<PAGE>
[Logo] M F S(R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
MFS(R)/FOREIGN &
COLONIAL EMERGING
MARKETS EQUITY FUND
ANNUAL REPORT o MAY 31, 1999
----------------------------------------------------
DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 35)
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Performance Summary ....................................................... 7
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 18
Notes to Financial Statements ............................................. 25
Independent Auditors' Report .............................................. 32
MFS' Year 2000 Readiness Disclosure ....................................... 34
Trustees and Officers ..................................................... 37
MFS(R) ORIGINAL RESEARCH(SM)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
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 few months than they had for the previous year or
so. These companies appear to have benefited from early 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 changes more quickly, and thus they have the potential to grow
faster than the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing
higher inflation and reduced purchasing power. Also, once investors saw that
the overseas turmoil had little, if any, effect on the financial strength of
most domestic bond issuers, the major non-Treasury markets -- corporate,
municipal, and mortgage -- began to rebound. Our portfolio managers are now
finding more opportunities to buy bonds with relatively stable prices and
attractive yields.
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 maintaining diversified
portfolios and of staying with our funds' 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)
June 17, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
For the 12 months ended May 31, 1999, Class A shares of the Fund provided a
total return of -13.56%, Class B shares -14.05%, Class C shares -13.84%, and
Class I shares -13.09%. These returns assume the reinvestment of distributions
but exclude the effects of any sales charges.
During the same period, the average emerging market fund tracked by Lipper
Analytical Services, Inc., an independent firm that reports mutual fund
performance, returned -5.37%. The Fund's returns also compare to
a 3.46% return for the Morgan Stanley Capital International (MSCI) Emerging
Markets Free (EMF) Index, a broad, unmanaged, market-capitalization-weighted
index of equities in emerging markets, and to a -3.12% return for the Lipper
Emerging Markets Funds Index (the Lipper Index). The Lipper mutual fund
indices are unmanaged indices of the largest qualifying mutual funds within
their respective investment objectives adjusted for the reinvestment of
capital gain distributions and
income dividends.
Q. WHAT FACTORS HURT THE FUND'S PERFORMANCE OVER THE PAST YEAR?
A. The crisis in Russia in August of 1998, which triggered a widespread
decline in global financial markets, was most significant. Although our
weighting in Russia at the time made up less than 5% of the Fund's total
assets, the Russian government's decision to default on its domestic debt
and devalue the ruble had a broad negative impact on emerging market
investments.
Also, performance was hurt by the Fund's holdings in Central Europe and the
Middle East. For example, Poland and Hungary have suffered from weakness in
the German economy and from an increase in their budget deficits. Meanwhile,
although some emerging market economies are getting stronger, capital flows
into the strengthening markets have bypassed weaker markets where the Fund
has holdings, such as Egypt and Morocco.
However, once the immediate impact of the Russian crisis passed, investors
noticed that economic reforms were contributing to a gradual recovery in
Asia. Markets in the region rebounded strongly in the fourth quarter of 1998
following their decline over the previous 18 months. This rebound triggered a
wider recovery in emerging markets, particularly in Asia and Latin America,
which has benefited the Fund over the past six months.
Q. WHAT ARE THE PRIMARY REASONS FOR THE IMPROVEMENT IN EMERGING MARKETS?
A. Central bankers around the world aggressively cut interest rates last year
in an effort to keep credit available. The excess liquidity created by
cheaper credit is now finding its way into emerging stock markets. Also,
commodity prices, led by oil, have recovered significantly in the past
few months, and emerging markets that depend on commodity exports have
benefited. Finally, we feel there are now signs that U.S. economic growth
is accelerating and that the Japanese economy is beginning to recover
thanks to government spending that has boosted consumer and business
demand.
However, the most recent catalyst for the improvement in emerging markets was
the devaluation of the Brazilian currency in January, which led to additional
flows of capital. We also have seen further evidence of an Asian recovery,
especially in South Korea and Thailand, where governments have taken
aggressive measures to reform their financial markets and curtail speculative
development.
Q. DID YOU MAKE ANY SIGNIFICANT CHANGES IN THE FUND'S ALLOCATIONS?
A. We have shifted away from Europe, the Middle East, and Africa and toward
Asia. We did this because the former markets have not shown the signs of
recovery we see in Asia and because we believe there are more investment
opportunities in Asia. Specifically, we have added to our positions in
South Korea, the Philippines, Thailand, and Singapore.
Q. WHERE ARE YOUR BIGGEST POSITIONS NOW?
A. At the country level, our biggest positions are in Brazil, Mexico, and
South Korea. In Brazil, we believe the utilities sector remains attractive
due to steady earnings and cheap prices relative to cash flow. Our major
Brazilian holdings continue to include Telesp Participacoes, a
telecommunications company, and Electrobras (Centrais Electricas
Brasileiras), an electric utility. Telefonos de Mexico, the
telecommunications conglomerate, also continues to be a major holding because
we believe concerns about the effects of deregulation in Mexico's
telecommunications industry are exaggerated. In South Korea, Samsung
Electronics remains a major holding that we believe will benefit from its
strong global position in the technology sector.
Q. DID ANY STOCKS PERFORM BETTER THAN YOU EXPECTED?
A. YPF, an Argentine oil and gas company, has performed much better than we
had expected due to a takeover bid from Repsol, a Spanish energy company.
Meanwhile, the rise in oil prices over the past six months has helped our
oil-company holdings in Russia, LUKOIL and Surgutneftegaz, rebound
significantly.
Q. WHAT IS YOUR OUTLOOK FOR EMERGING MARKETS, AND HOW IS THIS REFLECTED IN
THE FUND'S ALLOCATIONS?
A. We believe emerging market economies are beginning to benefit from the
aggressive fiscal and economic reforms most of them undertook in the past
year or so. However, we believe the near-term potential for corporate
earnings growth is greater in some of these markets than in others. Our
outlook is reflected in the portfolio's allocation to markets such as South
Korea and Thailand. We believe these markets should benefit from global
investors' renewed interest.
/s/ Arnab Kumar Banerji /s/ Jeffrey Chowdhry
Arnab Kumar Banerji Jeffrey Chowdhry
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. The managers' views are subject to change at any time based on market
and other conditions, and no forecasts can be guaranteed.
<PAGE>
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PORTFOLIO MANAGERS' PROFILES
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ARNAB KUMAR BANERJI IS CHIEF INVESTMENT OFFICER OF FOREIGN & COLONIAL MANAGEMENT
LTD. AND PORTFOLIO MANAGER OF MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY
FUND, THE EMERGING MARKETS EQUITY SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY
PRODUCTS, AND MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES (PART OF
MFS(R) VARIABLE INSURANCE TRUST(SM)). HE ALSO MANAGES THE EMERGING MARKETS
PORTIONS OF MFS(R) GLOBAL GROWTH FUND AND THE GLOBAL GROWTH SERIES OFFERED
THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. DR. BANERJI WAS BORN IN INDIA IN 1956.
HE EARNED DEGREES IN PHYSIOLOGY AND MEDICINE FROM OXFORD UNIVERSITY BEFORE
ENTERING THE INVESTMENT MANAGEMENT BUSINESS WITH J. HENRY SCHRODER WAGG IN
LONDON. HE LEFT THAT FIRM TO BECOME A RESEARCH ANALYST AND LATER DIRECTOR OF
NOMURA SECURITIES. HE JOINED CITIBANK, INITIALLY AS HEAD OF EQUITY RESEARCH AT
CITIBANK SCRIMGEOUR VICKERS, BEFORE MOVING TO CITIBANK GLOBAL ASSET MANAGEMENT
TO SET UP THEIR EMERGING MARKETS OPERATION, WHICH HE HEADED UNTIL 1993, WHEN HE
JOINED FOREIGN & COLONIAL.
JEFFREY CHOWDHRY IS A DIRECTOR OF FOREIGN & COLONIAL EMERGING MARKETS LTD. AND
A PORTFOLIO MANAGER OF MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND,
THE EMERGING MARKETS EQUITY SERIES OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY
PRODUCTS, AND THE MFS(R)/FOREIGN & COLONIAL EMERGING MARKETS EQUITY SERIES
(PART OF MFS(R) VARIABLE INSURANCE TRUST(SM)). HE ALSO MANAGES THE EMERGING
MARKETS PORTIONS OF MFS(R) GLOBAL GROWTH FUND AND THE GLOBAL GROWTH SERIES
OFFERED THROUGH MFS(R)/SUN LIFE ANNUITY PRODUCTS. MR. CHOWDHRY IS HEAD OF THE
DEPARTMENT AT FOREIGN & COLONIAL THAT INVESTS IN EASTERN EUROPE, THE MIDDLE
EAST, AND AFRICA. MR. CHOWDHRY BEGAN HIS CAREER AS AN INVESTMENT ANALYST IN
1982. HE JOINED ROYAL INSURANCE PLC IN 1985 AS A FUND MANAGER BEFORE JOINING
BZW INVESTMENT MANAGEMENT IN 1987, WHERE HE WAS A DIRECTOR IN THEIR EMERGING
MARKETS DIVISION. HE JOINED FOREIGN & COLONIAL EMERGING MARKETS IN 1994. HE
HAS MANAGED INVESTMENTS IN THE UNITED STATES, EUROPE, LATIN AMERICA, AND ASIA.
MR. CHOWDHRY HOLDS A BACHELOR DEGREE IN ECONOMICS FROM BRUNEL UNIVERSITY IN
LONDON AND A MASTER OF BUSINESS ADMINISTRATION DEGREE FROM KINGSTON BUSINESS
SCHOOL IN ENGLAND.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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OBJECTIVE: SEEKS TO PROVIDE CAPITAL APPRECIATION BY INVESTING
PRIMARILY IN STOCKS OF COMPANIES IN EMERGING
MARKET COUNTRIES.
COMMENCEMENT OF
INVESTMENT OPERATIONS: OCTOBER 24, 1995
CLASS INCEPTION: CLASS A OCTOBER 24, 1995
CLASS B OCTOBER 24, 1995
CLASS C JUNE 27, 1996
CLASS I JANUARY 2, 1997
SIZE: $66.2 MILLION NET ASSETS AS OF MAY 31, 1999
PERFORMANCE SUMMARY
The following information illustrates the historical performance of the Fund's
original share class in comparison to various market indicators. Performance
results include the deduction of the maximum applicable sales charge and
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. (See Notes to Performance Summary for more information.)
It is not possible to invest directly in an index.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from November 1, 1995, through May 31, 1999)
MFS/F&C
Emerging Markets MSCI Lipper
Equity Fund EMF Emerging Markets
Class A Index Funds Index
---------------------------------------------------------
11/95 $ 9,525 $10,000 $10,000
5/96 10,500 11,280 11,760
5/97 12,250 12,160 13,050
5/98 10,502 8,716 9,556
5/99 9,077 9,018 9,257
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN
THROUGH MAY 31, 1999
CLASS A
1 Year 3 Years 10 Years/ Life*
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Cumulative Total Return -13.56% -13.56% -4.71%
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Average Annual Total Return -13.56% - 4.74% -1.33%
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SEC Results -17.67% - 6.27% -2.65%
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CLASS B
1 Year 3 Years 10 Years/ Life*
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Cumulative Total Return -14.05% -14.86% -6.47%
- --------------------------------------------------------------------------------
Average Annual Total Return -14.05% - 5.22% -1.84%
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SEC Results -17.46% - 6.15% -2.64%
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CLASS C
1 Year 3 Years 10 Years/ Life*
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Cumulative Total Return -13.84% -14.51% -6.09%
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Average Annual Total Return -13.84% - 5.09% -1.73%
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SEC Results -14.70% - 5.09% -1.73%
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CLASS I
1 Year 3 Years 10 Years/ Life*
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Cumulative Total Return -13.09% -12.46% -3.49%
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Average Annual Total Return -13.09% - 4.34% -0.98%
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COMPARATIVE INDICES
1 Year 3 Years 10 Years/ Life*
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Average emerging market fund** -5.37% - 6.31% -1.74%
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MSCI EMF Index+ +3.46% - 7.19% -2.84%
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Lipper Emerging Markets Funds Index+ -3.12% - 7.67% -2.84%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
October 24, 1995, through May 31, 1999. Index results are from November 1,
1995.
** Source: Lipper Analytical Services, Inc.
+ Source: Standard & Poor's Micropal, Inc.
NOTES TO PERFORMANCE SUMMARY
Class A share ("A") SEC results include the maximum 4.75% sales charge. Class
B share ("B") SEC results reflect the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C shares
("C") have no initial sales charge but, like B, have higher annual fees and
expenses than A. C SEC results reflect the 1% CDSC applicable to shares
redeemed within 12 months. Class I shares ("I") have no sales charge or Rule
12b-1 fees and are only available to certain institutional investors.
C results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of B for periods prior to the inception of C. Operating expenses of C
are not significantly different than those of B. The B performance included in
the C SEC performance has been adjusted to reflect the CDSC generally
applicable to C rather than the CDSC generally applicable to B.
I results include the performance and the operating expenses (e.g., Rule 12b-1
fees) of A for periods prior to the inception of I. Because operating expenses
of A are greater than those of I, I performance generally would have been
higher than A performance. The A performance included in the I performance has
been adjusted to reflect the fact that I have no initial sales charge.
Performance results reflect any applicable expense subsidies and waivers,
without which the results would have been less favorable. Subsidies and
waivers may be rescinded at any time. See the prospectus for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
Investments in foreign and emerging market securities may provide superior
returns but also involve greater risk than U.S. investments. Investments in
foreign and emerging market securities may be favorably or unfavorably
affected by changes in interest rates and currency exchange rates, market
conditions, and the economic and political conditions of the countries where
investments are made. These risks may increase share price volatility. See the
prospectus for details.
<PAGE>
PORTFOLIO CONCENTRATION AS OF MAY 31, 1999
FIVE LARGEST STOCK SECTORS
UTILITIES & COMMUNICATIONS 29.2%
FINANCIAL SERVICES 27.0%
ENERGY 8.9%
CONSUMER STAPLES 6.6%
TECHNOLOGY 6.1%
TOP 10 STOCK HOLDINGS
TELEFONOS DE MEXICO S.A. 4.0% KOREA ELECTRIC POWER CORP. 2.1%
Mexican telecommunications company South Korean electric utility
TAIPEI FUND 2.5% CENTRAIS ELECTRICAS BRASILEIRAS S.A. 1.9%
Closed-end Taiwanese country fund Brazilian electric utility
SAMSUNG ELECTRONICS 2.3% PETROLEO BRASILEIRO S.A. 1.8%
South Korean electronics company Brazilian oil company
YPF SOCIEDAD ANONIMA 2.2% MAGYAR TAVKOZLESI RT 1.8%
Argentine oil and gas company Hungarian telecommunications company
POHANG IRON & STEEL CO., LTD. 2.1% HELLENIC TELECOMMUNICATIONS 1.7%
South Korean steel company Greek telecommunications company
The portfolio is actively managed, and current holdings may be different.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- May 31, 1999
Stocks - 103.0%
<CAPTION>
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ISSUER SHARES VALUE
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<S> <C> <C>
Foreign Stocks - 103.0%
Argentina - 4.1%
Banco de Galicia y Buenos Aires S.A. de C.V., ADR (Banks
and Credit Cos.) 8,543 $ 178,869
Banco Frances S.A. (Banks and Credit Cos.) 5,200 109,525
Irsa Inversiones y Representaciones (Real Estate) 17,000 49,339
Perez Companc S.A. (Oils) 57,308 344,123
Siderca S.A. (Steel) 91,620 126,537
Telecom Argentina S.A., ADR (Telecommunications) 3,300 94,050
Telefonica de Argentina, ADR (Utilities - Telephone) 13,450 435,444
YPF Sociedad Anonima, ADR (Oils) 34,900 1,470,163
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$ 2,808,050
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Brazil - 15.5%
Banco Bradesco S.A., Preferred (Banks and Credit Cos.) 106,009,000 $ 563,096
Centrais Eletricas Brasileiras S.A., Preferred, "B"
(Utilities - Electric) 64,204,090 1,352,289
Companhia Cervejaria Brahma, Preferred (Beverages) 795,000 397,500
Companhia Energetica de Sao Paulo S.A., ADR (Utilities -
Electric) 27,687 581,981
Companhia Paranaense de Energia, Preferred, "B"
(Utilities - Electric) 42,224 319,362
Companhia Vale Rio Doce, Bonus Shares (Mining) 24,000 0
Companhia Vale Rio Doce, Preferred (Mining) 45,200 801,178
Embratel Participacoes S.A. (Telecommunications)* 32,910,704 244,170
Embratel Participacoes S.A., Preferred (Telecommunications) 28,732,652 398,143
Itausa Investimentos Itau S.A., Preferred (Conglomerate) 821,000 455,058
Petroleo Brasileiro S.A., Preferred (Oils) 8,534,435 1,202,311
Tele Centro Sul Participacoes S.A. (Telecommunications)* 45,136,704 247,835
Tele Centro Sul Participacoes S.A., Preferred
(Telecommunications) 27,005,000 286,889
Tele Norte Leste Participacoes S.A. (Telecommunications) 33,944,604 309,656
Tele Norte Leste Participacoes S.A., Preferred
(Telecommunications) 25,420,000 415,203
Tele Sudeste Celular Participacoes S.A., Preferred
(Telecommunications) 61,000,000 289,151
Telebras S.A., Preferred (Telecommunications) 5,473,000 455,978
Telebras, ADR (Telecommunications)* 3,973,000 206
Telesp Celular Participacoes S.A. (Telecommunications) 44,570,704 225,170
Telesp Celular Participacoes S.A., Preferred
(Telecommunications) 22,984 212,191
Telesp Participacoes S.A. (Telecommunications) 39,501,704 490,350
Telesp Participacoes S.A., Preferred (Telecommunications) 29,590 645,786
Unibanco S.A. (Banks and Credit Cos.) 7,918,000 352,013
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$10,245,516
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Chile - 1.4%
Empresa Nacional de Electricidad, ADR (Utilities - Electric) 8,585 $ 93,899
Compania Cervecerias Unidas S.A., ADR (Brewery) 3,910 109,480
Compania de Telecom de Chile, ADR (Utilities - Telephone) 16,040 348,870
Distribucion y Servicio D & S S.A., ADR (Supermarkets) 9,550 161,156
Embotelladora Adina S.A., ADR (Beverages) 3,750 72,188
Enersis S.A., ADR (Utilities - Electric) 6,220 122,067
-----------
$ 907,660
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Egypt - 3.2%
Ahram Beverage Co., GDR (Beverages)*## 1,968 $ 58,646
Arab International Construction (Construction Services)* 7,968 59,646
Eastern Tobacco Co. (Tobacco) 15,700 425,397
Egypt Mobile Phone (Utilities - Telephone)* 36,900 554,070
Egypt Trust (Investment Company)* 48,450 450,585
Egyptian International Pharmaceutical Industries Co.
(Pharmaceuticals) 1,220 63,033
Industrial & Engineering Enterprises Co. (Construction
Services) 3,100 31,851
Madinet Nasar City (Housing) 380 5,020
Mi Bank (Banks and Credit Cos.) 10,800 240,159
National Societe Generale Bank (Banks and Credit Cos.) 1,900 32,350
Suez Cement Co., GDR (Cement)## 14,600 216,810
-----------
$ 2,137,567
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Estonia - 0.8%
AS Eesti Telekom, GDR (Telecommunications)* 24,570 $ 542,997
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Greece - 7.2%
Alpha Credit Bank (Banking) 10,560 $ 716,719
Attica Enterprises S.A., GDR (Transportation) 14,925 147,995
Commercial Bank of Greece (Banks and Credit Cos.) 2,800 505,872
Hellenic Bottling (Beverages) 7,410 216,389
Hellenic Telecommunication Organization S.A., GDR
(Telecommunications) 51,920 1,124,639
Intracom S.A. (Telecommunications)* 7,140 513,470
National Bank Of Greece (Banks and Credit Cos.)* 1,207 84,244
National Bank of Greece, GDR (Banks and Credit Cos.) 14,810 1,033,687
Panafon S.A. (Telecommunications) 4,140 102,962
Titan Cement Co., GDR (Building Materials) 3,840 354,894
-----------
$ 4,800,871
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Hungary - 3.6%
Magyar Olaj Es Gazipari KT (Gas) 35,066 $ 855,537
Magyar Tavkozlesi Rt., ADR (Telecommunications) 42,600 1,192,800
OTP Bank Rt. (Banks and Credit Cos.) 5,930 261,588
Synergon Information Systems Co., GDR (Computer Hardware
Systems)*## 4,085 51,063
-----------
$ 2,360,988
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India - 3.3%
Bajaj Auto Ltd. (Automotive) 450 $ 5,750
Bharat Heavy Electricals Ltd. (Utilities - Electric) 19,900 88,475
EIH Ltd. (Restaurants and Lodging)* 450 1,808
Glaxo India Ltd. (Pharmaceuticals) 6,000 99,650
Hindustan Lever Ltd. (Consumer Goods and Services) 11,700 611,609
Hindustan Petroleum Corp. Ltd. (Oils) 18,950 97,689
Industrial Development Bank of India Ltd. (Banks and
Credit Cos.) 600 438
Infosys Technologies Ltd. (Computer - Software) 2,200 163,140
Infosys Technologies Ltd. Bonus Shares (Computer -
Software)* 2,200 163,140
ITC Ltd. (Tobacco) 12,000 284,115
Larsen & Toubro Ltd. (Construction - Special) 13,750 72,615
Larsen & Toubro Ltd., GDR (Construction - Special) 9,003 47,545
Mahanagar Telephone Nigam Ltd. (Telecommunications) 40,800 163,219
NIIT Ltd. (Computer Software - Services) 2,410 102,033
Reliance Industries Ltd. (Conglomerate) 43,500 157,278
State Bank of India (Banks and Credit Cos.) 21,200 111,514
-----------
$ 2,170,018
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Israel - 3.3%
Bank Hapoalim (Banks and Credit Cos.) 137,940 $ 350,175
Bezek Israeli Telecommunications Corp. Ltd.
(Telecommunications)* 111,442 478,828
Discount Investment Corp. (Holding Company) 9,427 334,214
ECI Telecom Ltd. (Telecommunications) 9,544 330,461
Elbit Systems Ltd. (Aerospace) 12,862 202,977
Formula System (1985) Ltd. (Electrical/Electronic
Equipment)* 3,367 77,779
Koors Industries Ltd., ADR (Conglomerate) 6,700 144,469
Teva Pharmaceutical Industries Ltd., ADR (Pharmaceuticals) 6,263 307,670
-----------
$ 2,226,573
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Jordan - 1.0%
Arab Bank Corp. (Banks and Credit Cos.) 2,140 $ 630,832
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Malaysia - 3.0%
DCB Holdings Berhad (Banks and Credit Cos.)+ 86,000 $ 89,440
Malayan Banking Berhad (Banks and Credit Cos.)+ 86,000 227,900
Malaysia International Shipping Corp. Berhad
(Transportation - Marine)+ 138,000 229,425
Public Bank Berhad (Banks and Credit Cos.)+ 217,000 209,405
Resorts World Berhad (Entertainment)+ 114,000 210,900
Rothmans of Pall Mall Berhad (Tobacco)+ 22,800 159,600
Sime Darby Berhad (Conglomerate)+ 179,000 222,855
Telekom Malaysia Berhad (Telecommunications)+ 130,000 422,500
Tenaga Nasional Berhad (Utilities - Electric)+ 104,000 224,900
-----------
$ 1,996,925
- --------------------------------------------------------------------------------------------------------
Mauritius - 0.3%
New Mauritius Hotels Ltd. (Restaurants and Lodging) 58,000 $ 101,511
Rogers & Co. Ltd. (Conglomerate) 29,000 70,366
-----------
$ 171,877
- --------------------------------------------------------------------------------------------------------
Mexico - 11.5%
Alfa S.A. de C.V. (Conglomerate) 42,000 $ 148,235
Cemex S.A. (Construction) 129,119 567,992
Cifra S.A. de C.V. (Retail)* 394,510 682,068
Corporacion GEO S.A. de C.V. (Housing)*## 10,000 153,800
Desc S.A. de C.V., "B" (Conglomerate) 220,000 230,465
Fomento Economico Mexicano S.A. (Beverages) 10,295 343,596
Grupo Carso S.A. (Conglomerate)* 72,869 298,185
Grupo Financiero Banamex (Finance)* 146,000 292,747
Grupo Financiero Bancomer (Finance)* 615,000 208,880
Grupo Mexico S.A. (Metals) 65,000 220,102
Grupo Modelo S.A. de C.V. (Brewery) 276,040 711,633
Grupo Television S.A. de C.V., GDR (Entertainment)* 13,600 568,650
Kimberly-Clark de Mexico S.A. de C.V. (Forest and Paper
Products) 105,824 346,432
Organiz Soriana S.A., "B" (General Merchandise) 51,962 194,824
Telefonos de Mexico S.A. (Utilities - Telephone) 696,716 2,679,951
-----------
$ 7,647,560
- --------------------------------------------------------------------------------------------------------
Peru - 1.4%
Compania de Minas Buenaventura S.A. (Mining) 21,140 $ 152,035
CPT Telefonica del Peru S.A., "B" (Utilities - Telephone) 376,370 549,957
Credicorp Ltd. Holdings Co. (Banks and Credit Cos.) 17,732 195,052
-----------
$ 897,044
- --------------------------------------------------------------------------------------------------------
Philippines - 4.2%
Ayala Land, Inc. (Real Estate) 2,193,000 $ 708,819
Manila Electric Co., "B" (Utilities - Electric) 197,000 680,923
Philippine Long Distance Telephone Co., ADR (Utilities -
Telephone) 34,200 965,541
San Miguel Corp., "B" (Brewery) 178,000 401,557
-----------
$ 2,756,840
- --------------------------------------------------------------------------------------------------------
Poland - 3.9%
Agora S.A. (Entertainment)*## 14,056 $ 152,508
Bank Handlowy w Warszawie, GDR (Banks and Credit Cos.)## 20,800 238,160
Bank Rozwoju Eksportu S.A. (Banks and Credit Cos.) 7,374 198,346
Elektrim Spolka Akcyjna S.A. (Electrical Equipment) 33,300 389,253
Orbis S.A. (Restaurants and Lodging) 25,000 209,276
Softbank Corp. (Bank) 2,920 94,170
Telekomunikacja Polska S.A. (Telecommunications)*## 183,600 1,092,420
WBK Wielkopolski S.A. (Consumer Goods and Services) 40,500 237,217
-----------
$ 2,611,350
- --------------------------------------------------------------------------------------------------------
Russia - 1.5%
AO Mosenergo (Electric, Gas, Sanitary) 9,580 $ 25,148
JSC Surgutneftegaz Co., ADR (Oils) 43,804 339,481
Lukoil Oil Co., ADR (Oils) 12,905 480,066
Unified Energy Systems, GDR (Utilities - Electric) 8,650 50,603
Vimpel-Communications (Telecommunications)* 4,396 92,865
-----------
$ 988,163
- --------------------------------------------------------------------------------------------------------
Singapore - 3.3%
City Developments Ltd. (Real Estate) 17,000 $ 101,655
DBS Land Ltd. (Real Estate) 144,000 255,814
Development Bank of Singapore Ltd. (Banks and Credit Cos.) 31,000 320,348
Keppel Corp. Ltd. (Holding Company) 32,000 91,402
Natsteel Electronics Ltd. (Electronics) 60,000 200,290
Overseas Union Bank Ltd. (Banks and Credit Cos.) 53,000 272,308
Sembcorp Industries, Ltd. (Holding Company)* 75,000 100,145
Singapore Press Holdings Ltd. (Printing and Publishing) 32,400 443,913
Singapore Telecommunications, Ltd. (Telecommunications) 123,000 207,797
United Overseas Bank (Banks and Credit Cos.) 27,000 178,694
-----------
$ 2,172,366
- --------------------------------------------------------------------------------------------------------
South Africa - 6.0%
ABSA Group Ltd. (Banks and Credit Cos.) 32,600 $ 149,724
Anglo American Corp. of South Africa Ltd. (Mining)* 4,435 201,267
Anglo American Platinum Corp. Ltd. (Metals) 25,700 472,961
AngloGold Ltd. (Mining) 5,500 218,156
De Beers Centenary AG (Diamonds - Precious Stones) 23,284 500,289
Dimension Data Holdings Ltd. (Electrical & Electronic
Equipment) 75,273 302,194
FirstRand Ltd. (Financial Services) 292,100 274,876
Imperial Holdings Ltd. (Conglomerate) 25,832 210,731
JD Group Ltd. (Stores)* 31,275 165,737
Liberty Life Association of Africa Ltd. (Insurance) 15,706 211,861
Nedcor Ltd. (Banks and Credit Cos.) 17,170 344,106
Real Africa Holdings Ltd. (Conglomerate) 42,681 71,624
Rembrandt Group Ltd. (Tobacco) 27,000 191,860
Sanlam Ltd. (Insurance) 123,470 118,965
Sasol Ltd. (Oils) 33,866 190,344
South African Breweries Ltd. (Brewery) 40,406 325,080
-----------
$ 3,949,775
- --------------------------------------------------------------------------------------------------------
South Korea - 13.1%
L.G. Chemical Ltd. (Petrochemicals) 18,700 $ 367,502
Daewoo Heavy Industries (Machinery - Industrial) 47,600 180,267
Honam Petrochemical Corp. (Chemicals) 16,750 279,732
Housing & Commercial Bank of Korea (Banks and Credit Cos.) 40,700 1,115,680
Hyundai Merchant Marine (Transportation - Marine) 22,600 276,400
Kookmin Bank (Banks and Credit Cos.) 38,250 579,106
Korea Electric Power Corp. (Utilities - Electric) 45,970 1,407,482
Korea Electric Power Corp., ADR (Utilities - Electric) 13,350 227,784
Medison Co. (Medical and Health Products) 34,390 437,997
Pohang Iron & Steel Co. Ltd. (Construction) 14,875 1,415,860
Samsung Display Devices Co. (Electronics) 10,770 517,788
Samsung Electronics (Electronics) 21,853 1,520,641
Samsung Fire & Marine Insurance (Insurance) 375 192,624
SK Telecom Ltd. (Telecommunications) 83 98,563
SK Telecom Ltd., ADR (Telecommunications) 6,300 89,775
-----------
$ 8,707,201
- --------------------------------------------------------------------------------------------------------
Taiwan - 2.5%
Taipei Fund (Holding Company & Other Investments)* 199 $ 1,676,575
- --------------------------------------------------------------------------------------------------------
Thailand - 5.6%
Bangkok Expressway (Transportation Services) 333,000 $ 240,425
BEC World Public Co. Ltd. (Television) 31,000 146,424
Electricity Generating Public Co. Ltd. (Utilities - Electric) 119,000 253,738
PTT Exploration and Production Public Co. Ltd., ADR (Oil
Services) 101,400 826,526
Siam Cement Public Co. Ltd. (Building Materials) 17,400 452,729
Siam Commercial Bank Public Co. Ltd. (Banks and Credit Cos.)* 348,000 356,923
TelecomAsia Corp. Ltd (Utilities - Telephone) 421,000 309,642
Thai Farmers Bank (Banks and Credit Cos.) 398,000 1,095,709
-----------
$ 3,682,116
- --------------------------------------------------------------------------------------------------------
Turkey - 3.2%
Migros Turk T.A.S. (Retail) 130,900 $ 167,260
Akbank T.A.S. (Banks and Credit Cos.) 11,549,806 190,151
Akbank T.A.S. (Banks and Credit Cos.)* 12,990,606 213,871
Haci Omer Sabanci Holdings A.S., ADR (Conglomerate)## 27,834 170,483
Tupras Turkiye Petrol Rafinerileri A.S. (Oils) 1,527,600 106,980
Turkiye Is Bankasi A.S. (Banks and Credit Cos.)* 25,566,262 502,580
Yapi ve Kredi Bankasi (Banks and Credit Cos.) 23,848,050 304,723
Yapi ve Kredi Bankasi (Banks and Credit Cos.)* 35,346,680 451,648
-----------
$ 2,107,696
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $62,898,849) $68,196,560
- --------------------------------------------------------------------------------------------------------
Rights
Tele Centro Oeste Celular Participacoes S.A
(Telecommunications) 491,000 $ 0
Alpha Credit Bank (Banking)* 10,560 0
Samsung Elecectronics (Electronics)* 1,514 16,090
- --------------------------------------------------------------------------------------------------------
Total Rights (Identified Cost, $0) $ 16,090
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $62,898,849) $68,212,650
Other Assets, Less Liabilities - (3.0)% (2,000,497)
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $66,212,153
- --------------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- -------------------------------------------------------------------------------
MAY 31, 1999
- -------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $62,898,849) $68,212,650
Foreign currency, at value (identified cost, $1,826,095) 1,823,106
Receivable for Fund shares sold 223,054
Receivable for investments sold 472,043
Dividends receivable 246,521
Deferred organization expenses 7,290
Other assets 1,023
-----------
Total assets $70,985,687
-----------
Liabilities:
Notes payable $ 1,813,042
Payable to custodian 1,060,380
Payable for Fund shares reacquired 61,708
Payable for investments purchased 1,675,120
Payable to affiliates -
Management fee 9,696
Shareholder servicing agent fee 776
Distribution and service fee 37,282
Accrued expenses and other liabilities 115,530
-----------
Total liabilities $ 4,773,534
-----------
Net assets $66,212,153
===========
Net assets consist of:
Paid-in capital $83,603,865
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 5,281,342
Accumulated net realized loss on investments and foreign
currency transactions (22,227,665)
Accumulated net investment loss (445,389)
-----------
Total $66,212,153
===========
Shares of beneficial interest outstanding 4,835,031
=========
Class A shares:
Net asset value and redemption price per share
(net assets of $29,232,944 / 2,123,328 shares of
beneficial interest outstanding) $13.77
======
Offering price per share (100 / 95.25 of net asset value
per share) $14.45
======
Class B shares:
Net asset value and offering price per share
(net assets of $32,256,605 / 2,364,508 shares of
beneficial interest outstanding) $13.64
======
Class C shares:
Net asset value and offering price per share
(net assets of $4,182,159 / 308,254 shares of beneficial
interest outstanding) $13.57
======
Class I shares:
Net asset value and offering price per share
(net assets of $540,445 / 38,941 shares of beneficial
interest outstanding) $13.88
======
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1999
- -------------------------------------------------------------------------------
Net investment income:
Income -
Dividends $ 1,712,349
Interest 118,796
Foreign taxes withheld (129,987)
------------
Total investment income $ 1,701,158
------------
Expenses -
Management fee $ 758,494
Trustees' compensation 18,266
Shareholder servicing agent fee 66,858
Distribution and service fee (Class A) 141,902
Distribution and service fee (Class B) 290,717
Distribution and service fee (Class C) 28,290
Administrative fee 7,706
Auditing fees 44,587
Custodian fee 67,990
Printing 46,255
Registration fees 33,427
Postage 32,731
Interest expense 14,768
Amortization of organization expenses 5,197
Legal fees 4,459
Miscellaneous 78,672
------------
Total expenses $ 1,640,319
Fees paid indirectly (16,758)
------------
Net expenses $ 1,623,561
------------
Net investment income $ 77,597
------------
Realized and unrealized gain (loss) on investments:
Realized loss (identified cost basis) -
Investment transactions $(21,893,208)
Foreign currency transactions (597,474)
------------
Net realized loss on investments and foreign currency
transactions $(22,490,682)
------------
Change in unrealized appreciation (depreciation) -
Investments $ 10,935,046
Translation of assets and liabilities in foreign currencies (23,871)
------------
Net unrealized gain on investments and foreign currency
translation $ 10,911,175
------------
Net realized and unrealized loss on investments and
foreign currency $(11,579,507)
------------
Decrease in net assets from operations $(11,501,910)
============
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ 77,597 $ (429,632)
Net realized gain (loss) on investments and foreign
currency transactions (22,490,682) 3,739,746
Net unrealized gain (loss) on invesments and foreign
currency translation 10,911,175 (19,038,139)
------------ ------------
Decrease in net assets from operations $(11,501,910) $(15,728,025)
------------ ------------
Distributions declared to shareholders -
In excess of net investment income (Class A) $ -- $ (192,963)
In excess of net investment income (Class C) -- (4,544)
In excess of net investment income (Class I) -- (3,738)
From net realized gain on investments and foreign
currency transactions (Class A) -- (388,703)
From net realized gain on investments and foreign
currency transactions (Class B) -- (448,541)
From net realized gain on investments and foreign
currency transactions (Class C) -- (35,329)
From net realized gain on investments and foreign
currency transactions (Class I) -- (3,734)
In excess of net realized gain on investments and foreign
currency transactions (Class A) (197,155) --
In excess of net realized gain on investments and foreign
currency transactions (Class B) (200,996) --
In excess of net realized gain on investments and foreign
currency transactions (Class C) (17,217) --
In excess of net realized gain on investments and foreign
currency transactions (Class I) (2,833) --
------------ ------------
Total distributions declared to shareholders $ (418,201) $ (1,077,552)
------------ ------------
Net increase (decrease) in net assets from Fund share
transactions $ (2,421,006) $ 5,841,208
------------ ------------
Total decrease in net assets $(14,341,117) $(10,964,369)
Net assets:
At beginning of period 80,553,270 91,517,639
------------ ------------
At end of period (including accumulated net investment loss
of $445,389 and accumulated distributions in excess of net
investment income of $152,729, respectively) $ 66,212,153 $ 80,553,270
============ =============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
------------------------------------------------- PERIOD ENDED
1999 1998 1997 MAY 31, 1996*
- -------------------------------------------------------------------------------------------------------------------------
CLASS A
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.06 $18.96 $16.52 $15.00
------ ------ ------ ------
Income from investment operations# -
Net investment income (loss)(S) $ 0.05 $(0.02) $(0.07) $ 0.04
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (2.25) (2.64) 2.74 1.50
------ ------ ------ ------
Total from investment operations $(2.20) $(2.66) $ 2.67 $ 1.54
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $(0.02)
From net realized gain on investments and
foreign currency transactions -- (0.16) (0.23) --
In excess of net investment income -- (0.08) -- --
In excess of net realized gain on investments
and foreign currency transactions (0.09) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.09) $(0.24) $(0.23) $(0.02)
------ ------ ------ ------
Net asset value - end of period $13.77 $16.06 $18.96 $16.52
====== ====== ====== ======
Total return(+) (13.56)% (14.09)% 16.43% 10.24%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.45% 2.35% 2.51% 2.48%+
Net investment income (loss) 0.37% (0.12)% (0.42)% 0.35%+
Portfolio turnover 108% 83% 47% 22%
Net assets at end of period (000 omitted) $29,233 $36,669 $37,540 $19,861
* For the period from the commencement of the Fund's investment operations, October 24, 1995, through May 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund 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.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
(S) For the year ended May 31, 1998, and 1997 the Adviser voluntarily agreed to bear, subject to reimbursement by the
Fund, expenses of each class of shares of the Fund such that expenses, exclusive of management, distribution,
service fees, and certain other expenses, of the Fund's Class A shares, Class B shares, Class C shares, and Class I
shares do not exceed 0.75%, respectively, of the Fund's average daily net assets on an annualized basis. For the
period ended May 31, 1996, the Adviser voluntarily agreed to maintain total expenses of the Fund at not more than
2.50%, 3.07%, and 3.00% of average daily net assets for Class A, Class B, and Class C shares, respectively. To the
extent that actual expenses were over/under these limitations, the net investment income (loss) per share and the
ratios would have been:
Net investment income (loss) $ -- $(0.02) $(0.06) $ 0.02
Ratios (to average net assets):
Expenses## -- 2.31% 2.45% 2.73%+
Net investment income (loss) -- (0.08)% (0.37)% 0.10%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
---------------------------------------------------- PERIOD ENDED
1999 1998 1997 MAY 31, 1996*
- --------------------------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.00 $18.89 $16.47 $15.00
------ ------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.01) $(0.13) $(0.15) $(0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (2.26) (2.60) 2.73 1.50
------ ------ ------ ------
Total from investment operations $(2.27) $(2.73) $ 2.58 $ 1.48
------ ------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $ -- $ -- $ --
From net realized gain on investments and
foreign currency transactions -- (0.16) (0.16) --
In excess of net investment income -- -- -- (0.01)
In excess of net realized gain on investments
and foreign currency transactions (0.09) -- -- --
------ ------ ------ ------
Total distributions declared to shareholders $(0.09) $(0.16) $(0.16) $(0.01)
------ ------ ------ ------
Net asset value - end of period $13.64 $16.00 $18.89 $16.47
====== ====== ====== ======
Total return (14.05)% (14.49)% 15.87% 9.85%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.95% 2.85% 3.04% 3.06%+
Net investment loss (0.09)% (0.67)% (0.87)% (0.19)%+
Portfolio turnover 108% 83% 47% 22%
Net assets at end of period (000 omitted) $32,257 $39,978 $51,020 $20,021
* For the period from the commencement of the Fund's investment operations, October 24, 1995, through May 31, 1996.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund 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.
(S) For the year ended May 31, 1998, and 1997 the Adviser voluntarily agreed to bear, subject to reimbursement by the
Fund, expenses of each class of shares of the Fund such that expenses, exclusive of management, distribution,
service fees, and certain other expenses, of the Fund's Class A shares, Class B shares, Class C shares, and Class I
shares do not exceed 0.75%, respectively, of the Fund's average daily net assets on an annualized basis. For the
period ended May 31, 1996, the Adviser voluntarily agreed to maintain total expenses of the Fund at not more than
2.50%, 3.07%, and 3.00% of average daily net assets for Class A, Class B, and Class C shares, respectively. To the
extent that actual expenses were over/under these limitations, the net investment income (loss) per share and the
ratios would have been:
Net investment income (loss) $ -- $(0.12) $(0.14) $ 0.08
Ratios (to average net assets):
Expenses## -- 2.81% 2.98% 3.30%+
Net investment loss -- (0.63)% (0.82)% (0.44)%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
-------------------------------- PERIOD ENDED
1999 1998 MAY 31, 1997**
- ------------------------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $15.88 $18.76 $16.77
------ ------ ------
Income from investment operations# -
Net investment loss(S) $(0.01) $(0.12) $(0.08)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (2.21) (2.58) 2.36
------ ------ ------
Total from investment operations $(2.22) $(2.70) $ 2.28
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.02) $ --
From net realized gain on investments and foreign
currency transactions -- (0.16) (0.29)
In excess of net realized gain on investments and
foreign currency transactions (0.09) -- --
------ ------ ------
Total distributions declared to shareholders $(0.09) $(0.18) $(0.29)
------ ------ ------
Net asset value - end of period $13.57 $15.88 $18.76
====== ====== ======
Total return (13.84)% (14.44)% 13.89%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.93% 2.84% 3.00%+
Net investment loss (0.10)% (0.66)% (0.48)%+
Portfolio turnover 108% 83% 47%
Net assets at end of period (000 omitted) $4,182 $3,478 $2,659
** For the period from the inception of Class C, June 27, 1996, through May 31, 1997.
+ 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.
(S) For the year ended May 31, 1998, and the period ended May 31, 1997, the Adviser voluntarily agreed to bear, subject
to reimbursement by the Fund, expenses of each class of shares of the Fund such that expenses, exclusive of
management, distribution, service fees, and certain other expenses, of the Fund's Class A shares, Class B shares,
Class C shares, and Class I shares do not exceed 0.75%, respectively, of the Fund's average daily net assets on an
annualized basis. To the extent that actual expenses were over/under these limitations, the net investment income
(loss) per share and the ratios would have been:
Net investment loss $ -- $(0.12) $(0.07)
Ratios (to average net assets):
Expenses## -- 2.80% 2.97%+
Net investment loss -- (0.62)% (0.39)%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED MAY 31,
---------------------------------- PERIOD ENDED
1999 1998 MAY 31, 1997***
- ---------------------------------------------------------------------------------------------------------------
CLASS I
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $16.11 $19.00 $16.47
------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.11 $ 0.08 $ 0.10
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (2.25) (2.65) 2.43
------ ------ ------
Total from investment operations $(2.14) $(2.57) $ 2.53
------ ------ ------
Less distributions declared to shareholders -
From net investment income $ -- $(0.16) $ --
From net realized gain on investments and foreign
currency transactions -- (0.16) --
In excess of net realized gain on investments and
foreign currency transactions (0.09) -- --
------ ------ ------
Total distributions declared to shareholders $(0.09) $(0.32) $ --
------ ------ ------
Net asset value - end of period $13.88 $16.11 $19.00
====== ====== ======
Total return (13.09)% (13.66)% 15.36%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.96% 1.85% 2.01%+
Net investment income 0.88% 0.43% 1.14%+
Portfolio turnover 108% 83% 47%
Net assets at end of period (000 omitted) $540 $428 $299
*** For the period from the inception of Class I, January 2, 1997, through May 31, 1997.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund 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.
(S) For the year ended May 31, 1998, and the period ended May 31, 1997, the Adviser voluntarily agreed to bear, subject
to reimbursement by the Fund, expenses of each class of shares of the Fund such that expenses, exclusive of
management, distribution, service fees, and certain other expenses, of the Fund's Class A shares, Class B shares,
Class C shares, and Class I shares do not exceed 0.75%, respectively, of the Fund's average daily net assets on an
annualized basis. To the extent that actual expenses were over/under these limitations, the net investment income
(loss) per share and the ratios would have been:
Net investment income $ -- $ 0.09 $ 0.10
Ratios (to average net assets):
Expenses## -- 1.81% 1.99%+
Net investment income -- 0.47% 1.14%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS/Foreign & Colonial Emerging Markets Equity Fund (the Fund) is a
diversified series of MFS Series Trust X (the Trust). The Trust is organized
as a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations, which mature
in 60 days or less, are valued at amortized cost, which approximates market
value. Non-U.S. dollar denominated short-term obligations are valued at
amortized cost as calculated in the foreign currency and translated into U.S.
dollars at the closing daily exchange rate. Securities for which there are no
such quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Organization Expenses - Costs incurred by the Fund in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of Fund
operations.
Forward Foreign Currency Exchange Contracts - The Fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund 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. The Fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the Fund may
enter into contracts with the intent of changing the relative exposure of the
Fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. 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.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on
Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as 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 May 31, 1999, $370,257 and $409,586 was reclassified
from accumulated net investment loss and paid-in capital, respectively to
accumulated net realized loss on investments and foreign currency transactions
due to differences between book and tax accounting for currency transactions.
This change had no effect on the net assets or net asset value per share. At
May 31, 1999, accumulated net investment realized loss on investments and
foreign currency transactions under book accounting were different from
tax accounting due to temporary differences in accounting for capital losses.
At May 31, 1999, the Fund, for federal income tax purposes, had a capital loss
carryforward of $13,682,812 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on May 31, 2007.
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on average
daily net assets of each class, without distinction between share classes.
Dividends are declared separately for each class. No class has preferential
dividend rights; differences in per share dividend rates are generally due to
differences in separate class expenses. Class B shares will convert to Class A
shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.25%
of the Fund's average daily net assets.
The advisory agreement permits the adviser to engage one or more sub-advisers
and the adviser has engaged Foreign & Colonial Management Ltd. and Foreign &
Colonial Emerging Markets Ltd., each an England and Wales Company, to assist
in the performance of its services.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $3,725
for the year ended May 31, 1999.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee
at the following annual percentages of the Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$18,500 for the year ended May 31, 1999, as its portion of the sales charge on
sales of Class A shares of the Fund.
The Trustees have adopted a distribution plan for Class A, Class B, and Class
C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD up to 0.50%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of the Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of the Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.25% per annum of the Fund's average daily
net assets attributable to Class A shares. MFD retains the service fee for
accounts not attributable to a securities dealer, which amounted to $12,532
for the year ended May 31, 1999. Fees incurred under the distribution plan
during the year ended May 31, 1999, were 0.50% of average daily net assets
attributable to Class A shares on an annualized basis.
The Trustees have adopted a distribution plan relating solely to Class B and
Class C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940 as
follows:
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $3,818 and $539 for Class B and Class C shares, respectively, for
the year ended May 31, 1999. Fees incurred under the distribution plan during
the year ended May 31, 1999, were 1.00% of each class' average daily net assets
attributable to Class B and Class C shares on an annualized basis.
Certain Class A and Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within 12 months following
purchase. A contingent deferred sales charge is imposed on shareholder
redemptions of Class B shares in the event of a shareholder redemption within
six years of purchase. MFD receives all contingent deferred sales charges.
Contingent deferred sales charges imposed during the year ended May 31, 1999,
were $1,338, $111,372, and $1,696 for Class A, Class B, and Class C shares,
respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the Fund's average daily net assets at an effective annual
rate of 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of the Fund's average daily net assets at an effective annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$68,678,823 and $63,748,534, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $63,452,755
-----------
Gross unrealized appreciation $10,091,424
Gross unrealized depreciation (5,331,529)
-----------
Net unrealized appreciation $ 4,759,895
===========
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
Class A Shares
YEAR ENDED MAY 31, 1999 YEAR ENDED MAY 31, 1998
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 9,572,824 $ 123,603,865 3,867,672 $ 72,468,218
Shares issued to shareholders
in reinvestment of distributions 15,201 172,987 31,963 552,163
Shares reacquired (9,748,073) (126,386,045) (3,596,132) (66,970,563)
---------- ------------- ---------- ------------
Net increase (decrease) (160,048) $ (2,609,193) 303,503 $ 6,049,818
========== ============= ========== ============
<CAPTION>
Class B Shares
YEAR ENDED MAY 31, 1999 YEAR ENDED MAY 31, 1998
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 2,255,671 $ 29,849,662 2,811,180 $ 53,134,945
Shares issued to shareholders
in reinvestment of distributions 16,140 182,444 22,800 394,934
Shares reacquired (2,406,513) (31,134,564) (3,036,072) (55,624,554)
---------- ------------- ---------- ------------
Net decrease (134,702) $ (1,102,458) (202,092) $ (2,094,675)
========== ============= ========== ============
<CAPTION>
Class C Shares
YEAR ENDED MAY 31, 1999 YEAR ENDED MAY 31, 1998
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 1,073,599 $ 13,797,921 293,766 $ 5,576,988
Shares issued to shareholders
in reinvestment of distributions 1,344 15,106 1,950 33,682
Shares reacquired (985,737) (12,683,053) (218,393) (3,930,561)
---------- ------------- ---------- ------------
Net increase 89,206 $ 1,129,974 77,323 $ 1,680,109
========== ============= ========== ============
<CAPTION>
Class I Shares
YEAR ENDED MAY 31, 1999 YEAR ENDED MAY 31, 1998
------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 17,858 $ 233,209 16,312 $ 308,734
Shares issued to shareholders
in reinvestment of distributions 248 2,833 (631) (12,723)
Shares reacquired (5,718) (75,371) (4,882) (90,055)
---------- ------------- ---------- ------------
Net increase 12,388 $ 160,671 10,799 $ 205,956
========== ============= ========== ============
</TABLE>
(6) Line of Credit
The Fund and other affiliated funds participate in a $720 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Fund shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on
the average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated
to the Fund for the year ended May 31, 1999, was $434.
The Fund and other affiliated funds also participate in a $20 million
uncommitted, unsecured line of credit provided by "the custodian" or "a
custodian bank" under a line of credit agreement. Borrowings may be made to
temporarily finance the purchase of securities, the redemption of shares, or
emergency expenses. During the period, the average dollar amount of borrowings
was $270,498. Interest expense incurred on the borrowings amounted to $14,768
for the year ended May 31, 1999, at a weighted average interest rate on
borrowings of 5.38%.
(7) Restricted Securities
The Fund may invest not more than 15% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At May 31, 1999,
the Fund owned the following restricted securities (constituting 3.0% 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 or at the direction of
the Trustees.
<TABLE>
<CAPTION>
DESCRIPTION DATE OF ACQUISITION SHARE/PAR AMOUNT COST VALUE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DCB Holdings Berhad 5/12/1999 86,000 $ 96,072 $ 89,440
Malayan Banking Berhad 5/12/1999 86,000 235,107 227,900
Malaysia International Shipping
Corp. Berhad 5/12/1999 138,000 237,838 229,425
Public Bank Berhad 5/13/1999 217,000 191,963 209,405
Resorts World Berhad 5/12/1999 114,000 203,243 210,900
Rothmans of Pall Mall Berhad 5/12/1999 22,800 151,715 159,600
Sime Darby Berhad 5/12/1999 179,000 217,186 222,855
Telekom Malaysia Berhad 5/12/1999 130,000 418,860 422,500
Tenaga Nasional Berhad 5/12/1999 104,000 235,427 224,900
----------
$1,996,925
==========
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust X and Shareholders of MFS/Foreign &
Colonial Emerging Markets Equity Fund:
We have audited the accompanying statement of assets and liabilities of MFS/
Foreign & Colonial Emerging Markets Equity Fund, including the schedule of
portfolio investments, as of May 31, 1999, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights
for each of the three years in the period then ended and for the period from
October 24, 1995 (commencement of operations) to May 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of May 31, 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 position of MFS/
Foreign & Colonial Emerging Markets Equity Fund at May 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the three years in the period then ended and for the period October 24, 1995
(commencement of operations) to May 31, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
July 9, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1999.
THE FUND HAS DESIGNATED $418,201 AS A CAPITAL GAIN DIVIDEND.
<PAGE>
<TABLE>
MFS(R) FOREIGN & COLONIAL EMERGING MARKETS EQUITY FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Peter G. Harwood - Private Investor
CUSTODIAN
J. Atwood Ives - Chairman and Chief Executive State Street Bank and Trust Company
Officer, Eastern Enterprises (diversified services
company) AUDITORS
Ernst & Young LLP
Lawrence T. Perera - Partner, Hemenway
& Barnes (attorneys) INVESTOR INFORMATION
For MFS stock and bond market outlooks,
William J. Poorvu - Adjunct Professor, Harvard call toll free: 1-800-637-4458 anytime from
University Graduate School of Business a touch-tone telephone.
Administration
For information on MFS mutual funds, call your
Charles W.Schmidt - Private Investor financial adviser or, for an information kit, call
toll free: 1-800-637-2929 any business day from 9
Arnold D. Scott* - Senior Executive a.m. to 5 p.m. Eastern time (or leave a message
Vice President, Director, and Secretary, anytime).
MFS Investment Management
INVESTOR SERVICE
Jeffrey L. Shames* - Chairman, Chief MFS Service Center, Inc.
Executive Officer, and Director, P.O. Box 2281
MFS Investment Management Boston, MA 02107-9906
Elaine R. Smith - Independent Consultant For general information, call toll free:
1-800-225-2606 any business day from
David B. Stone - Chairman and Director, 8 a.m. to 8 p.m. Eastern time.
North American Management Corp.
(investment advisers) For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from 9
INVESTMENT ADVISER a.m. to 5 p.m. Eastern time. (To use this service,
Massachusetts Financial Services Company your phone must be equipped with a
500 Boylston Street Telecommunications Device for the Deaf.)
Boston, MA 02116-3741
For share prices, account balances, and exchanges,
DISTRIBUTOR call toll free: 1-800-MFS-TALK (1-800-637-8255)
MFS Fund Distributors, Inc. anytime from a touch-tone telephone.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
www.mfs.com
PORTFOLIO MANAGERS
Arnab Kumar Banerji*
Jeffrey Chowdhry*
TREASURER
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R)/FOREIGN & COLONIAL ------------
EMERGING MARKETS EQUITY FUND BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
FEM-2 7/99 19M 85/285/385/885
