<PAGE>
[Logo] M F S(SM)
INVESTMENT MANAGEMENT
We invented the mutual fund(SM)
MFS(R) INTERNATIONAL
GROWTH AND INCOME FUND
(formerly MFS(R)/Foreign & Colonial
International Growth and Income Fund)
ANNUAL REPORT o MAY 31, 1998
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Now two MFS(R) IRA choices (see page 32)
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IN MEMORIAM
A. KEITH BRODKIN
1935 - 1998
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MFS(R) INVESTMENT MANAGEMENT(SM)
- --------------------------- On February 2, 1998, Keith Brodkin, a friend
and leader to everyone at MFS, died
[Photo of A. Keith Brodkin] unexpectedly at age 62. His thoughtful
letters to shareholders on the markets and
- --------------------------- economy have been an integral part of
MFS shareholder reports like this one for many years.
Keith joined MFS in 1970 as the firm's first fixed-income manager,
managing the bond portion of MFS(R) Total Return Fund. He went on to
manage our first pure bond fund, MFS(R) Bond Fund, when it was introduced
in 1974, and he was considered a pioneer in the art of active bond
management.
Keith was named President and Chief Investment Officer of MFS in 1987 and
four years later became Chairman and Chief Executive Officer. During his
stewardship, MFS has achieved significant growth in total assets under
management, rising from some $25 billion in 1991 to the over $80 billion
today entrusted to us by three million individual and institutional
investors worldwide. Under Keith's leadership, MFS has carefully but
steadily built its domestic and international investment capabilities
through the introduction of a range of new products and a still-growing
staff that now numbers over 100 equity and fixed-income professionals.
Throughout his career, Keith was very active in a wide range of charitable
endeavors. He is survived by his wife and three children.
His leadership, friendship, and wise counsel will be sorely missed.
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TABLE OF CONTENTS
Letter from the Chairman .................................................. 2
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 12
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 23
Independent Auditors' Report .............................................. 30
Trustees and Officers ..................................................... 33
HIGHLIGHTS
o FOR THE 12 MONTHS ENDED MAY 31, 1998, CLASS A SHARES OF THE FUND PROVIDED A
TOTAL RETURN AT NET ASSET VALUE OF 21.77%, CLASS B SHARES 21.26%, CLASS C
SHARES 21.15%, AND CLASS I SHARES 22.08%. (SEE PERFORMANCE SUMMARY FOR MORE
INFORMATION.)
o THE FUND HAS BENEFITED FROM ITS HEAVY WEIGHTING IN EUROPEAN STOCKS. EUROPE
HAS BENEFITED FROM PEOPLE'S VIEWS OF IT AS A SAFE HAVEN FROM THE
ASIA/PACIFIC AREA, INCLUDING JAPAN.
o THE BETTER-PERFORMING EUROPEAN COUNTRIES INCLUDE SOME OF THE SMALLER ONES
SUCH AS SWEDEN, THE NETHERLANDS, ITALY, AND PORTUGAL. INTERNATIONAL
COMPANIES IN SWEDEN AND THE NETHERLANDS ARE DOING PARTICULARLY WELL.
o IN SEPTEMBER 1997, THE FUND CHANGED ITS NAME FROM MFS(R)/FOREIGN &
COLONIAL INTERNATIONAL GROWTH AND INCOME FUND TO MFS(R) INTERNATIONAL
GROWTH AND INCOME FUND.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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LETTER FROM THE CHAIRMAN
- ----------------------------
[Photo of Jeffrey L. Shames]
- ----------------------------
Jeffrey L. Shames
Dear Shareholders:
With the U.S. stock market well into its fourth year of record-breaking
advances, it is necessary to take a cautious outlook. By most commonly accepted
measures, equity valuations appear to have risen to a point at which the stock
market has become more vulnerable to changes in the investment environment such
as rising inflation and interest rates or a slowing economy. As a result, while
we continue to hold a favorable long-term outlook for the equity markets, we
also believe that a market correction is possible in the near term. In such a
correction, equity prices would remain relatively flat or decline, possibly for
an extended period.
Currently, equity investors seem to be primarily focused on interest rates,
which have been relatively stable for several months as inflation has remained
low. In an environment of low interest rates, stocks become more attractive
than most fixed-income investments, while low inflation helps control
companies' costs, such as for raw materials, wages, and benefits. The near-
term outlook for a continuation of this environment appears relatively
favorable. However, this year has seen a marked slowdown in corporate
earnings. This means that as equity prices continue to rise, price-to-earnings
(P/E) ratios, or the amount an investor pays for a stock in relation to the
company's earnings per share, also go up. A year ago, the average P/E ratio
for stocks in the unmanaged Standard & Poor's 500 Composite Index stood at
approximately 21; this spring, the average P/E was 33% higher, at about 28. In
some cases, such as with some of the newer companies associated with the
Internet, P/Es have soared to levels that are unlikely to be sustained.
As long as interest rates remain low and the economy continues to grow,
it is possible that some of these valuations can be supported. We expect
corporate earnings to grow 8% to 10% this year. However, just as no one can
predict market cycles, so too no one can predict economic cycles -- except to
say that these cycles do exist and that an economic slowdown at some point is
inevitable.
Given this reality, we believe it is prudent to remind investors of the need
to take a long-term view and to diversify their investments across a range of
asset classes, including mutual funds that focus on bonds and international
investments as well as on the U.S. stock market. The likelihood of an eventual
market correction also makes it important for us to use original, bottom-up
research to find companies that we think can keep growing or gain market share
in the face of the occasional downturn. To help achieve this, and to provide
the broadest possible coverage of industry sectors and individual companies,
MFS continues to increase its number of full-time research analysts. These
analysts thoroughly investigate each company's earnings potential and position
in its industry as well as the overall prospects for that industry.
MFS also uses active portfolio management on the fixed-income side, taking
advantage of our extensive research and credit analysis to help reduce the
potential for price declines and enhance the opportunity for appreciation.
Every year, both fixed-income and equity managers meet with thousands of
credit issuers and companies. They also attend many presentations, closely
follow sources of industry research, and keep track of competitors.
We believe that applying this discipline of thorough, bottom-up research
to both the equity and fixed-income markets is the best way to provide
favorable long-term performance for our shareholders -- regardless of changes
in the overall market environment.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management
June 12, 1998
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JEFFREY L. SHAMES, A GRADUATE OF WESLEYAN UNIVERSITY AND THE
MASSACHUSETTS INSTITUTE OF TECHNOLOGY SLOAN SCHOOL OF MANAGEMENT, JOINED
MFS IN 1983. AFTER FOUR YEARS AS AN INDUSTRY ANALYST AND PORTFOLIO
MANAGER, HE WAS NAMED CHIEF EQUITY OFFICER IN 1987 AND PRESIDENT AND A
MEMBER OF THE BOARD OF DIRECTORS IN 1993. MR. SHAMES WAS APPOINTED
CHAIRMAN AND CHIEF EXECUTIVE OFFICER IN FEBRUARY 1998.
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MANAGEMENT REVIEW AND OUTLOOK
- -------------------------------
[Photo of Frederick J. Simmons]
- -------------------------------
Frederick J. Simmons
For the 12 months ended May 31, 1998, Class A shares of the Fund provided a
total return of 21.77%, Class B shares 21.26%, Class C shares 21.15%, and Class
I shares 22.08%. These returns assume the reinvestment of distributions but
exclude the effects of any sales charges, and they compare to returns of 15.24%
for the Lipper International Funds Index (an unmanaged index of funds with
similar investment objectives) and 9.37% for a blend (70% and 30%, respectively)
of the Morgan Stanley Capital International (MSCI) Europe, Australia, Far East
(EAFE) Index and the J.P. Morgan Global Bond Index (the Morgan Index). The MSCI
EAFE Index is 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, while the Morgan Index is an unmanaged
index of bonds issued by 13 countries, excluding the United States, with
remaining maturities of at least one year.
Q. COULD YOU TALK ABOUT SOME THINGS THAT HAVE CONTRIBUTED TO THE FUND'S
PERFORMANCE THIS YEAR?
A. One thing that has helped is our very heavy weighting in European stocks.
Europe has benefited from people's views of it as a safe haven from the
Asia/Pacific area. Also, Europe looks relatively good due to strong earnings
growth in several countries there. The Fund also benefited from its light
weighting in the Far East, especially in Japan, and minimal exposure to
emerging markets. (Investments in foreign and emerging market securities may
provide superior returns but also involve greater risk than U.S.
investments.)
Q. SO COUNTRIES AND COMPANIES IN EUROPE ARE SIMPLY PERFORMING WELL, REGARDLESS
OF WHAT'S HAPPENING IN ASIA.
A. That's right. The better-performing countries include some of the smaller
ones such as Sweden, the Netherlands, Italy, and Portugal. International
companies in Sweden and the Netherlands are doing particularly well. Good
individual company performance has come from Pinault Printemps, a French
department store chain; Compass Group PLC, a British food caterer; Henkel
KGAA, a German consumer products company; British Aerospace PLC; Skandia
Forsakring, a Swedish insurance company; Banco Totta & Acores, a Portuguese
bank; INA, an Italian insurance company; and Television Francaise, a French
television company.
Q. ANY POSITIONS THAT HAVE NOT DONE SO WELL?
A. Wharf Holdings and Wing Hang Bank in Hong Kong have both hurt performance, as
has Korea Electric Power. Basically, the good companies are all in Europe,
and the bad ones are all in Asia.
Q. YOU'VE TALKED ABOUT COUNTRIES AND COMPANIES THAT HAVE HELPED THE FUND. WHAT
OTHER CHARACTERISTICS DO YOU LOOK FOR?
A. The companies that we invest in tend to have steady earnings. This applies to
consumer staples, financial services, telecommunications, and energy
companies. The only sector with a heavy weighting that doesn't fit this
pattern is technology. Even there, the technology companies in the Fund tend
to be cellular equipment manufacturers such as Ericsson, as opposed to the
more volatile semiconductors. In fact, we don't own any semiconductor stocks
because they are so volatile.
Q. THE FUND IS CONCENTRATED IN EUROPE, YET THE THIRD-LARGEST HOLDING IS CANADIAN
NATIONAL RAILWAY. WHY IS THAT ATTRACTIVE?
A. That's just a wonderful success story of a company that's been freed up from
government constraints and allowed to do business as well as it can. As a
result, its earnings have been excellent, surpassing everyone's expectations.
Q. YOU'VE MADE SOME SIGNIFICANT CHANGES IN THE PORTFOLIO THIS YEAR. COULD YOU
TALK ABOUT SOME OF THEM?
A. When we took over management of this Fund last September, we sold about 80%
of the stock holdings and replaced them with stocks that were in other,
somewhat similar MFS funds. So the Fund went through an inordinate
transformation. Since then, the changes have been quite minimal, which is
characteristic of the way we manage funds; that is, turnover tends to be
relatively modest. Also, the Fund had been much more heavily involved in
Asia, including Japan, than it is now.
Q. COULD YOU TALK ABOUT THE FUND'S INVESTMENT STRATEGY?
A. We manage the Fund on a bottom-up basis; that is, we approach each stock as a
potential purchase candidate, as opposed to a top-down approach that develops
an overview of broad economies and markets, then picks stocks based on that
overview. Although both approaches use a little of each method, we feel the
difference in emphasis is important, and we believe in the long-term benefits
of our bottom-up approach.
Q. WHAT WOULD YOU SAY IS THE BIGGEST RISK TO THE MARKETS AND THE FUND IN COMING
MONTHS?
A. The biggest risk would be from people deciding that the European markets have
gone up about as far as they can for the time being and that they're too
expensive.
Q. DO YOU THINK THAT'S A REALISTIC CONCERN?
A. Well, the earnings have to come through in a strong fashion, or else that
could be a problem. But Europe and the United States still appear to be the
most attractive places to be invested right now, and for more than just
earnings reasons. The companies and the overall investment environments are
much more stable in Europe and the United States than in Asia, for example.
Q. LOOKING AHEAD, WHAT KIND OF MARKET OR ECONOMIC ENVIRONMENT DO YOU EXPECT, AND
HOW MIGHT THIS AFFECT SOME OF YOUR INVESTMENT DECISIONS FOR THE FUND?
A. We think the companies in the Fund are going to benefit from low inflation
and low interest rates, although it is possible we'll have some minor
increases in interest rates in these economies, particularly if the United
States gets much stronger. But we think any increase in interest rates will
be modest and won't bring on too much of a slowdown, if any.
Q. DO YOU THINK THAT AS EUROPE MOVES CLOSER TO AND BEYOND ECONOMIC UNION, THE
BENEFITS KEEP INCREASING?
A. In some individual cases, it may be disruptive, but it's still a monumental
achievement. At first, the lack of familiarity with new rules and regulations
will inhibit companies, but after a while that shouldn't be a problem, and we
think the benefits for European economies and companies will be profound.
/s/ Frederick J. Simmons
Frederick J. Simmons
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
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PORTFOLIO MANAGER'S PROFILE
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FREDERICK J. SIMMONS IS A SENIOR VICE PRESIDENT OF MFS(R) INVESTMENT
MANAGEMENT(SM) AND PORTFOLIO MANAGER OF MFS(R) WORLD TOTAL RETURN FUND,
MFS(R) INTERNATIONAL GROWTH AND INCOME FUND, MFS(R) MERIDIAN(SM) WORLD TOTAL
RETURN FUND, AND THE WORLD TOTAL RETURN SERIES AND INTERNATIONAL GROWTH AND
INCOME SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. HE ALSO
MANAGES THE NOMURA GLOBAL BALANCED OPEN FUND AND THE NOMURA GN GLOBAL TOTAL
RETURN FUND UNDER SUBADVISORY AGREEMENTS WITH NOMURA ASSET MANAGEMENT CO. OF
JAPAN.
MR. SIMMONS JOINED MFS IN 1971 AS AN INVESTMENT OFFICER IN THE RESEARCH
DEPARTMENT AND WAS NAMED ASSISTANT VICE PRESIDENT -- INVESTMENTS IN 1974,
VICE PRESIDENT -- INVESTMENTS IN 1975, AND SENIOR VICE PRESIDENT IN 1983. HE
WAS NAMED PORTFOLIO MANAGER OF MFS(R) WORLD TOTAL RETURN FUND IN 1991.
PREVIOUSLY, HE WAS PORTFOLIO MANAGER OF MFS(R) RESEARCH FUND AND OF
MASSACHUSETTS INVESTORS GROWTH STOCK FUND.
MR. SIMMONS GRADUATED WITH HONORS FROM THE AMOS TUCK SCHOOL OF BUSINESS
ADMINISTRATION OF DARTMOUTH COLLEGE. HE IS A CHARTERED FINANCIAL ANALYST, A
MEMBER OF THE BOSTON SECURITY ANALYSTS SOCIETY, INC., AND PAST PRESIDENT OF
THE ELECTRONIC ANALYSTS OF BOSTON.
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This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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NOTE: THE FUND CHANGED ITS NAME FROM MFS/FOREIGN & COLONIAL
INTERNATIONAL GROWTH AND INCOME FUND TO MFS INTERNATIONAL GROWTH
AND INCOME FUND AS OF SEPTEMBER 8, 1997.
OBJECTIVE: THE FUND SEEKS BOTH CAPITAL APPRECIATION AND CURRENT
INCOME BY INVESTING PRIMARILY IN EQUITY SECURITIES OF
ISSUERS WHOSE PRINCIPAL ACTIVITIES ARE OUTSIDE THE
UNITED STATES.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 24, 1995
CLASS INCEPTION: CLASS A OCTOBER 24, 1995
CLASS B OCTOBER 24, 1995
CLASS C JULY 1, 1996
CLASS I JANUARY 2, 1997
SIZE: $34.9 MILLION NET ASSETS AS OF MAY 31, 1998
PERFORMANCE SUMMARY
The information below and on the following page illustrates the historical
performance of MFS International Growth and Income Fund -- Class A shares in
comparison to various market indicators. Class A share performance results
reflect the deduction of the 4.75% maximum sales charge; benchmark comparisons
are unmanaged and do not reflect any fees or expenses. The performance of
other share classes will be greater than or less than the line shown, based on
the differences in charges and fees paid by shareholders investing in
different classes. It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from November 1, 1995, through May 31, 1998)
MFS International Lipper 70% MSCI EAFE Index\ Consumer
Growth and International 30% J.P. Morgan Price
Income Fund Fund Global Bond Index
Class A Index Index -- U.S.
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11/95 $ 9,530 $10,100 $10,220 $10,000
5/96 10,160 11,200 10,790 10,180
5/97 10,460 12,940 11,470 10,420
5/98 12,731 14,908 12,545 10,592
AVERAGE ANNUAL TOTAL RETURNS THROUGH MAY 31, 1998
CLASS A INVESTMENT RESULTS
(net asset value change including reinvested distributions)
1 Year 10 Years/Life*
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Average Annual Total Return +21.77% +11.80%
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SEC Results +15.98% + 9.73%
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CLASS B INVESTMENT RESULTS
(net asset value change including reinvested distributions)
1 Year 10 Years/Life*
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Average Annual Total Return +21.26% +11.25%
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SEC Results +17.26% +10.28%
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CLASS C INVESTMENT RESULTS
(net asset value change including reinvested distributions)
1 Year 10 Years/Life*
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Average Annual Total Return +21.15% +11.49%
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SEC Results +20.15% +11.49%
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CLASS I INVESTMENT RESULTS
(net asset value change including reinvested distributions)
1 Year 10 Years/Life*
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Average Annual Total Return +22.08% +12.10%
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COMPARATIVE INDICES
1 Year 10 Years/Life*
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Lipper International Fund Index** +15.24% +16.72%
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70% MSCI EAFE Index/30% J.P. Morgan Global
Bond Index** + 9.37% + 9.17%
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Consumer Price Index+ + 1.70% + 2.37%
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* For the period from the commencement of the Fund's investment operations,
October 24, 1995, through May 31, 1998.
** Source: Lipper Analytical Services, Inc.
+ Source: CDA/Wiesenberger. The Consumer Price Index is published by the U.S.
Bureau of Labor Statistics and measures the cost of living (inflation).
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
C results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of C. Operating expenses of C
are not significantly different than those of B. The B performance included in
the C SEC performance has been adusted to reflect the CDSC generally
applicable to C rather than the CDSC generally applicable to B.
I results include the performance and the operating expenses (e.g.,
Rule 12b-1 fees) of B for periods prior to the inception of I. Because
operating expenses of B are greater than those of I, I performance generally
would have been higher than B performance. The B performance included in the I
performance has been adjusted to reflect the fact that I have no CDSC.
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. All
results are historical and assume the reinvestment of dividends and
capital gains.
Investment return and principal value will fluctuate, and shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results.
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 share price volatility.
<PAGE>
PORTFOLIO CONCENTRATION AS OF MAY 31, 1998
FIVE LARGEST STOCK SECTORS
CONSUMER STAPLES 13.0%
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FINANCIAL SERVICES 11.4%
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UTILITIES & COMMUNICATIONS 10.6%
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TECHNOLOGY 9.7%
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ENERGY 9.0%
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For a more complete breakdown, refer to the Portfolio of Investments.
TOP 10 STOCK HOLDINGS
PINAULT PRINTEMPS REDOUTE S.A. 3.4% BRITISH PETROLEUM PLC 2.6%
French department store chain Oil exploration and production
company
COMPASS GROUP PLC 3.3%
British commercial food catering BRITISH AEROSPACE PLC 2.5%
company British defense and aircraft company
CANADIAN NATIONAL RAILWAY CO. 2.9% SKANDIA FORSAKRING 2.5%
Railway/transportation company Swedish insurance company
HENKEL KGAA 2.7% ROYAL DUTCH PETROLEUM CO. 2.0%
German consumer products company Oil exploration and production
company
IBERDROLA S.A. 2.7%
Spanish electric utility CANON, INC. 2.0%
Japanese office equipment and
imaging company
<PAGE>
PORTFOLIO OF INVESTMENTS -- May 31, 1998
<TABLE>
Stocks - 95.6%
<CAPTION>
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ISSUER SHARES VALUE
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<S> <C> <C>
Foreign Stocks - 92.9%
Australia - 2.0%
QBE Insurance Group Ltd. (Insurance) 102,331 $ 419,320
Seven Network Ltd. (Entertainment) 84,326 287,511
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$ 706,831
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Austria - 0.5%
Austria Tabak AG (Tobacco) 2,953 $ 185,723
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Brazil - 0.3%
Companhia Paranaense de Energia, ADR (Utilities - Electric) 12,427 $ 123,493
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Canada - 2.8%
Canadian National Railway Co. (Railroads) 16,564 $ 979,346
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Chile - 0.5%
Enersis S.A., ADR (Utilities - Electric) 6,967 $ 176,788
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Finland - 0.7%
Huhtamaki Oy Group (Conglomerate) 4,643 $ 255,924
Sponda Oyj (Real Estate)* 1,100 7,097
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$ 263,021
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France - 10.8%
Elf Aquitaine S.A. (Oils) 2,214 $ 307,433
Pinault Printemps Redoute S.A. (Retail) 1,371 1,128,277
Sanofi S.A. (Medical and Health Products) 3,377 395,568
Television Francaise (Broadcasting) 4,220 595,151
Thomson CSF (Aerospace and Defense) 3,800 153,664
Total S.A., ADR (Oils) 10,546 657,148
Union des Assurances Federales S.A. (Insurance) 3,587 518,465
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$ 3,755,706
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Germany - 8.3%
Adidas-Salomon AG (Apparel and Textiles) 2,321 $ 409,542
Henkel KGAA (Consumer Products) 10,128 907,730
Mannesmann AG (Machinery and Telecommunications) 527 515,133
Prosieben Media AG (Broadcasting)* 4,536 226,140
Volkswagen AG (Automotive) 522 423,109
Wella AG (Cosmetics) 422 405,169
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$ 2,886,823
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Greece - 1.0%
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 12,121 $ 355,682
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Hong Kong - 1.0%
Hong Kong Electric Holdings Ltd. (Utilities - Electric) 68,500 $ 201,120
Wharf Holdings Ltd. (Real Estate) 32,000 40,885
Wing Hang Bank Ltd. (Banks and Credit Cos.) 48,500 91,385
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$ 333,390
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Italy - 5.5%
Eni S.p.A, ADR (Oils) 4,536 $ 320,355
Instituto Nazionale delle Assicurazioni (Insurance) 172,719 537,355
Telecom Italia S.p.A. (Telecommunications)* 92,880 500,342
Telecom Italia S.p.A., Saving Shares (Telecommunications) 159,335 577,655
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$ 1,935,707
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Japan - 10.0%
Canon, Inc. (Office Equipment) 28,000 $ 666,426
Eisai Co. Ltd. (Pharmaceuticals) 10,000 132,564
Kirin Beverage Corp. (Beverages) 29,000 543,815
Osaka Sanso Kogyo Ltd. (Chemicals) 30,000 59,719
Rohm Co. (Electronics) 4,000 415,435
Sony Corp. (Electronics) 7,400 624,450
Takeda Chemical Industries (Pharmaceuticals) 23,000 593,869
Terumo Corp. (Medical Equipment) 14,000 211,540
Tokyo Broadcasting System, Inc. (Broadcasting) 7,000 86,989
Ushio, Inc. (Electronics) 18,000 150,595
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$ 3,485,402
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Netherlands - 11.4%
Akzo Nobel N.V. (Chemicals) 2,742 $ 572,630
Benckiser N.V. (Consumer Goods and Services)* 6,332 359,383
Hunter Douglas N.V., ADR (Consumer Goods and Services)* 8,125 413,902
IHC Caland N.V. (Marine Equipment)* 10,022 561,842
Koninklijke Ahold N.V., ADR (Food/Retail) 14,240 452,120
Koninklijke Ahrend N.V. (Consumer Goods and Services)* 5,480 175,939
Philips Electronics N.V. (Electronics) 4,303 408,679
Royal Dutch Petroleum Co., ADR (Oils) 12,027 674,264
Wolters Kluwer N.V. (Publishing)* 2,637 370,236
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$ 3,988,995
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New Zealand - 0.1%
Telecom Corp. of New Zealand (Telecommunications)* 13,760 $ 36,145
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Peru - 0.6%
Telefonica del Peru S.A., ADR (Telecommunications) 8,977 $ 194,128
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Portugal - 0.9%
Banco Totta & Acores S.A. (Banks and Credit Cos.) 8,859 $ 327,967
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Singapore - 0.5%
Singapore Press Holdings Ltd. (Publishing) 19,864 $ 162,615
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South Korea - 0.2%
Korea Electric Power Corp. (Utilities - Electric) 5,470 $ 54,856
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Spain - 4.7%
Acerinox S.A. (Iron and Steel) 1,900 $ 282,880
Iberdrola S.A. (Utilities - Electric) 54,324 896,672
Telefonica S.A. (Utilities - Telephone) 10,022 447,966
-----------
$ 1,627,518
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Sweden - 6.8%
Astra AB (Pharmaceuticals) 29,751 $ 578,703
Securitas AB (Security Services) 5,480 209,344
Skandia Forsakring (Insurance) 56,430 824,137
Telefonaktiebolaget LM Ericsson, ADR (Telecommunications Equipment) 20,050 558,894
Volvo AB, "B" (Automotive) 6,637 212,062
-----------
$ 2,383,140
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Switzerland - 2.9%
Ciba Specialty Chemicals AG (Chemicals) 2,923 $ 416,107
Clariant AG (Chemicals)* 106 138,311
Nestle AG, Registered Shares (Food and Beverage Products) 211 451,695
-----------
$ 1,006,113
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United Kingdom - 21.4%
Aegis Group PLC (Advertising) 6,837 $ 10,995
ASDA Group PLC (Supermarkets) 106,470 316,377
Avis Europe PLC (Auto Rental)## 125,939 583,963
Bank of Scotland (Banks and Credit Cos.)* 36,839 426,142
BAT Industries PLC (Tobacco) 19,183 172,731
Booker PLC (Food - Wholesale) 38,086 182,196
British Aerospace PLC (Aerospace and Defense)* 93,241 826,634
British Petroleum PLC, ADR (Oils) 9,917 878,894
Compass Group PLC (Food - Catering)## 53,784 1,097,665
Diageo PLC (Food and Beverage Products) 37,955 429,137
Lloyds TSB Group PLC (Banks and Credit Cos.)* 21,760 316,018
Lucas Varity PLC (Automotive) 110,487 487,059
PowerGen PLC (Utilities - Electric)* 44,500 562,351
Thomson Travel Group PLC (Travel Services)* 35,850 105,358
Tomkins PLC (Diversified Operations) 113,701 656,237
Williams PLC (Diversified Operations) 57,836 415,487
-----------
$ 7,467,244
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $32,436,633
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - 2.7%
McDonalds Corp. (Food and Beverage Products) 5,909 $ 387,778
Rite Aid Corp. (Medical and Health Products) 5,381 192,707
Transamerica Corp. (Insurance) 2,955 339,825
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 920,310
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $27,668,674) $33,356,943
- --------------------------------------------------------------------------------------------------------
Warrants
- --------------------------------------------------------------------------------------------------------
Vivendi (Utilities - Water) (France)* (Identified Cost, $0) 1,150 $ 1,999
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 3.9%
- --------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage, due 6/01/98,
at Amortized Cost and Value $ 1,355 $ 1,355,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $29,023,674) $34,713,942
Other Assets, Less Liabilities - 0.5% 190,144
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $34,904,086
- --------------------------------------------------------------------------------------------------------
*Non-income producing security.
## SEC Rule 144A restriction.
</TABLE>
CAD = Canadian Dollars.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
MAY 31, 1998
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $29,023,674) $34,713,942
Foreign currency, at value (identified cost, $48,705) 48,255
Cash 11,531
Net receivable for forward foreign currency exchange
contracts subject to master netting agreements 4,680
Receivable for Fund shares sold 223,480
Receivable for investments sold 76,415
Interest and dividends receivable 105,514
Other assets 617
Deferred organization expenses 13,187
-----------
Total assets $35,197,621
-----------
Liabilities:
Payable for Fund shares reacquired 42,723
Payable for investments purchased 158,480
Net payable for forward foreign currency exchange
contracts purchased 4,477
Payable to affiliates -
Management fee 2,779
Shareholder servicing agent fee 321
Distribution fee 17,279
Administrative fee 50
Accrued expenses and other liabilities 67,426
-----------
Total liabilities $ 293,535
-----------
Net assets $34,904,086
===========
Net assets consist of:
Paid-in capital $28,555,464
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 5,688,110
Accumulated net realized gain on investments and foreign
currency transactions 676,154
Accumulated net investment loss (15,642)
-----------
Total $34,904,086
===========
Shares of beneficial interest outstanding 1,839,122
=========
Class A shares:
Net asset value and redemption price per share
(net assets of $15,086,745 / 793,486 shares of
beneficial interest outstanding) $19.01
======
Offering price per share (100 / 95.25 of net asset value
per share) $19.96
======
Class B shares:
Net asset value and offering price per share
(net assets of $18,986,989 / 1,001,476 shares of
beneficial interest outstanding) $18.96
======
Class C shares:
Net asset value and offering price per share
(net assets of $823,922 / 43,821 shares of beneficial
interest outstanding) $18.80
======
Class I shares:
Net asset value and offering price per share
(net assets of $6,430 / 339.3 shares of beneficial
interest outstanding) $18.95
======
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- ------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998
- ------------------------------------------------------------------------------
Net investment loss:
Income -
Interest $ 113,839
Dividends 541,479
Foreign taxes withheld (64,733)
----------
Total investment income $ 590,585
----------
Expenses -
Management fee $ 300,817
Trustees' compensation 6,596
Shareholder servicing agent fee 37,796
Distribution and service fee (Class A) 67,779
Distribution and service fee (Class B) 169,076
Distribution and service fee (Class C) 3,880
Administrative fee 4,379
Custodian fee 31,912
Printing 42,904
Registration fees 42,501
Auditing fees 21,269
Postage 10,655
Legal fees 2,298
Amortization of organization expenses 5,198
Miscellaneous 21,087
----------
Total expenses $ 768,147
Fees paid indirectly (3,717)
----------
Net expenses $ 764,430
----------
Net investment loss $ (173,845)
----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $2,994,509
Written option transactions 2,242
Foreign currency transactions 560,083
----------
Net realized gain on investments and foreign currency
transactions $3,556,834
----------
Change in unrealized appreciation (depreciation) -
Investments $3,029,247
Written options 9,695
Translation of assets and liabilities in foreign
currencies (467,690)
----------
Net unrealized gain on investments and foreign currency
translation $2,571,252
----------
Net realized and unrealized gain on investments and
foreign currency $6,128,086
----------
Increase in net assets from operations $5,954,241
==========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Statement of Changes in Net Assets
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income (loss) $ (173,845) $ 123,779
Net realized gain (loss) on investments and foreign
currency transactions 3,556,834 (1,677,592)
Net unrealized gain on investments and foreign currency
translation 2,571,252 2,306,629
----------- -----------
Increase in net assets from operations $ 5,954,241 $ 752,816
----------- -----------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (68,626)
From net investment income (Class C) -- (575)
From net realized gain on investments and foreign currency
transactions (Class A) (450,497) (35,996)
From net realized gain on investments and foreign currency
transactions (Class B) (568,428) (39,731)
From net realized gain on investments and foreign currency
transactions (Class C) (11,433) (193)
From net realized gain on investments and foreign currency
transactions (Class I) (67) --
In excess of net investment income (Class A) (94,237) --
In excess of net investment income (Class B) (45,813) --
In excess of net investment income (Class C) (1,657) --
In excess of net investment income (Class I) (24) --
----------- -----------
Total distributions declared to shareholders $(1,172,156) $ (145,121)
----------- -----------
Fund share (principal) transactions -
Net increase in net assets from Fund share transactions $ 711,945 $ 3,211,488
----------- -----------
Total increase in net assets $ 5,494,030 $ 3,819,183
Net assets:
At beginning of year 29,410,056 25,590,873
----------- -----------
At end of year (including accumulated net investment loss of
$15,642 and $367,494, respectively) $34,904,086 $29,410,056
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998 1997 1996*
- ----------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.32 $15.98 $15.00
------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.05) $ 0.11 $ 0.11
Net realized and unrealized gain on investments and foreign
currency transactions 3.45 0.35 0.90
------ ------ ------
Total from investment operations $ 3.40 $ 0.46 $ 1.01
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.08) $(0.03)
From net realized gain on investments and foreign currency
transactions (0.59) (0.04) --
In excess of net investment income (0.12) -- --
------ ------ ------
Total distributions declared to shareholders $(0.71) $(0.12) $(0.03)
------ ------ ------
Net asset value - end of period $19.01 $16.32 $15.98
====== ====== ======
Total return(+) 21.77% 2.88% 6.71%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.22% 2.39% 2.52%+
Net investment income (0.28)% 0.72% 1.04%+
Portfolio turnover 158% 89% 29%
Net assets at end of period (000 omitted) $15,087 $13,425 $11,950
* For the period from the commencement of the Fund's investment operations, October 24, 1995, through
May 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the sales charge had been
included, the results would have been lower.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998 1997 1996*
- ----------------------------------------------------------------------------------------------------------------
CLASS B
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.27 $15.94 $15.00
------ ------ ------
Income from investment operations# -
Net investment income (loss) $(0.14) $ 0.03 $ 0.05
Net realized and unrealized gain on investments and foreign
currency transactions 3.47 0.34 0.90
------ ------ ------
Total from investment operations $ 3.33 $ 0.37 $ 0.95
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $(0.01)
From net realized gain on investments and foreign currency
transactions (0.59) (0.04) --
In excess of net investment income (0.05) -- --
------ ------ ------
Total distributions declared to shareholders $(0.64) $(0.04) $(0.01)
------ ------ ------
Net asset value - end of period $18.96 $16.27 $15.94
====== ====== ======
Total return 21.26% 2.33% 6.37%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.72% 2.94% 3.11%+
Net investment income (0.79)% 0.18% 0.49%+
Portfolio turnover 158% 89% 29%
Net assets at end of period (000 omitted) $18,987 $15,749 $13,641
* For the period from the commencement of the Fund's investment operations, October 24, 1995, through
May 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998 1997**
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.19 $16.02
------ ------
Income from investment operations# -
Net investment income (loss) $(0.10) $ 0.12
Net realized and unrealized gain on investments and foreign currency
transactions 3.39 0.21
------ ------
Total from investment operations $ 3.29 $ 0.33
------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.12)
From net realized gain on investments and foreign currency
transactions (0.59) (0.04)
In excess of net investment income (0.09) --
------ ------
Total distributions declared to shareholders $(0.68) $(0.16)
------ ------
Net asset value - end of period $18.80 $16.19
====== ======
Total return 21.15% 2.09%++
Ratios (to average net assets)/Supplemental data:
Expenses## 2.71% 2.64%+
Net investment income (0.61)% 0.80%+
Portfolio turnover 158% 89%
Net assets at end of period (000 omitted) $ 824 $ 235
** For the period from the inception of Class C, July 1, 1996, through May 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1998 1997***
- ------------------------------------------------------------------------------------------------------
CLASS I
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $16.32 $15.71
------ ------
Income from investment operations# -
Net investment income $ 0.06 $ 0.16
Net realized and unrealized gain on investments and foreign currency
transactions 3.37 0.45
------ ------
Total from investment operations $ 3.43 $ 0.61
------ ------
Less distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions $(0.59) $ --
In excess of net investment income (0.21) --
------ ------
Total distributions declared to shareholders $(0.80) $ --
------ ------
Net asset value - end of period $18.95 $16.32
====== ======
Total return 22.08% 3.88%++
Ratios (to average net assets)/Supplemental data:
Expenses## 1.64% 1.89%+
Net investment income 0.33% 2.33%+
Portfolio turnover 158% 89%
Net assets at end of period (000 omitted) $ 6 $ --
*** For the period from the inception of Class I, January 2, 1997, through May 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund's expenses are calculated without reduction for fees paid indirectly.
</TABLE>
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS International Growth and Income Fund (the Fund) is a diversified series of
MFS Series Trust X (the Trust). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with 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, forward contracts, and
swap agreements, 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. Options listed on commodities exchanges
are reported at market value using closing settlement prices. Over-the-counter
options on securities are valued by brokers. Over-the-counter currency options
are valued through the use of a pricing model which takes into account foreign
currency exchange spot and forward rates, implied volatility, and short-term
repurchase rates. Securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by or at the
direction of the Trustees.
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.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
Written Options - The Fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is
subsequently adjusted to the current value of the options contract. When a
written option expires, the Fund realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written put option is exercised, the premium reduces the cost
basis of the security purchased by the Fund. The Fund, as writer of an option,
may have no control over whether the underlying securities may be sold (call)
or purchased (put) and, as a result, bears the market risk of an unfavorable
change in the price of the securities underlying the written option. In
general, written call options may serve as a partial hedge against decreases
in value in the underlying securities to the extent of the premium received.
Written options may also be used as part of an income producing strategy
reflecting the view of the Fund's management on the direction of interest
rates.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. Dividends
received in cash are recorded on the ex-dividend date. Dividend and interest
payments received in additional securities are recorded on the ex-dividend or
ex-interest date in an amount equal to the value of the security on such date.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's 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 taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The 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 Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
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 May 31, 1998, $667,428 was reclassified from accumulated net
realized gain on investments to accumulated net investment loss due to
differences between book and tax accounting for currency transactions. This
change had no effect on the net assets or net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an effective annual rate
of .975% of average daily net assets up to $500 million in net assets, after
which the rate is reduced to 0.925%.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive remuneration
for their services to the Fund from MFS. Certain officers and Trustees of the
Fund are officers or directors of MFS, MFS Fund Distributors, Inc. (MFD), and
MFS Service Center, Inc. (MFSC). The Fund has an unfunded defined benefit plan
for all of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $1,233 for the year ended May
31, 1998.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$8,421 for the year ended May 31, 1998, as its portion of the sales charge on
sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.50% per
annum of its average daily net assets attributable to Class A shares in order
that MFD may pay expenses on behalf of the Fund related to the distribution and
servicing of its shares. These expenses include a service fee paid to each
securities dealer that enters into a sales agreement with MFD of up to 0.25% per
annum of the Fund's average daily net assets attributable to Class A shares
which are attributable to that securities dealer and a distribution fee to MFD
of up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares. MFD retains the service fee for accounts not attributable to a
securities dealer, which amounted to $5,886 for the year ended May 31, 1998.
Fees incurred under the distribution plan during the year ended May 31, 1998,
were 0.50% of average daily net assets attributable to Class A shares on an
annualized basis.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $3,829 and $51 for Class B and Class C shares, respectively, for the
year ended May 31, 1998. Fees incurred under the distribution plan during the
year ended May 31, 1998, were 1.00% of average daily net assets attributable to
both Class B and Class C shares.
Purchases over $1 million of Class A shares and certain purchases by retirement
plans are subject to a contingent deferred sales charge in the event of a
shareholder redemption within 12 months following purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class B shares in
the event of a shareholder redemption within six years of purchase. A contingent
deferred sales charge is imposed on shareholder redemptions of Class C shares in
the event of a shareholder redemption within 12 months of purchase. MFD receives
all contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended May 31, 1998, were $59, $53,488, and $229 for Class A,
Class B, and Class C shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.1125%. Prior to January 1, 1998, the fee was calculated as a
percentage of the average daily net assets at an effective annual rate of
0.13%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations aggregated
$46,366,658 and $46,682,275, respectively.
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $29,027,193
-----------
Gross unrealized appreciation $ 6,782,484
Gross unrealized depreciation (1,095,735)
-----------
Net unrealized appreciation $ 5,686,749
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED MAY 31, 1998 YEAR ENDED MAY 31, 1997
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 464,915 $ 8,316,277 365,309 $ 5,792,690
Shares issued to shareholders in
reinvestment of distributions 31,181 488,613 5,771 90,897
Shares reacquired (525,443) (9,254,269) (296,169) (4,680,979)
-------- ----------- -------- -----------
Net increase (decrease) (29,347) $ (449,379) 74,911 $ 1,202,608
======== =========== ======== ===========
<CAPTION>
Class B Shares
YEAR ENDED MAY 31, 1998 YEAR ENDED MAY 31, 1997
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 382,384 $ 6,745,390 462,559 $ 7,367,431
Shares issued to shareholders in
reinvestment of distributions 33,907 530,985 2,318 36,552
Shares reacquired (382,617) (6,634,549) (352,648) (5,601,722)
-------- ----------- -------- -----------
Net increase 33,674 $ 641,826 112,229 $ 1,802,261
======== =========== ======== ===========
<CAPTION>
Class C Shares
YEAR ENDED MAY 31, 1998 PERIOD ENDED MAY 31, 1997*
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 58,848 $ 1,059,923 89,056 $ 1,379,569
Shares issued to shareholders in
reinvestment of distributions 789 12,254 39 605
Shares reacquired (30,361) (558,286) (74,550) (1,173,998)
-------- ----------- -------- -----------
Net increase 29,276 $ 513,891 14,545 $ 206,176
======== =========== ======== ===========
<CAPTION>
Class I Shares
YEAR ENDED MAY 31, 1998 PERIOD ENDED MAY 31, 1997**
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 358 $ 6,503 29 $ 443
Shares issued to shareholders in
reinvestment of distributions 5 88 -- --
Shares reacquired (53) (984) -- --
-------- ----------- -------- -----------
Net increase 310 $ 5,607 29 $ 443
======== =========== ======== ===========
* For the period from the inception of Class C, July 1, 1996, through May 31, 1997.
** For the period from the inception of Class I, January 2, 1997 through May 31, 1997.
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $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 Fund shares.
Interest is charged to each fund, 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 fee allocated to the Fund for the
year ended May 31, 1998, was $175.
(7) Financial Instruments
The Fund trades 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 written options, forward foreign currency exchange
contracts, swap agreements, and futures contracts. The notional or contractual
amounts of these instruments represent the investment the Fund 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.
Written Option Transactions
1998 WRITTEN PUTS
-------------------------------------------
PRINCIPAL AMOUNTS
OF CONTRACTS
(000 OMITTED) PREMIUMS
- ------------------------------------------------------------------------------
Outstanding, beginning of period -
British Pounds 371 $ 2,800
Japanese Yen 77,000 3,789
Options written -- --
Options terminated in closing
transactions -
British Pounds (371) (2,800)
Japanese Yen (77,000) (3,789)
Options exercised -- --
Options expired -- --
-------
Outstanding, end of period $ --
=======
At May 31, 1998, the Fund had sufficient cash and/or securities at least equal
to the value of the written options.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
CONTRACTS TO CONTRACTS UNREALIZED
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE DEPRECIATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases 9/25/98 CAD 433,166 $302,612 $298,135 $(4,477)
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $570 with Bankers Trust and a
net receivable of $4,960 with Merrill Lynch and $290 with Swiss Bank at
May 31, 1998.
At May 31, 1998, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust X and Shareholders of
MFS International Growth & Income Fund:
We have audited the accompanying statement of assets and liabilities of MFS
International Growth & Income Fund, including the schedule of portfolio
investments as of May 31, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the two years in the period then ended and for the period from October 24,
1995 (commencement of operations) to May 31, 1996. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with 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 and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 1998, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
International Growth & Income Fund at May 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the two years in the period then ended and for the period from October 24, 1995
(commencement of operations) to May 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 7, 1998
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
FOR THE YEAR ENDED MAY 31, 1998, THE AMOUNT OF DISTRIBUTIONS FROM INCOME
ELIGIBLE FOR THE 70% DIVIDEND RECEIVED DEDUCTION FOR CORPORATIONS CAME
TO 0.47%.
THE FUND HAS DESIGNATED $972,595 AS A LONG-TERM CAPITAL GAIN.
FOR THE YEAR ENDED MAY 31, 1998, INTEREST AND DIVIDENDS FROM FOREIGN
COUNTRIES WERE $508,510, AND TAXES PAID TO FOREIGN COUNTRIES WERE
$63,256.
- --------------------------------------------------------------------------------
<PAGE>
MFS(R) International Growth and Income Fund
<TABLE>
<S> <C>
Trustees Custodian
Richard B. Bailey* - Private Investor; State Street Bank and Trust Company
Former Chairman and Director (until 1991),
MFS Investment Management Auditors
Ernst & Young LLP
Peter G. Harwood - Private Investor
Investor Information
J. Atwood Ives - Chairman and Chief Executive
Officer, Eastern Enterprises (diversified For MFS stock and bond market outlooks, call
services company) toll free: 1-800-637-4458 anytime from a
touch-tone telephone.
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) For information on MFS mutual funds, call your
financial adviser or, for an information kit,
William J. Poorvu - Adjunct Professor, Harvard call toll free: 1-800-637-2929 any business
University Graduate School of Business day from 9 a.m. to 5 p.m. Eastern time (or
Administration leave a message anytime).
Charles W.Schmidt - Private Investor Investor Service
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive P.O. Box 2281
Vice President, Director, and Secretary, Boston, MA 02107-9906
MFS Investment Management
For general information, call toll free:
Jeffrey L. Shames* - Chairman, Chief 1-800-225-2606 any business day from
Executive Officer, and Director, 8 a.m. to 8 p.m. Eastern time.
MFS Investment Management
For service to speech- or hearing-impaired,
Elaine R. Smith - Independent Consultant call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time. (To
David B. Stone - Chairman and Director, use this service, your phone must be equipped
North American Management Corp. with a Telecommunications Device for the
(investment advisers) Deaf.)
Investment Adviser For share prices, account balances, and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, MA 02116-3741 telephone.
Distributor World Wide Web
MFS Fund Distributors, Inc. www.mfs.com
500 Boylston Street
Boston, MA 02116-3741
For the fourth year in a row,
Portfolio Manager MFS earned a #1 ranking in the
Frederick J. Simmons* [Dalbar Logo] DALBAR, Inc. Broker/Dealer
Survey, Main Office Operations
Treasurer Service Quality Category. The
W. Thomas London* firm achieved a 3.42 overall score on a scale of
1 to 4 in the 1997 survey. A total of 111 firms
Assistant Treasurers responded, offering input on the quality of
Mark E. Bradley* service they received from 29 mutual fund
Ellen Moynihan* companies nationwide. The survey contained
James O. Yost* questions about service quality in 11
categories, including "knowledge of operations
Secretary contact," "keeping you informed," and "ease of
Stephen E. Cavan* doing business" with the firm.
Assistant Secretary
James R. Bordewick, Jr.*
</TABLE>
*Affiliated with the Investment Adviser
<PAGE>
MFS(R) INTERNATIONAL GROWTH AND INCOME FUND -----------------
Bulk Rate
U.S. Postage
Paid
[Logo] M F S(SM) MFS
INVESTMENT MANAGEMENT -----------------
We invented the mutual fund(SM)
500 Boylston Street
Boston, MA 02116-3741
[DALBAR LOGO]
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MGI-2 7/98 14M 86/286/386/886
