we rely on MFS[RegTM]
Original ResearchSM, through which stocks are selected after in-depth
fundamental analysis of companies' earnings outlooks, managements, business
models, competitive strategies, market positions, and growth prospects. Based
on our findings, we select companies that we believe are best positioned to
become major enterprises over a period of three-to-five years. In choosing
stocks, we are careful to assure that the prices we pay are in line with the
companies' actual fundamental strengths and long-term growth prospects. This
research-intensive process allows us to own companies early in their
development cycles before they become widely known to investors and that enjoy
growth rates above those of the overall market.
As our investors are aware, researching small companies is far more difficult
than researching big companies, simply because there is very little known about
most small companies. So it's imperative that we use our proprietary research
process to the fullest to find the best companies for this portfolio. Strong
research has helped us invest in companies like Envoy, which makes technology
that automates paperwork used by medical organizations to reduce the sizable
transaction costs involved in health care. Customers understand the importance
of the productivity enhancements and cost reductions that Envoy enables, and
its earnings growth reflects that. The stock is up nearly 50% as of December
31. Another interesting company we have uncovered is Catalina Marketing, which
runs a network that issues instant coupons at supermarkets. As a customer's
goods are scanned, the Catalina system identifies the customer as a potential
target for coupons for complementary or competitive products, and these coupons
are issued at the register. The company is also developing an Internet
component to its business by which shoppers' "census" information is collected
and fed to a Web site that issues even more closely targeted coupons directly
to consumers over the Internet. This type of innovation can drive growth
further and has given us even more confidence in the company.
If the weakness in corporate earnings growth in the large-cap sector continues
to impact investors' psychology, we could face some additional choppiness among
the small stocks as well. However, as investors turn their attention to stocks
that can provide strong earnings growth at reasonable prices, we believe small
stocks should be quite attractive long-term investment options. While we're
confident that the potential for a sustained rebound in small-cap stocks is
good, it would not be prudent to attempt to predict when, and for how long,
that may occur.
We think it's of value to our investors to know that the commitment to research
that MFS made when it inaugurated one of the industry's first research
departments in 1932 is thoroughly ingrained in our corporate culture today. We
believe it is this commitment that enables us to select stocks that can perform
well over the long term, even with the special challenges involved in small-cap
investing.
3
<PAGE>
Management Review and Outlook -- continued
Research Growth and Income Series
For the 12 months ended December 31, 1998, the Series provided a total return
of 22.13%, which compares to a 28.58% return for the S&P 500.
Despite the historic volatility of the equity markets in the past year, we have
benefited from our commitment to MFS[RegTM] Original Research(SM), which helps
us find high-quality companies for the portfolio. The peaks and valleys that
have characterized this market for the past several months have been driven by a
limited number of large-capitalization, multinational companies. Our proprietary
research has helped us find good values in large companies that we feel can
produce earnings growth under a variety of market conditions.
For example, we boosted our holdings in Intel during this period. While the
company saw its share price fall during the rocky months, we saw reason for
optimism based on its positive earnings growth, its valuation relative to its
peers, and its ability to leverage market trends that should help the company
expand its business. The stock's share price has appreciated sharply recently.
At the same time, we reduced the portfolio's exposure to energy stocks because
we feel that continued low oil prices in 1999 will impair their earnings
growth. So, while oil stocks are often excellent sources of income, we see the
fundamental difficulties at these companies as too severe to warrant our
prolonged interest at the moment.
Another of our best ideas, Pfizer, is in a major new product cycle and is
benefiting from sales growth not only of Viagra, which was launched in much of
Europe by the end of 1998 and is scheduled to be introduced in Japan in 1999,
but also of new drugs such as Lipitor, a cholesterol-lowering drug co-marketed
with Warner Lambert, and Trovan, a new antibiotic. Celebrex, a highly
anticipated arthritis drug, is scheduled for introduction in the first half of
1999 and should help keep Pfizer's revenue and earnings growth above 20% in
1999.
We think large-cap companies should continue to perform well, though not with
the same intensity that we've seen over the past few years. We expect that
companies in the consumer products, pharmaceutical, food and beverage, and
technology sectors should continue to produce good results, driven by strong
fundamentals and low interest rates. The only caveat is that recent stock
performance has resulted in high valuations for many of these stocks. We feel
that commodity-oriented stocks such as integrated oil, chemical, and paper
companies should continue to perform poorly, as pricing in these industries
remains under pressure. In general, the low-inflation, low-growth economy is
causing companies in many industries to lose the ability to significantly raise
prices, and that can hold back earnings growth.
MFS' commitment to research has not wavered since the company's inception in
1924. However, it's fair to say that the process has evolved. In 1924, MFS had
virtually no dedicated analysts. Portfolio managers did their own research and
made the investment decisions, and that heritage of informed stock selection is
deeply ingrained in our corporate culture. We inaugurated our internal research
department in 1932, and today our global team of analysts examine individual
companies firsthand by meeting with company managements, interviewing customers
and suppliers, and evaluating new products. This experience is important in
building our track record, as seasoned MFS investment professionals pass along
their knowledge and the corporate culture to new analysts.
Research International Series
The Series commenced operations on May 6, 1998, and from that date through
December 31, 1998, provided a total return of -5.80%. This return compares to a
4.47% return for the MSCI EAFE Index for the period from June 1, 1998, through
December 31, 1998.
The financial markets were especially volatile in the second half of 1998.
Difficulties in Russia and Latin America sent shockwaves through all markets,
with the emerging markets particularly hard hit. In response to market
weakness, investors migrated to the large, most liquid companies, causing
small- and mid-cap companies to underperform the EAFE Index. The Research
International Series is an all-capitalization portfolio, and during this period
had approximately one-half of the portfolio assets invested in small- and
mid-cap companies (with market capitalizations of less than $6 billion). In
general, our exposure to these types of companies, as well as to the emerging
markets, caused the underperformance of the portfolio relative to the Index
during the period. The financial shock that we saw in late summer and early
fall has increased uncertainty in predicting company earnings. With that in
mind, we are particularly focused on finding companies that have more
predictable earnings streams. One company that fits that bill is British
Aerospace, a European defense contractor that has performed well thanks to its
earnings growth outlook and relative immunity to economic cycles. We feel that
British Aerospace and other European defense stocks such as Saab and Thomson
CSF will benefit from a growing consolidation trend in this industry. This
trend is similar to one that occurred in the United States when government
defense spending dropped. While many people felt at the time that this would
mean hard times for the industry, companies responded by restructuring their
businesses, cutting back on costs, and finding new outlets for their products.
Many companies performed well during this period, and we expect similar results
in Europe.
Sanofi, a French drug company with an extremely strong pipeline of new products
and a low valuation when compared to its potential profitability, is another of
the portfolio's best ideas. Sanofi is in the process of merging with
Synthelabo, another French pharmaceutical company, and we feel that this
combination presents an excellent opportunity for cost cutting and healthy
earnings growth.
Japan remains a difficult market and we have recently trimmed our exposure
there, particularly among global exporters. Besides a weak domestic economy,
these companies are facing increased competitive pressure overseas due to a
stronger yen. Despite the difficult market in Japan, one company that has
performed well is Secom, a security services company. Japan has a very low
penetration rate for residential security services. However, as the crime rate
in Japan has increased, so has demand for security systems. Secom is benefiting
from hardware sales revenue as well as long-term service and monitoring
contracts.
From a regional standpoint, we continue to find the most attractive ideas in
Europe where economic growth remains robust and companies are relatively early
in the consolidation and restructuring process. We have recently added to
positions in Europe, particularly in the telecommunications sector where we are
seeing strong demand for wireless communications.
4
<PAGE>
Management Review and Outlook -- continued
With regard to the dawning of the unified currency era in Europe, we feel that
EMU will fundamentally shift the way investors look at European companies. With
a unified currency, investment risks stemming from currency fluctuations should
diminish, which is a positive for the portfolio. In that environment, we
believe that investors will focus more on company selection than on country
selection, thereby increasing the importance of fundamental analysis.
Fortunately, this shift dovetails with the way MFS has invested since we
established our research department in 1932 and puts us in a positive position
to deal with the investment challenges of EMU.
MFS and the investment industry have grown tremendously over the 75 years since
we invented the mutual fund. However, one thing that has not changed is MFS'
emphasis on research and bottom-up stock picking. Our longevity validates the
effectiveness of that strategy, and we believe it will serve us well as we
invest internationally.
-----------------------------------
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
Each portfolio is actively managed, and current holdings may be different.
5
<PAGE>
Performance Summary
The information below and on the following pages illustrates the growth of a
hypothetical $10,000 investment for each Series during the period indicated.
Benchmark comparisons are unmanaged and do not reflect any fees or expenses.
It is not possible to invest directly in an index. Series results do not
reflect the deduction of separate account charges. (See Notes to Performance
Summary for more information.)
Capital Opportunities Series
(For the period from July 1, 1996, through
December 31, 1998)
[line chart]
<TABLE>
<CAPTION>
Capital Consumer S&P 500
Opportunities Price Composite
Series Index--U.S. Index
<S> <C> <C> <C>
7/96 10000 10000 10000
12/96 11010 10125 11168
12/97 14046 10297 14895
12/98 17834 10483 19151
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 10 Years/Life
- ----------------------------------------------------------------------
<S> <C> <C>
Capital Opportunities Series* +26.97% +25.16%
Standard & Poor's 500 Composite Index** +28.58% +29.66%
Consumer Price Index+** + 1.80% + 1.90%
</TABLE>
* For the period from the commencement of the Series' investment operations,
June 3, 1996, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from July 1, 1996,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
Equity Income Series
(For the period from June 1, 1998, through
December 31, 1998)
[bar chart]
<TABLE>
<CAPTION>
Equity Consumer S&P 500
Income Price Composite
Series Index--U.S. Index
<S> <C> <C> <C>
6/98 10000 10000 10000
12/98 10500 10086 11366
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
10 Years/Life
- --------------------------------------------------------
<S> <C>
Equity Income Series* + 5.00%
Standard & Poor's 500 Composite Index** +13.66%
Consumer Price Index+** + 0.86%
</TABLE>
* For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from June 1, 1998,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
6
<PAGE>
Performance Summary -- continued
International Growth Series(1)
(For the period from July 1, 1996, through
December 31, 1998)
[bar chart]
<TABLE>
<CAPTION>
International Consumer MSCI Lipper
Growth Price EAFE International
Series Index--U.S. Index Funds Index
<S> <C> <C> <C> <C>
7/96 10000 10000 10000 10000
12/96 9830 10125 10162 10529
12/97 9668 10297 10371 11293
12/98 9856 10483 12479 12722
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 10 Years/Life
- ---------------------------------------------------------------
<S> <C> <C>
International Growth Series* + 1.94% - 0.56
Lipper International Funds Index# +12.66% +10.11%
MSCI EAFE Index** +20.33% + 9.26%
Consumer Price Index+** + 1.80% + 1.90%
</TABLE>
* For the period from the commencement of the Series' investment operations,
June 3, 1996, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from July 1, 1996,
through December 31, 1998.
# Source: Lipper Analytical Services, Inc. "Life" refers to the period from
July 1, 1996, through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
Massachusetts Investors Growth Stock Series
(For the period from June 1, 1998, through
December 31, 1998)
[bar chart]
<TABLE>
<CAPTION>
Massachusetts Consumer S&P 500
Investors Price Composite
Growth Stock Index--U.S. Index
Series
<S> <C> <C> <C>
6/98 10000 10000 10000
12/98 12070 10086 11366
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
10 Years/Life
- ----------------------------------------------------------
<S> <C>
Massachusetts Investors Growth Stock Series* +20.70%
Average growth fund# +10.21%
Standard & Poor's 500 Composite Index** +13.66%
Consumer Price Index+** + 0.86%
</TABLE>
* For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
# Source: Lipper Analytical Services, Inc. "Life" refers to the period from
June 1, 1998, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from June 1, 1998,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and mea sures the cost of living (inflation).
7
<PAGE>
Performance Summary -- continued
New Discovery Series(2)
(For the period from June 1, 1998, through
December 31, 1998)
[bar chart]
<TABLE>
<CAPTION>
New Consumer Russell 2000
Discovery Price Total Return
Series Index--U.S. Index
<S> <C> <C> <C>
6/98 10000 10000 10000
12/98 10620 10086 9307
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
10 Years/Life
- --------------------------------------------------
<S> <C>
New Discovery Series* + 6.20%
Russell 2000 Total Return Index** - 6.93%
Consumer Price Index+** + 0.86%
</TABLE>
* For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from June 1, 1998,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
Research Growth and Income Series
(For the period from June 1, 1997, through
December 31, 1998)
[bar chart]
<TABLE>
<CAPTION>
Research Consumer S&P 500
Growth and Income Price Composite
Series Index--U.S. Index
<S> <C> <C> <C>
6/97 10000 10000 10000
12/97 11020 10075 11553
12/98 13459 10256 14854
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
1 Year 10 Years/Life
- -----------------------------------------------------------------------
<S> <C> <C>
Research Growth and Income Series* +22.13% +19.92%
Standard & Poor's 500 Composite Index** +28.58% +28.44%
Consumer Price Index+** + 1.80% + 1.61%
</TABLE>
* For the period from the commencement of the Series' investment operations,
May 13, 1997, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from June 1, 1997,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and mea sures the cost of living (inflation).
8
<PAGE>
Performance Summary -- continued
Research International Series(1)
(For the period from June 1, 1998, through
December 31, 1998)
[bar chart]
<TABLE>
<CAPTION>
MSCI Consumer Research
EAFE Price International
Index Index--U.S. Series
<S> <C> <C> <C>
6/98 10000 10000 10000
12/98 10447 10086 9420
</TABLE>
Average Annual Total Returns
as of December 31, 1998
<TABLE>
<CAPTION>
10 Years/Life
- ---------------------------------------------
<S> <C>
Research International Series* -5.80%
MSCI EAFE Index** +4.47%
Consumer Price Index+** +0.86%
</TABLE>
* For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
**Source: CDA/Wiesenberger. "Life" refers to the period from June 1, 1998,
through December 31, 1998.
+ The Consumer Price Index is published by the U.S. Bureau of Labor Statistics
and measures the cost of living (inflation).
(1) Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase unit price volatility.
(2) Investing in small or emerging growth companies involves greater risk than
is customarily associated with more-established companies. These risks may
increase share price volatility.
NOTES TO PERFORMANCE SUMMARY
All results are historical and assume the reinvestment of dividends and capital
gains. Investment return and principal value will fluctuate, and units, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Performance results reflect any applicable
expense subsidies and waivers, without which the results would have been less
favorable. Subsidies and waivers may be rescinded at any time. See the
prospectus for details.
9
<PAGE>
Portfolio of Investments -- December 31, 1998
Capital Opportunities Series
Stocks -- 90.7%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 75.4%
Advertising -- 1.0%
Outdoor Systems, Inc.* ................................................. 64,600 $ 1,938,000
------------
Automotive -- 0.4%
Tower Automotive, Inc.* ................................................ 29,000 $ 723,188
------------
Banks and Credit Companies -- 5.4%
Bankers Trust Corp. .................................................... 14,600 $ 1,247,388
Fleet Financial Group, Inc. ............................................ 25,138 1,123,354
National City Corp. .................................................... 21,600 1,566,000
PNC Bank Corp. ......................................................... 19,900 1,077,088
State Street Corp. ..................................................... 32,200 2,239,912
US Bancorp ............................................................. 44,600 1,583,300
Wells Fargo Co.* ....................................................... 38,820 1,550,374
------------
$ 10,387,416
------------
Broadcasting -- 0.2%
Infinity Broadcasting Corp.* ........................................... 11,900 $ 325,763
------------
Business Machines -- 1.0%
International Business Machines Corp. .................................. 10,500 $ 1,939,875
------------
Business Services -- 0.8%
DST Systems, Inc.* ..................................................... 5,700 $ 325,256
Galileo International, Inc. ............................................ 21,300 926,550
Modis Professional Services, Inc.* ..................................... 16,800 243,600
------------
$ 1,495,406
------------
Computer Software -- Systems -- 6.4%
BMC Software, Inc.* .................................................... 69,300 $ 3,088,181
Cadence Design Systems, Inc.* .......................................... 1,300 38,675
Computer Associates International,
Inc. ................................................................. 111,336 4,745,697
Compuware Corp.* ....................................................... 5,200 406,250
Network Associates, Inc.* .............................................. 9,200 609,500
Oracle Corp.* .......................................................... 55,400 2,389,125
Synopsys, Inc.* ........................................................ 18,700 1,014,475
------------
$ 12,291,903
------------
Construction Services -- 0.6%
Martin Marietta Materials, Inc. ........................................ 19,650 $ 1,221,984
------------
Consumer Goods and Services -- 8.1%
Tyco International Ltd. ................................................ 204,206 $ 15,404,790
------------
Containers -- 0.1%
Smurfit Stone Container Corp.* ......................................... 6,200 $ 98,038
------------
Electronics -- 4.3%
AMP, Inc. .............................................................. 97,900 $ 5,096,919
Analog Devices, Inc.* .................................................. 50,280 1,577,535
Lattice Semiconductor Corp.* ........................................... 34,000 1,560,812
------------
$ 8,235,266
------------
Entertainment -- 7.7%
CBS Corp. .............................................................. 148,900 $ 4,876,475
Disney (Walt) Co. ...................................................... 13,800 414,000
Harrah's Entertainment, Inc.* .......................................... 147,964 2,321,185
Isle Capri Casinos, Inc.* .............................................. 9,400 37,306
Jacor Communications, Inc.* ............................................ 47,300 3,044,937
MediaOne Group, Inc.* .................................................. 73,300 3,445,100
Mirage Resorts, Inc.* .................................................. 30,600 457,088
------------
$ 14,596,091
------------
Financial Institutions -- 8.5%
Associates First Capital Corp., "A" .................................... 71,000 $ 3,008,625
Donaldson, Lufkin & Jenrette, Inc. ..................................... 23,400 959,400
Federal Home Loan Mortgage Corp. 134,533 8,668,970
Finova Group, Inc. ..................................................... 40,200 2,168,287
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Financial Institutions -- continued
Paine Webber Group, Inc. ............................................... 22,700 $ 876,788
SLM Holding Corp. ...................................................... 10,900 523,200
------------
$ 16,205,270
------------
Food and Beverage Products -- 3.3%
Anheuser Busch Cos., Inc. .............................................. 22,350 $ 1,466,719
Archer-Daniels-Midland Co. ............................................. 71,120 1,222,375
Beverly Enterprises, Inc.* ............................................. 100,200 676,350
Hershey Foods Corp. .................................................... 27,100 1,685,281
Hormel Foods Corp. ..................................................... 27,200 890,800
Suiza Foods Corp.* ..................................................... 6,800 346,375
------------
$ 6,287,900
------------
Insurance -- 4.4%
Aetna, Inc. ............................................................ 10,600 $ 833,425
Annuity & Life Re Holdings Ltd. ........................................ 40,100 1,077,687
Chartwell Re Corp. ..................................................... 17,600 418,000
CIGNA Corp. ............................................................ 9,443 730,062
Equitable Cos., Inc. ................................................... 16,500 954,938
Hartford Financial Services
Group, Inc. .......................................................... 16,830 923,546
Nationwide Financial Services,
Inc., "A" ............................................................ 32,300 1,669,506
ReliaStar Financial Corp. .............................................. 40,199 1,854,179
------------
$ 8,461,343
------------
Medical and Health Products -- 0.5%
Bristol-Myers Squibb Co. ............................................... 7,500 $ 1,003,594
------------
Medical and Health Technology
and Services -- 2.2%
Mid Atlantic Medical Services, Inc.* 68,000 $ 667,250
United Healthcare Corp. ................................................ 81,023 3,489,053
------------
$ 4,156,303
------------
Oils -- 0.5%
Mobil Corp. ............................................................ 10,400 $ 906,100
------------
Railroads -- 0.2%
Kansas City Southern
Industries, Inc. ..................................................... 6,600 $ 324,638
------------
Restaurants and Lodging -- 1.8%
Promus Hotel Corp.* .................................................... 104,832 $ 3,393,936
------------
Stores -- 2.6%
Rite Aid Corp. ......................................................... 101,960 $ 5,053,393
------------
Supermarkets -- 4.7%
Meyer (Fred), Inc.* .................................................... 147,250 $ 8,871,812
------------
Telecommunications -- 10.5%
3Com Corp.* ............................................................ 28,200 $ 1,263,712
AirTouch Communications, Inc.* ......................................... 31,300 2,257,512
Alltel Corp. ........................................................... 34,900 2,087,456
American Tower Corp., "A"* ............................................. 10,929 323,089
Cellular Communications
International, Inc.* ................................................. 125,622 8,542,296
Century Telephone Enterprises, Inc. 25,650 1,731,375
Intermedia Communications, Inc.* ....................................... 21,600 372,600
Sprint Corp. ........................................................... 7,181 604,102
Sprint PCS* ............................................................ 36,500 844,063
Tele-Communications, Inc.* ............................................. 36,600 2,024,437
------------
$ 20,050,642
------------
Utilities -- Gas -- 0.2%
Columbia Energy Group .................................................. 7,600 $ 438,900
------------
Total U.S. Stocks ..................................................................... $143,811,551
------------
</TABLE>
10-COS
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- 15.3%
Bermuda -- 1.0%
Ace Ltd. (Insurance) ................................................... 40,400 $ 1,391,275
EXEL Ltd., "A" (Insurance) ............................................. 5,756 431,700
------------
$ 1,822,975
------------
Brazil -- 0.9%
Tele Sudeste Celular Participacoes
S.A. (Telecommunications)* ........................................... 10,800 $ 223,425
Tele Sudeste Celular Participacoes
S.A., Preferred
(Telecommunications)* ................................................ 119,900 506,200
Telesp Celular Participacoes S.A.
(Telecommunications)* ................................................ 19,700 344,750
Telesp Celular Participacoes S.A.,
Preferred (Telecommunications)* ...................................... 52,200 384,586
Telesp Participacoes S.A.
(Telecommunications)* ................................................ 13,743 312,858
------------
$ 1,771,819
------------
Grand Cayman Islands -- 0.2%
Scottish Annuity & Life (Insurance)* ................................... 26,600 $ 365,750
------------
Finland -- 1.0%
Nokia Corp., ADR
(Telecommunications) ................................................. 16,300 $ 1,963,131
------------
France -- 2.1%
Sanofi S.A. (Medical and Health
Products) ............................................................ 21,800 $ 3,584,949
Societe Industrielle de Transports
Automobiles S.A. (Hazardous
Waste) ............................................................... 1,300 340,424
------------
$ 3,925,373
------------
Germany -- 2.7%
Henkel KGaA, Preferred
(Chemicals) .......................................................... 4,943 $ 441,551
Mannesmann AG (Conglomerate) ........................................... 41,000 4,694,844
------------
$ 5,136,395
------------
Greece -- 0.5%
Hellenic Telecommunication
Organization S.A., GDR
(Telecommunications) ................................................. 36,900 $ 981,278
------------
Italy -- 0.8%
Telecom Italia S.p.A.
(Telecommunications)* ................................................ 247,000 $ 1,555,529
------------
Netherlands -- 2.0%
Benckiser N.V., "B" (Consumer
Goods and Services) .................................................. 9,420 $ 616,472
Elsag Bailey Process Automation
N.V. (Machinery)* .................................................... 56,500 2,210,563
Mobistar SA (Telecommunications)* 18,700 943,017
------------
$ 3,770,052
------------
Sweden -- 0.5%
Saab AB, "B" (Aerospace)* .............................................. 84,900 $ 888,732
------------
Switzerland -- 0.9%
Amoco Corp. (Oils) ..................................................... 29,800 $ 1,758,200
------------
United Kingdom -- 2.7%
British Petroleum PLC, ADR (Oils) ...................................... 19,987 $ 1,898,765
Capital Radio PLC (Broadcasting) ....................................... 27,900 270,757
Reuters Group PLC (Business
Services) ............................................................ 22,200 233,855
Reuters Group PLC, ADR (Business
Services) ............................................................ 13,100 830,213
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- continued
United Kingdom -- continued
SmithKline-Beecham PLC, ADR
(Medical and Health Products) ........................................ 13,400 $ 931,300
Taylor Nelson Sofres PLC (Market
Research) ............................................................ 81,500 103,428
Zeneca Group PLC (Medical and
Health Products) ..................................................... 22,000 956,920
------------
$ 5,225,238
------------
Total Foreign Stocks ................................................................... $ 29,164,472
------------
Total Stocks
(Identified Cost, $139,662,389) ...................................................... $172,976,023
------------
Put Options Purchased -- 3.5%
Description/Expiration Month/Strike Price Contracts
S & P 500 Index/December/400
(Premiums Paid, $7,399,394) .......................................... 380 $ 6,688,000
------------
Short-Term Obligation -- 4.9%
Issue Principal Amount
(000 Omitted)
Federal Home Loan Mortgage
Corp., due 1/04/99,
at Amortized Cost .................................................... $ 9,380 $ 9,376,483
------------
Total Investments
(Identified Cost, $156,438,266) ...................................................... $189,040,506
------------
Other Assets,
Less Liabilities -- 0.9%
1,671,866
------------
Net Assets -- 100.0% ................................................................... $190,712,372
============
</TABLE>
See portfolio footnotes and notes to financial statements
11-COS
<PAGE>
Portfolio of Investments -- December 31, 1998
Equity Income Series
Stocks -- 87.1%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 78.4%
Aerospace -- 1.2%
General Dynamics Corp. ................................................. 661 $ 38,751
Raytheon Co., "A" ...................................................... 1,178 60,888
----------
$ 99,639
----------
Automotive -- 0.8%
TRW, Inc. .............................................................. 1,281 $ 71,976
----------
Banks and Credit Companies -- 2.2%
Mellon Bank Corp. ...................................................... 815 $ 56,031
National City Corp. .................................................... 1,768 128,180
----------
$ 184,211
----------
Building -- 0.6%
Sherwin Williams Co. ................................................... 1,820 $ 53,463
----------
Business Machines -- 2.0%
International Business
Machines Corp. ....................................................... 662 $ 122,304
Xerox Corp. ............................................................ 382 45,076
----------
$ 167,380
----------
Chemicals -- 1.4%
Dow Chemical Co. ....................................................... 757 $ 68,839
E. I. du Pont de Nemours & Co. ......................................... 925 49,083
----------
$ 117,922
----------
Conglomerates -- 1.0%
Eastern Enterprises .................................................... 1,933 $ 84,569
----------
Consumer Goods and Services -- 5.9%
Gillette Co. ........................................................... 1,378 $ 66,575
International Flavours ................................................. 2,098 92,705
Kimberly-Clark Corp. ................................................... 1,458 79,461
Philip Morris Cos., Inc. ............................................... 3,401 181,953
Rubbermaid, Inc. ....................................................... 2,482 78,028
----------
$ 498,722
----------
Electrical Equipment -- 0.8%
Emerson Electric Co. ................................................... 1,116 $ 67,518
----------
Entertainment -- 0.6%
Disney (Walt) Co. ...................................................... 1,600 $ 48,000
----------
Financial Institutions -- 1.2%
Federal Home Loan
Mortgage Corp. ....................................................... 1,547 $ 99,685
----------
Food and Beverage Products -- 3.3%
Archer-Daniels-Midland Co. ............................................. 5,507 $ 94,652
Hershey Foods Corp. .................................................... 1,020 63,431
Hormel Foods Corp. ..................................................... 3,805 124,614
----------
$ 282,697
----------
Food Products -- 0.9%
Smucker (J. M.) Co. .................................................... 3,530 $ 78,101
----------
Forest and Paper Products -- 1.6%
Bowater, Inc. .......................................................... 1,356 $ 56,189
Weyerhaeuser Co. ....................................................... 1,551 78,810
----------
$ 134,999
----------
Insurance -- 7.0%
Equitable Cos., Inc. ................................................... 1,466 $ 84,845
Hartford Financial Services
Group, Inc. .......................................................... 1,713 94,001
Jefferson Pilot Corp. .................................................. 1,302 97,650
Lincoln National Corp. ................................................. 1,462 119,610
Torchmark Corp. ........................................................ 2,199 77,652
Transamerica Corp. ..................................................... 1,087 125,548
----------
$ 599,306
----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Machinery -- 1.3%
Federal Signal Corp. ................................................... 4,207 $ 115,167
----------
Manufacturing -- 0.5%
Illinois Tool Works, Inc. .............................................. 675 $ 39,150
----------
Medical and Health Products -- 1.1%
American Home Products Corp. ........................................... 1,603 $ 90,269
----------
Oil Services -- 0.5%
Schlumberger Ltd. ...................................................... 930 $ 42,896
----------
Oils -- 5.0%
Conoco, Inc., "A"* ..................................................... 3,361 $ 70,161
Exxon Corp. ............................................................ 1,446 105,739
Mobil Corp. ............................................................ 1,177 102,546
Texaco, Inc. ........................................................... 1,071 56,629
Unocal Corp. ........................................................... 3,066 89,489
----------
$ 424,564
----------
Real Estate Investment Trusts -- 3.0%
CarrAmerica Realty Corp. ............................................... 1,675 $ 40,200
Equity Residential Properties Trust .................................... 937 37,890
Federal Realty Investment Trust ........................................ 1,249 29,507
First Industrial Realty Trust, Inc. .................................... 1,546 41,452
Kilroy Realty Corp. .................................................... 1,332 30,636
Mid-America Apartment Communities, Inc. ................................ 1,063 24,117
TriNet Corporate Realty Trust, Inc. .................................... 1,933 51,708
----------
$ 255,510
----------
Special Products and Services -- 2.2%
Aquarion Co. ........................................................... 2,576 $ 105,616
USEC, Inc. ............................................................. 5,875 81,516
----------
$ 187,132
----------
Stores -- 1.8%
American Stores Co. .................................................... 1,279 $ 47,243
Dayton Hudson Corp. .................................................... 1,954 106,005
----------
$ 153,248
----------
Supermarkets -- 1.0%
Kroger Co.* ............................................................ 1,406 $ 85,063
----------
Telecommunications -- 7.4%
Alltel Corp. ........................................................... 1,874 $ 112,089
AT&T Corp. ............................................................. 460 34,615
Bell Atlantic Corp. .................................................... 884 46,852
Century Telephone Enterprises, Inc. 1,256 84,780
Cincinnati Bell, Inc. .................................................. 400 6,800
GTE Corp. .............................................................. 2,095 136,175
SBC Communications, Inc. ............................................... 2,275 121,997
Sprint Corp. ........................................................... 977 82,190
----------
$ 625,498
----------
Utilities -- Electric -- 11.6%
Atmos Energy Corp. ..................................................... 2,831 $ 91,300
Carolina Power & Light Co. ............................................. 1,644 77,371
CMS Energy Corp. ....................................................... 845 40,930
DPL, Inc. .............................................................. 1,950 42,169
DQE, Inc. .............................................................. 1,890 83,042
FirstEnergy Corp. ...................................................... 2,496 81,276
Florida Progress Corp. ................................................. 1,584 70,983
GPU, Inc. .............................................................. 2,280 100,747
Illinova Corp. ......................................................... 2,124 53,100
NIPSCO Industries, Inc. ................................................ 1,202 36,586
Peco Energy Co. ........................................................ 2,102 87,496
Pinnacle West Capital Corp. ............................................ 1,684 71,359
Public Service Enterprise Group ........................................ 2,272 90,880
Scana Corp. ............................................................ 1,918 61,855
----------
$ 989,094
----------
</TABLE>
12-EIS
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Utilities -- Gas -- 12.5%
AGL Resources, Inc. ..................... 3,163 $ 72,947
Berkshire Gas Co. ....................... 1,435 31,749
Coastal Corp. ........................... 2,831 98,908
Colonial Gas Co. ........................ 2,414 84,188
Columbia Energy Group ................... 1,644 94,941
Connecticut Energy Group ................ 3,284 100,162
Consolidated Natural Gas Co. ............ 1,435 77,490
El Paso Energy Corp. .................... 2,461 85,674
Fall River Gas Co. ...................... 2,490 42,019
KN Energy, Inc. ......................... 1,667 60,637
National Fuel Gas Co. ................... 840 37,958
NICOR, Inc. ............................. 1,535 64,854
Providence Energy Corp. ................. 1,946 40,866
Public Service Company, Inc. ............ 3,218 83,668
UGI Corp. ............................... 1,826 43,367
Washington Gas Light Co. ................ 1,523 41,311
----------
$1,060,739
----------
Total U.S. Stocks ..................................... $6,656,518
----------
Foreign Stocks -- 8.7%
Bermuda -- 1.1%
Ace Ltd. (Insurance) .................... 480 $ 16,530
EXEL Ltd., "A" (Insurance) .............. 1,008 75,600
----------
$ 92,130
----------
France -- 1.0%
Thomson CSF (Aerospace and
Defense) .............................. 1,946 $ 83,482
----------
Netherlands -- 1.2%
Akzo Nobel N.V. (Chemicals) ............. 1,366 $ 62,140
Royal Dutch Petroleum Co.,
ADR (Oils) ............................ 795 38,061
----------
$ 100,201
----------
Switzerland -- 1.2%
Amoco Corp. (Oils) ...................... 1,822 $ 107,498
----------
United Kingdom -- 4.2%
British Petroleum PLC, ADR (Oils) ....... 1,587 $ 150,765
Glaxo Wellcome PLC, ADR (Medical
and Health Products) .................. 1,519 105,570
SmithKline-Beecham PLC, ADR
(Medical and Health Products) ......... 1,407 97,787
----------
$ 354,122
----------
Total Foreign Stocks .................................. $ 737,433
----------
Total Stocks
(Identified Cost, $6,921,012) ....................... $7,393,951
----------
Convertible Preferred Stocks -- 4.6%
Consumer Goods and Services -- 0.7%
Newell Financial Trust Co., 5.25%## 10 $ 528
Newell Financial Trust I, 5.25% ......... 1,142 60,240
----------
$ 60,768
----------
Entertainment -- 0.5%
MediaOne Group, Inc., 6.25% ............. 649 $ 43,158
----------
Insurance -- 0.5%
Lincoln National Corp.,7.75% ............ 1,834 $ 43,214
----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Convertible Preferred Stocks -- continued
Telecommunications -- 1.0%
Qwest Trends Trust, 5.75%## 1,874 $ 87,141
----------
Utilities -- Electric -- 1.9%
Houston Industries, Inc., 7.00% ......... 812 $ 86,376
Texas Utilities Co., 3.315% ............. 318 15,344
Texas Utilities Co., 9.25% .............. 1,010 56,939
----------
$ 158,659
----------
Total Convertible Preferred Stocks
(Identified Cost, $362,268) ......................... $ 392,940
----------
Principal Amount
(000 Omitted)
Convertible Bonds -- 1.6%
U.S. Bonds -- 0.9%
Business Machines -- 0.6%
Xerox Corp., 0s, 2018 ................... $ 46 $ 28,463
Xerox Corp., 0s, 2018## ................. 42 25,987
----------
$ 54,450
----------
Financial Services -- 0.3%
Bell Atlantic Financial Services, Inc.,
4.25s, 2005## ......................... $ 21 $ 21,525
----------
Total U.S. Bonds ...................................... $ 75,975
----------
Foreign Bonds -- 0.7%
Switzerland -- 0.7%
Swiss Life Finance Ltd. (Finance),
1.5s, 2003## .......................... $ 51 $ 62,730
----------
Total Convertible Bonds
(Identified Cost, $133,730) ......................... $ 138,705
----------
Short-Term Obligation -- 5.7%
Federal Home Loan Mortgage
Corp., due 1/04/99, at Amortized
Cost .................................. $ 480 $ 479,820
----------
Total Investments
(Identified Cost, $7,896,830) ....................... $8,405,416
----------
Other Assets,
Less Liabilities -- 1.0%
87,418
----------
Net Assets -- 100.0% $8,492,834
----------
</TABLE>
See portfolio footnotes and notes to financial statements
13-EIS
<PAGE>
Portfolio of Investments -- December 31, 1998
International Growth Series
Stocks -- 93.3%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- 90.3%
Australia -- 3.1%
QBE Insurance Group Ltd.
(Insurance)* ......................................................... 191,884 $ 791,507
Seven Network Ltd. (Entertainment) 91,000 298,627
-----------
$ 1,090,134
-----------
Brazil -- 1.0%
Companhia Electricas est Rio de
Janeiro (Utilities -- Electric)* ..................................... 306,200 $ 101,391
Tele Sudeste Celular Participacoes
S.A. (Telecommunications)* ........................................... 2,200 45,512
Tele Sudeste Celular Participacoes
S.A., Preferred
(Telecommunications)* ................................................ 18,200 76,838
Telesp Celular Participacoes S.A.
(Telecommunications)* ................................................ 3,200 56,000
Telesp Celular Participacoes S.A.,
Preferred (Telecommunications)* ...................................... 7,800 57,467
-----------
$ 337,208
-----------
Canada -- 2.2%
Canadian National Railway Co.
(Railroads) .......................................................... 15,000 $ 778,125
-----------
Finland -- 5.2%
Helsingin Puhelin Oyj
(Telecommunications) ................................................. 14,000 $ 832,336
Pohjola Insurance Group
(Insurance) .......................................................... 8,500 463,652
Rapala Normark Corp. (Consumer
Goods and Services)* ................................................. 4,460 38,505
Tieto Corp. (Computer
Software -- Systems) ................................................. 11,800 525,576
-----------
$ 1,860,069
-----------
France -- 8.8%
Pernod Ricard Co. (Beverages) .......................................... 5,600 $ 363,357
Television Francaise (Entertainment) 4,200 746,983
Thomson CSF (Aerospace and
Defense) ............................................................. 18,200 780,767
Total S.A., "B" (Oils) ................................................. 5,450 551,381
Union des Assurances
Federales S.A. (Insurance) ........................................... 5,300 702,940
-----------
$ 3,145,428
-----------
Germany -- 5.2%
Henkel KGaA, Preferred
(Chemicals) .......................................................... 9,500 $ 848,621
Mannesmann AG (Conglomerate) ........................................... 5,350 612,620
Wella AG, Preferred (Consumer
Goods and Services) .................................................. 420 350,000
-----------
$ 1,811,241
-----------
Greece -- 2.0%
Hellenic Telecommunication
Organization S.A., GDR
(Telecommunications) ................................................. 19,344 $ 514,413
Panafon S.A. (Telecommunications)* 1,300 34,803
Stet Hellas Telecommunications S.A.
(Telecommunications)* ................................................ 5,400 174,825
-----------
$ 724,041
-----------
Ireland -- 3.7%
Allied Irish Banks PLC (Banks and
Credit Cos.) ......................................................... 24,200 $ 430,358
Anglo Irish Bank PLC (Banks and
Credit Cos.)* ........................................................ 317,294 905,338
-----------
$ 1,335,696
-----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Italy -- 6.5%
Banca Carige S.p.A. (Banks and
Credit Cos.) ......................................................... 49,000 $ 483,057
ERG S.p.A. (Oils) ...................................................... 97,000 335,394
Mediaset S.p.A. (Entertainment) ........................................ 85,000 689,718
Telecom Italia Mobile S.p.A.
(Telecommunications) ................................................. 88,000 650,115
Telecom Italia Mobile S.p.A., Saving
Shares (Telecommunications) .......................................... 36,000 169,601
-----------
$ 2,327,885
-----------
Japan -- 12.6%
Canon, Inc. (Special Products
and Services) ........................................................ 28,000 $ 596,191
Fujitsu Ltd. (Electronics) ............................................. 18,000 238,847
Kinki Coca-Cola Bottling Co.
(Beverages) .......................................................... 10,000 132,164
Kirin Beverage Corp. (Beverages) ....................................... 21,000 412,890
Mikuni Coca-Cola Bottling Co.
(Beverages) .......................................................... 12,000 255,511
NTT Data Corp.
(Telecommunications) ................................................. 58 286,881
Olympus Optical Co.
(Conglomerate) ....................................................... 61,000 698,633
Osaka Sanso Kogyo Ltd.
(Chemicals) .......................................................... 35,000 66,964
Rohm Co. (Electronics) ................................................. 2,000 181,449
Sankyo Co. Ltd. (Medical and
Health Products) ..................................................... 7,000 152,442
Sony Corp. (Electronics) ............................................... 7,400 536,960
Takeda Chemical Industries Co.
(Pharmaceuticals) .................................................... 13,000 498,589
Tokyo Broadcasting System, Inc.
(Entertainment) ...................................................... 18,000 200,441
Ushio, Inc. (Electronics) .............................................. 28,000 244,648
-----------
$ 4,502,610
-----------
Netherlands -- 10.4%
Akzo Nobel N.V. (Chemicals) ............................................ 18,500 $ 841,580
Benckiser N.V., "B" (Consumer
Goods and Services) .................................................. 21,900 1,433,200
IHC Caland N.V. (Marine
Equipment) ........................................................... 6,959 288,801
ING Groep N.V. (Financial
Services)* ........................................................... 12,286 748,469
Koninklijke Ahold N.V.
(Supermarkets)* ...................................................... 6,000 221,548
Koninklijke Ahrend Groep N.V.
(Consumer Goods and Services)* 7,407 169,067
-----------
$ 3,702,665
-----------
Norway -- 1.1%
Storebrand ASA (Insurance) ............................................. 49,400 $ 373,888
-----------
Portugal -- 2.4%
Banco Pinto & Sotto Mayor S.A.
(Banks and Credit Cos.) .............................................. 36,924 $ 699,006
Telecel -- Comunicacaoes Pessoais
S.A. (Telecommunications) ............................................ 800 163,284
-----------
$ 862,290
-----------
Singapore -- 0.6%
Natsteel Electronics Ltd.
(Electronics) ........................................................ 85,000 $ 216,429
-----------
Spain -- 1.2%
Repsol S.A. (Oils) ..................................................... 8,300 $ 442,752
-----------
</TABLE>
14-IGS
<PAGE>
Portfolio of Investments -- December 31, 1998
Massachusetts Investors Growth Stock Series
Stocks -- continued Stocks -- 81.8%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Sweden -- 6.2%
Astra AB (Pharmaceuticals) ............................................... 32,700 $ 664,470
Saab AB, "B" (Aerospace)* ................................................ 102,200 1,069,828
Volvo AB (Automotive) .................................................... 20,100 460,419
-----------
$ 2,194,717
-----------
Switzerland -- 3.2%
Amoco Corp. (Oils) ....................................................... 4,700 $ 277,300
Barry Callebaut AG (Food and
Beverage Products) ..................................................... 2,350 533,819
Novartis AG (Medical and
Health Products) ....................................................... 174 342,046
-----------
$ 1,153,165
-----------
United Kingdom -- 14.9%
Avis Europe PLC (Auto Rental)## .......................................... 109,000 $ 453,858
British Aerospace PLC (Aerospace
and Defense)* .......................................................... 202,717 1,725,154
British Petroleum PLC (Oils) ............................................. 31,740 471,775
Kwik-Fit Holdings PLC (Automotive
Repair Centers) ........................................................ 25,900 207,308
Lloyds TSB Group PLC (Banks and
Credit Cos.) ........................................................... 18,516 263,238
LucasVarity PLC (Automotive) ............................................. 154,300 514,498
Next PLC (Stores) ........................................................ 106,900 874,269
Taylor Nelson Sofres PLC
(Market Research) ...................................................... 35,200 44,671
Tomkins PLC (Conglomerate)* .............................................. 97,000 460,212
Zeneca Group PLC (Medical and
Health Products) ....................................................... 6,700 291,426
-----------
$ 5,306,409
-----------
Total Foreign Stocks .............................................................. $32,164,752
-----------
U.S. Stocks -- 3.0%
Business Services -- 3.0%
Galileo International, Inc. .............................................. 25,700 $ 1,117,950
-----------
Total Stocks
(Identified Cost, $29,754,454) .................................................. $33,282,702
-----------
Short-Term Obligation -- 5.9%
Principal Amount
(000 Omitted)
Federal Home Loan Mortgage
Corp., due 1/04/99,
at Amortized Cost ...................................................... $ 2,110 $ 2,109,209
-----------
Total Investments
(Identified Cost, $31,863,663) .................................................. $35,391,911
-----------
Other Assets,
Less Liabilities -- 0.8% 289,308
-----------
Net Assets -- 100.0% $35,681,219
-----------
</TABLE>
See portfolio footnotes and notes to financial statements
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 78.7%
Advertising -- 0.1%
Young & Rubicam, Inc.* ................................................. 2,681 $ 86,797
----------
Aerospace -- 3.2%
Gulfstream Aerospace Corp.* ............................................ 20,874 $1,111,541
United Technologies Corp. .............................................. 13,976 1,519,890
----------
$2,631,431
----------
Banks and Credit Companies -- 1.8%
Bankers Trust Corp. .................................................... 2,448 $ 209,151
Fleet Financial Group, Inc. ............................................ 2,741 122,488
Mellon Bank Corp. ...................................................... 1,702 117,012
State Street Corp. ..................................................... 4,657 323,953
US Bancorp ............................................................. 3,400 120,700
Wells Fargo Co.* ....................................................... 13,829 552,296
----------
$1,445,600
----------
Broadcasting
Infinity Broadcasting Corp.* ........................................... 1,524 $ 41,720
----------
Business Machines -- 2.0%
Affiliated Computer Services,
Inc., "A"* ........................................................... 17,276 $ 777,420
International Business Machines Corp. .................................. 700 129,325
Sun Microsystems, Inc.* ................................................ 8,695 744,509
----------
$1,651,254
----------
Business Services -- 1.6%
Ceridian Corp.* ........................................................ 3,370 $ 235,268
Computer Sciences Corp. ................................................ 2,980 192,024
DST Systems, Inc.* ..................................................... 8,188 467,228
Fiserv, Inc.* .......................................................... 2,784 143,202
Galileo International, Inc. ............................................ 2,875 125,063
Modis Professional Services, Inc.* ..................................... 5,496 79,692
----------
$1,242,477
----------
Computer Software -- Personal
Computers -- 5.2%
Microsoft Corp.* ....................................................... 30,423 $4,219,290
----------
Computer Software -- Services -- 0.2%
EMC Corp.* ............................................................. 2,255 $ 191,675
----------
Computer Software -- Systems -- 10.7%
BMC Software, Inc.* .................................................... 38,358 $1,709,328
Cadence Design Systems, Inc.* .......................................... 29,764 885,479
Computer Associates
International, Inc. .................................................. 42,107 1,794,811
Compuware Corp.* ....................................................... 9,873 771,328
Network Associates, Inc.* .............................................. 4,681 310,116
Oracle Corp.* .......................................................... 70,696 3,048,765
SunGard Data Systems, Inc.* ............................................ 3,802 150,892
----------
$8,670,719
----------
Consumer Goods and Services -- 5.2%
Clorox Co. ............................................................. 2,370 $ 276,846
Dial Corp. ............................................................. 5,402 155,983
Service Corp. International ............................................ 3,127 119,021
Tyco International Ltd. ................................................ 49,050 3,700,209
----------
$4,252,059
----------
Electrical Equipment -- 0.3%
Emerson Electric Co. ................................................... 4,789 $ 289,735
----------
Electronics -- 2.2%
Altera Corp.* .......................................................... 1,139 $ 69,337
AMP, Inc. .............................................................. 8,151 424,361
Intel Corp. ............................................................ 10,685 1,266,840
----------
$1,760,538
----------
</TABLE>
15-MIS
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Entertainment -- 6.6%
CBS Corp. .............................................................. 38,157 $ 1,249,642
Chancellor Media Corp.* ................................................ 725 34,709
Citadel Communications Corp.* .......................................... 4,576 118,404
Clear Channel
Communications, Inc.* ................................................ 2,760 150,420
Cox Radio, Inc., "A"* .................................................. 932 39,377
Disney (Walt) Co. ...................................................... 281 8,430
Fox Entertainment Group, Inc.* ......................................... 2,056 51,785
Gemstar International Group Ltd.* ...................................... 1,145 65,551
Harrah's Entertainment, Inc.* .......................................... 31,959 501,357
Jacor Communications, Inc.* ............................................ 18,369 1,182,504
MediaOne Group, Inc.* .................................................. 6,968 327,496
Mirage Resorts, Inc.* .................................................. 32,501 485,484
Time Warner, Inc. ...................................................... 12,940 803,089
Univision Communications, Inc., "A"* ................................... 8,377 303,143
Young Broadcasting, Inc., "A"* ......................................... 567 23,743
-----------
$ 5,345,134
-----------
Financial Institutions -- 9.4%
American Express Co. ................................................... 4,243 $ 433,847
Associates First Capital Corp., "A" .................................... 76,964 3,261,350
CIT Group, Inc., "A" ................................................... 3,006 95,628
Federal Home Loan Mortgage Corp. ....................................... 8,185 527,421
Federal National Mortgage Assn. ........................................ 16,365 1,211,010
Federated Investors, Inc., "A" ......................................... 4,434 80,366
Franklin Resources, Inc. ............................................... 16,306 521,792
Heller Financial, Inc., "A" ............................................ 1,551 45,561
Merrill Lynch & Co., Inc. .............................................. 895 59,741
Morgan Stanley Dean Witter & Co. ....................................... 19,907 1,413,397
-----------
$ 7,650,113
-----------
Food and Beverage Products -- 0.3%
Anheuser Busch Cos., Inc. .............................................. 2,711 $ 177,909
Hershey Foods Corp. .................................................... 1,620 100,744
-----------
$ 278,653
-----------
Insurance -- 1.1%
Allstate Corp. ......................................................... 12,666 $ 489,224
American International Group, Inc. ..................................... 1,204 116,337
Lincoln National Corp. ................................................. 3,386 277,017
-----------
$ 882,578
-----------
Manufacturing -- 0.2%
Illinois Tool Works, Inc. .............................................. 2,242 $ 130,036
-----------
Medical and Health Products -- 3.4%
Abbott Laboratories, Inc. .............................................. 4,170 $ 204,330
American Home Products Corp. ........................................... 3,034 170,852
Bristol-Myers Squibb Co. ............................................... 4,055 542,610
McKesson Corp. ......................................................... 2,521 199,317
Pfizer, Inc. ........................................................... 4,332 543,395
Schering Plough Corp. .................................................. 18,386 1,015,826
Warner-Lambert Co. ..................................................... 822 61,804
-----------
$ 2,738,134
-----------
Medical and Health Technology
and Services -- 2.3%
Guidant Corp. .......................................................... 718 $ 79,159
HBO & Co. .............................................................. 7,678 220,263
Health Management Associates, Inc., "A"* ............................... 4,016 86,846
HealthSouth Corp.* ..................................................... 52,131 804,772
Lincare Holdings, Inc.* ................................................ 1,212 49,162
United Healthcare Corp. ................................................ 15,279 657,952
-----------
$ 1,898,154
-----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Oils -- 0.7%
Conoco, Inc., "A"* ..................................................... 5,765 $ 120,344
Exxon Corp. ............................................................ 4,607 336,887
Mobil Corp. ............................................................ 1,384 120,581
-----------
$ 577,812
-----------
Printing and Publishing -- 0.9%
Gannett Co., Inc. ...................................................... 8,299 $ 535,286
Pulitzer Publishing Co. ................................................ 1,338 115,904
Tribune Co. ............................................................ 843 55,638
-----------
$ 706,828
-----------
Restaurants and Lodging -- 3.0%
Cendant Corp.* ......................................................... 22,249 $ 424,122
Hilton Hotels Corp. .................................................... 8,506 162,677
Marriott International, Inc., "A" ...................................... 5,978 173,362
McDonalds Corp. ........................................................ 3,035 232,557
Promus Hotel Corp.* .................................................... 44,192 1,430,716
-----------
$ 2,423,434
-----------
Stores -- 10.3%
CVS Corp. .............................................................. 46,283 $ 2,545,565
Home Depot, Inc. ....................................................... 10,978 671,716
Office Depot, Inc.* .................................................... 28,774 1,062,840
Rite Aid Corp. ......................................................... 44,852 2,222,977
TJX Cos., Inc. ......................................................... 4,673 135,517
Wal-Mart Stores, Inc. .................................................. 21,255 1,730,954
-----------
$ 8,369,569
-----------
Supermarkets -- 1.6%
Kroger Co.* ............................................................ 574 $ 34,727
Meyer (Fred), Inc.* .................................................... 20,552 1,238,258
-----------
$ 1,272,985
-----------
Telecommunications -- 6.4%
3Com Corp.* ............................................................ 15,325 $ 686,752
AirTouch Communications, Inc.* ......................................... 1,625 117,203
Alltel Corp. ........................................................... 2,187 130,810
Amdocs Ltd.* ........................................................... 3,010 51,546
Century Telephone Enterprises, Inc. 2,987 201,622
Cisco Systems, Inc.* ................................................... 10,795 1,001,865
Lucent Technologies, Inc. .............................................. 8,912 980,320
MCI WorldCom, Inc.* .................................................... 22,611 1,622,339
Qwest Communications
International, Inc.* ................................................. 1,446 72,300
Tellabs, Inc.* ......................................................... 4,591 314,770
Uniphase Corp. ......................................................... 562 38,989
-----------
$ 5,218,516
-----------
Total U.S. Stocks ..................................................................... $63,975,241
-----------
Foreign Stocks -- 3.1%
France -- 0.1%
Alcatel Alsthom Compagnie
(Telecommunications) ................................................. 819 $ 100,133
-----------
Netherlands
ING Groep N.V. (Financial
Services)* ........................................................... 91 $ 5,544
-----------
Switzerland -- 1.9%
Amoco Corp. (Oils) ..................................................... 20,600 $ 1,215,400
Julius Baer Holdings (Banks and
Credit Cos.) ......................................................... 65 216,036
Nestle S.A. (Food and
Beverage Products) ................................................... 48 104,492
-----------
$ 1,535,928
-----------
</TABLE>
16-MIS
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- continued
United Kingdom -- 1.1%
British Petroleum PLC, ADR (Oils) .. 7,044 $ 669,180
Glaxo Wellcome PLC, ADR
(Medical and Health Products) .... 628 43,646
Reuters Group PLC, ADR
(Business Services) .............. 1,558 98,738
Sema Group PLC
(Computer Software -- Systems) ... 6,946 68,330
-----------
$ 879,894
-----------
Total Foreign Stocks ...................... $ 2,521,499
-----------
Total Stocks
(Identified Cost, $57,152,708) .......... $66,496,740
-----------
Convertible Preferred Stocks -- 0.7%
Agriculture -- 0.1%
Monsanto Co., 6.50%* ............... 1,519 $ 74,431
-----------
Entertainment -- 0.2%
MediaOne Group, Inc., 6.25% ........ 2,457 $ 163,390
-----------
Insurance -- 0.1%
Lincoln National Corp. 1.85% ....... 5,265 $ 102,668
-----------
Utilities -- Electric -- 0.3%
Houston Industries, Inc., 7.00% .... 1,889 $ 200,942
-----------
Total Convertible Preferred Stocks
(Identified Cost, $458,909) ............. $ 541,431
-----------
Short-Term Obligation -- 12.0%
Federal Home Loan Mortgage
Corp., due 1/04/99,
at Amortized Cost ................ $9,720 $ 9,716,355
-----------
Total Investments
(Identified Cost, $67,327,972) .......... $76,754,526
-----------
Other Assets,
Less Liabilities -- 5.5% 4,482,726
-----------
Net Assets -- 100.0% $81,237,252
-----------
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio of Investments -- December 31, 1998
New Discovery Series
Stocks -- 96.1%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 93.6%
Advertising -- 2.7%
Pharmaceutical Marketing
Service, Inc.* ....................................................... 13,408 $ 192,740
Snyder Communications, Inc.* ........................................... 1,275 43,031
TMP Worldwide, Inc.* ................................................... 2,994 125,748
-----------
$ 361,519
-----------
Airlines -- 1.5%
Atlas Air, Inc.* ....................................................... 2,984 $ 146,030
Skywest, Inc. .......................................................... 1,660 54,261
-----------
$ 200,291
-----------
Biotechnology -- 2.1%
IDEXX Laboratories, Inc.* .............................................. 10,278 $ 276,542
-----------
Building -- 0.3%
Eagle Hardware & Garden, Inc.* ......................................... 1,075 $ 34,938
-----------
Business Machines -- 2.5%
Affiliated Computer Services, Inc., "A"* ............................... 7,331 $ 329,895
-----------
Business Services -- 19.1%
Billing Concepts Corp.* ................................................ 5,068 $ 55,748
BISYS Group, Inc.* ..................................................... 4,631 239,075
Bright Horizons Family Solutions, Inc.* ................................ 1,364 36,828
Catalina Marketing Corp.* .............................................. 1,791 122,460
Ceridian Corp.* ........................................................ 1,450 101,228
Data Broadcasting Corp.* ............................................... 2,739 48,960
Dendrite International, Inc.* .......................................... 3,054 76,255
DST Systems, Inc.* ..................................................... 5,942 339,065
Envoy Corp.* ........................................................... 3,244 188,963
Fiserv, Inc.* .......................................................... 1,671 85,952
Galileo International, Inc. ............................................ 2,517 109,489
Global Directmail Corp.* ............................................... 3,995 93,383
IMRglobal Corp.* ....................................................... 120 3,533
Interim Services, Inc.* ................................................ 6,998 163,578
International Network Services* ........................................ 512 34,048
Learning Tree International, Inc.* ..................................... 7,632 69,165
Memberworks, Inc.* ..................................................... 1,157 34,132
Meta Group, Inc.* ...................................................... 3,464 103,054
Modis Professional Services, Inc.* ..................................... 5,610 81,345
NOVA Corp.* ............................................................ 5,879 203,928
Paymentech, Inc.* ...................................................... 3,030 56,055
Personnel Group of America, Inc.* ...................................... 2,328 40,740
Professional Detailing, Inc.* .......................................... 1,201 33,928
Renaissance Worldwide, Inc.* ........................................... 8,868 54,316
Technology Solutions Co.* .............................................. 16,000 171,500
-----------
$ 2,546,728
-----------
Computer Software -- Personal Computers
Orcad, Inc.* ........................................................... 215 $ 1,828
-----------
Computer Software -- Services -- 0.2%
Hyperion Solutions Corp.* .............................................. 1,530 $ 27,540
-----------
Computer Software -- Systems -- 11.6%
Acxiom Corp.* .......................................................... 3,493 $ 108,283
Aspen Technology, Inc.* ................................................ 4,486 65,047
Black Box Corp.* ....................................................... 1,651 62,532
Cadence Design Systems, Inc.* .......................................... 4,739 140,985
Cambridge Technology
Partners, Inc.* ...................................................... 4,788 105,934
Checkfree Holdings Corp.* .............................................. 1,688 39,457
Compuware Corp.* ....................................................... 206 16,094
Edify Corp.* ........................................................... 400 3,325
Fair, Isaac & Co., Inc. ................................................ 721 33,301
Harbinger Corp.* ....................................................... 5,395 43,160
</TABLE>
17-NDS
<PAGE>
Portfolio of Investments -- continued
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Computer Software -- Systems -- continued
JDA Software Group, Inc.* .............................................. 4,390 $ 42,528
Peerless Systems Corp.* ................................................ 651 5,534
RWD Technologies, Inc.* ................................................ 534 11,548
SCB Computer Technology , Inc.* ........................................ 2,413 23,828
Security Dynamics
Technologies, Inc.* .................................................. 4,748 109,204
Sterling Software, Inc.* ............................................... 4,912 132,931
Summit Design, Inc.* ................................................... 3,736 34,792
SunGard Data Systems, Inc.* ............................................ 3,512 139,382
Synopsys, Inc.* ........................................................ 3,908 212,009
Transaction System Architects, Inc., "A"* .............................. 3,429 171,450
Vantive Corp.* ......................................................... 4,363 34,904
-----------
$ 1,536,228
-----------
Construction Services
Martin Marietta Materials, Inc. ........................................ 8 $ 498
-----------
Consumer Goods and Services -- 1.6%
Alternative Resources Corp.* ........................................... 4,059 $ 43,127
InfoUSA, Inc., "A"* .................................................... 9,265 45,167
InfoUSA, Inc., "B"* .................................................... 4,683 24,586
LoJack Corp.* .......................................................... 3,613 42,904
Sportsline USA, Inc.* .................................................. 3,664 57,021
-----------
$ 212,805
-----------
Electrical Equipment -- 0.9%
AFC Cable Systems, Inc.* ............................................... 1,497 $ 50,337
Barnett, Inc.* ......................................................... 2,466 33,907
Belden, Inc. ........................................................... 1,518 32,163
-----------
$ 116,407
-----------
Electronics -- 6.7%
Actel Corp.* ........................................................... 1,250 $ 25,000
Analog Devices, Inc.* .................................................. 4,076 127,884
Burr-Brown Corp.* ...................................................... 5,381 126,117
Cable Design Technologies Corp.* ....................................... 4,623 85,526
DuPont Photomasks, Inc.* ............................................... 1,047 44,432
Kulicke & Soffa Industries, Inc.* ...................................... 2,058 36,530
Lattice Semiconductor Corp.* ........................................... 3,295 151,261
Microchip Technology, Inc.* ............................................ 950 35,150
Photronics, Inc.* ...................................................... 3,866 92,663
PMC-Sierra, Inc.* ...................................................... 1,554 98,096
SIPEX Corp.* ........................................................... 1,928 67,721
-----------
$ 890,380
-----------
Entertainment -- 4.2%
Citadel Communications Corp.* .......................................... 867 $ 22,434
Cox Radio, Inc., "A"* .................................................. 289 12,210
Gemstar International Group Ltd.* ...................................... 4,922 281,784
Harrah's Entertainment, Inc.* .......................................... 2,607 40,897
Heftel Broadcasting Corp., "A"* ........................................ 1,317 64,862
Jacor Communications, Inc.* ............................................ 2,092 134,673
-----------
$ 556,860
-----------
Financial Institutions -- 1.2%
Conning Corp. .......................................................... 1,376 $ 28,552
Student Loan Corp. ..................................................... 726 32,579
Waddell & Reed Financial, Inc., "A" 3,912 92,666
-----------
$ 153,797
-----------
Food and Beverage Products -- 0.4%
Earthgrains Co. ........................................................ 52 $ 1,609
Mondavi (Robert) Corp.* ................................................ 1,243 50,807
-----------
$ 52,416
-----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Insurance -- 0.8%
Annuity & Life Re Holdings Ltd. ........................................ 1,531 $ 41,146
Executive Risk, Inc. ................................................... 794 43,620
MONY Group, Inc.* ...................................................... 516 16,157
-----------
$ 100,923
-----------
Medical and Health Products -- 2.0%
AmeriSource Health Corp.,"A"* .......................................... 496 $ 32,240
Haemonetics Corp.* ..................................................... 4,603 104,718
PSS World Medical, Inc.* ............................................... 5,895 135,585
-----------
$ 272,543
-----------
Medical and Health Technology
and Services -- 10.6%
ABR Information Services, Inc.* ........................................ 2,955 $ 57,992
Concentra Managed Care, Inc.* .......................................... 9,204 98,368
Cytyc Corp.* ........................................................... 2,049 52,762
Hologic, Inc.* ......................................................... 4,187 50,767
IDX Systems Corp.* ..................................................... 2,616 115,104
Impath, Inc.* .......................................................... 5,161 136,767
Mid Atlantic Medical Services, Inc.* 5,280 51,810
NCS Healthcare, Inc., "A"* ............................................. 3,352 79,610
Orthodontic Centers of
America, Inc.* ....................................................... 2,593 50,401
Parexel International Corp.* ........................................... 4,005 100,125
Quorum Health Group, Inc.* ............................................. 4,617 59,732
Schein (Henry), Inc.* .................................................. 1,656 74,106
Steris Corp.* .......................................................... 2,694 76,611
Superior Consultant Holdings Corp.* 1,038 45,153
Total Renal Care Holdings, Inc.* ....................................... 6,371 188,343
Ventana Med Systems, Inc.* ............................................. 3,962 85,678
Virgin Islands Technologies, Inc.* ..................................... 8,315 86,268
-----------
$ 1,409,597
-----------
Oil Services -- 1.4%
Dril-Quip, Inc.* ....................................................... 898 $ 15,940
Global Industries, Inc.* ............................................... 12,546 76,844
Input/Output, Inc.* .................................................... 7,678 56,145
National Oilwell, Inc.* ................................................ 1,701 19,030
Weatherford International, Inc.* ....................................... 1,221 23,657
-----------
$ 191,616
-----------
Oils -- 0.3%
Newfield Exploration Co.* .............................................. 2,181 $ 45,528
-----------
Pharmaceuticals -- 0.5%
Sepracor, Inc.* ........................................................ 765 $ 67,416
-----------
Pollution Control -- 0.6%
Superior Services, Inc.* ............................................... 3,711 $ 74,452
-----------
Printing and Publishing -- 2.1%
Applied Graphics
Technologies, Inc.* .................................................. 1,180 $ 19,470
CMP Media, Inc., "A"* .................................................. 3,117 56,885
Scholastic Corp.* ...................................................... 3,740 200,558
-----------
$ 276,913
-----------
Real Estate Investment Trusts -- 0.5%
Kilroy Realty Corp. .................................................... 1,158 $ 26,634
MeriStar Hospitality Corp. ............................................. 2,184 40,541
-----------
$ 67,175
-----------
Restaurants and Lodging -- 2.3%
Buffets, Inc.* ......................................................... 7,348 $ 87,717
Four Seasons Hotels, Inc. .............................................. 1,782 52,123
Landry's Seafood
Restaurants, Inc.* ................................................... 4,956 37,170
Mortons Restaurant Group, Inc.* ........................................ 1,902 35,900
</TABLE>
18-NDS
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Restaurants and Lodging -- continued
Papa John's International, Inc.* ....................................... 820 $ 36,183
Sonic Corp.* ........................................................... 2,365 58,829
-----------
$ 307,922
-----------
Special Products and Services -- 2.6%
Caliber Learning Network, Inc.* ........................................ 4,408 $ 18,734
Edutrek International, Inc., "A"* ...................................... 3,144 18,078
Equity Corp. International* ............................................ 2,295 60,961
Gartner Group, Inc.* ................................................... 2,156 45,815
M/A/R/C, Inc. .......................................................... 834 8,861
Newport News Shipbuilding, Inc. ........................................ 3,583 119,807
Sylvan Learning Systems, Inc.* ......................................... 1,019 31,079
Watsco, Inc. ........................................................... 2,449 41,021
-----------
$ 344,356
-----------
Stores -- 7.0%
AnnTaylor Stores Corp.* ................................................ 1,860 $ 73,354
BJ's Wholesale Club, Inc.* ............................................. 1,648 76,323
Copart, Inc.* .......................................................... 3,701 119,820
CSK Auto Corp.* ........................................................ 3,640 97,142
Duane Reade, Inc.* ..................................................... 550 21,175
Elder-Beerman Stores Corp.* ............................................ 5,787 66,912
Gymboree Corp.* ........................................................ 6,668 42,508
Micro Warehouse, Inc.* ................................................. 2,194 74,185
Office Depot, Inc.* .................................................... 1,653 61,058
Petco Animal Supplies, Inc.* ........................................... 8,468 85,209
Pier 1 Imports, Inc. ................................................... 5,050 48,922
Regis Corp. ............................................................ 3,207 128,280
Stage Stores, Inc.* .................................................... 3,654 34,256
-----------
$ 929,144
-----------
Telecommunications -- 7.1%
Adelphia Communications Corp.* ......................................... 1,120 $ 51,240
Advanced Fibre Communications* ......................................... 2,394 26,184
American Tower Corp., "A"* ............................................. 2,926 86,500
Aspect Telecommunications Corp.* ....................................... 14,944 257,784
Hyperion Telecommunications,
Inc., "A"* ........................................................... 1,005 15,201
Intermedia Communications, Inc.* ....................................... 8,308 143,313
International Telecommunication
Data Systems, Inc.* .................................................. 5,280 77,880
IXC Communications, Inc.* .............................................. 1,798 60,458
Lightbridge, Inc.* ..................................................... 6,426 35,343
Natural Microsystems Corp.* ............................................ 1,319 9,604
Nextlink Communications, Inc., "A"* 2,380 67,532
Proxim, Inc.* .......................................................... 229 6,111
Transaction Network Services, Inc.* 4,246 85,185
VDI Media* ............................................................. 2,137 20,302
-----------
$ 942,637
-----------
Transportation -- 0.8%
Carey International, Inc.* ............................................. 2,034 $ 35,595
Coach USA, Inc.* ....................................................... 1,985 68,855
-----------
$ 104,450
-----------
Total U.S. Stocks ..................................................................... $12,433,344
-----------
Foreign Stocks -- 2.5%
Netherlands -- 0.1%
Brunel International N.V.
(Human Resources)* ................................................... 910 $ 18,398
-----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- continued
United Kingdom -- 2.4%
CBT Group PLC, ADR
(Computer Software -- Personal
Computers)* .......................................................... 14,569 $ 216,714
Saville Systems PLC, ADR
(Computer Software -- Systems)* 4,971 94,449
-----------
$ 311,163
-----------
Total Foreign Stocks .................................................................. $ 329,561
-----------
Total Stocks
(Identified Cost, $11,264,711) ...................................................... $12,762,905
-----------
Convertible Preferred Stock -- 0.1%
Medical and Health Technology
and Services -- 0.1%
Concentra Managed Care, Inc.,
4.50% (Identified Cost, $15,031) ..................................... 24,000 $ 18,300
-----------
Short-Term Obligation -- 6.4%
Federal Home Loan Mortgage
Corp., due 1/04/99,
at Amortized Cost .................................................... $ 850 $ 849,681
-----------
Total Investments
(Identified Cost, $12,129,423) ...................................................... $13,630,886
-----------
Other Assets,
Less Liabilities -- (2.6)%
(350,943)
-----------
Net Assets -- 100.0%
$13,279,943
-----------
</TABLE>
See portfolio footnotes and notes to financial statements
19-NDS
<PAGE>
Portfolio of Investments -- December 31, 1998
Research Growth and Income Series
Stocks -- 95.7%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- 89.2%
Aerospace -- 2.8%
Lockheed-Martin Corp. .................................................. 2,930 $ 248,317
United Technologies Corp. .............................................. 7,665 833,569
-----------
$ 1,081,886
-----------
Banks and Credit Companies -- 2.7%
Bank of New York, Inc. ................................................. 9,300 $ 374,325
Chase Manhattan Corp. .................................................. 5,160 351,203
National City Corp. .................................................... 4,500 326,250
-----------
$ 1,051,778
-----------
Business Machines -- 2.9%
Sun Microsystems, Inc.* ................................................ 4,310 $ 369,044
Xerox Corp. ............................................................ 6,600 778,800
-----------
$ 1,147,844
-----------
Chemicals -- 0.7%
E. I. du Pont de Nemours & Co. ......................................... 5,200 $ 275,925
-----------
Computer Software --
Personal Computers -- 4.7%
Microsoft Corp.* ....................................................... 13,290 $ 1,843,157
-----------
Computer Software -- Systems -- 0.6%
Computer Associates International, Inc. 2,000 $ 85,250
Oracle Corp.* .......................................................... 3,640 156,975
-----------
$ 242,225
-----------
Consumer Goods and Services -- 11.1%
Black & Decker Corp. ................................................... 3,700 $ 207,431
Clorox Co. ............................................................. 2,725 318,314
Colgate-Palmolive Co. .................................................. 4,250 394,719
Dial Corp. ............................................................. 8,700 251,213
Gillette Co. ........................................................... 8,000 386,500
Newell Co. ............................................................. 7,300 301,125
Philip Morris Cos., Inc. ............................................... 15,600 834,600
Procter & Gamble Co. ................................................... 5,840 533,265
Tyco International Ltd. ................................................ 14,600 1,101,387
-----------
$ 4,328,554
-----------
Electrical Equipment -- 1.6%
Emerson Electric Co. ................................................... 10,000 $ 605,000
-----------
Electronics -- 1.9%
Intel Corp. ............................................................ 6,300 $ 746,944
-----------
Entertainment -- 2.3%
CBS Corp. .............................................................. 5,000 $ 163,750
Disney (Walt) Co. ...................................................... 16,600 498,000
MediaOne Group, Inc.* .................................................. 5,200 244,400
-----------
$ 906,150
-----------
Financial Institutions -- 6.7%
Associates First Capital Corp., "A" .................................... 17,400 $ 737,325
CIT Group, Inc., "A" ................................................... 5,970 189,921
Citigroup, Inc. ........................................................ 5,200 257,400
Federal Home Loan
Mortgage Corp. ....................................................... 8,600 554,162
Federal National Mortgage Assn. ........................................ 10,490 776,260
First Union Corp. ...................................................... 1,802 109,584
-----------
$ 2,624,652
-----------
Financial Services -- 0.6%
Alliance Capital Management L P ........................................ 8,900 $ 229,175
-----------
Food and Beverage Products -- 3.4%
Anheuser Busch Cos., Inc. .............................................. 4,600 301,875
Archer-Daniels-Midland Co. ............................................. 18,785 322,867
Hershey Foods Corp. .................................................... 5,900 366,906
Ralston-Ralston Purina Co. ............................................. 10,500 339,938
-----------
$ 1,331,586
-----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Insurance -- 6.8%
Allstate Corp. ......................................................... 3,980 $ 153,728
CIGNA Corp. ............................................................ 2,915 225,366
Equitable Cos., Inc. ................................................... 7,300 422,487
Hartford Financial Services Group, Inc. ................................ 6,430 352,846
Lincoln National Corp. ................................................. 5,920 484,330
Nationwide Financial Services, Inc., "A" ............................... 6,450 333,384
Progressive Corp. ...................................................... 1,500 254,063
ReliaStar Financial Corp. .............................................. 5,740 264,758
Transamerica Corp. ..................................................... 1,500 173,250
-----------
$ 2,664,212
-----------
Manufacturing -- 0.7%
Illinois Tool Works, Inc. .............................................. 5,000 $ 290,000
-----------
Medical and Health Products -- 5.0%
American Home Products Corp. ........................................... 15,700 $ 884,106
Bristol-Myers Squibb Co. ............................................... 4,570 611,523
Pfizer, Inc. ........................................................... 3,600 451,575
-----------
$ 1,947,204
-----------
Medical and Health Technology
and Services -- 4.7%
Cardinal Health, Inc. .................................................. 10,140 $ 769,372
Guidant Corp. .......................................................... 5,900 650,475
United Healthcare Corp. ................................................ 9,400 404,788
-----------
$ 1,824,635
-----------
Metals and Minerals -- 0.9%
Aluminum Co. of America ................................................ 4,820 $ 359,391
-----------
Oils -- 3.0%
Exxon Corp. ............................................................ 5,300 $ 387,563
Mobil Corp. ............................................................ 9,000 784,125
-----------
$ 1,171,688
-----------
Pollution Control -- 0.6%
Browning Ferris Industries, Inc. ....................................... 8,350 $ 237,453
-----------
Real Estate Investment Trusts -- 2.1%
Arden Realty, Inc. ..................................................... 16,300 $ 377,956
Beacon Capital Partners, Inc.*## ....................................... 3,800 60,325
Highwoods Properties, Inc. ............................................. 14,600 375,950
-----------
$ 814,231
-----------
Special Products and Services
Newport News Shipbuilding, Inc. ........................................ 300 $ 10,031
-----------
Stores -- 6.0%
CVS Corp. .............................................................. 11,800 $ 649,000
Dayton Hudson Corp. .................................................... 7,400 401,450
Lowes Co., Inc. ........................................................ 9,180 469,901
Rite Aid Corp. ......................................................... 16,660 825,711
-----------
$ 2,346,062
-----------
Supermarkets -- 0.7%
Meyer (Fred), Inc.* .................................................... 4,725 $ 284,681
-----------
Telecommunications -- 11.2%
Alltel Corp. ........................................................... 10,500 $ 628,031
Century Telephone Enterprises, Inc. 18,765 1,266,638
Cisco Systems, Inc.* ................................................... 8,650 802,828
Lucent Technologies, Inc. .............................................. 4,400 484,000
Sprint Corp. ........................................................... 12,720 1,070,070
Sprint PCS* ............................................................ 6,360 147,075
-----------
$ 4,398,642
-----------
</TABLE>
20-RGI
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
U.S. Stocks -- continued
Utilities -- Electric -- 4.2%
CMS Energy Corp. .................... 7,860 $ 380,719
DQE, Inc. ........................... 7,500 329,531
GPU, Inc. ........................... 5,100 225,356
Peco Energy Co. ..................... 8,200 341,325
Sierra Pacific Resources ............ 9,700 368,600
-----------
$ 1,645,531
-----------
Utilities -- Gas -- 1.3%
Columbia Energy Group ............... 4,650 $ 268,538
KN Energy, Inc. ..................... 6,600 240,075
-----------
$ 508,613
-----------
Total U.S. Stocks .................................. $34,917,250
-----------
Foreign Stocks -- 6.5%
Bermuda -- 1.4%
Ace Ltd. (Insurance) ................ 7,100 $ 244,506
EXEL Ltd., "A" (Insurance) .......... 4,200 315,000
-----------
$ 559,506
-----------
France -- 0.6%
Alcatel, ADR (Telecommunications) ... 10,000 $ 244,375
-----------
Germany -- 0.5%
Henkel KGaA (Chemicals) ............. 2,100 $ 187,590
-----------
Italy -- 0.6%
San Paolo-Imi S.p.A
(Banks and Credit Cos.) ........... 13,613 $ 240,704
-----------
Japan
Sony Corp., ADR (Electronics) ....... 200 $ 14,350
-----------
Netherlands -- 0.6%
ING Groep N.V.
(Financial Services)* ............. 3,612 $ 220,045
-----------
Sweden -- 0.3%
Volvo AB (Automotive) ............... 5,200 $ 119,113
-----------
Switzerland -- 2.0%
Amoco Corp. (Oils) .................. 11,500 $ 678,500
Nestle S.A.
(Food and Beverage Products) ...... 41 89,254
-----------
$ 767,754
-----------
United Kingdom -- 0.5%
British Aerospace PLC
(Aerospace and Defense)* .......... 4,100 $ 34,892
British Petroleum PLC, ADR (Oils) ... 1,813 172,235
Lloyds TSB Group PLC
(Banks and Credit Cos.) ........... 42 597
-----------
$ 207,724
-----------
Total Foreign Stocks .................................... $ 2,561,161
-----------
Total Stocks
(Identified Cost, $32,676,232) ........................ $37,478,411
-----------
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Convertible Preferred Stocks -- 1.4%
Insurance -- 0.1%
Lincoln National Corp., 7.75% ....... 1,600 $ 37,700
-----------
Utilities -- Electric -- 1.3%
Houston Industries, Inc., 7.00% ..... 4,600 $ 489,325
-----------
Total Convertible Preferred Stocks
(Identified Cost, $401,803) ...................... $ 527,025
-----------
Short-Term Obligation -- 3.1%
Principal Amount
(000 Omitted)
Ford Motor Credit Corp., due 1/04/99,
at Amortized Cost ................. $ 1,225 $ 1,224,488
-----------
Total Investments
(Identified Cost, $34,302,523) ................... $39,229,924
-----------
Other Assets,
Less Liabilities -- (0.2)%
(78,144)
-----------
Net Assets -- 100.0%
$39,151,780
-----------
</TABLE>
See portfolio footnotes and notes to financial statements
21-RGI
<PAGE>
Portfolio of Investments -- December 31, 1998
Research International Series
Stocks -- 90.0%
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- 86.4%
Argentina -- 0.4%
Telefonica de Argentina, ADR
(Utilities -- Telephone) ............................................. 500 $ 13,969
----------
Australia -- 1.8%
Cable & Wireless Optus
(Telecommunications)* ................................................ 4,500 $ 9,432
QBE Insurance Group Ltd.
(Insurance)* ......................................................... 12,940 53,377
----------
$ 62,809
----------
Bermuda -- 0.8%
Dairy Farm International Holdings
Ltd. (Consumer Goods and
Services) ............................................................ 25,000 $ 28,750
----------
Brazil -- 1.3%
Telecomunicacoes Brasilieras S.A.,
ADR (Telecommunications) ............................................. 207 $ 15,046
Telesp Celular Participacoes S.A.
(Telecommunications)* ................................................ 900 15,750
Telesp Participacoes S.A.
(Telecommunications)* ................................................ 700 15,488
----------
$ 46,284
----------
Canada -- 1.7%
Canadian National Railway Co.
(Railroads) .......................................................... 1,147 $ 59,500
----------
Chile -- 0.5%
Embotelladora Andina S.A.
(Consumer Goods and Services) ........................................ 1,351 $ 17,563
----------
Finland -- 3.0%
Helsingin Puhelin Oyj
(Telecommunications) ................................................. 691 $ 41,082
Pohjola Group Insurance Corp.
(Insurance) .......................................................... 494 26,946
Rapala Normark Corp.
(Consumer Goods and Services)* 1,200 10,360
Tieto Corp.
(Computer Software -- Systems) ....................................... 629 28,016
----------
$ 106,404
----------
France -- 7.1%
Alcatel (Telecommunications) ........................................... 233 $ 28,487
Sanofi S.A.
(Medical and Health Products) ........................................ 353 58,050
SEITA (Tobacco) ........................................................ 524 32,782
Societe Industrielle de Transports
Automobiles S.A.
(Hazardous Waste) .................................................... 150 39,280
Television Francaise (Entertainment) 242 43,041
Thomson CSF
(Aerospace and Defense) .............................................. 1,118 47,961
----------
$ 249,601
----------
Germany -- 3.1%
Henkel KGaA (Chemicals) ................................................ 800 $ 71,463
Mannesmann AG (Conglomerate) ........................................... 313 35,841
----------
$ 107,304
----------
Greece -- 3.0%
Athens Medical Center, GDR
(Medical and Health Technology
and Services) ........................................................ 945 $ 18,536
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- continued
Greece -- continued
Hellenic Telecommunication
Organization S.A., GDR
(Telecommunications) ................................................. 1,554 $ 41,325
Panafon S.A. (Telecommunications)* 700 18,740
Stet Hellas Telecommunications S.A.
(Telecommunications)* ................................................ 849 27,486
----------
$ 106,087
----------
Ireland -- 3.5%
Allied Irish Bank PLC
(Banks and Credit Cos.) .............................................. 4,294 $ 76,362
Anglo Irish Bank PLC
(Banks and Credit Cos.)* ............................................. 16,006 45,670
----------
$ 122,032
----------
Italy -- 7.7%
Banca Carige S.p.A.
(Banks and Credit Cos.) .............................................. 1,869 $ 18,425
ERG S.p.A. (Oils) ...................................................... 7,174 24,805
Industrie Natuzzi S.p.A., ADR
(Consumer Goods and Services) ........................................ 919 22,860
Mediaset S.p.A. (Entertainment) ........................................ 4,826 39,160
San Paolo-Imi S.p.A
(Banks and Credit Cos.) .............................................. 3,858 68,217
Telecom Italia Mobile S.p.A.
(Telecommunications) ................................................. 1,261 9,316
Telecom Italia Mobile S.p.A., Saving
Shares (Telecommunications) .......................................... 7,285 34,321
Telecom Italia S.p.A.
(Telecommunications)* ................................................ 6,474 55,276
----------
$ 272,380
----------
Japan -- 16.4%
Aeon Credit Service Co. Ltd.
(Financial Services) ................................................. 600 $ 41,263
Bridgestone Corp.
(Tire and Rubber) .................................................... 1,000 22,615
Canon, Inc., ADR
(Special Products and Services) ...................................... 1,267 27,241
Fujimi, Inc. (Electronics) ............................................. 900 31,106
ITO EN Ltd. (Beverages) ................................................ 800 41,122
Keyence Corp. (Electronics) ............................................ 300 36,766
Kinki Coca-Cola Bottling Co.
(Beverages) .......................................................... 1,000 13,216
Meitec Corp.
(Computer Software -- Systems) ....................................... 1,200 29,836
Mikuni Coca-Cola Bottling Co.
(Beverages) .......................................................... 1,000 21,293
Nippon Telephone & Telegraph Co.
(Utilities -- Telephone) ............................................. 4 30,753
NTT Data Corp.
(Telecommunications) ................................................. 6 29,677
Olympus Optical Co.
(Conglomerate) ....................................................... 4,000 45,812
Osaka Sanso Kogyo Ltd.
(Chemicals) .......................................................... 6,000 11,479
Secom Co. (Consumer Goods
and Services) ........................................................ 1,000 82,525
Takeda Chemical Industries Co.
(Pharmaceuticals) .................................................... 1,000 38,353
Terumo Corp. (Pharmaceuticals) ......................................... 2,000 46,905
Ushio, Inc. (Electronics) .............................................. 3,000 26,212
----------
$ 576,174
----------
</TABLE>
22-RIS
<PAGE>
Stocks -- continued
<TABLE>
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- continued
Netherlands -- 9.3%
Akzo Nobel N.V. (Chemicals) ............................................ 794 $ 36,120
Benckiser N.V., "B"
(Consumer Goods and Services) ........................................ 1,247 81,607
Fugro N.V. (Engineering) ............................................... 1,017 23,808
Hunter Douglas N.V., ADR
(Consumer Goods and Services)* 1,074 35,543
IHC Caland N.V.
(Marine Equipment) ................................................... 379 15,729
ING Groep N.V.
(Financial Services)* ................................................ 736 44,837
Koninklijke Ahold N.V.
(Supermarkets)* ...................................................... 681 25,146
Koninklijke Ahrend Groep N.V.
(Consumer Goods and Services)* 1,958 44,692
Van der Moolen Holding N.V.
(Financial Services)* ................................................ 328 21,116
----------
$ 328,598
----------
Peru -- 0.4%
Telefonica del Peru S.A., ADR
(Telecommunications) ................................................. 1,112 $ 14,108
----------
Portugal -- 2.5%
Banco Pinto & Sotto Mayor S.A.
(Banks and Credit Cos.) .............................................. 2,735 $ 51,776
BPI -- SGPS, S.A.
(Banks and Credit Cos.) .............................................. 1,044 35,376
----------
$ 87,152
----------
Singapore -- 0.6%
Natsteel Electronics Ltd.
(Electronics) ........................................................ 8,000 $ 20,370
----------
Spain -- 0.9%
Cortefiel S.A. (Retail) ................................................ 320 $ 8,433
Telefonica de Espana
(Utilities -- Telephone) ............................................. 496 22,055
----------
$ 30,488
----------
Sweden -- 2.9%
Celsius AB (Aerospace) ................................................. 1,711 $ 23,179
Saab AB, "B" (Aerospace)* .............................................. 4,694 49,137
Volvo AB (Automotive) .................................................. 1,352 30,969
----------
$ 103,285
----------
Switzerland -- 4.8%
Barry Callebaut AG
(Food and Beverage Products) ......................................... 116 $ 26,350
A. Hiestand Holding AG
(Food Products) ...................................................... 60 15,726
Julius Baer Holdings
(Banks and Credit Cos.) .............................................. 13 43,207
Kuoni Reisen Holdings AG
(Transportation) ..................................................... 4 15,872
Nestle S.A.
(Food and Beverage Products) ......................................... 17 37,008
UBS AG (Banks and Credit Cos.)* ........................................ 101 31,032
----------
$ 169,195
----------
United Kingdom -- 14.7%
British Aerospace PLC
(Aerospace and Defense)* ............................................. 6,029 $ 51,308
British Petroleum PLC (Oils)* .......................................... 4,619 68,656
Capital Radio PLC (Broadcasting) ....................................... 2,369 22,990
Glaxo Wellcome PLC
(Pharmaceuticals) .................................................... 2,069 71,116
<CAPTION>
Issuer Shares Value
<S> <C> <C>
Foreign Stocks -- continued
United Kingdom -- continued
Jarvis Hotels PLC
(Restaurants and Lodging)+ ........................................... 16,724 $ 32,460
Kwik-Fit Holdings PLC
(Automotive Repair Centers) .......................................... 4,442 35,555
LucasVarity PLC (Automotive) ........................................... 15,366 51,236
Next PLC (Stores) ...................................................... 2,770 22,654
Reuters Group PLC
(Business Services) .................................................. 3,448 36,321
Sema Group PLC
(Computer Software -- Systems) ....................................... 4,880 48,006
Taylor Nelson Sofres PLC
(Market Research) .................................................... 27,812 35,295
Williams PLC (Conglomerate) ............................................ 7,455 42,543
----------
$ 518,140
----------
Total Foreign Stocks .................................................................. $3,040,193
----------
U.S. Stocks -- 3.6%
Automotive -- 1.0%
Federal-Mogul Corp. .................................................... 600 $ 35,700
----------
Electronics -- 1.0%
Amkor Technology, Inc.* ................................................ 3,193 $ 34,525
----------
Telecommunications -- 1.6%
Cellular Communications
International, Inc.* ................................................. 300 $ 20,400
Global TeleSystems Group, Inc.* ........................................ 623 34,732
----------
$ 55,132
----------
Total U.S. Stocks ..................................................................... $ 125,357
----------
Total Stocks
(Identified Cost, $3,021,996) ....................................................... $3,165,550
----------
Rights
Telefonica S.A.
(Telecommunications)*
(Identified Cost, $433) .............................................. 496 $ 440
----------
Short-Term Obligation -- 8.8%
Principal Amount
(000 Omitted)
Federal Home Loan Mortgage
Corp., due 1/04/99,
at Amortized Cost .................................................... $ 310 $ 309,884
----------
Total Investments
(Identified Cost, $3,332,313) ....................................................... $3,475,874
----------
Other Assets,
Less Liabilities -- 1.2% 43,436
----------
Net Assets -- 100.0%
$3,519,310
----------
</TABLE>
See portfolio footnotes and notes to financial statements
Portfolio Footnotes:
* Non-income producing security.
##SEC Rule 144A restriction.
+ Restricted security.
23-RIS
<PAGE>
MFS/Sun Life Series Trust
Statements of Assets and Liabilities -- December 31, 1998
<TABLE>
<CAPTION>
Capital Equity
Opportunities Income
Assets: Series Series
Investments -- ------------- ----------
<S> <C> <C>
Unaffiliated issuers, at cost .......................................................... $ 156,438,266 $7,896,830
Unrealized appreciation ................................................................ 32,602,240 508,586
------------- ----------
Total investments, at value .......................................................... $ 189,040,506 $8,405,416
Cash .................................................................................... 9,916 3,479
Foreign currency, at value (identified cost, $12,750, $107, $124,478 and $65, 12,595 115
respectively)
Receivable for investments sold ......................................................... 5,961,094 135,781
Receivable for Series shares sold ....................................................... 306,326 130,578
Interest and dividends receivable ....................................................... 111,626 17,103
Receivable from investment adviser ...................................................... -- 10,922
Other assets ............................................................................ 574 --
------------- ----------
Total assets ......................................................................... $ 195,442,637 $8,703,394
============= ==========
Liabilities:
Payable for investments purchased ....................................................... $ 4,625,054 $ 206,137
Payable for Series shares reacquired .................................................... 853 --
Net payable for foreign currency exchange contracts subject to master netting agreements 48,947 --
Payable to affiliate for investment advisory fee ........................................ 3,865 169
Accrued expenses and other liabilities .................................................. 51,546 4,254
------------- ----------
Total liabilities .................................................................... $ 4,730,265 $ 210,560
------------- ----------
Net assets ............................................................................... $ 190,712,372 $8,492,834
============= ==========
Net assets consist of:
Paid-in capital ......................................................................... $ 152,234,550 $8,013,887
Unrealized appreciation on investments and translation of assets and liabilities in 32,555,047 508,572
foreign currencies
Accumulated net realized gain (loss) on investments and foreign currency transactions ... 5,479,918 (77,894)
Accumulated undistributed net investment income ......................................... 442,857 48,269
------------- ----------
Total ............................................................................... $ 190,712,372 $8,492,834
============= ==========
Shares of beneficial interest outstanding ............................................... 11,229,927 808,548
============= ==========
Net asset value, offering price and redemption price per share
(net assets [divided by] shares of beneficial interest outstanding) .................... $ 16.98 $ 10.50
============= ==========
<CAPTION>
Massachusetts
Investors
International Growth
Growth Stock
Assets: Series Series
Investments -- --------------- ----------------
<S> <C> <C>
Unaffiliated issuers, at cost .......................................................... $ 31,863,663 $ 67,327,972
Unrealized appreciation ................................................................ 3,528,248 9,426,554
------------ ------------
Total investments, at value .......................................................... $ 35,391,911 $ 76,754,526
Cash .................................................................................... 10,948 6,856
Foreign currency, at value (identified cost, $12,750, $107, $124,478 and $65, 123,413 67
respectively)
Receivable for investments sold ......................................................... 321,320 4,694,291
Receivable for Series shares sold ....................................................... 53,065 1,217,149
Interest and dividends receivable ....................................................... 51,795 22,287
Receivable from investment adviser ...................................................... -- --
Other assets ............................................................................ 154 --
------------ ------------
Total assets ......................................................................... $ 35,952,606 $ 82,695,176
============ ============
Liabilities:
Payable for investments purchased ....................................................... $ 229,187 $ 1,435,021
Payable for Series shares reacquired .................................................... 5,575 --
Net payable for foreign currency exchange contracts subject to master netting agreements 4,895 --
Payable to affiliate for investment advisory fee ........................................ 947 1,631
Accrued expenses and other liabilities .................................................. 30,783 21,272
------------ ------------
Total liabilities .................................................................... $ 271,387 $ 1,457,924
------------ ------------
Net assets ............................................................................... $ 35,681,219 $ 81,237,252
============ ============
Net assets consist of:
Paid-in capital ......................................................................... $ 36,534,020 $ 69,489,201
Unrealized appreciation on investments and translation of assets and liabilities in 3,523,695 9,426,557
foreign currencies
Accumulated net realized gain (loss) on investments and foreign currency transactions ... (4,590,465) 2,321,494
Accumulated undistributed net investment income ......................................... 213,969 --
------------ ------------
Total ............................................................................... $ 35,681,219 $ 81,237,252
============ ============
Shares of beneficial interest outstanding ............................................... 3,666,903 6,724,723
============ ============
Net asset value, offering price and redemption price per share
(net assets [divided by] shares of beneficial interest outstanding) .................... $ 9.73 $ 12.08
============ ============
</TABLE>
See notes to financial statements
24
<PAGE>
MFS/Sun Life Series Trust
Statements of Assets and Liabilities -- December 31, 1998 -- continued
<TABLE>
<CAPTION>
Research
New Growth and Research
Discovery Income International
Assets: Series Series Series
Investments -- -------------- -------------- --------------
<S> <C> <C> <C>
Unaffiliated issuers, at cost .................................................. $12,129,423 $34,302,523 $3,332,313
Unrealized appreciation ........................................................ 1,501,463 4,927,401 143,561
----------- ----------- ----------
Total investments, at value .................................................. $13,630,886 $39,229,924 $3,475,874
Cash ............................................................................ 1,098 3,574 5,482
Foreign currency, at value (identified cost, $0, $43 and $2,755, respectively) .. -- 43 2,777
Receivable for investments sold ................................................. 146,649 3,775 10,792
Receivable for Series shares sold ............................................... 14,567 197,591 12,359
Interest and dividends receivable ............................................... 2,048 39,234 2,151
Receivable from investment adviser .............................................. 12,813 -- 25,206
Other assets .................................................................... -- 42 --
----------- ----------- ----------
Total assets ................................................................. $13,808,061 $39,474,183 $3,534,641
=========== =========== ==========
Liabilities:
Payable for investments purchased ............................................... $ 230,808 $ 305,136 $
Payable for Series shares reacquired ............................................ 282,246 819 67
Payable to affiliate for investment advisory fee ................................ 321 797 94
Accrued expenses and other liabilities .......................................... 14,743 15,651 15,170
----------- ----------- ------------
Total liabilities ............................................................ $ 528,118 $ 322,403 $ 15,331
----------- ----------- ------------
Net assets ....................................................................... $13,279,943 $39,151,780 $3,519,310
=========== =========== ============
Net assets consist of:
Paid-in capital ................................................................. $11,853,405 $34,794,344 $3,487,598
Unrealized appreciation on investments and translation of assets and
liabilities in foreign currencies ............................................. 1,501,463 4,927,457 143,577
Accumulated net realized loss on investments and foreign currency transactions .. (74,925) (771,838) (113,473)
Accumulated undistributed net investment income ................................. -- 201,817 1,608
----------- ----------- ------------
Total ........................................................................ $13,279,943 $39,151,780 $3,519,310
=========== =========== ============
Shares of beneficial interest outstanding ....................................... 1,250,089 2,923,999 373,636
=========== =========== ============
Net asset value, offering price, and redemption price per share
(net assets [divided by] shares of beneficial interest outstanding) ............ $ 10.62 $ 13.39 $ 9.42
=========== =========== ============
</TABLE>
See notes to financial statements
25
<PAGE>
MFS/Sun Life Series Trust
Statements of Operations -- Year Ended December 31, 1998
<TABLE>
<CAPTION>
Capital Equity
Opportunities Income
Net investment income (loss): Series Series*
Income -- --------------- -------------
<S> <C> <C>
Interest ........................................................................... $ 585,355 $ 11,331
Dividends .......................................................................... 1,118,442 60,236
Foreign taxes withheld ............................................................. (43,005) (290)
----------- ---------
Total investment income ........................................................... $ 1,660,792 $ 71,277
----------- ---------
Expenses --
Investment advisory fees ........................................................... $ 1,066,925 $ 16,916
Trustees' fees ..................................................................... 6,300 4,500
Administrative fees ................................................................ 16,994 173
Custodian fees ..................................................................... 61,208 4,975
Printing fees ...................................................................... 55,490 1,998
Auditing fees ...................................................................... 17,393 4,000
Legal fees ......................................................................... 754 868
Miscellaneous ...................................................................... 1,036 683
----------- ---------
Total expenses .................................................................... $ 1,226,100 $ 34,113
Waiver of expenses by investment adviser ........................................... -- (10,922)
Fees paid indirectly ............................................................... (7,204) (637)
----------- ---------
Net expenses ...................................................................... $ 1,218,896 $ 22,554
----------- ---------
Net investment income (loss) ..................................................... $ 441,896 $ 48,723
----------- ---------
Realized and unrealized gain (loss) on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ............................................................ $ 5,948,345 $ (77,894)
Foreign currency transactions ...................................................... 1,141 (454)
----------- ---------
Net realized gain (loss) on investments and foreign currency transactions ......... $ 5,949,486 $ (78,348)
----------- ---------
Change in unrealized appreciation (depreciation) --
Investments ........................................................................ $25,542,709 $ 508,586
Translation of assets and liabilities in foreign currencies ........................ (49,601) (14)
----------- ---------
Net unrealized gain on investments and foreign currency translation ............... $25,493,108 $ 508,572
----------- ---------
Net realized and unrealized gain (loss) on investments and foreign currency ...... $31,442,594 $ 430,224
----------- ---------
Increase in net assets from operations .......................................... $31,884,490 $ 478,947
=========== =========
</TABLE>
*For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
<TABLE>
<CAPTION>
Massachusetts
International Investors
Growth Growth Stock
Net investment income (loss): Series Series*
Income -- ------------- --------------
<S> <C> <C>
Interest ........................................................................... $ 116,364 $ 104,469
Dividends .......................................................................... 607,399 86,102
Foreign taxes withheld ............................................................. (61,476) (1,508)
------------ -----------
Total investment income ........................................................... $ 662,287 $ 189,063
------------ -----------
Expenses --
Investment advisory fees ........................................................... $ 298,570 $ 148,264
Trustees' fees ..................................................................... 6,300 4,500
Administrative fees ................................................................ 3,765 1,419
Custodian fees ..................................................................... 40,142 10,757
Printing fees ...................................................................... 24,585 11,560
Auditing fees ...................................................................... 28,586 14,200
Legal fees ......................................................................... 1,239 746
Miscellaneous ...................................................................... 1,350 242
------------ -----------
Total expenses .................................................................... $ 404,537 $ 191,688
Waiver of expenses by investment adviser ........................................... -- --
Fees paid indirectly ............................................................... (4,667) (2,339)
------------ -----------
Net expenses ...................................................................... $ 399,870 $ 189,349
------------ -----------
Net investment income (loss) ..................................................... $ 262,417 $ (286)
------------ -----------
Realized and unrealized gain (loss) on investments and foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ............................................................ $ (3,911,084) $ 2,321,848
Foreign currency transactions ...................................................... (8,067) (68)
------------ -----------
Net realized gain (loss) on investments and foreign currency transactions ......... $ (3,919,151) $ 2,321,780
------------ -----------
Change in unrealized appreciation (depreciation) --
Investments ........................................................................ $ 3,772,706 $ 9,426,554
Translation of assets and liabilities in foreign currencies ........................ (68,638) 3
------------ -----------
Net unrealized gain on investments and foreign currency translation ............... $ 3,704,068 $ 9,426,557
------------ -----------
Net realized and unrealized gain (loss) on investments and foreign currency ...... $ (215,083) $11,748,337
------------ -----------
Increase in net assets from operations .......................................... $ 47,334 $11,748,051
============ ===========
*For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
</TABLE>
See notes to financial statements
26
<PAGE>
MFS/Sun Life Series Trust
Statements of Operations -- Year Ended December 31, 1998 -- continued
<TABLE>
<CAPTION>
Research
New Growth and Research
Discovery Income International
Net investment income (loss): Series* Series Series*
Income -- ------------ ---------- ----------
<S> <C> <C> <C>
Interest ................................................................ $ 27,825 $ 82,585 $ 8,016
Dividends ............................................................... 4,353 321,792 10,233
Foreign taxes withheld .................................................. (9) (2,823) (1,106)
----------- ---------- ----------
Total investment income ................................................ $ 32,169 $ 401,554 $ 17,143
----------- ---------- ----------
Expenses --
Investment advisory fees ................................................ $ 35,936 $ 159,161 $ 10,888
Trustees' fees .......................................................... 4,500 6,300 4,500
Administrative fees ..................................................... 327 2,321 88
Custodian fees .......................................................... 3,592 13,496 10,976
Printing fees ........................................................... 4,008 11,648 1,450
Auditing fees ........................................................... 14,200 6,621 12,921
Legal fees .............................................................. 900 1,104 913
Miscellaneous ........................................................... 373 1,056 297
---------- ---------- ----------
Total expenses ......................................................... $ 63,836 $ 201,707 $ 42,033
Waiver of expenses by investment adviser ................................ (12,813) -- (25,206)
Fees paid indirectly .................................................... (1,113) (3,115) (494)
---------- ---------- ----------
Net expenses ........................................................... $ 49,910 $ 198,592 $ 16,333
---------- ---------- ----------
Net investment income (loss) .......................................... $ (17,741) $ 202,962 $ 810
---------- ---------- ----------
Realized and unrealized gain (loss) on investments and
foreign currency transactions:
Realized gain (loss) (identified cost basis) --
Investment transactions ................................................. $ (57,180) $ (771,084) $ (113,474)
Foreign currency transactions ........................................... (4) (1,068) 799
---------- ---------- ----------
Net realized loss on investments and foreign currency transactions ..... $ (57,184) $ (772,152) $ (112,675)
---------- ---------- ----------
Change in unrealized appreciation --
Investments ............................................................. $1,501,463 $4,710,135 $ 143,561
Translation of assets and liabilities in foreign currencies ............. -- 46 16
---------- ---------- ----------
Net unrealized gain on investments and foreign currency translation .... $1,501,463 $4,710,181 $ 143,577
---------- ---------- ----------
Net realized and unrealized gain on investments and foreign currency .. $1,444,279 $3,938,029 $ 30,902
---------- ---------- ----------
Increase in net assets from operations ............................... $1,426,538 $4,140,991 $ 31,712
========== ========== ==========
</TABLE>
*For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
See notes to financial statements
27
<PAGE>
MFS/Sun Life Series Trust
Statements of Changes in Net Assets -- Year Ended December 31, 1998
<TABLE>
<CAPTION>
Massachusetts
Investors
Capital Equity International Growth
Opportunities Income Growth Stock
Increase (decrease) in net assets: Series Series* Series Series*
From operations -- --------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net investment income (loss) ............................... $ 441,896 $ 48,723 $ 262,417 $ (286)
Net realized gain (loss) on investments and foreign
currency transactions ..................................... 5,949,486 (78,348) (3,919,151) 2,321,780
Net unrealized gain on investments and foreign
currency translation ...................................... 25,493,108 508,572 3,704,068 9,426,557
------------ ---------- ------------ -----------
Increase in net assets from operations .................... $ 31,884,490 $ 478,947 $ 47,334 $11,748,051
------------ ---------- ------------ -----------
Distributions declared to shareholders --
From net investment income ................................. $ (531,468) $ -- $ (320,369) $ --
From net realized gain on investments and foreign
currency transactions ..................................... (5,113,199) -- -- --
------------ ---------- ------------ -----------
Total distributions declared to shareholders .............. $ (5,644,667) $ -- $ (320,369) $ --
------------ ---------- ------------ -----------
Net increase in net assets from Series share transactions ... $ 76,728,956 $8,013,887 $ 12,553,148 $69,489,201
------------ ---------- ------------ -----------
Total increase in net assets ............................. $102,968,779 $8,492,834 $ 12,280,113 $81,237,252
Net assets --
At beginning of year ....................................... 87,743,593 -- 23,401,106 --
------------ ---------- ------------ ------------
At end of year ............................................. $190,712,372 $8,492,834 $ 35,681,219 $81,237,252
============ ========== ============ ===========
Accumulated undistributed net investment income included
in net assets at end of year ............................... $ 442,857 $ 48,269 $ 213,969 $ --
============ ========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Research
New Growth and Research
Discovery Income International
Increase (decrease) in net assets: Series* Series Series*
From operations -- ----------- ------------ ------------
<S> <C> <C> <C>
Net investment income (loss) .............................................. $ (17,741) $ 202,962 $ 810
Net realized loss on investments and foreign currency transactions ........ (57,184) (772,152) (112,675)
Net unrealized gain on investments and foreign currency translation ....... 1,501,463 4,710,181 143,577
----------- ----------- ----------
Increase in net assets from operations ................................... $ 1,426,538 $ 4,140,991 $ 31,712
----------- ----------- ----------
Distributions declared to shareholders --
From net investment income ................................................ $ -- $ (19,103) $ --
From net realized gain on investments and foreign currency transactions ... -- (62,914) --
----------- ----------- ----------
Total distributions declared to shareholders ............................. $ -- $ (82,017) $ --
----------- ----------- ----------
Net increase in net assets from Series share transactions .................. $11,853,405 $28,552,816 $3,487,598
----------- ----------- ----------
Total increase in net assets ............................................ $13,279,943 $32,611,790 $3,519,310
Net assets --
At beginning of year ...................................................... -- 6,539,990 --
----------- ----------- ----------
At end of year ............................................................ $13,279,943 $39,151,780 $3,519,310
=========== =========== ==========
Accumulated undistributed net investment income included
in net assets at end of year ............................................. $ -- $ 201,817 $ 1,608
=========== =========== ==========
</TABLE>
*For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
See notes to financial statements
28
<PAGE>
MFS/Sun Life Series Trust
Statements of Changes in Net Assets -- Year Ended December 31, 1997
<TABLE>
<CAPTION>
Research
Capital International Growth and
Opportunities Growth Income
Increase (decrease) in net assets: Series Series Series*
From operations -- --------------- --------------- ------------
<S> <C> <C> <C>
Net investment income ........................................................ $ 551,870 $ 192,764 $ 19,895
Net realized gain (loss) on investments and foreign currency transactions .... 4,627,129 (576,797) 62,535
Net unrealized gain (loss) on investments and foreign currency translation ... 6,587,920 (102,443) 217,276
----------- ----------- ----------
Increase (decrease) in net assets from operations ........................... $11,766,919 $ (486,476) $ 299,706
----------- ----------- ----------
Distributions declared to shareholders --
From net investment income ................................................... $ (65,700) $ (24,244) $ --
From net realized gain on investments and foreign currency transactions ...... (222,129) -- --
----------- ----------- -----------
Total distributions declared to shareholders ................................ $ (287,829) $ (24,244) $ --
----------- -----------
Net increase in net assets from Series share transactions ..................... $59,564,648 $18,386,603 $6,240,284
----------- ----------- -----------
Total increase in net assets ............................................... $71,043,738 $17,875,883 $6,539,990
Net assets --
At beginning of year ......................................................... 16,699,855 5,525,223 --
----------- ----------- -----------
At end of year ............................................................... $87,743,593 $23,401,106 $6,539,990
=========== =========== ===========
Accumulated undistributed net investment income included in net assets
at end of year .............................................................. $ 531,210 $ 124,177 $ 19,705
=========== =========== ===========
</TABLE>
*For the period from the commencement of the Series' investment operations,
May 13, 1997, through December 31, 1997.
See notes to financial statements
29
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights
<TABLE>
<CAPTION>
Equity
Income
Capital Opportunities Series Series
--------------------------------------------- --------------
Year Year Period Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1998 1997 1996* 1998**
Per share data (for a share outstanding throughout each period): ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net asset value -- beginning of period .......................... $ 13.9339 $ 11.0055 $ 10.0000 $ 10.0000
--------- --------- ----------- -----------
Income from investment operations# --
Net investment income[sec] ..................................... $ 0.0477 $ 0.1466 $ 0.0916 $ 0.1379
Net realized and unrealized gain (loss) on investments
and foreign currency .......................................... 3.6598 2.8785 0.9139 0.3659
--------- --------- ----------- -----------
Total from investment operations ............................. $ 3.7075 $ 3.0251 $ 1.0055 $ 0.5038
--------- --------- ----------- -----------
Less distributions declared to shareholders --
From net investment income ..................................... $ (0.0620) $ (0.0221) $ -- $ --
From net realized gain on investments and foreign currency
transactions .................................................. ( 0.5969) ( 0.0746) -- --
--------- --------- ----------- -----------
Total distributions declared to shareholders ................. $ (0.6589) $ (0.0967) $ -- $ --
--------- --------- ----------- -----------
Net asset value -- end of period ................................ $ 16.9825 $ 13.9339 $ 11.0055 $ 10.5038
========= ========= =========== ===========
Total return++ .................................................. 26.97% 27.57% 10.10%++ 5.00%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ..................................................... 0.86% 0.77% 0.63%+ 1.03%+
Net investment income .......................................... 0.31% 1.15% 1.75%+ 2.16%+
Portfolio turnover .............................................. 135% 129% 52% 101%
Net assets, end of year (000 omitted) ........................... $ 190,712 $ 87,744 $ 16,700 $ 8,493
<CAPTION>
International Growth Series
------------------------------------------------
Year Year Period
Ended Ended Ended
December 31, December 31, December 31,
1998 1997 1996*
Per share data (for a share outstanding throughout each period): ------------ ------------ -------------
<S> <C> <C> <C>
Net asset value -- beginning of period ................................ $ 9.6480 $ 9.8213 $ 10.0000
--------- --------- ----------
Income from investment operations# --
Net investment income[sec] ........................................... $ 0.0843 $ 0.1201 $ 0.0748
Net realized and unrealized gain (loss) on investments and foreign
currency ............................................................ 0.1060 (0.2747) ( 0.2535)
--------- --------- ----------
Total from investment operations ................................... $ 0.1903 $(0.1546) $ (0.1787)
--------- --------- ----------
Less distributions declared to shareholders --
From net investment income ........................................... $ (0.1077) $(0.0187) $ --
From net realized gain on investments and foreign currency
transactions ........................................................ -- -- --
--------- --------- ----------
Total distributions declared to shareholders ....................... $ (0.1077) $(0.0187) $ --
--------- --------- ----------
Net asset value -- end of period ...................................... $ 9.7306 $ 9.6480 $ 9.8213
========= ========= ==========
Total return++ ........................................................ 1.94% (1.64)% (1.70)%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ........................................................... 1.32% 1.11% 1.56%+
Net investment income ................................................ 0.86% 1.23% 1.47%+
Portfolio turnover .................................................... 77% 261% 3%
Net assets, end of year (000 omitted) ................................. $ 35,681 $ 23,401 $ 5,525
</TABLE>
*For the period from the commencement of the Series' investment operations,
June 3, 1996, through December 31, 1996.
**For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent. The Series' expenses are
calculated without reduction for this expense offset arrangement.
++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 Capital Opportunities Series and International Growth Series
for certain of the periods indicated. In addition, the investment adviser
agreed to maintain the expenses of the Capital Opportunities Series and
International Growth Series at not more than 1.00% and 1.50% of average
daily net assets, respectively, for certain of the periods indicated. With
respect to the Equity Income Series, the investment adviser agreed to
maintain the expenses, exclusive of investment advisory fees, at not more
than 0.25% of average daily net assets for the period indicated. If these
fees had been incurred and/or to the extent actual expenses were
over/under these limitations, the net investment income per share and the
ratios would have been:
<TABLE>
<CAPTION>
Equity
Income
Capital Opportunities Series Series International Growth Series
----------------------------- ----------- ------------------------------
Year Period Period Year Period
Ended Ended Ended Ended Ending
December 31, December 31, December 31, December 31, December 31,
1997 1996* 1998** 1997 1996*
-------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net investment income .......... $ 0.1296 $ 0.0537 $ 0.1070 $ 0.1036 $ 0.0265
Ratios (to average net assets):
Expenses## .................... 0.90% 1.35%+ 1.51%+ 1.28% 2.50%+
Net investment income ......... 1.03% 1.02%+ 1.68%+ 1.06% 0.46%+
</TABLE>
See notes to financial statements
30
<PAGE>
MFS/Sun Life Series Trust
Financial Highlights -- continued
<TABLE>
<CAPTION>
Massachusetts
Investors New
Growth Stock Discovery
Series Series
--------------- -----------
Period Period
Ended Ended
December 31, December 31
1998** 1998**
Per share data (for a share outstanding throughout each period): --------------- -----------
<S> <C> <C>
Net asset value -- beginning of period ................................ $10.0000 $ 10.0000
-------- -----------
Income from investment operations# --
Net investment income (loss)[sec] .................................... $(0.0001) $ (0.0273)
Net realized and unrealized gain (loss) on investments and foreign
currency ............................................................ 2.0805 $ 0.6505
-------- -----------
Total from investment operations ................................... $ 2.0804 $ 0.6232
-------- -----------
Less distributions declared to shareholders --
From net investment income ........................................... $ -- $ --
From net realized gain on investments and foreign currency
transactions ........................................................ -- --
-------- -----------
Total distributions declared to shareholders ....................... $ -- $ --
-------- -----------
Net asset value -- end of period ...................................... $12.0804 $ 10.6232
======== ===========
Total return++ ........................................................ 20.70%++ 6.20%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ........................................................... 0.97%+ 1.28%+
Net investment income (loss) ......................................... -- (0.44)%+
Portfolio turnover .................................................... 66% 69%
Net assets, end of period (000 omitted) ............................... $ 81,237 $ 13,280
<CAPTION>
Research
Research Growth and International
Income Series Series
------------------------------ ---------------
Year Period Period
Ended Ended Ended
December 31, December 31, December 31,
1998 1997*** 1998**
Per share data (for a share outstanding throughout each period): ------------- ------------- --------------
<S> <C> <C> <C>
Net asset value -- beginning of period ................................ $ 11.0208 $10.0000 $ 10.0000
--------- -------- ----------
Income from investment operations# --
Net investment income (loss)[sec] .................................... $ 0.1170 $ 0.0821 $ 0.0043
Net realized and unrealized gain (loss) on investments and foreign
currency ............................................................ 2.3163 0.9387 ( 0.5852)
--------- -------- ----------
Total from investment operations ................................... $ 2.4333 $ 1.0208 $ (0.5809)
--------- -------- ----------
Less distributions declared to shareholders --
From net investment income ........................................... $ (0.0150) $ -- $ --
From net realized gain on investments and foreign currency
transactions ........................................................ (0.0493) -- --
--------- -------- ----------
Total distributions declared to shareholders ....................... $ (0.0643) $ -- $ --
--------- -------- ----------
Net asset value -- end of period ...................................... $ 13.3898 $11.0208 $ 9.4191
========= ======== ==========
Total return++ ........................................................ 22.13% 10.20%++ (5.80)%++
Ratios (to average net assets)/Supplemental data[sec]:
Expenses## ........................................................... 0.95% 1.54%+ 1.55%+
Net investment income (loss) ......................................... 0.96% 1.19%+ 0.07%+
Portfolio turnover .................................................... 122% 29% 59%
Net assets, end of period (000 omitted) ............................... $ 39,152 $ 6,540 $ 3,519
</TABLE>
**For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
***For the period from the commencement of the Series' investment operations,
May 13, 1997, through December 31, 1997.
+Annualized.
++Not annualized.
#Per share data are based on average shares outstanding.
##The Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its Custodian and dividend disbursing agent. The Series' expenses are
calculated without reduction for this expense offset arrangement.
++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 agreed to maintain the expenses of the New
Discovery Series and Research International Series, exclusive of
investment advisory fees, at not more than 0.35% and 0.50%, respectively,
of average daily net assets. The investment adviser agreed to maintain the
expenses of the Research Growth and Income Series at not more than 1.50%
of average daily net assets. To the extent actual expenses were over these
limitations, the net investment income (loss) per share and the ratios
would have been:
<TABLE>
<CAPTION>
New Research
Discovery Research Growth and International
Series Income Series Series
------------------ --------------------- ------------------
Period Period Period
Ended Ended Ended
December 31, December 31, December 31,
1998** 1997*** 1998**
------------------ --------------------- ------------------
<S> <C> <C> <C>
Net investment income (loss) .......... $ (0.0470) $ 0.0614 $ (0.1301)
Ratios (to average net assets):
Expenses## ........................... 1.60%+ 1.83%+ 3.86%+
Net investment income (loss) ......... (0.76)%+ 0.84%+ (2.24)%+
</TABLE>
See notes to financial statements
31
<PAGE>
MFS/Sun Life Series Trust
Notes to Financial Statements
(1) Business and 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 twenty-six separate Series (the Series) of
shares: Bond Series, Capital Appreciation Series, Capital Opportunities
Series*, Conservative Growth Series, Emerging Growth Series, Equity Income
Series*, Government Securities Series, High Yield Series, International Growth
Series*, International Growth and Income Series, Managed Sectors Series, Money
Market Series, Massachusetts Investors Growth Stock Series*, MFS/Foreign &
Colonial Emerging Markets Series, New Discovery Series*, Research Series,
Research Growth and Income Series*, Research International Series*, Strategic
Income Series, Total Return Series, Utilities Series, World Asset Allocation
Series, World Governments Series, World Growth Series, World Total Return
Series, and Zero Coupon Series 2000 Portfolio. The Managed Sectors Series,
Utilities Series, and World Growth 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.
The Series denoted with an asterisk above are included within these financial
statements.
(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 reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using 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 foreign currency and translated into U.S. dollars at the
closing daily exchange rate. 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.
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 results from fluctuations in foreign currency exchange rates
is not separately disclosed.
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 may 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. Each Series 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 as unrealized until the contract
settlement date. On contract settlement date, the gains or losses are recorded
as realized gains or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All discount
is accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the
security on such date.
Fees Paid Indirectly - Each Series' custody fee is calculated as a percentage
of each Series' month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
each Series. This amount is shown as a reduction of expenses on the Statements
of Operations.
Tax Matters and Distributions - Each Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its income,
including any net realized gain on investments. Accordingly, no provision for
federal income or excise tax is provided.
32
<PAGE>
Notes to Financial Statements -- continued
Each Fund files a tax return annually using tax accounting methods required
under provisions of the Code, which may differ from generally accepted
accounting principles, the basis on which these financial statements are
prepared. Accordingly, the amount of net investment income and net realized
gain reported on these financial statements may differ from that reported on
the Series' tax return.
Distributions to shareholders are recorded on the ex-dividend date. The Series
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 tax 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 net realized gains. During
the year ended December 31, 1998, the following amounts were reclassified due
to differences between book and tax accounting for currency transactions and
the offset of net investment loss against short-term capital gains. These
changes had no effect on the net assets or net asset values per share.
<TABLE>
<CAPTION>
Massachusetts
Capital Equity International Investors
Opportunities Income Growth Growth Stock
Increase (decrease): Series Series Series Series
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paid-in capital ................................ $ -- $ -- $ (6,422) $ --
Accumulated undistributed net realized gain on
investments and foreign currency transactions . (1,219) 454 (141,322) (286)
Accumulated undistributed net investment income 1,219 (454) 147,744 286
</TABLE>
<TABLE>
<CAPTION>
Research
New Growth and Research
Discovery Income International
Increase (decrease): Series Series Series
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paid-in capital ................................ $ -- $ 1,244 $ --
Accumulated undistributed net realized gain on
investments and foreign currency transactions . (17,741) 503 (798)
Accumulated undistributed net investment income 17,741 (1,747) 798
</TABLE>
At December 31, 1998, the following Series, for federal tax purposes, had
capital loss carryforwards which may be applied against any net taxable
realized gains of each succeeding year until the earlier of their utilization
or expiration:
<TABLE>
<CAPTION>
Research
Equity International Growth and Research
Income Growth Income International
Expiration Date Series Series Series Series
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 2004 ................ $ -- $ 7,804 $ -- $ --
December 31, 2005 ................ -- 638,403 -- --
December 31, 2006 ................ 12,613 3,822,955 713,725 73,103
------- ---------- -------- -------
Total ............................ $12,613 $4,469,162 $713,725 $73,103
------- ---------- -------- -------
</TABLE>
(3) Transactions with Affiliates
Investment Adviser - The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS), an indirect 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 annual rate based on a
percentage of each Series' average daily net assets. The agreements also
provide that each Series will be reimbursed for other expenses, exclusive of
investment advisory fees, in excess of the expense limitation indicated below,
based on average net assets of each Series. Investment advisory fees and
expense limitations are as follows:
<TABLE>
<CAPTION>
Investment Expense
Advisory Fees Limitations
- --------------------------------------------------------------------------------------
<S> <C> <C>
Capital Opportunities Series ........................ 0.75%* N/A
Equity Income Series ................................ 0.75% 0.25%
International Growth Series ......................... 0.975%* N/A
Massachusetts Investors Growth Stock Series ......... 0.75% N/A
New Discovery Series ................................ 0.90% 0.35%
Research Growth and Income Series ................... 0.75% N/A
Research International Series ....................... 1.00% 0.50%
</TABLE>
*The investment advisory fee for the Capital Opportunities Series is 0.75% of
the first $300 million of average net assets and 0.675% of the average net
assets in excess of $300 million. The investment advisory fee for the
International Growth Series is 0.975% of the first $500 million of average net
assets and 0.925% of the average net assets in excess of $500 million.
Administrator - The Trust has an administrative services agreement with MFS to
provide each Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, each Series pays MFS an administrative
fee at the following annual percentages of each Series' average daily net
assets:
<TABLE>
<S> <C>
First $1 billion ................ 0.0150%
Next $1 billion ................. 0.0125%
Next $1 billion ................. 0.0100%
In excess of $3 billion ......... 0.0000%
</TABLE>
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 officers and Trustees of the Trust are
officers or directors of MFS or Sun Life Assurance Company of Canada.
33
<PAGE>
Notes to Financial Statements -- continued
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
Massachusetts
Capital Equity International Investors
Opportunities Income Growth Growth Stock
Series Series Series Series
--------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Purchases
U.S. government securities ........................... $ 3,159,545 $ 109,349 $ -- $ 1,826,803
============ =========== =========== ===========
Investments (non-U.S. government securities) ......... $237,725,515 $11,085,244 $34,243,021 $77,126,471
============ =========== =========== ===========
Sales
U.S. government securities ........................... $ 174,212 $ 30,334 $ -- $ 368,125
============ =========== =========== ===========
Investments (non-U.S. government securities) ......... $176,374,558 $ 3,669,599 $21,983,483 $23,295,266
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Research
New Growth and Research
Discovery Income International
Series Series Series
-------------- -------------- --------------
<S> <C> <C> <C>
Purchases
Investments (non-U.S. government securities) ......... $15,601,194 $52,630,005 $4,108,966
=========== =========== ==========
Sales
Investments (non-U.S. government securities) ......... $ 4,260,838 $24,717,077 $ 973,295
=========== =========== ==========
</TABLE>
The cost and unrealized appreciation or depreciation in value of the
investments owned by each Series, as computed on a federal income tax basis,
are as follows:
<TABLE>
<CAPTION>
Massachusetts
Capital Equity International Investors
Opportunities Income Growth Growth Stock
Series Series Series Series
--------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Aggregate Cost ........................ $156,591,223 $7,962,111 $31,984,966 $68,154,466
============ ========== =========== ===========
Gross unrealized appreciation ......... $ 38,491,519 $ 531,578 $ 4,267,894 $ 9,220,199
Gross unrealized depreciation ......... (6,042,236) (88,273) (860,949) (620,139)
------------ ---------- ----------- -----------
Net unrealized appreciation ........... $ 32,449,283 $ 443,305 $ 3,406,945 $ 8,600,060
============ ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Research
New Growth and Research
Discovery Income International
Series Series Series
-------------- -------------- --------------
<S> <C> <C> <C>
Aggregate Cost ........................ $12,352,911 $34,360,636 $3,372,683
=========== =========== ==========
Gross unrealized appreciation ......... $ 1,759,334 $ 5,540,448 $ 229,110
Gross unrealized depreciation ......... (481,359) (671,160) (125,919)
----------- ----------- ----------
Net unrealized appreciation ........... $ 1,277,975 $ 4,869,288 $ 103,191
=========== =========== ==========
</TABLE>
(5) Shares of Beneficial Interest
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Series shares were as follows:
<TABLE>
<CAPTION>
Capital Opportunities Series
-------------------------------------------------------------
Year Ended December 31, 1998 Year Ended December 31, 1997
-------------------------------- ----------------------------
Shares Amount Shares Amount
-------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold ................................................... 5,887,037 $ 90,663,716 4,923,312 $ 61,333,766
Shares issued to shareholders in reinvestment of distributions 356,806 5,644,667 24,748 287,829
Shares reacquired ............................................. (1,311,033) (19,579,427) (168,345) (2,056,947)
---------- ------------ --------- ------------
Net increase ................................................. 4,932,810 $ 76,728,956 4,779,715 $ 59,564,648
========== ============ ========= ============
<CAPTION>
Equity Income Series
----------------------------
Period Ended December 31,
1998*
----------------------------
Shares Amount
------------- --------------
<S> <C> <C>
Shares sold ................................................... 1,127,326 $ 11,031,585
Shares issued to shareholders in reinvestment of distributions -- --
Shares reacquired ............................................. (318,778) (3,017,698)
--------- ------------
Net increase ................................................. 808,548 $ 8,013,887
========= ============
</TABLE>
<TABLE>
<CAPTION>
International Growth Series
---------------------------------------------------------
Year Ended December 31, 1998 Year Ended December 31, 1997
---------------------------- ----------------------------
Shares Amount Shares Amount
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold ................................................... 1,897,484 $ 18,783,017 2,306,580 $ 22,635,372
Shares issued to shareholders in reinvestment of distributions 29,878 320,369 2,469 24,244
Shares reacquired ............................................. (685,952) (6,550,238) (446,133) (4,273,013)
--------- ------------ --------- ------------
Net increase ................................................. 1,241,410 $ 12,553,148 1,862,916 $ 18,386,603
========= ============ ========= ============
<CAPTION>
Massachusetts
Investors Growth Stock Series
-----------------------------
Period Ended December 31,
1998*
----------------------------
Shares Amount
------------- --------------
<S> <C> <C>
Shares sold ................................................... 7,265,156 $ 75,248,664
Shares issued to shareholders in reinvestment of distributions -- --
Shares reacquired ............................................. (540,433) (5,759,463)
--------- ------------
Net increase ................................................. 6,724,723 $ 69,489,201
========= ============
</TABLE>
*For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
34
<PAGE>
Notes to Financial Statements -- continued
<TABLE>
<CAPTION>
New Discovery Series Research Growth and Income Series
---------------------------- -----------------------------------------------------
Period Ended
Period Ended December 31, 1998* Year Ended December 31, 1998 December 31, 1997**
------------------------------- ---------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------- -------------- ------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ........................... 1,417,260 $ 13,467,733 2,861,443 $ 34,710,918 625,995 $6,579,170
Shares issued to shareholders
in reinvestment of distributions ..... -- -- 6,598 82,017 -- --
Shares reacquired ..................... (167,171) (1,614,328) (537,463) (6,240,119) (32,574) (338,886)
--------- ------------ --------- ------------ ------- ----------
Net increase ......................... 1,250,089 $ 11,853,405 2,330,578 $ 28,552,816 593,421 $6,240,284
========= ============ ========= ============ ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Research International Series
-------------------------------
Period Ended December 31, 1998*
-------------------------------
Shares Amount
----------- ------------
<S> <C> <C>
Shares sold ............... 438,632 $4,037,966
Shares reacquired ......... (64,996) (550,368)
------- ----------
Net increase ............. 373,636 $3,487,598
======= ==========
</TABLE>
*For the period from the commencement of the Series' investment operations,
May 6, 1998, through December 31, 1998.
**For the period from the commencement of the Series' investment operations,
May 13, 1997, through December 31, 1997.
(6) Line of Credit
The Trust and other affiliated funds participate in an $805 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series shares. Interest is charged to each Series, based on its borrowings, at
a rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fees allocated
to each Series for the year ended December 31, 1998, are as follows;
<TABLE>
<CAPTION>
Commitment
Fee
-----------
<S> <C>
Capital Opportunities Series ........................ $600
Equity Income Series ................................ --
International Growth Series ......................... 128
Massachusetts Investors Growth Stock Series ......... --
New Discovery Series ................................ --
Research Growth and Income Series ................... 120
Research International Series ....................... --
</TABLE>
Certain Series and other affiliated funds also participate in a $20 million
uncommitted, unsecured line of credit provided by State Street Bank and Trust
Company under a line of credit agreement. Borrowings may be made to temporarily
finance the purchase of securities, the redemption of shares, or emergency
expenses.
(7) Financial Instruments
Certain Series of the Trust may trade financial instruments with
off-balance-sheet risk in the normal course of its investing activities in
order to manage exposure to market risks such as interest rates and foreign
currency exchange rates. These financial instruments include forward foreign
currency exchange contracts. The notional or contractual amounts of these
instruments represent the investment the Series has in particular classes of
financial instruments and does 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.
Forward foreign currency purchases and sales under master netting agreements
amounted to net payables of $48,947 and $4,895, with Merrill Lynch, for the
Capital Opportunities Series and International Growth Series, respectively, at
December 31, 1998.
At December 31, 1998, each Series had sufficient cash and/or securities to
cover any commitments under these contracts.
(8) 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, 1998, the Research International Series owned the
following restricted security (constituting 0.92% of net assets) which may not
be publicly sold without registration under the Securities Act of 1933. The
Series does not have the right to demand that such security be registered. The
value of this security is determined by valuations furnished by dealers or by a
pricing service, or if not available, are valued at fair value as determined in
good faith by or at the direction of the Trustees.
<TABLE>
<CAPTION>
Series Description Date of Acquisition Share Amount Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Research International Series Jarvis Hotels PLC 5/21/98-12/8/98 16,724 $37,626 $32,460
=======
</TABLE>
(9) Name Change
Effective April 30, 1998, Value Series changed its name to Capital
Opportunities Series.
35
<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 Capital Opportunities Series,
Equity Income Series, International Growth Series, Massachusetts Investors
Growth Stock Series, New Discovery Series, Research Growth and Income Series
and Research International Series (each a portfolio of MFS/Sun Life Series
Trust) as of December 31, 1998, the related statements of operations for the
year then ended, the statements of changes in net assets for the years ended
December 31, 1998 and 1997, and the financial highlights for each of the years
in the three-year period ended December 31, 1998. 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, 1998 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 each of the
respective portfolios of the MFS/SunLife Series Trust at December 31, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 4, 1999
36
<PAGE>
Federal Tax Information
The Capital Opportunities Series and Research Growth and Income Series have
designated $56,756 and $9, respectively, as a capital gain dividend.
Dividends Received Deduction
For the year ended December 31, 1998, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations were as
follows.
<TABLE>
<CAPTION>
<S> <C>
Capital Opportunities Series .............. 4.18%
Research Growth and Income Series ......... 16.86%
</TABLE>
Foreign Source Income and Foreign Tax Credit
For the year ended December 31, 1998, income from foreign sources and foreign
taxes withheld were as follows.
<TABLE>
<CAPTION>
Income Taxes
----------- ----------
<S> <C> <C>
International Growth Series ............ $607,952 $60,111
Research International Series .......... 10,233 838
</TABLE>
37
<PAGE>
MFS Prepares for the Year 2000
[Year 2000 Logo]
MFS Investment Management(R) is committed to the effective use of technology in
managing investments, delivering high-quality service to our fund shareholders,
and supporting the financial advisers who sell our products. With that in mind,
we created a separately funded Year 2000 Program Management Office in 1996
composed of a specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arose because date fields in computers and software
applications have traditionally used two-digit codes. Since the dawn of the
computer age, the implied first two digits have been "1" and "9." In the year
2000, that can no longer be the case because computer applications may assume
"00" refers to 1900. Our team of dedicated business and technology managers,
working with outside experts, is taking reasonable steps to ascertain the Y2K
compliance of MFS' internal systems. We are also working with our vendors to
seek reasonable assurances that their systems are or will be compliant.
MFS realizes that investors are also concerned about whether the companies in
the Funds' portfolios are addressing their internal Y2K issues. As MFS'
portfolio managers and research analysts meet with the managements of portfolio
companies as part of the MFS(R)Original ResearchSM process, one of the many
factors they may consider is a company's Y2K preparedness.
Year 2000 compliance is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K phenomenon.
While MFS is making an effort to ensure the integrity of its internal systems,
there are significant systems interdependencies in the domestic and foreign
securities markets, external vendor systems, and the internal business
environments of its portfolio companies. There can be no assurance that the
steps MFS has taken will be sufficient to avoid any adverse impact on the Funds.
However, MFS will continue to review and test its internal systems.
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Year 2000 and Beyond
[SUN LIFE LOGO] Sun Life
Assurance Company
of Canada (U.S.)
The potentional hazard of computers having difficulty dealing with the year 2000
has been widely reported in the media. Essentially, the "Y2K" problem stems from
some computer software being written in a way that will handle only two digits
of a year rather than the full four digits. This becomes a problem when 2000 is
perceived as simply "00", with the result that the computer software interprets
the date as 1900 rather than 2000.
Sun Life began working on this problem in 1995 when a Company strategy for
dealing with the issue was approved by our systems management. It was apparent
that effective support from senior management was a key component to
successfully correcting Sun Life's systems. For this reason, in early 1996 Sun
Life's chairman and CEO delivered a clear mandate to make Y2K a top priority.
Since that time we have inventoried and assessed nearly 2000 systems around the
Company.
The vast majority of Sun Life's systems have already been tested, and, based on
these tests, have been certified as compliant. The current target date for
completion of Sun Life's certification program is the end of the first quarter
of 1999. Even though relatively few Y2K bugs were actually found during
analysis, it has been Sun Life's policy to test every system before it can be
certified as compliant. The price tag for this massive project has been steep --
over $100 million (Cdn). However, we consider the money well spent when it means
that Sun Life can move into the year 2000 and beyond confident that our systems
will support Sun Life's position as a leader in the financial services industry.
The preceding is a Year 2000 Readiness Disclosure pursuant to the Year 2000
Readiness Disclosure Act enacted by the United States Congress on October 19,
1998.
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[Back Cover]
MFS[RegTM]/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 (attorneys),
Boston, Massachusetts
DAVID D. HORN*, Trustee
Former Senior Vice President and General Manager,
Sun Life Assurance Company of Canada,
Boston, Massachusetts
GARTH MARSTON, Trustee
Former Chairman, The Provident Institution for Savings,
Boston, Massachusetts
DERWYN F. PHILLIPS, Trustee
Former Vice Chairman, The Gillette Company,
Marblehead, Massachusetts
WILLIAM R. GUTOW, Trustee
Vice Chairman, Capital Entertainment Management Company,
Real Estate Consultant, Dallas, Texas
J. KERMIT BIRCHFIELD, Trustee
Consultant; Chairman, Display Technology, Inc. (manufacturer of liquid-crystal
display technology); Managing Director, Century Partners, Inc. (investments),
Gloucester, Massachusetts
Officers+
JAMES R. BORDEWICK, Assistant Secretary
MARK E. BRADLEY, Assistant Treasurer
STEPHEN E. CAVAN, Secretary and Clerk
W. THOMAS LONDON, Treasurer
ELLEN MOYNIHAN, Assistant Treasurer
JAMES O. YOST, Assistant Treasurer
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+
JEAN ALESSANDRO
DAVID A. ANTONELLI
ARNAB KUMAR BANERJI
JOHN F. BRENNAN, JR.
STEPHEN C. BRYANT
DAVID M. CALABRO
JEFFREY CHOWDHRY
CHRISTIAN A. FELIPE
GEOFFREY L. KURINSKY
JOHN D. LAUPHEIMER, JR.
DAVID R. MANNHEIM
PAUL M. McMAHON
ALEC C. MURRAY
STEVEN E. NOTHERN
LISA B. NURME
KEVIN R. PARKE
BERNARD A. SCOZZAFAVA
MAURA A. SHAUGHNESSY
TONI Y. SHIMURA
FREDERICK J. SIMMONS
BRIAN E. STACK
JAMES T. SWANSON
(on behalf of the MFS World
Asset Allocation Committee)
*Affiliated with the Sponsor.
+Affiliated with the Investment Adviser. SUN-2C 2/99 192M
