<PAGE>
[Logo] M F S (R) ANNUAL REPORT
INVESTMENT MANAGEMENT JULY 31, 2000
We invented the mutual fund(R)
[Graphic Omitted]
MFS(R) EMERGING
MARKETS DEBT FUND
MFS(R) STRATEGIC VALUE FUND
<PAGE>
<TABLE>
MFS(R) EMERGING MARKETS DEBT FUND
MFS(R) STRATEGIC VALUE FUND
<S> <C>
TRUSTEES SECRETARY
J. Atwood Ives+ - Chairman and Chief Stephen E. Cavan*
Executive Officer, Eastern Enterprises
(diversified services company) ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Lawrence T. Perera+ - Partner, Hemenway
& Barnes (attorneys) CUSTODIAN
State Street Bank and Trust Company
William J. Poorvu+ - Adjunct Professor,
Harvard University Graduate School of AUDITORS
Business Administration Ernst & Young LLP
Charles W. Schmidt+ - Private Investor INVESTOR INFORMATION
For information on MFS mutual funds, call your
Arnold D. Scott* - Senior Executive Vice investment professional or, for an information kit,
President, Director, and Secretary, call toll free: 1-800-637-2929 any business day
MFS Investment Management from 9 a.m. to 5 p.m. Eastern time
(or leave a message anytime).
Jeffrey L. Shames* - Chairman and Chief
Executive Officer, 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, North American
Management Corp. (investment adviser) For general information, call toll free:
1-800-225-2606 any business day from
INVESTMENT ADVISER 8 a.m. to 8 p.m. Eastern time.
Massachusetts Financial Services Company
500 Boylston Street For service to speech- or hearing-impaired, call toll
Boston, MA 02116-3741 free: 1-800-637-6576 any business day from 9 a.m. to 5
p.m. Eastern time. (To use this service, your phone
DISTRIBUTOR must be equipped with a Telecommunications
MFS Fund Distributors, Inc. Device for the Deaf.)
500 Boylston Street
Boston, MA 02116-3741 For share prices, account balances, exchanges, or stock
and bond outlooks, call toll free:
CHAIRMAN AND PRESIDENT 1-800-MFS-TALK (1-800-637-8255) anytime from a touch-
Jeffrey L. Shames* tone telephone.
PORTFOLIO MANAGERS WORLD WIDE WEB
Kenneth J. Enright* www.mfs.com
Mathew W. Ryan*
TREASURER
James O. Yost*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
+Independent Trustee
*MFS Investment Management
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
I'm sure you've noticed that whenever financial markets suffer a large
decline, as they did very dramatically this past spring, there's a flurry of
information on "how to deal with market volatility" -- both in the popular
press and from those of us in the investment business. Our own thinking on
this is that, first, for long-term investors volatility is not necessarily
something to be feared; occasional volatility may in fact be healthy for the
markets.
Second, our experience has been that when markets begin to fall, it's often too
late to act. The best response may be to do nothing -- if you're properly
prepared with a long-term plan, created with the help of your investment
professional. To help you create or update that plan and take market volatility
in stride, here are some points you may want to consider the next time you talk
with your investment professional.
1. VOLATILITY CAN BE A GOOD THING
We would argue that the markets today are much healthier than they were before
the period of volatility this past spring, in the sense that stock prices have
returned to more reasonable levels and we have a stronger base for future
growth. Perhaps the worst of the market's wrath descended on companies with
very high prices, relative to their earnings, or with business concepts that
looked great in the euphoria of a booming market but in the end appeared to
have no fundamental backing. It has always been our view that one of the best
protections against market volatility is to invest in stocks and bonds of
fundamentally good companies selling at reasonable prices. When discussing
potential investments with your investment professional, you may want to ask
how they fared in previous periods of volatility, as well as in the good
times.
2. INVEST FOR THE LONG TERM
You've heard that before, but we think it's still probably the most important
concept in investing. Time is one of an investor's greatest allies. Over
nearly all long-term periods -- 5, 10, 20 years, and more -- stock and bond
returns, as represented by most common indices, have been positive and have
considerably outpaced inflation. Investing is the best way we know of to make
your money work for you while you're doing something else.
Where investors can get into trouble is by confusing investing with trading.
In our view, traders who buy securities with the intention of selling them at
a profit in a matter of hours, days, or weeks are gambling. We believe this
seldom turns out to be a good strategy for increasing your wealth.
3. INVEST REGULARLY
Waiting for the "right time" to invest is almost always a poor strategy,
because only in retrospect do we know when that right time really was. Periods
of volatility are probably the worst times to make an investment decision.
Faced with turmoil in the markets, many investors have opted to simply stay on
the sidelines.
On the other hand, we think one of the best techniques for investing is
through automatic monthly or quarterly deductions from a checking or savings
account. This approach has at least three major benefits. First, you can
formulate a long-term plan -- how much to invest, how often, and into what
portfolios -- in a calm, rational manner, working with your investment
professional. Second, with this approach you invest regularly without
agonizing over the decision each time you buy shares.
And, third, if you invest equal amounts of money at regular intervals, you'll
be taking advantage of a strategy called dollar-cost averaging: by investing a
fixed amount while the share cost fluctuates, you end up with an average share
cost to you that is lower than the average share price over your investment
period.(1) If all this sounds familiar, it's probably because you're already
taking advantage of dollar-cost averaging by investing regularly for
retirement through a 401(k) or similar account at work.
4. DIVERSIFY
One of the dangers of not having an investment plan is that you may be tempted
to simply chase performance, i.e., move money into whatever asset class
appears to be outperforming at the moment -- small, mid, or large cap; growth
or value; United States or international; stocks or bonds. The problem with
this approach is that by the time a particular area is generally recognized as
"hot," you may have already missed some of the best performance.
International investing offers a case in point. In the 1980s, international
investments, as represented by the Morgan Stanley Capital International (MSCI)
Europe, Australia, Far East (EAFE) Index, outperformed U.S. investments, as
represented by the Standard & Poor's 500 Composite Index (S&P 500), in 7 out
of 10 years.(2) For the decade, the MSCI EAFE's average annual performance was
23%, compared to 18% for the S&P 500. Going into the 1990s, then, an investor
looking only at recent performance might have favored international
investments over U.S. investments.
But the 1990s turned out to be virtually a mirror image of the '80s. Domestic
investments outperformed international investments in 7 out of 10 years, with
the S&P 500 returning an average of 18% annually for the decade and the MSCI
EAFE returning a 7% annual average. Looking ahead, however, we are optimistic
about international markets because we feel that many of the same forces that
propelled the current U.S. economic boom -- deregulation, restructuring, and
increased adoption of technology -- have taken root overseas.
The lesson to be learned is that nobody really knows what asset class will be
the next to outperform or how long that performance will be sustained. We
would suggest that one way to potentially profit from swings in the market --
to potentially be invested in various asset classes before the market shifts
in their favor -- is with a diversified portfolio covering several asset
classes.
If you haven't already done so, we encourage you to discuss these thoughts
with your investment professional and factor them into your long-range
financial planning. Hopefully, the next time the markets appear to be going
wild, you'll feel confident enough in your plan to view periods of volatility
as a time of potential opportunity -- or perhaps just a time to sit back and
do nothing.
As always, we appreciate your confidence in MFS 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 15, 2000
------------
(1) The use of a systematic investing program does not guarantee a profit or
protect against a loss in declining markets. You should consider your
financial ability to continue to invest through periods of low prices.
(2) Sources: Lipper Inc. Decade performance: '80s -- 12/31/79-12/31/89,
'90s -- 12/31/89-12/31/99. The MSCI EAFE Index is an unmanaged, market-
capitalization-weighted total return index that measures the performance of
the same developed-country global stock markets included in the MSCI World
Index but excludes the United States, Canada, and the South African mining
component. The S&P 500 is a popular, unmanaged index of common stock total
return performance. It is not possible to invest directly in an index. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
A prospectus containing more complete information on any MFS product, including
all charges and expenses, can be obtained from your investment professional.
Please read it carefully before you invest or send money. Investments in mutual
funds will fluctuate and may be worth more or less upon redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
MFS EMERGING MARKETS DEBT FUND
Dear Shareholders,
For the 12 months ended July 31, 2000, the fund's Class A shares provided a
total return of 34.86% and Class I shares returned 34.73%. These returns
include the reinvestment of any distributions and compare to a 26.29% return
over the same period for the fund's benchmark, the J.P. Morgan Emerging
Markets Bond Index Global (the EMBI Global), an unmanaged index comprised of
Brady bonds (restructured bank loans) and other dollar-denominated bonds.
During the same period, the average emerging-markets debt fund tracked by
Lipper Inc., an independent firm that reports mutual fund performance,
returned 25.18%.
Emerging-markets debt continued to perform strongly, delivering returns that
were strong not only when compared to other fixed-income asset classes but
also to U.S. and other major equity markets as well. Reduced volatility in
emerging-markets debt has helped risk-adjusted returns appear even more
attractive. Among the factors contributing to the fund's favorable results
were continued improvements in many countries' economic and policy
fundamentals, a generally supportive global economic environment characterized
by solid growth and firming commodity prices, and broadening investor interest
in emerging-markets debt.
These factors proved to be reinforcing in some key countries as advances in
reforms and economic activity resulted in increased investor interest, higher
capital inflows, and further improvements in underlying fundamentals,
including declining fiscal deficits, enhanced debt profiles, and higher
foreign exchange reserves. In turn, these trends have sparked credit rating
upgrades, which we feel has reinforced improving investor sentiment, enhanced
economic performance, and solid returns.
The fund has successfully taken advantage of many of these positive
developments. Country selection remains a key driver of strong relative
results, as larger positions in Russia and Algeria, in particular, have
benefited performance tremendously. In addition, we have profited from
disciplined positioning of the fund in credits such as the Philippines and
Colombia when market sentiment turned, in our view, excessively bearish. We
have maintained an overweight position in Brazil and expect the market's
performance to improve in the second half of the year, following a somewhat
lackluster first half. While high oil prices continue to underpin Venezuelan
sovereign debt, we remain concerned about political and economic developments
in the country.
Our research-intensive approach to emerging-markets fixed-income securities
continued to benefit from a market environment in which shifts in credit
fundamentals for sovereigns and corporates were reflected in quick and severe
price movements. More so than in the past, such an environment rewards investors
who correctly anticipate negative as well as positive credit events. By the same
token, it can be unforgiving for momentum traders or those who simply attempt to
"reach for yield." Looking forward, we remain positive about the
emerging-markets bond market and expect the asset class to continue to deliver
attractive returns. Based purely on historic yield or spread comparisons with
other fixed-income asset classes, emerging-market debt could appear fully
valued. Our research indicates, however, that such historical reference points
are less relevant to the asset class today, primarily for two reasons. First,
default rates over the past year in high-yield debt -- the usual comparison to
emerging-markets debt -- have been considerably higher than their long-term
average, and we anticipate a decline in the default rate. Second, as noted
above, much of the tightening in emerging-markets debt yields were driven by
improvements in underlying fundamentals, and these favorable themes remain in
place. In addition, we have found that the global environment is generally
supportive, and economic and political developments in a number of countries
continue to progress favorably. Emerging-markets debt remains an improving
story. That said, we believe vulnerabilities remain in various countries, and
one of our primary responsibilities is to anticipate potential pitfalls as we
focus on positioning the fund to try to limit downside risks.
Respectfully,
/s/ Matthew W. Ryan
Matthew W. Ryan
Portfolio Manager
<PAGE>
MFS STRATEGIC VALUE FUND
Dear Shareholders,
For the 12 months ended July 31, 2000, Class A shares of the fund provided a
total return of 10.16% and Class I shares returned 9.89%. These returns
include the reinvestment of any distributions and compare to a -5.00% return
over the same period for the fund's benchmark, the Russell 1000 Value Index
(the Russell Index), which measures the performance of those Russell 1000
companies with lower price-to-book and forecasted growth rates than to the
companies in the Russell 1000 Growth Index. The fund's performance also
compares to a -1.11% return over the same period for the average multi-cap
value fund tracked by Lipper Inc., an independent firm that reports mutual
fund performance.
The fund's performance benefited primarily from favorable stock selection and
a shift in market sentiment toward more value-oriented stocks. As a result,
our disciplined focus on attractively valued companies that are temporarily
out of favor provided a strong contribution to the fund's relative results. We
feel companies can fall from favor for a variety of reasons, such as exposure
to troubled economies, regulatory changes, or unfavorable short-term business
or economic cycles. Our objective is to locate fundamentally sound companies
that we believe possess favorable long-term outlooks, but may temporarily be
experiencing issues that are causing them to be neglected by the market.
During the first eight months of the period, we found that investor sentiment
was generally negative toward value stocks. Nevertheless, the fund's strong
relative performance was aided by a few factors including our overweighted
exposure to energy and natural gas companies compared to the Russell Index,
which provided a significant boost to performance during the period. Oil
service stocks such as Noble Drilling and Cooper Cameron were big
beneficiaries of both higher oil and natural gas prices and the expected
positive effects these higher prices could have on exploration and drilling
expenditures. This should translate into higher earnings for these companies,
in our opinion.
More recently, we've witnessed a pronounced shift in investor sentiment toward
more traditional "old economy" stocks. We've also experienced significant
weakness in the technology and telecommunications stocks that dominated the
market during 1999 and the first quarter of 2000. Given this environment, our
conviction to maintain minimal exposure to technology stocks and our reduction
of telecommunications holdings during the first quarter of 2000 also aided our
relative performance.
The portfolio also benefited from its significant holdings in financial
services companies, most notably, property and casualty insurance companies,
and asset management businesses. Holdings such as ReliaStar Financial,
Hartford Financial, St. Paul Companies, Nationwide Financial, Associates
First, and A.G. Edwards all benefited from renewed interest in the group due
to improved financial results and increased merger and acquisition activity.
For MFS Strategic Value Fund shareholders, the market's renewed interest in
value stocks was welcome. For much of the past two years, it appeared to us
that investors were so excited about the potential of new economy stocks that
they overlooked the reality that many old economy companies have excellent
business prospects and efficient operations. Given this environment, we firmly
believe that the fund's investment approach could provide favorable results
and that over the long term, stock prices will depend on actual earnings and
strong fundamentals, not just on potential. As a result, our primary objective
continues to be locating companies that we believe possess both strong track
records and favorable long-term outlooks.
Respectfully,
/s/ Kenneth J. Enright
Kenneth J. Enright
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 reports 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.
The 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 residents of the
Commonwealth of Massachusetts who are employees (or certain relatives of
employees) of MFS and its affiliates or members of the governing boards of the
various funds sponsored by MFS.
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 the
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.)
It is not possible to invest directly in an index.
MFS EMERGING MARKETS DEBT FUND(1)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations, March
17, 1998, through July 31, 2000. Index information is from April 1, 1998.)
MFS J.P. Morgan J.P. Morgan
Emerging Markets Emerging Markets Emerging Markets
Debt Fund - Class A Bond Index Plus Bond Index Global
------------------- ---------------- -----------------
March, 1998 $ 9,425 $10.000 $10,000
July, 1998 9,029 9,422 9,508
July, 1999 8,663 8,793 9,050
July, 2000 11,683 11,394 11,429
<TABLE>
TOTAL RATES OF RETURN THROUGH JULY 31, 2000
CLASS A
<CAPTION>
1 Year Life*
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return Excluding Sales Charge +34.86% +23.96%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +34.86% + 9.47%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +27.11% + 6.78%
--------------------------------------------------------------------------------------------------------
CLASS I
<CAPTION>
1 Year Life*
--------------------------------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +34.73% +23.83%
--------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +34.73% + 9.43%
--------------------------------------------------------------------------------------------------------
COMPARATIVE INDICES(+)
<CAPTION>
1 Year Life*
--------------------------------------------------------------------------------------------------------
Average emerging markets debt fund+ +25.18% + 2.23%
--------------------------------------------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond Index Plus# +29.57% + 5.86%
--------------------------------------------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond Index Global++ +26.29% + 6.00%
--------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, March 17, 1998, through
July 31, 2000. Index information is from April 1, 1998.
(+) Average annual total return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc. Effective immediately, we no longer consider this to be the
fund's benchmark because we believe the J.P. Morgan Emerging Markets Bond Index Global better
reflects the fund's investment strategy and objective.
++ Source: Bloomberg.
</TABLE>
<PAGE>
MFS STRATEGIC VALUE FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations, March
17, 1998, through July 31, 2000. Index information is from April 1, 1998.)
MFS Russell
Strategic Value Fund - Class A 1000 Value Index
------------------------------ ----------------
March, 1998 $ 9,425 $10,000
July, 1998 10,056 10,127
July, 1999 14,124 12,116
July, 2000 15,559 13,426
<TABLE>
TOTAL RATES OF RETURN THROUGH JULY 31, 2000
CLASS A
<CAPTION>
1 Year Life*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return Excluding Sales Charge +10.16% +65.08%
------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +10.16% +23.52%
------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge + 3.82% +20.48%
------------------------------------------------------------------------------------------------------------------
CLASS I
<CAPTION>
1 Year Life*
------------------------------------------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge + 9.89% +64.45%
------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge + 9.89% +23.32%
------------------------------------------------------------------------------------------------------------------
COMPARATIVE INDICES(+)
<CAPTION>
1 Year Life*
------------------------------------------------------------------------------------------------------------------
Average multi-cap value fund+ - 1.11% + 1.74%
------------------------------------------------------------------------------------------------------------------
Russell 1000 Value Index# - 5.00% + 3.27%
------------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, March 17, 1998, through July 31, 2000.
Index information is from April 1, 1998.
(+) Average annual rates of return.
+ Source: Lipper Inc.
# Source: Standard & Poor's Micropal, Inc.
</TABLE>
NOTES TO PERFORMANCE SUMMARY
Performance results reflect any applicable 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 include 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. MORE RECENT
RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS.
(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.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - July 31, 2000
MFS EMERGING MARKETS DEBT FUND
Bonds - 96.4%
-------------------------------------------------------------------------------------------------------
<CAPTION>
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Algeria - 4.7%
Algeria Tranche Loan 1, 6.813s, 2006 $ 42 $ 36,120
Algeria Tranche Loan 3, 1.063s, 2010 JPY 2,300 14,053
Algeria Tranche Loan 3, 6.813s, 2010+ $ 20 16,200
----------
$ 66,373
-----------------------------------------------------------------------------------------------------
Argentina - 12.1%
Autopistas Del Sol S.A., 10.25s, 2009 (Industrial)## $ 15 $ 11,775
Mastellone Hermanos S.A., 11.75s, 2008 (Food and
Beverage Products) 18 13,680
Republic of Argentina, 11.375s, 2010 7 6,440
Republic of Argentina, 11.75s, 2015 50 46,150
Republic of Argentina, 12.125s, 2019 30 28,860
Republic of Argentina, 9.75s, 2027 25 19,800
Republic of Argentina, 10.25s, 2030 55 45,210
----------
$ 171,915
-----------------------------------------------------------------------------------------------------
Brazil - 21.1%
Banco Nacional de Desenvolvi, 12.554s, 2008 (Banks and
Credit Companies) $ 50 $ 47,000
Federal Republic of Brazil, 7.438s, 2009 20 16,910
Federal Republic of Brazil, 7.438s, 2012 55 40,809
Federal Republic of Brazil, 5s, 2014 78 57,642
Federal Republic of Brazil, 6s, 2024 20 13,076
Federal Republic of Brazil, 7.375s, 2024 40 31,450
Federal Republic of Brazil, 10.125s, 2027 40 31,720
Federal Republic of Brazil, 12.25s, 2030 65 61,295
----------
$ 299,902
-----------------------------------------------------------------------------------------------------
Bulgaria - 4.8%
National Republic of Bulgaria, 6.5s, 2011 $ 19 $ 15,295
National Republic of Bulgaria, 2.75s, 2012 30 22,688
National Republic of Bulgaria, 7.063s, 2024 37 30,016
----------
$ 67,999
-----------------------------------------------------------------------------------------------------
Colombia - 3.0%
Republic of Colombia, 11.75s, 2020 $ 50 $ 43,250
-----------------------------------------------------------------------------------------------------
Indonesia - 1.4%
Indah Kiat Finance Mauritius Ltd., 10s, 2007 (Forest
and Paper Products) $ 35 $ 19,775
-----------------------------------------------------------------------------------------------------
Mexico - 9.9%
Bepensa S.A., 9.75s, 2004 (Sovereign)## $ 25 $ 22,812
Cydsa S.A., 9.375s, 2002 (Chemicals) 20 16,800
Grupo Industrial Durango S.A., 12.625s, 2003 (Paper &
Related Products) 15 15,112
Grupo Iusacell S.A., 14.25s, 2006 (Telecommunications) 23 24,725
Grupo Minero Mexico S.A. de CV, 8.25s, 2008
(Diversified Minerals) 15 12,263
TFM S.A de CV, 0s to 2002, 11.75s, 2009
(Transportation) 30 23,100
TV Azteca S.A. de CV, 10.5s, 2007 (Broadcasting) 16 14,720
Satelites Mexicanos S.A. de CV, 10.125s, 2004
(Telecommunications) 15 10,500
----------
$ 140,032
-----------------------------------------------------------------------------------------------------
Panama - 2.9%
Republic of Panama, 10.75s, 2020 $ 20 $ 20,000
Republic of Panama, 8.875s, 2027 25 21,650
----------
$ 41,650
-----------------------------------------------------------------------------------------------------
Philippines - 1.0%
Republic of Philippines, 9.875s, 2019 $ 5 $ 4,000
Republic of Philippines, 10.625s, 2025 12 9,990
----------
$ 13,990
-----------------------------------------------------------------------------------------------------
Poland - 2.5%
Netia Holdings B.V., 10.25s, 2007 (Telecommunications) $ 15 $ 12,712
PTC International Finance B.V., 0s to 2002, 10.75s,
2007 (Telecommunications) 20 14,300
PTC International Finance II S.A., 11.25s, 2009
(Telecommunications) 8 8,320
----------
$ 35,332
-----------------------------------------------------------------------------------------------------
Qatar - 1.4%
State of Qatar, 9.75s, 2030## $ 20 $ 20,250
-----------------------------------------------------------------------------------------------------
Russia - 17.8%
Russia IANS, 7.938s, 2015 (In default) $ 305 $ 101,047
Russia IANS, 7.938s, 2020 (In default) 250 82,200
Russian Federation, 8.75s, 2005## 25 19,938
Russian Federation, 10s, 2007## 25 19,563
Russian Federation, 12.75s, 2028## 35 30,887
----------
$ 253,635
-----------------------------------------------------------------------------------------------------
Slovakia - 1.7%
Slovak Wireless Finance Co., 11.25s, 2007
(Telecommunications)## EUR 25 $ 23,686
-----------------------------------------------------------------------------------------------------
South Korea - 3.9%
Chohung Bank, 11.5s, 2010 (Banks and Credit
Companies)## $ 15 $ 14,700
Hanvit Bank, 12.75s, 2010 (Banks and Credit
Companies)## 40 40,300
----------
$ 55,000
-----------------------------------------------------------------------------------------------------
Turkey - 3.9%
Republic of Turkey, 11.75s, 2010 $ 18 $ 18,833
Republic of Turkey, 11.875s, 2030 34 36,933
----------
$ 55,766
-----------------------------------------------------------------------------------------------------
Venezuela - 4.3%
Republic of Venezuela, 9.25s, 2027 $ 90 $ 60,435
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,320,001) $1,368,990
-----------------------------------------------------------------------------------------------------
Short-Term Obligation - 1.4%
-----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 8/1/00, at Amortized Cost $ 20 $ 20,000
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,340,001) $1,388,990
Other Assets, Less Liabilities - 2.2% 31,653
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,420,643
-----------------------------------------------------------------------------------------------------
## SEC Rule 144A restriction.
+ Restricted security.
Abbreviations have been used throughout this report to indicate amounts shown in currencies other
than the U.S. dollar. A list of abbreviations is shown below.
EUR = Euro
JPY = Japanese Yen
VEB = Venezuelan Bolivar
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - July 31, 2000
MFS STRATEGIC VALUE FUND
Stocks - 91.9%
-----------------------------------------------------------------------------------------------------
<CAPTION>
ISSUER SHARES VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 87.4%
Aerospace - 7.0%
Boeing Co. 375 $ 18,375
General Dynamics Corp. 180 10,159
Honeywell International, Inc. 525 17,653
TRW, Inc. 270 12,133
United Technologies Corp. 410 23,934
----------
$ 82,254
-----------------------------------------------------------------------------------------------------
Automotive - 1.7%
Delphi Automotive Systems Corp. 570 $ 8,443
Ford Motor Co. 230 10,709
Visteon Corp. 30 420
----------
$ 19,572
-----------------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.0%
Bank America Corp. 395 $ 18,713
PNC Bank Corp. 550 27,981
----------
$ 46,694
-----------------------------------------------------------------------------------------------------
Biotechnology - 2.2%
Abbott Laboratories, Inc. 310 $ 12,903
Pharmacia Corp. 229 12,538
----------
$ 25,441
-----------------------------------------------------------------------------------------------------
Cellular Telephones - 2.1%
Telephone & Data Systems, Inc. 167 $ 18,600
U.S. Cellular Corp.* 79 5,372
----------
$ 23,972
-----------------------------------------------------------------------------------------------------
Chemicals - 0.8%
Rohm & Haas Co. 375 $ 9,750
-----------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.3%
Microsoft Corp.* 210 $ 14,661
-----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.7%
Fortune Brands, Inc. 390 $ 8,775
-----------------------------------------------------------------------------------------------------
Containers - 2.3%
Ivex Packaging Corp.* 1,330 $ 13,799
Owens Illinois, Inc.* 1,000 13,312
----------
$ 27,111
-----------------------------------------------------------------------------------------------------
Electrical Equipment - 1.0%
Emerson Electric Co. 184 $ 11,235
-----------------------------------------------------------------------------------------------------
Energy - 1.4%
Devon Energy Corp. 350 $ 16,012
-----------------------------------------------------------------------------------------------------
Entertainment - 4.0%
Harrah's Entertainment, Inc.* 845 $ 21,178
Infinity Broadcasting Corp., "A"* 375 13,219
Viacom, Inc., "B"* 190 12,599
----------
$ 46,996
-----------------------------------------------------------------------------------------------------
Financial Institutions - 6.0%
Associates First Capital Corp., "A" 1,050 $ 27,497
Edwards (A.G.), Inc. 300 15,863
Freddie Mac Corp. 680 26,817
----------
$ 70,177
-----------------------------------------------------------------------------------------------------
Financial Services - 1.7%
AXA Financial, Inc. 515 $ 19,699
-----------------------------------------------------------------------------------------------------
Food and Beverage Products - 3.3%
Anheuser-Busch Cos., Inc. 230 $ 18,515
Archer-Daniels-Midland Co. 442 4,144
Keebler Foods Co. 360 15,885
----------
$ 38,544
-----------------------------------------------------------------------------------------------------
Forest and Paper Products - 0.4%
Bowater, Inc. 100 $ 4,925
-----------------------------------------------------------------------------------------------------
Gas - 0.4%
Sunoco, Inc. 205 $ 4,997
-----------------------------------------------------------------------------------------------------
Insurance - 12.9%
CIGNA Corp. 130 $ 12,984
Hartford Financial Services Group, Inc. 485 31,161
Lincoln National Corp. 515 22,467
MetLife, Inc.* 90 1,890
Nationwide Financial Services, Inc., "A" 700 25,725
ReliaStar Financial Corp. 430 22,871
St. Paul Cos., Inc. 750 33,328
----------
$ 150,426
-----------------------------------------------------------------------------------------------------
Machinery - 4.2%
Deere & Co., Inc. 450 $ 17,353
Ingersoll Rand Co. 200 7,850
Lear Corp.* 184 4,290
W.W. Grainger, Inc. 635 20,161
----------
$ 49,654
-----------------------------------------------------------------------------------------------------
Medical and Health Products - 1.0%
Bristol-Myers Squibb Co. 225 $ 11,166
-----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.1%
UnitedHealth Group, Inc.* 160 $ 13,090
-----------------------------------------------------------------------------------------------------
Oil Services - 6.6%
Cooper Cameron Corp.* 185 $ 11,956
Global Marine, Inc.* 675 19,111
Kerr McGee Corp. 190 10,426
Noble Drilling Corp.* 458 19,952
Smith International, Inc.* 220 15,702
----------
$ 77,147
-----------------------------------------------------------------------------------------------------
Oils - 6.6%
Apache Corp. 285 $ 14,179
Coastal Corp. 450 25,988
EOG Resources, Inc. 175 5,173
Exxon Mobil Corp. 96 7,680
Newfield Exploration Co.* 100 3,406
Occidental Petroleum Corp. 568 11,502
Phillips Petroleum Co. 185 9,400
----------
$ 77,328
-----------------------------------------------------------------------------------------------------
Photographic Products - 0.7%
Polaroid Corp. 425 $ 7,703
-----------------------------------------------------------------------------------------------------
Railroads - 0.9%
Burlington Northern Santa Fe Railway Co. 450 $ 10,997
-----------------------------------------------------------------------------------------------------
Retail - 1.1%
Office Depot, Inc.* 2,000 $ 12,500
-----------------------------------------------------------------------------------------------------
Supermarkets - 3.4%
Kroger Co.* 1,300 $ 26,894
Safeway, Inc.* 295 13,293
----------
$ 40,187
-----------------------------------------------------------------------------------------------------
Telecommunications - 2.8%
Alltel Corp. 200 $ 12,325
SBC Communications, Inc. 233 9,917
Verizon Communications 227 10,669
----------
$ 32,911
-----------------------------------------------------------------------------------------------------
Utilities - Electric - 1.5%
NiSource, Inc. 875 $ 17,008
-----------------------------------------------------------------------------------------------------
Utilities - Gas - 4.3%
Columbia Energy Group 153 $ 10,442
El Paso Energy Corp. 182 8,804
National Fuel Gas Co. 144 7,101
Williams Cos., Inc. 575 24,007
----------
$ 50,354
-----------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,021,286
-----------------------------------------------------------------------------------------------------
Foreign Stocks - 4.5%
Netherlands - 3.2%
Akzo Nobel N.V. (Chemicals) 484 $ 21,522
Royal Dutch Petroleum Co., ADR (Oils) 275 16,019
----------
$ 37,541
-----------------------------------------------------------------------------------------------------
Switzerland - 1.3%
Nestle S.A. (Food and Beverage Products) 7 $ 14,593
-----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 52,134
-----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $940,856) $1,073,420
-----------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.2%
-----------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
El Paso Energy Capital Trust I, 4.75% (Identified Cost $1,441) 30 $ 1,845
-----------------------------------------------------------------------------------------------------
Short-Term Obligations - 8.1%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-----------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Assn., due 8/01/00 at
Amortized Cost $ 95 $ 95,000
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,037,297) $1,170,265
Other Assets, Less Liabilities - (0.2%) (2,497)
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,167,768
-----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
----------------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING
MARKETS STRATEGIC
JULY 31, 2000 DEBT FUND VALUE FUND
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at value (identified cost, $1,340,001 and
$1,037,297, respectively) $1,388,990 $1,170,265
Cash 4,658 2,629
Foreign currency, at value (identified cost, $1,418 and $70) 1,418 63
Receivable for daily variation margin on open futures
contracts 63 --
Net receivable for forward foreign currency exchange
contracts to purchase 1,253 --
Receivable for investments sold 51,741 1,674
Interest and dividends receivable 33,262 1,115
Other assets 145 --
---------- ----------
Total assets $1,481,530 $1,175,746
---------- ----------
Liabilities:
Payable for investments purchased $ 57,724 $ 7,860
Net payable for forward foreign currency exchange contracts
to sell 2,603 --
Net payable for forward foreign currency exchange contracts
subject to master netting agreements 560 --
Payable to affiliates --
Management fee -- 72
Reimbursement fee -- 46
---------- ----------
Total liabilities $ 60,887 $ 7,978
---------- ----------
Net assets $1,420,643 $1,167,768
========== ==========
Net assets consist of:
Paid-in capital $1,305,179 $1,071,007
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 47,681 132,961
Accumulated undistributed net realized loss on investments
and foreign currency transactions (16,816) (40,089)
Accumulated undistributed net investment income 84,599 3,889
---------- ----------
Total $1,420,643 $1,167,768
========== ==========
Shares of beneficial interest outstanding:
Class A 119,325 8,549
Class I 17,367 87,187
---------- ----------
Total shares of beneficial interest outstanding 136,692 95,736
========== ==========
Net assets
Class A $1,240,389 $ 104,721
Class I 180,254 1,063,047
---------- ----------
Total net assets $1,420,643 $1,167,768
========== ==========
Class A shares:
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $10.40 $12.25
====== ======
Offering price per share
(100 / 94.25 of net asset value per share) $11.03 $13.00
====== ======
Class I shares:
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $10.38 $12.19
====== ======
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Operations
----------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING
MARKETS STATEGIC
YEAR ENDED JULY 31, 2000 DEBT FUND VALUE FUND
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income:
Income -
Interest $149,288 $ 2,562
Dividends -- 22,312
Foreign taxes withheld -- (194)
-------- --------
Total investment income $149,288 $ 24,680
-------- --------
Expenses -
Management fee $ 10,930 $ 10,054
Shareholder servicing agent fee 1,285 1,351
Distribution and service fee (Class A) 3,913 858
Administrative fee 178 182
Custodian fee 13,807 9,751
Printing 2,073 12,185
Postage 92 622
Auditing fees 20,600 22,542
Legal fees 639 2,295
Registration fee 1,609 --
Miscellaneous 4,978 4,924
-------- --------
Total expenses $ 60,104 $ 64,764
Fees paid indirectly (656) (102)
Reduction of expenses by investment adviser and distributor (59,448) (47,906)
-------- --------
Net expenses $ -- $ 16,756
-------- --------
Net investment income $149,288 $ 7,924
-------- --------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $185,547 $ 32,198
Futures transactions 4,314 --
Foreign currency transactions 475 (135)
-------- --------
Net realized gain on investments and foreign currency
transactions $190,336 $ 32,063
-------- --------
Change in unrealized appreciation (depreciation) -
Investments $ 39,443 $ 6,094
Futures contracts (47) --
Translation of assets and liabilities in foreign currencies (1,418) 5
-------- --------
Net unrealized gain on investments and foreign currency
translation $ 37,978 $ 6,099
-------- --------
Net realized and unrealized gain on investments and
foreign currency $228,314 $ 38,162
-------- --------
Increase in net assets from operations $377,602 $ 46,086
======== ========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
EMERGING MARKETS DEBT FUND JULY 31, 2000 JULY 31, 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 149,288 $ 90,714
Net realized gain (loss) on investments and foreign
currency transactions 190,336 (202,493)
Net unrealized gain on investments and foreign
currency translation 37,978 74,356
---------- ----------
Increase (decrease) in net assets from operations $ 377,602 $ (37,423)
---------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (106,759) (56,343)
From net investment income (Class I) (19,083) (814)
---------- ----------
Total distributions declared to shareholders $ (125,842) $ (57,157)
---------- ----------
Net increase in net assets from fund share transactions $ 64,813 $ 238,905
---------- ----------
Total increase in net assets $ 316,573 $ 144,325
Net assets:
At beginning of period 1,104,070 959,745
---------- ----------
At end of period (including accumulated undistributed
net investment income of $84,599 and $60,670) $1,420,643 $1,104,070
========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets - continued
------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
STRATEGIC VALUE FUND JULY 31, 2000 JULY 31, 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 7,924 $ 4,922
Net realized gain on investments and foreign currency
transactions 32,063 208,299
Net unrealized gain on investments and foreign
currency translation 6,099 127,058
---------- ----------
Increase in net assets from operations $ 46,086 $ 340,279
---------- ----------
Distributions declared to shareholders -
From net investment income (Class A) $ (765) $ (2,574)
From net investment income (Class I) (7,509) (615)
From net realized gain on investments and foreign
currency
transactions (Class A) (22,217) (28,888)
From net realized gain on investments and foreign
currency
transactions (Class I) (218,011) (6,903)
In excess of net realized gain on investments and
foreign currency transactions (Class A) (3,751) --
In excess of net realized gain on investments and
foreign currency transactions (Class I) (36,813) --
---------- ----------
Total distributions declared to shareholders $ (289,066) $ (38,980)
---------- ----------
Net increase (decrease) in net assets from fund share
transactions $ (624,571) $ 983,132
---------- ----------
Total increase (decrease) in net assets $ (867,551) $1,284,431
Net assets:
At beginning of period 2,035,319 750,888
---------- ----------
At end of period (including accumulated undistributed
net investment income of $3,889 and $4,646,
respectively) $1,167,768 $2,035,319
========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
EMERGING MARKETS DEBT FUND
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31, PERIOD ENDED YEAR ENDED JULY 31, PERIOD ENDED
2000 1999 JULY 31, 1998* 2000 1999 JULY 31, 1998*
------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS I
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $ 8.52 $ 9.58 $10.00 $ 8.52 $ 9.58 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 1.09 $ 0.81 $ 0.25 $ 1.13 $ 0.78 $ 0.25
Net realized and
unrealized gain/loss on
investments and foreign
currency transactions 1.77 (1.31) (0.67) 1.71 (1.28) (0.67)
------ ------ ------ ------ ------ ------
Total from investment
operations $ 2.86 $(0.50) $(0.42) $ 2.84 $(0.50) $(0.42)
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders from net
investment income $(0.98) $(0.56) $ -- $(0.98) $(0.56) $ --
------ ------ ------ ------ ------ ------
Net asset value - end of
period $10.40 $ 8.52 $ 9.58 $10.38 $ 8.52 $ 9.58
====== ====== ====== ====== ====== ======
Total return 34.86% (4.06)% (4.20)%++ 34.73% (4.07)% (4.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.05% 1.56% 1.70%+ 0.05% 1.56% 1.70%+
Net investment income 11.64% 10.09% 6.65%+ 11.64% 10.15% 6.92%+
Portfolio turnover 338% 449% 68% 338% 449% 68%
Net assets at end of period
(000 omitted) $1,240 $1,018 $959 $180 $86 $1
(S) Subject to reimbursement by the fund, the investment adviser has voluntarily agreed, under a temporary expense reimbursement
agreement, to pay all of the fund's operating expenses, exclusive of management and distribution and service fees. In
consideration, the fund pays the investment adviser a fee not greater than 1.65% of average daily net assets. The investment
adviser has agreed to waive the reimbursement for an indefinite period of time. In addition, the investment adviser and the
distributor voluntarily waived their fees for the periods indicated. To the extent actual expenses were over this limitation,
the net investment income per share and the ratios would have been:
Net investment income $ 0.65 $ 0.54 $ 0.06 $ 0.71 $ 0.55 $ 0.07
Ratios (to average net assets):
Expenses## 4.73% 4.88% 6.89%+ 4.38% 4.53% 6.54%+
Net investment
income 6.96% 6.77% 1.46%+ 7.31% 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>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
STRATEGIC VALUE FUND
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31, PERIOD ENDED YEAR ENDED JULY 31, PERIOD ENDED
2000 1999 JULY 31, 1998* 2000 1999 JULY 31, 1998*
------------------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS I
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning
of period $14.25 $10.66 $10.00 $14.23 $10.65 $10.00
------ ------ ------ ------ ------ ------
Income from investment operations# -
Net investment income(S) $ 0.07 $ 0.05 $ 0.05 $ 0.07 $ 0.05 $ 0.05
Net realized and
unrealized gain on
investments and foreign
currency 0.97 4.08 0.61 0.93 4.07 0.60
------ ------ ------ ------ ------ ------
Total from investment
operations $ 1.04 $ 4.13 $ 0.66 $ 1.00 $ 4.12 $ 0.65
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders --
From net investment
income $(0.09) $(0.04) $ -- $(0.09) $(0.04) $ --
From net realized gain on
investments and foreign
currency transactions (2.52) (0.50) -- (2.52) (0.50) --
In excess of net realized
gain on investments and
foreign currency
transactions (0.43) -- -- (0.43) -- --
------ ------ ------ ------ ------ ------
Total distributions
declared to
shareholders $(3.04) $(0.54) $ -- $(3.04) $(0.54) $
------ ------ ------ ------ ------ ------
Net asset value - end of
period $12.25 $14.25 $10.66 $12.19 $14.23 $10.65
====== ====== ====== ====== ====== ======
Total return 10.16% 40.45% 6.70%++ 9.89% 40.52% 6.50%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.26% 1.27% 1.25%+ 1.26% 1.27% 1.25%+
Net investment income 0.62% 0.45% 1.22%+ 0.59% 0.45% 1.19%+
Portfolio turnover 142% 131% 48% 142% 131% 48%
Net assets at end of period
(000 omitted) $105 $809 $585 $1,063 $1,226 $166
(S) Subject to reimbursement by the fund, the investment adviser voluntarily agreed under a temporary expense reimbursement
agreement to pay all of the fund's operating expenses, exclusive of management and distribution and service fees. In
consideration, the fund pays the investment adviser a reimbursement fee not greater than 1.25% of average daily net assets. In
addition, 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 $(0.39) $(0.26) $(0.23) $(0.36) $(0.24) $(0.25)
Ratios (to average net assets):
Expenses## 5.13% 3.93% 8.58%+ 4.78% 3.58% 8.23%+
Net investment loss (3.25)% (2.21)% (6.10)%+ (2.93)% (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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Strategic Value Fund is 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. Each fund can invest in foreign securities. 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 - Debt securities (other than short-term obligations
that 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. 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. Short-term obligations, which
mature in 60 days or less, are valued at amortized cost, which approximates
market value. Futures contracts listed on commodities exchanges are reported
at market value using closing settlement prices. Securities for which there
are no such quotations or valuations are valued in good faith, at fair value,
by 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.
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, each 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 fund uses the effective
interest method for reporting interest income on payment-in-kind (PIK) bonds.
Fees Paid Indirectly - Each fund's custody 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 total 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 net 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 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, 2000, the following amounts were reclassified
due to differences between book and tax accounting for foreign currency
transactions and the offset of net investment losses against short-term
capital gains. This change had no effect on the net assets or net asset
value per share.
<TABLE>
<CAPTION>
EMERGING MARKETS STRATEGIC
INCREASE (DECREASE) DEBT FUND VALUE FUND
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paid-in capital $ -- $ (68)
Accumulated undistributed net realized loss on investments and
foreign currency transactions (483) 475
Accumulated undistributed net investment income 483 (407)
</TABLE>
At July 31, 2000, the Emerging Markets Debt Fund, for federal income tax
purposes, had a capital loss carryforward of $17,769 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.
Multiple Classes of Shares of Beneficial Interest - Each fund offers multiple
classes of shares that differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on 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%
and 0.75% of average daily net assets of the Emerging Markets Debt Fund and
the Strategic Value Fund, respectively. The investment adviser has voluntarily
agreed to waive its fee, for the Emerging Markets Debt Fund and the Strategic
Value Fund, which is shown as a reduction of total 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% and 1.25% of average daily
net assets of the Emerging Markets Debt Fund and the Strategic Value Fund,
respectively. Effective July 1, 1999, MFS voluntarily agreed to waive their
right to receive the reimbursement fee and for the period from July 1, 1999,
through July 31, 2000, MFS did not impose the reimbursement fee of $22,589 for
the Emerging Markets Debt Fund. To the extent that the expense reimbursement
fee exceeds the fund's actual expenses, the excess will be applied to amounts
paid by MFS in prior years. At July 31, 2000, aggregate unreimbursed expenses
owed to MFS amounted to:
EMERGING MARKETS STRATEGIC
DEBT FUND VALUE FUND
--------------------------------------------
$55,863 $69,075
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 the fund from MFS. Certain officers and
Trustees of each fund are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - Each 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 incurs an administrative fee at
the following annual percentages of each fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges for the year ended July 31, 2000.
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 the 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 is currently being waived for the Emerging
Markets Debt Fund and the Strategic Value Fund.
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
each fund during the year ended July 30, 2000.
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 annual rate of
0.10%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
EMERGING MARKETS STRATEGIC
DEBT FUND VALUE FUND
-------------------------------------------------------------------------------------------------------
Purchases
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments (non-U.S. government securities) $4,234,103 $1,893,323
---------- ----------
Sales
-------------------------------------------------------------------------------------------------------
Investments (non-U.S. government securities) $4,113,714 $2,772,117
---------- ----------
</TABLE>
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:
<TABLE>
<CAPTION>
EMERGING MARKETS STRATEGIC
DEBT FUND VALUE FUND
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggregate cost $1,351,089 $1,096,907
---------- ----------
Gross unrealized appreciation $ 54,800 $ 115,783
Gross unrealized depreciation (16,899) (42,425)
---------- ----------
Net unrealized appreciation $ 37,901 $ 73,358
========== ==========
</TABLE>
(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>
Class A Shares
<CAPTION>
EMERGING MARKETS DEBT FUND
--------------------------------------------------------------------
YEAR ENDED JULY 31, 2000 YEAR ENDED JULY 31, 1999
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,917 $ 65,000 12,476 $ 107,761
Shares issued to shareholders in reinvestment of
distributions 12,022 106,754 7,532 56,340
Shares reacquired (19,044) (177,933) (599) (4,999)
-------- ----------- ------ ----------
Net increase (decrease) (105) $ (6,179) 19,409 $ 159,102
======== =========== ====== ==========
Class I Shares
<CAPTION>
EMERGING MARKETS DEBT FUND
--------------------------------------------------------------------
YEAR ENDED JULY 31, 2000 YEAR ENDED JULY 31, 1999
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------------
Shares sold 40,558 $ 396,257 11,715 $ 94,980
Shares issued to shareholders in reinvestment of
distributions 2,149 19,078 108 811
Shares reacquired (35,437) (344,343) (1,852) (15,988)
-------- ----------- ------ ----------
Net increase 7,270 $ 70,992 9,971 $ 79,803
======== =========== ====== ==========
Class A Shares
<CAPTION>
STRATEGIC VALUE FUND
--------------------------------------------------------------------
YEAR ENDED JULY 31, 2000 YEAR ENDED JULY 31, 1999
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------------
Shares sold 2,945 $ 39,889 5,430 $ 64,881
Shares issued to shareholders in reinvestment of
distributions 2,449 26,453 2,982 31,459
Shares reacquired (53,590) (719,332) (6,555) (90,758)
-------- ----------- ------ ----------
Net increase (decrease) (48,196) $ (652,990) 1,857 $ 5,582
======== =========== ====== ==========
Class I Shares
<CAPTION>
STRATEGIC VALUE FUND
--------------------------------------------------------------------
YEAR ENDED JULY 31, 2000 YEAR ENDED JULY 31, 1999
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------------
Shares sold 115,948 $ 1,385,106 75,461 $1,031,568
Shares issued to shareholders in reinvestment of
distributions 24,402 262,318 713 7,516
Shares reacquired (139,340) (1,619,005) (5,544) (61,534)
-------- ----------- ------ ----------
Net increase 1,010 $ 28,419 70,630 $ 977,550
======== =========== ====== ==========
</TABLE>
(6) Line of Credit
Each fund and other affiliated funds participate in a $1.1 billion unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. 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. Interest expense incurred on the borrowings amounted
to $120 and $681 for the Emerging Markets Debt Fund and the Strategic Value
Fund, respectively, for the year ended July 31, 2000. The average dollar
amount of borrowings were $2,006 and $9,638 and the weighted average interest
rate on these borrowings was 5.92% and 6.35% for the Emerging Markets Debt
Fund and the Strategic Value Fund, respectively. A commitment fee of $6 and $8
for the Emerging Markets Debt Fund and the Strategic Value Fund, respectively,
which is based on the average daily unused portion of the line of credit is
included in miscellaneous expense.
(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
<TABLE>
EMERGING MARKETS DEBT FUND
<CAPTION>
NET UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 10/05/00 VEB 52,562,500 $72,500 $75,103 $(2,603)
------ ------ ------
Purchases 10/05/00 VEB 52,562,500 $73,850 $75,103 $ 1,253
------ ------ ------
</TABLE>
At July 31, 2000, forward foreign currency purchases and sales under master
netting agreements excluded above amounted to a net payable of $1,471 with
Deutsche Bank and a net receivable of $911 with Merrill Lynch.
At July 31, 2000, the fund had sufficient cash and/or securities to cover any
commitments under these contracts.
Futures Contracts
<TABLE>
EMERGING MARKETS DEBT FUND
<CAPTION>
UNREALIZED
APPRECIATION
DESCRIPTION EXPIRATION CONTRACTS POSITION (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bonds September 2000 2 Long $615
====
</TABLE>
At July 31, 2000, 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 not more than 15% of its net assets
in securities which are subject to legal or contractual restrictions on
resale. At July 31, 2000, the fund owned the following restricted securities,
excluding securities issued under Rule 144A, constituting 1.1% 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, in good
faith, at fair value, by the Trustees.
<TABLE>
<CAPTION>
SHARE/PAR
DESCRIPTION DATE OF ACQUISITION AMOUNT COST VALUE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Algeria Tranche 3, 6s, 2010 5/12/99 - 4/14/00 20,000 $14,725 $ 16,200
========
</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, and MFS Strategic Value Fund:
We have audited the accompanying statements of assets and liabilities of MFS
Emerging Markets Debt Fund, and MFS Strategic Value Fund, including the
schedules of portfolio investments, as of July 31, 2000 and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the
financial highlights for each of the two years in the period then ended and
for the period from 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 auditing standards generally
accepted in the United States. 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, 2000, 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 and MFS Strategic Value Fund at July 31, 2000, and
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and the
financial highlights for the two years in the period then ended and for the
period from March 17, 1998 (commencement of operations) to July 31, 1998, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
September 9, 2000
---------------------------------------------------
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 2001, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2000.
For the year ended July 31, 2000, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 6.22%
for the Strategic Value Fund.
<PAGE>
MFS(R) EMERGING MARKETS DEBT FUND
MFS(R) STRATEGIC VALUE FUND
[Logo] M F S(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(c)2000 MFS Investment Management(R).
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
INC-2 XA 9/00 1.6M
