<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT ANNUAL REPORT
75 YEARS JULY 31, 1999
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) EMERGING
MARKETS DEBT FUND
MFS(R) SMALL CAP VALUE FUND
MFS(R) STRATEGIC VALUE FUND
<PAGE>
<TABLE>
MFS(R) EMERGING MARKETS DEBT FUND
MFS(R) SMALL CAP VALUE FUND
MFS(R) STRATEGIC VALUE FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management(R) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
J. Atwood Ives - Chairman and Chief Executive
Officer, Eastern Enterprises CUSTODIAN
State Street Bank and Trust Company
Lawrence T. Perera - Partner, Hemenway & Barnes
(attorneys) AUDITORS
Ernst & Young LLP
William J. Poorvu - Adjunct Professor, Harvard
University Graduate School of Business INVESTOR INFORMATION
Administration For MFS stock and bond market outlooks, call
toll free: 1-800-637-4458 anytime from a
Charles W.Schmidt - Private Investor touch-tone telephone.
Arnold D. Scott* - Senior Executive Vice For information on MFS mutual funds, call your
President, Director, and Secretary, MFS financial consultant or, for an information
Investment Management kit, call toll free: 1-800-637-2929 any
business day from 9 a.m. to 5 p.m. Eastern time
Jeffrey L. Shames* - Chairman, Chief Executive (or leave a message anytime).
Officer, and Director, MFS Investment
Management INVESTOR SERVICE
MFS Service Center, Inc.
Elaine R. Smith - Independent Consultant P.O. Box 2281
Boston, MA 02107-9906
David B. Stone - Chairman and Director, North
American Management Corp. (investment advisers) For general information, call toll free:
1-800-225-2606 any business day from 8 a.m. to
INVESTMENT ADVISER 8 p.m. Eastern time.
Massachusetts Financial Services Company
500 Boylston Street For service to speech- or hearing-impaired,
Boston, MA 02116-3741 call toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. (To use
DISTRIBUTOR this service, your phone must be equipped with
MFS Fund Distributors, Inc. a Telecommunications Device for the Deaf.) For
500 Boylston Street share prices, account balances, and exchanges,
Boston, MA 02116-3741 call toll free: 1-800-MFS-TALK (1-800-637-8255)
anytime from a touch-tone telephone.
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames* WORLD WIDE WEB
www.mfs.com
ASSOCIATE DIRECTOR OF EQUITY RESEARCH
Alec C. Murray*
PORTFOLIO MANAGERS
Kenneth J. Enright*
Matthew W. Ryan*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Dear Shareholders,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example,
investors focused on a narrow group of 50 of the largest-company growth stocks
because they seemed to offer less volatility in uncertain times. Fixed-income
investors also became more concerned about risk, moving money into U.S.
Treasury securities and out of corporate and municipal bonds and mortgage-
backed securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our
portfolio managers to find good values, and for us to show the benefits of
staying with our long-term objectives and strategies. Investors seem to be
regaining confidence in a wider range of companies. Stocks of some small and
mid-sized companies, as well as some large industrial companies, have begun to
perform better in the past months than they had for the previous year or so.
These companies appear to have benefited from signs of stability in emerging
markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to
14% this year because more companies have benefited from the strong economy
and from aggressive consolidation and cost-cutting measures they have taken
over the past several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a
wider group of stocks, many investors are still focusing on the large-company
stocks. As a result, most of the overvaluation is in the 50 largest stocks in
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance. That means about 450 stocks
are selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies
not in the S&P 500. These companies also benefit from consolidation, cost
cutting, and global growth. Because they are smaller, they may be able to
respond to these changes more quickly, and thus they have the potential to
grow faster than the big companies.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of staying with our clearly
defined investment strategies can help us offer investment products with the
potential to sustain returns over a variety of market cycles.
We appreciate your confidence 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(R)
August 14, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
MFS EMERGING MARKETS DEBT FUND
Dear Shareholders,
For the 12 months ended July 31, 1999, the Fund's Class A shares provided a
total return of -4.06% and Class I shares returned -4.07%. These returns
include the reinvestment of any distributions, but exclude the effects of any
sales charges and compare to a -6.67% return for the J.P. Morgan Emerging
Markets Bond Index Plus (the EMBI+), an unmanaged index comprised of Brady
bonds (restructured bank loans) and other dollar-denominated bonds. The
returns also compare to a -12.54% return for the average emerging market debt
fund reported by Lipper Analytical Services, Inc., an independent firm that
reports mutual fund performance.
The Fund seeks high current income and long-term growth of capital by
investing, under normal market conditions, at least 65% of its total assets in
fixed income securities of government, government-related, supranational and
corporate issuers located or primarily conducting their business in emerging
market countries.
Over the past 12 months, emerging markets have been characterized by crises
and recovery. The emerging Asian economies were the first to experience
financial instability, beginning in 1997 and carrying over to 1998. Russia's
economic collapse in August 1998 marked the second and most virulent phase of
emerging market crisis, triggering a generalized sell-off of the asset class.
The resulting withdrawal of capital from emerging market economies exposed
vulnerabilities in a number of countries, including Brazil, which was forced
to devalue its currency in January 1999.
The Fund weathered the past year's turbulence better than most. We were
adversely affected by exposure to Russian dollar debt during the second half
of 1998, but overweight positions in more defensive credits, such as Mexico,
Peru, Panama, and Morocco, helped performance. Our concern over Argentina's
external financing needs and vulnerability to less liquid capital markets
proved well founded but premature; this hurt performance last year, but
benefited the Fund in the first half of 1999.
Emerging debt returns have improved significantly in 1999. The Fund generally
has been successful in taking advantage of shifting opportunities around the
world. We took profits on some of our Asian positions earlier this year. More
recently, we have reduced our exposure to Latin America and reallocated funds
to Eastern Europe and North Africa. The more recent portfolio shifts were
driven by the deterioration in credit fundamentals in various Latin countries
(e.g., Ecuador, Colombia), the greater sensitivity of Latin economies to
tighter U.S. monetary conditions, and the emergence of more compelling
valuations and credit stories outside the region. The Fund had benefited from
an increased allocation to Brazil, Venezuela, and other Latin credit issues in
the first quarter of 1999 as Brazil's post-devaluation adjustment efforts
gained credibility and as higher oil prices improved prospects for regional
oil exporters. However, political support for economic reform in Brazil
appears to have waned, and negative political and economic developments have
overshadowed improved oil export revenues in Venezuela, Ecuador, and Colombia.
Elsewhere in the region, we continue to be positive about Mexico as well as
Peru.
We believe current oil price levels to be sustainable. In our view, the
strength in petroleum prices will continue to be best captured by the Fund's
holdings of Algerian government debt -- a position we began accumulating when
the country's political situation improved and oil and gas markets started
their appreciation. This relatively undiscovered credit has been among the
Fund's most profitable investments.
In Eastern Europe, we re-established an overweighted position in Bulgaria
after concluding that Kosovo-related events were fully reflected in asset
prices and judging that the government's reinvigorated commitment to
privatization and other reforms had not been fully appreciated by the market.
The Fund has benefited from a cautiously rebuilt position in Russia, where
bond valuations had plunged to default levels and fears of social and economic
implosion have been belied by a nascent economic recovery and a semblance of
political stability.
We continue to be encouraged by the improved creditworthiness of a number of
countries in Asia. Risks remain, however, and the scarcity of compelling
valuations has limited our exposure there.
In general, we remain constructive about emerging debt markets, but believe
that continued emphasis on credit differentiation will be essential to
realizing excess returns. Moreover, despite the substantial opportunities for
spread tightening (and capital gains), we are quite certain that the road to
stability and sustained growth will not be without potholes. Global capital
markets will remain cautious going forward. The prospect of further discrete
U.S. Federal Reserve Board rate hikes as well as Year 2000 technology concerns
will continue to temper risk appetite. We believe current yields, however, are
likely to remain at historically high levels until these concerns abate; at
which time the scope for capital appreciation may improve. Against this
backdrop we feel the asset class provides investors a reasonable risk-reward
trade-off.
Respectfully,
/s/ Matthew W. Ryan
Matthew W. Ryan
Portfolio Manager
<PAGE>
MFS SMALL CAP VALUE FUND
Dear Shareholders,
For the 12 months ended July 31, 1999, Class A shares of the Fund provided a
total return of 21.89% and Class I shares 21.79%, including the reinvestment
of any distributions but excluding the effect of any sales charges. These
returns compare to a 7.41% return over the same period for the Russell 2000
Total Return Index (the Russell 2000), an unmanaged index comprised of 2,000
of the smallest U.S.-domiciled company common stocks that are traded on the
New York Stock Exchange, the American Stock Exchange, and NASDAQ. The returns
also compare to a 9.12% return for the average small-cap fund reported by
Lipper Analytical Services, Inc.
The Fund focuses on finding the best ideas in stocks of companies in the
small-capitalization arena. Because the Fund's objective emphasizes value,
these stocks not only must have solid long-term growth prospects, but also
must be available at attractive prices.
For the period, the portfolio's best companies clustered in the same sectors
that led the Russell 2000. In the technology sector, for example, one of our
strongest companies was Sawtek, a developer of electronic components for digital
phones. Given the explosion in cellular phone use, this company provided
exceptional value to the Fund. Gemstar International, among the top-10 holdings
at the end of the 12 months, also made an excellent contribution to performance.
The company dominates the market for interactive program guides, providing
television viewers with what is essentially an electronic version of TV Guide.
Another company from the technology sector that produced excellent performance
was Verisign, a developer of software that allows Internet shoppers to sign
digitally for their online purchases.
Looking ahead, we anticipate continued broadening of the market. This may
benefit the Fund if small-cap stocks perform better than large-cap stocks.
Respectfully,
/s/ Alec C. Murray
Alec C. Murray
Associate Director of Equity Research
The committee of MFS research analysts is responsible for the day-to-day
management of the Fund under the general supervision of Mr. Murray.
<PAGE>
MFS STRATEGIC VALUE FUND
Dear Shareholders,
For the 12 months ended July 31, 1999, Class A shares of the Fund provided a
total return of 40.45% and Class I shares returned 40.52%, including the
reinvestment of any distributions but excluding the effect of any sales
charges. These returns compare to a 14.99% return over the same period for the
Russell 1000 Value Index, which measures the performance of those Russell 1000
companies with lower price-to-book and lower forecasted growth rates relative
to the companies in the Russell 1000 Growth Index. The returns also compare to
an 18.63% return for the average growth fund reported by Lipper Analytical
Services, Inc.
The Fund invests in attractively valued stocks of companies that may be
currently out of favor for a variety of reasons but that we believe represent
strong franchises with the potential to return to favor over the long term. We
look for fundamentally sound stocks that are experiencing transitory issues
causing them to be neglected by the market. Companies can fall from favor for
reasons such as geographical exposure, troubled economies (e.g., Latin America
and Asia), regulatory changes, or unfavorable short-term business or economic
cycles.
For the period, the Fund's large weightings in the utilities and
communications and the energy industries each contributed to the positive
performance. Holdings such as Mobil Corp. and Newfield Exploration, a major
integrated oil producer and an independent gas producer, respectively, and BJ
Services, which supports the petroleum business with services like pumping,
all benefited from a sharp price rebound in both natural gas and oil prices.
Offsetting some of the positive performance were Pharmacia & Upjohn and
American Home Products, two pharmaceutical companies that lost value during
the period. We continue to believe that these stocks offer attractive values
because their positive fundamentals remain intact.
Looking ahead, we will continue to use the MFS(R) Original Research(SM)
process to identify strong company franchises, some currently out of favor,
whose long-term prospects appear to be favorable.
Respectfully,
/s/ Kenneth J. Enright
Kenneth J. Enright
Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
Associate Director of Equity Research and are current only through the end of
the period of the report as stated on the cover. The managers' and director's
views are subject to change at any time based on market and other conditions,
and no forecasts can be guaranteed.
These portfolios are actively managed, and current holdings may be different.
<PAGE>
PERFORMANCE SUMMARY
Currently, each Fund offers only Class A and Class I shares, which are
available for purchase at net asset value only by certain retirement plans
established for the benefit of employees of MFS and its affiliates and certain
of their family members who are also residents of the Commonwealth of
Massachusetts.
The following information illustrates the historical performance of each
Fund's Class A shares in comparison to various market indicators. Performance
results reflect the percentage change in net asset value, including
reinvestment of dividends. 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. It is not possible to invest
directly in an index. (See Notes to Performance Summary for more information.)
MFS EMERGING MARKETS DEBT FUND(1)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from April 1, 1998, through July 31, 1999)
MFS Emerging Markets J.P. Morgan Emerging
Debt Fund -- Markets Bond
Class A Index Plus
March 1998 $10,000 $10,000
July 1999 $ 9,191 $ 8,815
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JULY 31, 1999
CLASS A
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return - 4.06% - 8.09%
- --------------------------------------------------------------------------------
Average Annual Total Return - 4.06% - 5.96%
- --------------------------------------------------------------------------------
CLASS I
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return - 4.07% - 8.10%
- --------------------------------------------------------------------------------
Average Annual Total Return - 4.07% - 5.97%
- --------------------------------------------------------------------------------
COMPARATIVE INDICES
1 Year Life*
- --------------------------------------------------------------------------------
Average emerging market debt fund** -12.54% -13.97%
- --------------------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond Index Plus+ - 6.67% - 9.03%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
March 17, 1998, through July 31, 1999. Index returns are from April 1, 1998.
** Source: Lipper Analytical Services, Inc.
+ Source: Standard & Poor's Micropal, Inc.
<PAGE>
MFS SMALL CAP VALUE FUND(2)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from April 1, 1998, through July 31, 1999)
MFS Small Cap Value Russell 2000 Total
Fund -- Class A Return Index
March 1998 $10,000 $10,000
July 1999 $12,201 $ 9,411
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JULY 31, 1999
CLASS A
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +21.89% +22.01%
- --------------------------------------------------------------------------------
Average Annual Total Return +21.89% +15.60%
- --------------------------------------------------------------------------------
CLASS I
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +21.79% +21.91%
- --------------------------------------------------------------------------------
Average Annual Total Return +21.79% +15.53%
- --------------------------------------------------------------------------------
COMPARATIVE INDICES
1 Year Life*
- --------------------------------------------------------------------------------
Average small-cap fund** + 9.12% - 2.62%
- --------------------------------------------------------------------------------
Russell 2000 Total Return Index+ + 7.41% - 4.45%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
March 17, 1998, through July 31, 1999. Index results are from July 31, 1998.
** Source: Lipper Analytical Services, Inc.
+ Source: Standard & Poor's Micropal, Inc.
<PAGE>
MFS STRATEGIC VALUE FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from April 1, 1998, through July 31, 1998)
MFS Strategic Value Russell 1000
Fund -- Class A Value Index
March 1998 $10,000 $10,000
July 1999 $14,986 $11,346
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH JULY 31, 1999
CLASS A
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +40.45% +49.86%
- --------------------------------------------------------------------------------
Average Annual Total Return +40.45% +34.27%
- --------------------------------------------------------------------------------
CLASS I
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return +40.52% +49.65%
- --------------------------------------------------------------------------------
Average Annual Total Return +40.52% +34.14%
- --------------------------------------------------------------------------------
COMPARATIVE INDICES
1 Year Life*
- --------------------------------------------------------------------------------
Average growth fund** +18.63% +13.24%
- --------------------------------------------------------------------------------
Russell 1000 Value Index+ +14.99% + 9.94%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
March 17, 1998, through July 31, 1999. Index results are from April 1, 1998.
** Source: Lipper Analytical Services, Inc.
+ Source: Standard & Poor's Micropal, Inc.
NOTES TO PERFORMANCE SUMMARY
ALL RESULTS REPRESENT PAST PERFORMANCE AND ARE NOT NECESSARILY AN INDICATION
OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
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.
(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 share price
volatility. See the prospectus for details.
(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. See the prospectus for details.
<PAGE>
PORTFOLIO OF INVESTMENTS - July 31, 1999
MFS EMERGING MARKETS DEBT FUND
Bonds - 90.9%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- --------------------------------------------------------------------------------
Algeria - 7.2%
Algeria Chase Manhattan, 6s, 2006 $ 50 $ 34,250
Algeria Reprofiling LNS, 6.75s, 2000 10 9,687
Algeria Tranche, 6s, 2010+ 55 35,475
----------
$ 79,412
- --------------------------------------------------------------------------------
Argentina - 8.4%
Republic of Argentina, 5.938s, 2005 $ 42 $ 34,735
Republic of Argentina, 11.75s, 2009 20 17,800
Republic of Argentina, 11.375s, 2017 15 12,600
Republic of Argentina, 6s, 2023 25 16,470
Republic of Argentina, 9.75s, 2027 15 11,175
----------
$ 92,780
- --------------------------------------------------------------------------------
Brazil - 15.7%
Banco Nacional De Desenvolvime, 13.64s, 2008
(Banks and Credit Cos.)## $ 50 $ 41,625
Federal Republic of Brazil, 11.625s, 2004 15 13,632
Federal Republic of Brazil, 5.938s, 2009 20 13,526
Federal Republic of Brazil, 5.938s, 2012 55 32,450
Federal Republic of Brazil, 5s, 2014 54 32,881
Federal Republic of Brazil, 5.875s, 2024 35 21,087
Federal Republic of Brazil, 10.125s, 2027 25 17,845
----------
$ 173,046
- --------------------------------------------------------------------------------
Bulgaria - 6.8%
National Republic of Bulgaria, 6.5s, 2011 $ 110 $ 75,150
- --------------------------------------------------------------------------------
Colombia - 0.6%
Republic of Colombia, 8.375s, 2027 $ 10 $ 6,850
- --------------------------------------------------------------------------------
Indonesia - 3.4%
Indah Kiat Finance Mauritius Ltd., 10s, 2007 (Forest
and Paper Products) $ 60 $ 37,200
- --------------------------------------------------------------------------------
Mexico - 17.2%
Alestra S.A. De RL De C.V., 12.625s, 2009 (Utilities -
Telephone)## $ 40 $ 37,300
Petroleos Mexicanos, 9.5s, 2027 (Oil Services)## 55 48,400
Satelites Mexicanos S.A. De C.V., 10.125s, 2004
(Telecommunications) 35 27,913
United Mexican States, 9.75s, 2005 10 9,900
United Mexican States, 10.375s, 2009 45 45,112
United Mexican States, 11.5s, 2026 20 21,450
----------
$ 190,075
- --------------------------------------------------------------------------------
Morocco - 3.1%
Kingdom of Morocco, 5.906s, 2009+ $ 42 $ 34,579
- --------------------------------------------------------------------------------
Netherlands - 4.7%
Netia Holdings B.V., 10.25s, 2007 (Special Products
and Services)## $ 30 $ 26,250
PTC International Finance B.V., 0s to 2002, 10.75s,
2007 (Telecommunications)## 35 25,463
----------
$ 51,713
- --------------------------------------------------------------------------------
Panama - 2.8%
Republic of Panama, 4.25s, 2014 $ 15 $ 10,820
Republic of Panama, 4s, 2016 11 7,639
Republic of Panama, 8.875s, 2027 15 12,057
----------
$ 30,516
- --------------------------------------------------------------------------------
Peru - 4.4%
Republic of Peru, 4.5s, 2017 $ 80 $ 49,000
- --------------------------------------------------------------------------------
Philippines - 4.4%
Republic of Philippines, 9.875s, 2019 $ 50 $ 48,375
- --------------------------------------------------------------------------------
Russia - 8.4%
Russian Federation, 11s, 2018 $ 45 $ 22,275
Russian Federation, 12.75s, 2028 65 36,400
Russia Principal Loans, 6.063s, 2020+ ** 300 33,750
----------
$ 92,425
- --------------------------------------------------------------------------------
Turkey - 1.8%
Republic of Turkey, 12.375s, 2009 $ 20 $ 20,200
- --------------------------------------------------------------------------------
Venezuela - 2.0%
Republic of Venezuela, 9.25s, 2027 $ 35 $ 22,183
- --------------------------------------------------------------------------------
Total Bonds (Identified Cost, $993,958) $1,003,504
- --------------------------------------------------------------------------------
Short-Term Obligations - 2.3%
- --------------------------------------------------------------------------------
Federal Home Loan Bank, due 8/02/99, at
Amortized Cost $ 25 $ 24,997
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,018,955) $1,028,501
Other Assets, Less Liabilities - 6.8% 75,569
- --------------------------------------------------------------------------------
Net Assets - 100.0% $1,104,070
- --------------------------------------------------------------------------------
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS - July 31, 1999
MFS SMALL CAP VALUE FUND
Stocks - 88.7%
- --------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
U.S. Stocks - 85.1%
Automotive - 1.0%
Dura Automotive Systems, Inc.* 219 $ 6,461
Tower Automotive, Inc.* 222 5,286
----------
$ 11,747
- --------------------------------------------------------------------------------
Banks and Credit Companies - 3.1%
City National Corp. 300 $ 10,275
First Midwest Bancorp, Inc. 239 9,769
Provident Bankshares Corp. 306 7,382
St. Paul Bancorp, Inc. 359 8,706
----------
$ 36,132
- --------------------------------------------------------------------------------
Beverages - 0.8%
Coca Cola Bottling Co. 151 $ 8,862
- --------------------------------------------------------------------------------
Business Services - 3.4%
Careerbuilder, Inc.* 50 $ 472
Complete Business Solutions, Inc.* 353 6,707
Diamond Technology Partners, Inc., "A"* 387 9,675
IMRglobal Corp.* 491 8,409
Learning Tree International, Inc.* 401 4,461
Policy Management Systems Corp.* 247 7,595
Scient Corp.* 50 2,500
Tanning Technology Corp.* 25 450
----------
$ 40,269
- --------------------------------------------------------------------------------
Chemicals - 0.7%
Cambrex Corp. 298 $ 7,878
- --------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.1%
Activision, Inc.* 940 $ 12,864
- --------------------------------------------------------------------------------
Computer Software - Services - 2.4%
Entrust Technologies, Inc.* 400 $ 12,000
Informatica Corp.* 55 2,869
TenFold Corp.* 50 1,387
TIBCO Software, Inc.* 50 1,500
Tier Technologies, Inc.* 1,378 10,723
----------
$ 28,479
- --------------------------------------------------------------------------------
Computer Software - Systems - 6.3%
Ariba, Inc.* 50 $ 4,480
Aspen Technology, Inc.* 327 3,761
Digex, Inc. 25 558
Etec Systems, Inc.* 100 3,887
Gadzoox Networks, Inc.* 50 3,763
Liberate Technologies* 325 6,216
Marimba, Inc.* 55 1,440
NetIQ Corp. 25 419
Packeteer, Inc.* 25 738
Rational Software Corp.* 309 10,313
Security Dynamics Technologies, Inc.* 950 17,337
Summit Design, Inc.* 897 2,130
Synopsys, Inc.* 326 19,621
----------
$ 74,663
- --------------------------------------------------------------------------------
Conglomerates - 1.9%
Eastern Enterprises Co. 291 $ 11,331
Valley Media, Inc.* 700 11,375
----------
$ 22,706
- --------------------------------------------------------------------------------
Consumer Goods and Services - 3.3%
LoJack Corp.* 2,784 $ 27,840
Playtex Products, Inc.* 682 10,912
----------
$ 38,752
- --------------------------------------------------------------------------------
Containers - 2.7%
Ivex Packaging Corp.* 882 $ 16,042
Smurfit-Stone Container Corp.* 718 16,065
----------
$ 32,107
- --------------------------------------------------------------------------------
Electronics - 7.5%
Flextronics International Ltd.* 200 $ 8,975
GaSonics International Corp.* 800 11,100
GlobeSpan, Inc.* 50 2,537
Lattice Semiconductor Corp.* 201 11,532
MKS Instruments, Inc.* 700 14,919
Sawtek, Inc.* 230 14,720
SIPEX Corp.* 1,501 24,673
----------
$ 88,456
- --------------------------------------------------------------------------------
Entertainment - 2.4%
Gemstar International Group Ltd.* 256 $ 16,960
Young Broadcasting, Inc., "A"* 217 11,501
----------
$ 28,461
- --------------------------------------------------------------------------------
Financial Institutions - 7.6%
Colonial BancGroup, Inc. 800 $ 11,250
Federated Investors, Inc., "A" 775 14,773
Freedom Securities Corp. 600 9,000
Goldman Sachs Group, Inc.* 50 3,216
Imperial Bancorp* 351 6,428
Keystone Financial, Inc. 402 11,733
Peoples Heritage Financial Group 402 7,261
U.S. Trust Corp. 126 11,340
UMB Financial Corp. 157 6,908
Webster Financial Corp. 299 7,886
----------
$ 89,795
- --------------------------------------------------------------------------------
Food and Beverage Products - 2.9%
Del Monte Foods Co.* 485 $ 7,912
Keebler Foods Co.* 484 14,157
Suiza Foods Corp.* 388 12,125
----------
$ 34,194
- --------------------------------------------------------------------------------
Insurance - 3.1%
Annuity & Life Re Holdings Ltd. 126 $ 3,024
Financial Security Assurance Holdings Ltd. 97 5,099
FPIC Insurance Group, Inc.* 348 16,225
Nationwide Financial Services, Inc., "A" 271 11,687
----------
$ 36,035
- --------------------------------------------------------------------------------
Internet - 1.7%
Beyond.com Corp.* 400 $ 9,450
Chemdex Corp.* 25 750
Hoover's, Inc.* 50 669
Media Metrix, Inc.* 55 2,111
Online Resources & Communications Corp.* 50 1,038
Phone.com, Inc.* 50 3,109
Software.com, Inc.* 50 1,681
Talk City, Inc.* 50 606
Voyager.net, Inc.* 50 625
----------
$ 20,039
- --------------------------------------------------------------------------------
Machinery - 1.2%
Federal Signal Corp. 193 $ 4,138
Watts Industries, Inc. 582 10,403
----------
$ 14,541
- --------------------------------------------------------------------------------
Medical and Health Products - 2.0%
AmeriSource Health Corp., "A"* 208 $ 5,824
King Pharmaceuticals, Inc.* 255 6,917
PSS World Medical, Inc.* 999 10,302
----------
$ 23,043
- --------------------------------------------------------------------------------
Medical and Health Technology and Services - 5.3%
Allscripts, Inc.* 25 $ 400
Concentra Managed Care, Inc.* 878 13,938
Cytyc Corp.* 795 19,577
Mid Atlantic Medical Services, Inc.* 998 10,105
Province Healthcare Co.* 534 9,011
Renal Care Group, Inc.* 409 9,177
----------
$ 62,208
- --------------------------------------------------------------------------------
Metals and Minerals - 1.0%
Kaiser Aluminum Corp.* 734 $ 6,468
USEC, Inc. 473 5,706
----------
$ 12,174
- --------------------------------------------------------------------------------
Oil Services - 0.4%
Global Industries, Inc.* 451 $ 4,961
- --------------------------------------------------------------------------------
Oils - 0.4%
Newfield Exploration Co.* 156 $ 4,514
- --------------------------------------------------------------------------------
Pollution Control - 0.6%
Waste Industries, Inc.* 446 $ 7,303
- --------------------------------------------------------------------------------
Printing and Publishing - 2.0%
Meredith Corp. 291 $ 10,458
Scholastic Corp.* 300 13,387
----------
$ 23,845
- --------------------------------------------------------------------------------
Real Estate Investment Trusts - 1.9%
Highwoods Properties, Inc. 335 $ 7,872
Prentiss Properties Trust 318 7,334
Prime Group Realty Trust 400 6,750
----------
$ 21,956
- --------------------------------------------------------------------------------
Restaurants and Lodging - 2.0%
Extended Stay America, Inc.* 968 $ 9,862
Papa John's International, Inc.* 97 4,165
Sonic Corp.* 291 9,348
----------
$ 23,375
- --------------------------------------------------------------------------------
Retail - 1.8%
Drugstore.com, Inc.* 25 $ 1,259
The Great Atlantic & Pacific Tea Company, Inc. 300 10,369
The Men's Wearhouse, Inc.* 400 9,950
----------
$ 21,578
- --------------------------------------------------------------------------------
Special Products and Services - 6.0%
Backweb Technologies Ltd.* 50 $ 1,284
MCN Energy Group, Inc. 378 8,056
Newport News Shipbuilding, Inc. 550 17,703
Rayovac Corp.* 439 8,945
SPS Technologies, Inc.* 311 12,732
SPX Corp.* 83 7,055
Verisign, Inc.* 194 14,380
----------
$ 70,155
- --------------------------------------------------------------------------------
Stores - 3.9%
BJ's Wholesale Club, Inc.* 700 $ 21,438
CompUSA, Inc.* 319 2,014
CSK Auto Corp.* 569 14,438
Micro Warehouse, Inc.* 521 7,359
----------
$ 45,249
- --------------------------------------------------------------------------------
Telecommunications - 3.2%
Global TeleSystems Group, Inc.* 292 $ 9,307
Insight Communications, Inc.* 100 2,988
Net2Phone, Inc.* 25 684
Pinnacle Holdings, Inc.* 200 4,938
TCA Cable TV, Inc. 163 9,556
Winstar Communications, Inc.* 200 10,500
----------
$ 37,973
- --------------------------------------------------------------------------------
Utilities - Electric - 1.5%
MidAmerican Energy Holdings Co.* 518 $ 18,130
- --------------------------------------------------------------------------------
Total U.S. Stocks $1,002,444
- --------------------------------------------------------------------------------
Foreign Stocks - 3.6%
Bermuda - 1.0%
Mutual Risk Management Ltd. (Insurance) 331 $ 9,868
Stirling Cooke Brown Holdings Ltd. (Insurance) 466 2,272
----------
$ 12,140
- --------------------------------------------------------------------------------
Germany - 0.4%
Porsche AG (Automotive) 2 $ 5,038
- --------------------------------------------------------------------------------
Greece - 0.6%
STET Hellas Telecommunications S.A., ADR
(Telecommunications)* 291 $ 6,511
- --------------------------------------------------------------------------------
Ireland - 0.4%
Anglo Irish Bank PLC (Banks and Credit Cos.)* 2,025 $ 5,151
- --------------------------------------------------------------------------------
Netherlands - 0.3%
Fugro N.V. (Engineering)* 112 $ 3,211
- --------------------------------------------------------------------------------
Singapore - 0.3%
Asia Pulp & Paper Co. Ltd., ADR (Consumer Goods and
Services)* 439 $ 3,348
- --------------------------------------------------------------------------------
Sweden - 0.4%
Celsius AB (Aerospace) 402 $ 5,046
- --------------------------------------------------------------------------------
Switzerland - 0.2%
Barry Callebaut AG (Food and Beverage Products) 11 $ 1,696
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 42,141
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,016,698) $1,044,585
- --------------------------------------------------------------------------------
Short-Term Obligations - 7.2%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------
Federal Home Loan Bank, due 8/02/99, at
Amortized Cost $ 85 $ 84,988
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,101,686) $1,129,573
Other Assets, Less Liabilities - 4.1% 48,055
- --------------------------------------------------------------------------------
Net Assets - 100.0% $1,177,628
- --------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS - July 31, 1999
MFS STRATEGIC VALUE FUND
Stocks - 93.1%
- --------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------
U.S. Stocks - 88.7%
Aerospace - 3.4%
Lockheed-Martin Corp. 350 $ 12,184
Raytheon Co., "A" 200 13,900
TRW, Inc. 355 18,970
United Technologies Corp. 350 23,341
----------
$ 68,395
- --------------------------------------------------------------------------------
Automotive - 1.7%
Delphi Automotive Systems Corp. 700 $ 12,600
Federal-Mogul Corp. 244 11,834
Ford Motor Co. 200 9,725
----------
$ 34,159
- --------------------------------------------------------------------------------
Banks and Credit Companies - 5.0%
Bank America Corp. 310 $ 20,576
Bank of New York Co., Inc. 470 17,361
BankBoston Corp. 139 6,524
Chase Manhattan Corp. 180 13,838
PNC Bank Corp. 550 29,081
Wells Fargo Co. 360 14,040
----------
$ 101,420
- --------------------------------------------------------------------------------
Building - 0.5%
Sherwin Williams Co. 350 $ 9,450
- --------------------------------------------------------------------------------
Business Machines - 2.0%
Hewlett-Packard Co. 135 $ 14,133
International Business Machines Corp. 110 13,826
Motorola, Inc. 145 13,231
----------
$ 41,190
- --------------------------------------------------------------------------------
Cellular Telephones - 1.1%
Telephone & Data Systems, Inc. 300 $ 22,313
- --------------------------------------------------------------------------------
Chemicals - 1.3%
Engelhard Corp. 600 $ 13,387
Rohm & Haas Co. 315 13,427
----------
$ 26,814
- --------------------------------------------------------------------------------
Coal - 0.3%
CONSOL Energy, Inc.* 600 $ 6,675
- --------------------------------------------------------------------------------
Conglomerates - 3.3%
AlliedSignal, Inc. 422 $ 27,298
Eastern Enterprises Co. 360 14,017
Tyco International Ltd. 260 25,399
----------
$ 66,714
- --------------------------------------------------------------------------------
Consumer Goods and Services - 3.1%
Clorox Co. 140 $ 15,680
Fortune Brands, Inc. 453 17,893
Newell Rubbermaid, Inc. 244 10,553
Procter & Gamble Co. 200 18,100
----------
$ 62,226
- --------------------------------------------------------------------------------
Containers - 0.5%
Owens Illinois, Inc.* 400 $ 9,975
- --------------------------------------------------------------------------------
Electrical Equipment - 1.9%
Cooper Industries, Inc. 310 $ 17,011
Emerson Electric Co. 267 15,936
Honeywell, Inc. 50 5,991
----------
$ 38,938
- --------------------------------------------------------------------------------
Energy - 0.9%
BJ Services Co.* 600 $ 18,338
- --------------------------------------------------------------------------------
Entertainment - 3.9%
Disney (Walt) Co. 410 $ 11,326
Harrah's Entertainment, Inc.* 825 17,583
Hearst-Argyle Television, Inc.* 483 11,954
MediaOne Group, Inc.* 314 22,726
Young Broadcasting, Inc., "A"* 300 15,900
----------
$ 79,489
- --------------------------------------------------------------------------------
Financial Institutions - 4.1%
American Express Co. 100 $ 13,175
Associates First Capital Corp., "A" 435 16,666
Citigroup, Inc. 330 14,706
Edwards (A.G.), Inc. 360 9,945
Federal Home Loan Mortgage Corp. 279 16,008
Merrill Lynch & Co., Inc. 100 6,806
State Street Corp. 100 7,087
----------
$ 84,393
- --------------------------------------------------------------------------------
Food and Beverage Products - 3.3%
Anheuser-Busch Cos., Inc. 244 $ 19,261
Archer-Daniels-Midland Co. 1,350 18,900
Nabisco Holdings Corp., "A" 325 13,528
Ralston-Ralston Purina Co. 510 15,268
----------
$ 66,957
- --------------------------------------------------------------------------------
Forest and Paper Products - 2.0%
Bowater, Inc. 400 $ 19,900
Champion International Corp. 214 11,074
International Paper Co. 180 9,203
----------
$ 40,177
- --------------------------------------------------------------------------------
Insurance - 8.6%
Allstate Corp. 675 $ 23,963
American International Group, Inc. 50 5,806
Chubb Corp. 270 16,149
CIGNA Corp. 300 26,456
Equitable Cos., Inc. 360 23,130
Hartford Financial Services Group, Inc. 400 21,600
Lincoln National Corp. 400 20,000
Nationwide Financial Services, Inc., "A" 400 17,250
ReliaStar Financial Corp. 273 12,387
St. Paul Cos., Inc. 300 9,338
----------
$ 176,079
- --------------------------------------------------------------------------------
Machinery - 0.8%
Eaton Corp. 157 $ 15,533
- --------------------------------------------------------------------------------
Media - 0.4%
A.H. Belo Corp. 360 $ 7,268
- --------------------------------------------------------------------------------
Medical and Health Products - 0.4%
American Home Products Corp. 122 $ 6,222
Becton, Dickinson & Co. 100 2,744
----------
$ 8,966
- --------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.8%
Columbia/HCA Healthcare Corp. 244 $ 5,429
Genesis Health Ventures, Inc.* 1,443 3,788
Health Management Associates, Inc., "A"* 2,000 16,500
HEALTHSOUTH Corp.* 500 6,125
United HealthCare Corp. 400 24,400
----------
$ 56,242
- --------------------------------------------------------------------------------
Oil Services - 1.4%
Cooper Cameron Corp.* 314 $ 11,382
Noble Drilling Corp.* 750 17,016
----------
$ 28,398
- --------------------------------------------------------------------------------
Oils - 10.8%
Apache Corp. 550 $ 23,341
Atlantic Richfield Co. 46 4,143
Chevron Corp. 185 16,881
Coastal Corp. 900 35,606
Conoco, Inc., "A" 600 15,638
Devon Energy Corp. 400 14,725
Mobil Corp. 255 26,074
Newfield Exploration Co.* 540 15,626
Occidental Petroleum Corp. 662 12,950
Phillips Petroleum Co. 235 12,058
Unocal Corp. 440 17,463
Vastar Resources, Inc. 400 26,150
----------
$ 220,655
- --------------------------------------------------------------------------------
Printing and Publishing - 0.4%
Gannett Co., Inc. 115 $ 8,309
- --------------------------------------------------------------------------------
Railroads - 1.7%
Burlington Northern Santa Fe Railway Co. 665 $ 21,280
Wisconsin Central Transportation Corp.* 735 13,138
----------
$ 34,418
- --------------------------------------------------------------------------------
Real Estate Investment Trusts - 0.8%
Arden Realty, Inc. 460 $ 10,867
TriNet Corporate Realty Trust, Inc. 179 4,632
----------
$ 15,499
- --------------------------------------------------------------------------------
Restaurants and Lodging - 2.2%
Hilton Hotels Corp. 700 $ 9,144
McDonald's Corp. 525 21,886
Promus Hotel Corp.* 500 13,469
----------
$ 44,499
- --------------------------------------------------------------------------------
Supermarkets - 1.2%
Albertsons, Inc. 256 $ 12,720
Kroger Co.* 488 12,840
----------
$ 25,560
- --------------------------------------------------------------------------------
Telecommunications - 5.4%
Bell Atlantic Corp. 93 $ 5,929
CenturyTel, Inc. 400 17,100
GTE Corp. 575 42,370
Intermedia Communications, Inc.* 565 15,573
SBC Communications, Inc. 255 14,583
Sprint Corp. 300 15,506
----------
$ 111,061
- --------------------------------------------------------------------------------
Transportation - 0.5%
Union Pacific Corp. 175 $ 9,505
- --------------------------------------------------------------------------------
Utilities - Electric - 4.8%
BEC Energy 120 $ 5,115
Carolina Power & Light Co. 400 16,450
CMS Energy Corp. 500 18,687
Duke Energy Corp. 284 15,034
FirstEnergy Corp. 450 12,853
Peco Energy Co. 273 11,568
Pinnacle West Capital Corp. 344 13,739
Texas Utilities Co. 120 5,093
----------
$ 98,539
- --------------------------------------------------------------------------------
Utilities - Gas - 8.2%
Columbia Energy Group 540 $ 32,130
Dynegy, Inc. 843 20,232
El Paso Energy Corp. 168 6,017
Midcoast Energy Resources, Inc. 604 10,268
National Fuel Gas Co. 350 16,428
Public Service Company, Inc. 418 12,514
Sonat, Inc. 480 16,890
Union Pacific Resources Group, Inc. 1,030 18,347
Williams Cos., Inc. 280 11,777
Yankee Energy Systems, Inc. 582 23,389
----------
$ 167,992
- --------------------------------------------------------------------------------
Total U.S. Stocks $1,806,146
- --------------------------------------------------------------------------------
Foreign Stocks - 4.4%
Bermuda - 0.7%
Xl Capital Ltd. (Insurance) 280 $ 14,700
- --------------------------------------------------------------------------------
Canada - 0.7%
Abitibi-Consolidated, Inc. (Forest and
Paper Products) 567 $ 6,379
Canadian National Railway Co. (Railroads) 125 8,375
----------
$ 14,754
- --------------------------------------------------------------------------------
Ireland - 1.4%
Bank of Ireland (Banks and Credit Cos.)* 1,100 $ 10,355
Jefferson Smurfit Group PLC, ADR (Containers) 599 17,333
----------
$ 27,688
- --------------------------------------------------------------------------------
Japan - 0.6%
Nippon Telegraph & Telephone Corp. (Utilities -
Telephone) 175 $ 10,992
- --------------------------------------------------------------------------------
Singapore - 0.2%
Asia Pulp & Paper Co. Ltd., ADR (Consumer Goods and
Services)* 484 $ 3,690
- --------------------------------------------------------------------------------
United Kingdom - 0.8%
BP Amoco PLC, ADR (Oils) 145 $ 16,802
- --------------------------------------------------------------------------------
Total Foreign Stocks $ 88,626
- --------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,767,366) $1,894,772
- --------------------------------------------------------------------------------
Convertible Preferred Stock - 0.4%
- --------------------------------------------------------------------------------
U.S. Stocks - 0.4%
Consumer Goods and Services - 0.3%
Newell Financial Trust I, 5.25% 5 $ 261
Newell Financial Trust I, 5.25%*## 100 5,219
----------
$ 5,480
- --------------------------------------------------------------------------------
Utilities - Gas - 0.1%
El Paso Energy Capital Trust I, 4.75% 50 $ 2,469
- --------------------------------------------------------------------------------
Total Convertible Preferred Stock
(Identified Cost, $8,424) $ 7,949
- --------------------------------------------------------------------------------
Convertible Bond - 0.6%
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------
U.S. Bonds - 0.6%
Financial Services - 0.6%
Bell Atlantic Financial Services, Inc.,
4.25s, 2005## (Identified Cost, $13,377) $ 12 $ 13,320
- --------------------------------------------------------------------------------
Short-Term Obligations - 4.2%
- --------------------------------------------------------------------------------
Federal Home Loan Bank, due 8/02/99, at
Amortized Cost $ 85 $ 84,988
- --------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,874,155) $2,001,029
Other Assets, Less Liabilities - 1.7% 34,290
- --------------------------------------------------------------------------------
Net Assets - 100.0% $2,035,319
- --------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
Statements of Assets and Liabilities
<CAPTION>
- -----------------------------------------------------------------------------------------------------
EMERGING
MARKETS SMALL CAP STRATEGIC
JULY 31, 1999 DEBT FUND VALUE FUND VALUE FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments, at value (identified cost,
$1,018,955, $1,101,686 and $1,874,155,
respectively) $1,028,501 $1,129,573 $2,001,029
Cash 944 14,694 2,992
Foreign currency, at value (identified cost, $0, --
$402 and $109, respectively)
399 99
Receivable for investments sold 91,053 481 20,474
Receivable for Fund shares sold -- 44,786 24,482
Receivable from investment adviser 97 -- --
Interest and dividends receivable 22,636 261 1,638
---------- ---------- ----------
Total assets $1,143,231 $1,190,194 $2,050,714
---------- ---------- ----------
Liabilities:
Payable for Fund shares reacquired $ -- $ -- $ 750
Payable for investments purchased 38,303 12,485 14,507
Payable for daily variation margin on open
futures contracts 281 -- --
Net payable for forward foreign currency exchange
contracts to sell 17 -- --
Net payable for forward foreign currency exchange
contracts subject to master netting agreements 487 -- --
Accrued expenses and other liabilities 73 81 138
---------- ---------- ----------
Total liabilities $ 39,161 $ 12,566 $ 15,395
---------- ---------- ----------
Net assets $1,104,070 $1,177,628 $2,035,319
========== ========== ==========
Net assets consist of:
Paid-in capital $1,240,366 $1,058,969 $1,695,646
Unrealized appreciation on investments and
translation of assets and liabilities in
foreign currencies 9,703 27,882 126,862
Accumulated undistributed net realized gain
(loss) on investments and foreign currency
transactions (206,669) 90,777 208,165
Accumulated undistributed net investment income 60,670 -- 4,646
---------- ---------- ----------
Total $1,104,070 $1,177,628 $2,035,319
========== ========== ==========
Shares of beneficial interest outstanding:
Class A 119,430 23,445 56,745
Class I 10,097 79,620 86,177
---------- ---------- ----------
Total shares of beneficial interest
outstanding 129,527 103,065 142,922
========== ========== ==========
Net assets
Class A $1,018,011 $ 268,016 $ 808,877
Class I 86,059 909,612 1,226,442
---------- ---------- ----------
Total net assets $1,104,070 $1,177,628 $2,035,319
========== ========== ==========
Class A shares:
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest
outstanding) $8.52 $11.43 $14.25
===== ====== ======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest
outstanding) $8.52 $11.42 $14.23
===== ====== ======
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statements of Operations
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
EMERGING
MARKETS SMALL CAP STRATEGIC
YEAR ENDED JULY 31, 1999 DEBT FUND VALUE FUND VALUE FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income (loss):
Income -
Interest $ 104,021 $ 2,531 $ 2,277
Dividends -- 6,511 15,996
Foreign taxes withheld -- (74) (179)
---------- ---------- ----------
Total investment income $ 104,021 $ 8,968 $ 18,094
---------- ---------- ----------
Expenses -
Management fee $ 7,617 $ 8,120 $ 7,902
Shareholder servicing agent fee 969 974 1,108
Distribution and service fee (Class A) 3,018 1,107 2,389
Administrative fee 164 166 186
Custodian fee 5,878 4,710 4,736
Printing -- 8,848 5,003
Postage 208 439 443
Auditing fees 18,720 12,766 12,766
Legal fees 4,384 3,392 2,613
Registration fee 2,200 2,240 2,000
Miscellaneous 550 530 989
---------- ---------- ----------
Total expenses $ 43,708 $ 43,292 $ 40,135
Fees paid indirectly (679) (303) (226)
Reduction of expenses by investment adviser and
distributor (29,722) (31,260) (26,737)
---------- ---------- ----------
Net expenses $ 13,307 $ 11,729 $ 13,172
---------- ---------- ----------
Net investment income (loss) $ 90,714 $ (2,761) $ 4,922
---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ (199,475) $ 93,860 $ 208,368
Futures transactions (3,648) -- --
Foreign currency transactions 630 (36) (69)
---------- ---------- ----------
Net realized gain (loss) on investments and
foreign currency transactions $ (202,493) $ 93,824 $ 208,299
---------- ---------- ----------
Change in unrealized appreciation (depreciation) -
Investments $ 75,012 $ 85,323 $ 127,070
Futures contracts 662 -- --
Translation of assets and liabilities in foreign
currencies (1,318) 41 (12)
---------- ---------- ----------
Net unrealized gain on investments and foreign
currency translation $ 74,356 $ 85,364 $ 127,058
---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments and
foreign currency $ (128,137) $ 179,188 $ 335,357
---------- ---------- ----------
Increase (decrease) in net assets from
operations $ (37,423) $ 176,427 $ 340,279
========== ========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
EMERGING MARKETS DEBT FUND JULY 31, 1999 JULY 31, 1998*
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 90,714 $ 24,606
Net realized loss on investments and foreign currency
transactions (202,493) (1,669)
Net unrealized gain (loss) on investments and foreign
currency translation 74,356 (64,653)
---------- ----------
Decrease in net assets from operations $ (37,423) $ (41,716)
---------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (56,343) $ --
From net investment income (Class I) (814) --
---------- ----------
Total distributions declared to shareholders $ (57,157) $ --
---------- ----------
Net increase in net assets from Fund share transactions $ 238,905 $1,001,461
---------- ----------
Total increase in net assets $ 144,325 $ 959,745
Net assets:
At beginning of period 959,745 --
---------- ----------
At end of period (including accumulated undistributed
net investment income of $60,670 and $26,483,
respectively) $1,104,070 $ 959,745
========== ==========
* For the period from the commencement of the Fund's investment operations, March 17, 1998,
through July 31, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statements of Changes in Net Assets - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
SMALL CAP VALUE FUND JULY 31, 1999 JULY 31, 1998*
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (2,761) $ 354
Net realized gain on investments and foreign currency
transactions 93,824 54,961
Net unrealized gain (loss) on investments and foreign
currency translation 85,364 (57,482)
---------- ----------
Increase (decrease) in net assets from operations $ 176,427 $ (2,167)
---------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (110) $ --
From net investment income (Class I) (167) --
From net realized gain on investments and foreign
currency transactions (Class A) (21,973) --
From net realized gain on investments and foreign
currency transactions (Class I) (33,239) --
---------- ----------
Total distributions declared to shareholders $ (55,489) $ --
---------- ----------
Net increase in net assets from Fund share transactions $ 152,627 $ 906,230
---------- ----------
Total increase in net assets $ 273,565 $ 904,063
Net assets:
At beginning of period 904,063 --
---------- ----------
At end of period (including accumulated undistributed
net investment income of $0 and $277, respectively) $1,177,628 $ 904,063
========== ==========
* For the period from the commencement of the Fund's investment operations, March 17, 1998,
through July 31, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Statements of Changes in Net Assets - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
STRATEGIC VALUE FUND JULY 31, 1999 JULY 31, 1998*
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 4,922 $ 3,053
Net realized gain on investments and foreign currency
transactions 208,299 35,585
Net unrealized gain (loss) on investments and foreign
currency translation 127,058 (196)
---------- ----------
Increase in net assets from operations $ 340,279 $ 38,442
---------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,574) $ --
From net investment income (Class I) (615) --
From net realized gain on investments and foreign
currency transactions (Class A) (28,888) --
From net realized gain on investments and foreign
currency transactions (Class I) (6,903) --
---------- ----------
Total distributions declared to shareholders $ (38,980) $ --
---------- ----------
Net increase in net assets from Fund share transactions $ 983,132 $ 712,446
---------- ----------
Total increase in net assets $1,284,431 $ 750,888
Net assets:
At beginning of period 750,888 --
---------- ----------
At end of period (including accumulated undistributed
net investment income of $4,646 and $3,050,
respectively) $2,035,319 $ 750,888
========== ==========
* For the period from the commencement of the Fund's investment operations, March 17, 1998,
through July 31, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
EMERGING MARKETS DEBT FUND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998* JULY 31, 1999 JULY 31, 1998*
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS I
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 9.58 $10.00 $ 9.58 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.81 $ 0.25 $ 0.78 $ 0.25
Net realized and unrealized loss on
investments and foreign currency
transactions (1.31) (0.67) (1.28) (0.67)
------ ------ ------ ------
Total from investment operations $(0.50) $(0.42) $(0.50) $(0.42)
------ ------ ------ ------
Less distributions declared to shareholders
from net investment income $(0.56) $ -- $(0.56) $ --
------ ------ ------ ------
Net asset value - end of period $ 8.52 $ 9.58 $ 8.52 $ 9.58
====== ====== ====== ======
Total return (4.06)% (4.20)%++ (4.07)% (4.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.56% 1.70%+ 1.56% 1.70%+
Net investment income 10.09% 6.65%+ 10.15% 6.92%+
Portfolio turnover 449% 68% 449% 68%
Net assets at end of period (000 omitted) $1,018 $ 959 $ 86 $ 1
(S) Prior to July 1, 1999, subject to reimbursement by the Fund, the investment adviser agreed to pay the expenses of the
Fund, exclusive of management and distribution fees. The Fund in turn pays a reimbursement fee of 1.65% of average daily
net assets. Effective July 1, 1999, MFS has temporarily agreed to waive their rights to receive the reimbursement fee.
The investment adviser and the distributor voluntarily waived their fees for the periods indicated. To the extent actual
expenses were over this limitation and the waivers had not been in place, the net investment income per share and the
ratios would have been:
Net investment income $ 0.54 $ 0.06 $ 0.55 $ 0.07
Ratios (to average net assets):
Expenses## 4.88% 6.89%+ 4.53% 6.54%+
Net investment income 6.77% 1.46%+ 7.18% 2.08%+
* For the period from the commencement of the Fund's investment operations, March 17, 1998, through July 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998* JULY 31, 1999 JULY 31, 1998*
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS I
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.02 $10.00 $10.02 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.03) $ 0.01 $(0.03) $ 0.01
Net realized and unrealized gain on
investments and foreign currency
transactions 2.04 0.01 2.03 0.01
------ ------ ------ ------
Total from investment operations $ 2.01 $ 0.02 $ 2.00 $ 0.02
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- ** $ -- $ -- ** $ --
From net realized gain on investments and
foreign currency transactions (0.60) -- (0.60) --
------ ------ ------ ------
Total distributions declared to
shareholders $(0.60) $ -- $(0.60) $ --
------ ------ ------ ------
Net asset value - end of period $11.43 $10.02 $11.42 $10.02
====== ====== ====== ======
Total return 21.89% 0.10%++ 21.79% 0.10%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.34% 1.32%+ 1.34% 1.32%+
Net investment income (loss) (0.31)% 0.13%+ (0.31)% 0.10%+
Portfolio turnover 127% 67% 127% 67%
Net assets at end of period (000 omitted) $ 268 $ 418 $ 910 $ 486
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain the expenses of the Fund, exclusive of
management and distribution fees, at not more than 1.30% of average daily net assets. The investment adviser and the
distributor voluntarily waived their fees, for the periods indicated. To the extent actual expenses were over this
limitation and the waivers had not been in place, the net investment loss per share and the ratios would have been:
Net investment loss $(0.33) $(0.28) $(0.31) $(0.26)
Ratios (to average net assets):
Expenses## 5.04% 8.71%+ 4.69% 8.36%+
Net investment loss (4.01)% (7.26)%+ (3.66)% (6.94)%+
* For the period from the commencement of the Fund's investment operations, March 17, 1998, through July 31, 1998.
** Per share amount was less than $0.01.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights - continued
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
STRATEGIC VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998* JULY 31, 1999 JULY 31, 1998*
- ---------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS I
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $10.66 $10.00 $10.65 $10.00
------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.05 $ 0.05 $ 0.05 $ 0.05
Net realized and unrealized gain on
investments and foreign currency 4.08 0.61 4.07 0.60
------ ------ ------ ------
Total from investment operations $ 4.13 $ 0.66 $ 4.12 $ 0.65
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $(0.04) $ -- $(0.04) $ --
From net realized gain on investments and
foreign currency transactions (0.50) -- (0.50) --
------ ------ ------ ------
Total distributions declared to
shareholders $(0.54) $ -- $(0.54) $ --
------ ------ ------ ------
Net asset value - end of period $14.25 $10.66 $14.23 $10.65
====== ====== ====== ======
Total return 40.45% 6.70%++ 40.52% 6.50%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.27% 1.25%+ 1.27% 1.25%+
Net investment income 0.45% 1.22%+ 0.45% 1.19%+
Portfolio turnover 131% 48% 131% 48%
Net assets at end of period (000 omitted) $ 809 $ 585 $1,226 $ 166
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain the expenses of the Fund, exclusive of
management and distribution fees, at not more than 1.25% of average daily net assets. The investment adviser and the
distributor voluntarily waived their fees for the periods indicated. To the extent actual expenses were over this
limitation and the waivers had not been in place, the net investment loss per share and the ratios would have been:
Net investment loss $(0.26) $(0.23) $(0.24) $(0.25)
Ratios (to average net assets):
Expenses## 3.93% 8.58%+ 3.58% 8.23%+
Net investment loss (2.21)% (6.10)%+ (1.86)% (5.78)%+
* For the period from the commencement of the Fund's investment operations, March 17, 1998, through July 31, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
Small Cap Value Fund and Strategic Value Fund are each a diversified series of
MFS Series Trust X (the Trust). The Emerging Markets Debt Fund is a non-
diversified series of 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. The
Emerging Markets Debt Fund can invest up to 100% of its portfolio in high-
yield securities rated below investment grade. Investments in high-yield
securities involve greater degrees of credit and market risk than investments
in higher-rated securities and tend to be more sensitive to economic
conditions. 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. Securities for which there are no such quotations or
valuations are valued at fair value as determined in good faith by the Trustees.
Futures contracts listed on commodities exchanges are reported at market value
using closing settlement prices.
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.
Futures Contracts - The Emerging Markets Debt Fund may enter into futures
contracts for the delayed delivery of securities or currency, or contracts based
on financial indices at a fixed price on a future date. In entering such
contracts, the Fund is required to deposit with the broker either in cash or
securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by the Fund each day, depending on the
daily fluctuations in the value of the contract, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. The Fund's
investment in futures contracts is designed to hedge against anticipated future
changes in interest rates or securities prices. Should interest rates or
securities prices move unexpectedly, the Fund may not achieve the anticipated
benefits of the futures contracts and may realize a loss.
Forward Foreign Currency Exchange Contracts - Each 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. Each Fund may 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. Each 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, each Fund
may enter into contracts with the intent of changing the relative exposure of
each 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. 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 and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
The Emerging Markets Debt Fund uses the effective interest method for
reporting interest income on payment-in-kind (PIK) bonds. Legal fees and other
related expenses incurred to preserve and protect the value of a security
owned are added to the cost of the security; other legal fees are expensed.
Capital infusions made directly to the security issuer, which are generally
non-recurring, incurred to protect or enhance the value of high-yield debt
securities, are reported as additions to the cost basis of the security. Costs
that are incurred to negotiate the terms or conditions of capital infusions or
that are expected to result in a plan of reorganization are reported as
realized losses. Ongoing costs incurred to protect or enhance an investment,
or costs incurred to pursue other claims or legal actions, are expensed.
Fees Paid Indirectly - Each Fund's custody fee is calculated as a percentage
of each 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 - Each 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.
Distributions to shareholders are recorded on the ex-dividend date. Each 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 distributions from paid-in
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 July 31, 1999, the following amounts were reclassified
due to differences between book and tax accounting for currency transactions
and net investment losses. These changes had no effect on the net assets or
net asset values per share.
EMERGING MARKETS SMALL CAP STRATEGIC
INCREASE (DECREASE) DEBT FUND VALUE FUND VALUE FUND
- -------------------------------------------------------------------------------
Paid-in capital $ -- $ 112 $ 68
Accumulated undistributed net realized
gain (loss) on investments and
foreign currency transactions (630) (2,873) 69
Accumulated undistributed net
investment income (loss) 630 2,761 (137)
At July 31, 1999, the Emerging Markets Debt Fund had a capital loss
carryforward of $149,666 for federal income tax purposes which may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on July 31, 2007, ($149,089), and
July 31, 2006, ($577).
Multiple Classes of Shares of Beneficial Interest - Each Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of each Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. Differences in per share
dividend rates are generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - Each 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 annual rate of 0.85%,
0.90%, and 0.75% of average daily net assets of the Emerging Market Debt Fund,
the Small Cap Value Fund, and the Strategic Value Fund, respectively. The
investment adviser has voluntarily agreed to waive its fee, which is reflected
as a reduction of expenses in the Statement of Operations.
Each Fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of each Fund's operating expenses, exclusive of
management, distribution, and service fees. Each Fund in turn will pay MFS an
expense reimbursement fee not greater than 1.65%, 1.30% and 1.25% of average
daily net assets of the Emerging Markets Debt Fund, the Small Cap Value Fund
and the Strategic Value Fund, respectively. Effective July 1, 1999, MFS has
voluntarily agreed to waive their right to receive the reimbursement fee and
for the period from July 1, 1999 through July 31, 1999, MFS did not impose the
reimbursement fee of $1,433 for the Emerging Markets Debt Fund.
EMERGING MARKETS SMALL CAP STRATEGIC
DEBT FUND VALUE FUND VALUE FUND
- ------------------------------------------------------------------------------
$32,414 $40,435 $32,081
Each Fund pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of each Fund, all of whom receive
remuneration for their services to each Fund from MFS. Certain officers and
Trustees of each Fund are officers or directors of MFS, and MFS Service
Center, Inc. (MFSC). The Trustees currently are not receiving any payments for
their services to each Fund.
Administrator - Each Fund has an administrative services agreement with MFS to
provide each Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, each Fund pays MFS an administrative fee
at the following annual percentages of each 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%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges on sales of Class A shares of each Fund for the year
ended July 31, 1999.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
Each Fund's distribution plan provides that each Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of each 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 each 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 0.10% per annum of each Fund's average daily
net assets attributable to Class A shares. Distribution and service fees under
the Class A distribution plan are currently being waived.
Certain Class A shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within 12 months following purchase.
There were no contingent deferred sales charges imposed on Class A shares of
the Fund during the year ended July 31, 1999.
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 each Fund's average daily net assets at an effective annual
rate of 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of each Fund's average daily net assets at an effective annual rate of
0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
EMERGING MARKETS SMALL CAP STRATEGIC
DEBT FUND VALUE FUND VALUE FUND
- --------------------------------------------------------------------------------
Purchases
Investments (non-U.S.
government securities) $3,992,772 $1,190,515 $2,164,322
---------- ---------- ----------
Sales
Investments (non-U.S.
government securities) $3,691,108 $1,073,130 $1,332,660
---------- ---------- ----------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by each Fund, as computed on a federal income tax basis, are
as follows:
EMERGING MARKETS SMALL CAP STRATEGIC
DEBT FUND VALUE FUND VALUE FUND
- -------------------------------------------------------------------------------
Aggregate cost $1,026,293 $1,102,202 $1,882,610
---------- ---------- ----------
Gross unrealized appreciation $ 40,536 $ 128,313 $ 171,883
Gross unrealized depreciation (38,328) (100,942) (53,464)
---------- ---------- ----------
Net unrealized appreciation $ 2,208 $ 27,371 $ 118,419
========== ========== ==========
(5) Shares of Beneficial Interest
The Funds' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
Class A Shares
EMERGING MARKETS DEBT FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998*
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------
Shares sold 12,476 $ 107,761 100,021 $1,000,210
Shares issued to shareholders
in reinvestment of
distributions 7,532 56,340 -- --
Shares reacquired (599) (4,999) -- (2)
------ ---------- ------- ----------
Net increase 19,409 $ 159,102 100,021 $1,000,208
====== ========== ======= ==========
* For the period from the commencement of the Fund's investment operations,
March 17, 1998, through July 31, 1998.
Class I Shares
EMERGING MARKETS DEBT FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998*
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------
Shares sold 11,715 $ 94,980 212 $ 2,100
Shares issued to shareholders
in reinvestment of
distributions 108 811 -- --
Shares reacquired (1,852) (15,988) (86) (847)
------ ---------- ------- --------
Net increase 9,971 $ 79,803 126 $ 1,253
====== ========== ======= ==========
Class A Shares
SMALL CAP VALUE FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998*
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------
Shares sold 3,652 $ 34,565 54,402 $ 548,209
Shares issued to shareholders
in reinvestment of
distributions 2,461 22,074 -- --
Shares reacquired (24,428) (223,753) (12,642) (131,214)
------ ---------- ------- ----------
Net increase (decrease) (18,315) $ (167,114) 41,760 $ 416,995
====== ========== ======= ==========
Class I Shares
SMALL CAP VALUE FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998*
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------
Shares sold 34,369 $ 352,422 49,168 $ 496,434
Shares issued to shareholders
in reinvestment of
distributions 3,728 33,403 -- --
Shares reacquired (6,966) (66,084) (679) (7,199)
------ ---------- ------- ----------
Net increase 31,131 $ 319,741 48,489 $ 489,235
====== ========== ======= ==========
Class A Shares
STRATEGIC VALUE FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998*
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 5,430 $ 64,881 55,362 $ 557,894
Shares issued to shareholders
in reinvestment of
distributions 2,982 31,459 -- --
Shares reacquired (6,555) (90,758) (474) (4,991)
------ ---------- ------- ----------
Net increase 1,857 $ 5,582 54,888 $ 552,903
====== ========== ======= ==========
Class I Shares
STRATEGIC VALUE FUND
-------------------------------------------
YEAR ENDED PERIOD ENDED
JULY 31, 1999 JULY 31, 1998*
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------
Shares sold 75,461 $1,031,568 15,558 $ 159,668
Shares issued to shareholders
in reinvestment of
distributions 713 7,516 -- --
Shares reacquired (5,544) (61,534) (11) (125)
------ ---------- ------- ----------
Net increase 70,630 $ 977,550 15,547 $ 159,543
====== ========== ======= ==========
* For the period from the commencement of each Fund's investment operations,
March 17, 1998, through July 31, 1998.
(6) Line of Credit
Each Fund and other affiliated funds participate in an $820 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 fees allocated
to each Fund for the year ended July 31, 1999, are as follows:
EMERGING MARKETS SMALL CAP STRATEGIC
DEBT FUND VALUE FUND VALUE FUND
-------------------------------------------------------------------
$6 $5 $1
The Funds had no significant borrowings during the year.
(7) Financial Instruments
Each 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.
Forward Foreign Currency Exchange Contracts
EMERGING MARKETS DEBT FUND
<TABLE>
<CAPTION>
CONTRACTS CONTRACTS NET UNREALIZED
SETTLEMENT DATE TO DELIVER IN EXCHANGE FOR AT VALUE DEPRECIATION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 5/03/00 HKD 391,965 $50,000 $50,017 $(17)
------- ------- ----
</TABLE>
Forward foreign currency purchases and sales under master netting agreements
excluded above amounted to a net payable of $487 with Deutsche Bank.
At July 31, 1999, the Fund had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
EMERGING MARKETS DEBT FUND
<TABLE>
<CAPTION>
UNREALIZED
DESCRIPTION EXPIRATION CONTRACTS POSITION APPRECIATION
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Notes 5 Year Futures September 1999 2 Long $662
----
</TABLE>
At July 31, 1999, the Fund had sufficient cash and/or securities to cover any
margin requirements under these contracts.
(8) Restricted Securities
The Emerging Markets Debt Fund may invest up to 15% of its net assets in
securities which are subject to legal or contractual restrictions on resale.
At July 31, 1999, the Emerging Markets Debt Fund owned the following
restricted securities, excluding securities issued under Rule 144A,
constituting 9.40% of net assets which may not be publicly sold without
registration under the Securities Act of 1933. The Fund does not have the
right to demand that such securities be registered. The value of these
securities 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 the Trustees.
<TABLE>
<CAPTION>
SHARE/PAR
DESCRIPTION DATE OF ACQUISITION AMOUNT COST VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Algeria Tranche, 6s, 2010 5/12/99 - 7/08/99 55,000 $30,367 $ 35,475
Kingdom of Morocco, 5.906s, 2009 8/26/98 - 5/04/99 42,298 32,201 34,579
Russia Principal Loans, 6.063s, 2009 5/06/99 - 6/29/99 300,000 27,307 33,750
--------
$103,804
========
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust X and Shareholders of MFS Emerging Markets
Debt Fund, MFS Small Cap Value Fund, and MFS Strategic Value Fund:
We have audited the accompanying statements of assets and liabilities of MFS
Emerging Markets Debt Fund, MFS Small Cap Value Fund, and MFS Strategic Value
Fund, including the schedules of portfolio investments, as of July 31, 1999,
and the related statements of operations for the year then ended, and the
statements of changes in net assets and financial highlights the year then
ended and for the period from March 17, 1998 (commencement of operations) to
July 31, 1998. These financial statements and financial highlights are the
responsibility of the Funds' 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 July 31, 1999, 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 positions of MFS
Emerging Markets Debt Fund, MFS Small Cap Value Fund, and MFS Strategic Value
Fund at July 31, 1999, the results of their operations for the year then
ended, and the changes in net assets and the financial highlights for the year
then ended and for the period from March 17, 1998 (commencement of operations)
to July 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
September 9, 1999
--------------------------------------------
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.
<PAGE>
FEDERAL TAX INFORMATION
In January 2000, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 1999.
For the year ended July 31, 1999, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations came to
1.74% and 9.85%, respectively, for the Small Cap Value and Strategic Value
Funds.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the
MFS funds, is committed to the effective use of technology in managing our
portfolio investments, delivering high-quality service to MFS fund
shareholders, retirement plan participants, and MFS' institutional clients,
and supporting the financial consultants who sell our products. With that in
mind, we created a separately funded Year 2000 Program Management Office in
1996 comprised of a specialized staff reporting directly to MFS senior
management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers
and software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking
steps to ascertain the Y2K readiness of MFS' internal systems and is working
with our external systems vendors to determine whether they expect their
systems to be ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS(R) Original Research
(SM) process of evaluating portfolio investments, one of the many relevant
factors that MFS' portfolio managers and research analysts may consider is a
company's Y2K readiness. Each year, MFS' research analysts and portfolio
managers conduct more than 1,000 on-site meetings with companies whose
securities are, or may be, held in fund and client portfolios, and host an
additional 1,500 meetings at MFS' headquarters. When assessing the Y2K
readiness of these companies, MFS' research analysts and portfolio managers
may rely upon discussions at these meetings as well as SEC disclosure
documents and third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS, shareholders of MFS funds, participants in
retirement plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program,
please visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston
Street, Boston, MA 02116-3741.
