<PAGE>
[logo] MFS
THE FIRST NAME IN MUTUAL FUNDS Annual Report for
Year Ended
August 31, 1995
MFS(R) WORLD ASSET ALLOCATION FUND
Front cover
A photo of jet planes.
<PAGE>
<TABLE>
<S> <C>
MFS(R) WORLD ASSET ALLOCATION FUND
TRUSTEES SECRETARY
Stephen E. Cavan*
A. Keith Brodkin* - Chairman and President
ASSISTANT SECRETARY
Richard B. Bailey* - Private Investor; James R. Bordewick, Jr.*
Former Chairman and Director (until 1991),
Massachusetts Financial Services Company CUSTODIAN
Investors Bank & Trust Company
Marshall N. Cohan - Private Investor
AUDITORS
Lawrence H. Cohn, M.D. - Chief of Cardiac Ernst & Young LLP
Surgery, Brigham and Women's Hospital;
Professor of Surgery, Harvard Medical School INVESTOR INFORMATION
For MFS stock and bond market outlooks,
The Hon. Sir J. David Gibbons, KBE - Chief call toll free: 1-800-637-4458 anytime from
Executive Officer, Edmund Gibbons Ltd.; a touch-tone telephone.
Chairman, Bank of N.T. Butterfield & Son Ltd.
For information on MFS mutual funds,
Abby M. O'Neill - Private Investor; call your financial adviser or, for an
Director, Rockefeller Financial Services, Inc. information kit, call toll free:
(Investment Advisers) 1-800-637-2929 any business day from
9 a.m. to 5 p.m. Eastern time (or leave
Walter E. Robb, III - President and Treasurer, a message anytime).
Benchmark Advisors, Inc. (Corporate
Financial Consultants) INVESTOR SERVICE
MFS Service Center, Inc.
Arnold D. Scott* - Senior Executive Vice P.O. Box 2281
President and Secretary, Massachusetts Boston, MA 02107-9906
Financial Services Company
For general information, call toll free:
Jeffrey L. Shames* - President, Massachusetts 1-800-225-2606 any business day from
Financial Services Company 8 a.m. to 8 p.m. Eastern time.
J. Dale Sherratt - President, Insight Resources, For service to speech- or hearing-impaired,
Inc. (Acquisition Planning Specialists) call toll free: 1-800-637-6576 any business
day from 9 a.m. to 5 p.m. Eastern time.
Ward Smith - Former Chairman (To use this service, your phone must be
(until 1994), NACCO Industries; equipped with a Telecommunications Device for
Director, Sundstrand Corporation the Deaf.)
INVESTMENT ADVISER For share prices, account balances and
Massachusetts Financial Services Company exchanges, call toll free: 1-800-MFS-TALK
500 Boylston Street (1-800-637-8255) anytime from a touch-tone
Boston, MA 02116-3741 telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
ASSET ALLOCATION COMMITTEE
A. Keith Brodkin*
Jeffrey L. Shames*
John W. Ballen*
Leslie J. Nanberg*
James T. Swanson*
TREASURER
W. Thomas London*
ASSISTANT TREASURER
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
The MFS World Asset Allocation Fund has now been invested for one year. During
the year, Class A shares of the Fund provided a total return of +11.48%, Class
B shares returned +10.65%, and Class C shares returned +10.72%. All of these
returns assume the reinvestment of distributions but exclude the effects of
any sales charges, and compare to the one-year returns for the following
unmanaged indices: +21.42% for the Standard & Poor's 500 Composite Index, a
popular, unmanaged index of common stock performance; +0.79% for the Morgan
Stanley Capital International EAFE Index (an unmanaged international stock
index); +11.30% for the Lehman Brothers Aggregate Bond Index (an unmanaged
index of government and corporate bonds including Treasury, agency, and
corporate bond issues and mortgage-backed securities); and +17.11% for the
J.P. Morgan Non-Dollar Index (an unmanaged international bond index). Also,
the performance for each class of the Fund compares favorably to the +8.05%
average return for the 42 funds in the category of global flexible portfolio
funds (including the Fund) tracked by Lipper Analytical Services, Inc., an
independent firm which reports mutual fund performance.
During this period, we have held to a stance of favoring international
stocks over U.S. stocks, a result of our view that the business cycle in the
United States is in a more mature phase than in the international markets.
This view has caused the Fund to lag the spectacular returns of the U.S. stock
market this year, but we believe still bodes well as the business cycle
proceeds. The Fund has participated in the recent U.S. stock market uptrend
and, in particular, has gained significantly from its holdings in technology
companies such as Intel. Also, our managers kept us largely out of the falling
Japanese market during a period of domestic Japanese stress, and then provided
us with an opportunity to buy some Japanese stocks to take advantage of lower
prices.
Our bond participation has seen gains in the international sovereign bond
market as well as in the domestic high-yield corporate and Treasury markets.
This has been a particularly favorable year for most bond markets.
Changes in emphasis among asset classes of the Fund will continue to occur
at least monthly, and will be made less with a focus to market timing than to
exploiting key advantages in the relative attractiveness of the various
markets. The current strategies of the managers of each portfolio sector may
be found on the following pages.
We appreciate your support and welcome any questions or comments you may
have.
Respectfully,
/s/ A. Keith Brodkin /s/ James T. Swanson
---------------------- ----------------------
A. Keith Brodkin James T. Swanson
Chairman and President On behalf of the Asset
Allocation Committee
September 12, 1995
<PAGE>
Two pie charts showing the portfolio allocations for the previous quarter and
the current quarter.
PORTFOLIO ALLOCATION
Category Previous Current
U.S. Stocks 15.8% 16.4%
International Stocks 42.7% 43.4%
High Yield Corp. Bonds 11.2% 9.9%
International Bonds 16.4% 19.5%
U.S. Govt. Bonds 9.5% 8.6%
Cash and Cash Equiv. 4.4% 2.2%
U.S. STOCK MARKET -- 15.8%
Our holdings in U.S. equities range across a variety of industries and
incorporate both value and growth strategies. Recent additions to the
portfolio include Intel, a manufacturer of microprocessors; Tyco
International, a manufacturer of fire protection systems; and Promus, a hotel
franchiser. Currently, our top three sectors are leisure (21.3%), technology
(17%) and consumer staples (10.9%). Our current outlook remains optimistic. We
believe business prospects remain positive and that further interest rate
reductions could have a positive impact on the U.S. equity market. -- John
Ballen and John Brennan
<PAGE>
U.S. STOCK MARKET - continued
FIVE LARGEST HOLDINGS AS OF 8/31/95
- --------------------------------------------------------------------------------
Harrah's Entertainment, Inc. (entertainment) 0.8%
- ------------------------------------------------------------------------------
Showboat, Inc. (entertainment) 0.8%
- ------------------------------------------------------------------------------
Intel Corp. (electronics) 0.7%
- ------------------------------------------------------------------------------
Tyco International Ltd. (consumer goods and services) 0.7%
- ------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. (financial institutions) 0.5%
- ------------------------------------------------------------------------------
INTERNATIONAL STOCK MARKETS -- 44.0%
After showing some improvement in 1994, European economic growth has slowed,
while Japan's lengthy recession is continuing, creating selected investment
opportunities. In general, we emphasize stock selection in our international
investments as opposed to country or industry selection. Priority is placed on
companies which we believe will generate above-average earnings growth and
which are trading at attractive valuations, regardless of their home country.
As of August 31, approximately 44% of the portfolio's assets was invested in
international stocks. Currently, 58% of our international stock holdings is in
Europe, 38% in Asia/Pacific and 4% in the Americas (Canada and Latin America).
The largest individual country exposures were in Japan (18%), Sweden (14%) and
the United Kingdom (11%). Roughly 11% of our international holdings was in the
emerging markets, most of which was in Southeast Asia. Recently, the European
weighting has declined slightly with an offsetting increase in Asia/Pacific.
This shift is attributable to several European stocks reaching price
objectives and to our starting to find better investment opportunities in
Asia. Our bottom-up stock-picking approach continues to result in a large
underweighting in Japan (18% versus 40% in the Morgan Stanley Capital
International EAFE Index).
Some of our largest holdings include Astra, a large multinational
pharmaceutical company based in Sweden; Essilor, a French maker of eyeglass
lenses; DDI Corp., the Japanese cellular and long distance telephone operator;
Acerinox, a Spanish stainless steel producer; and Lion Nathan, a large brewer
operating in Australia and New Zealand. -- David Mannheim
FIVE LARGEST HOLDINGS AS OF 8/31/95
- ------------------------------------------------------------------------------
Astra AB (pharmaceuticals - Sweden) 1.8%
- ------------------------------------------------------------------------------
Essilor International (medical and health products - France) 1.7%
- ------------------------------------------------------------------------------
Acerinox S.A. (iron and steel - Spain) 1.4%
- ------------------------------------------------------------------------------
DDI Corp. (telecommunications - Japan) 1.3%
- ------------------------------------------------------------------------------
Australia & New Zealand Bank Group Ltd. (finance - Australia) 1.2%
- ------------------------------------------------------------------------------
<PAGE>
U.S. GOVERNMENT BOND MARKET -- 8.6%
After undergoing a transition from a period of strong 5.1% growth in gross
domestic product in the last quarter of 1994 to 1.1% in the second quarter of
1995, we expect the pace of economic activity to pick up toward the 2% to 3%
level during the second half of 1995. On the inflation front, the continued
decline in unit labor costs suggests the outlook remains positive for stable-
to-lower price levels.
Despite our view that interest rates could move lower, we have reduced the
position in this sector from 10% to 8.6%. Our asset allocation model suggests
that other sectors appear relatively more attractive at this time.
-- Geoffrey L. Kurinsky
LARGEST HOLDINGS AS OF 8/31/95
- ------------------------------------------------------------------------------
U.S. Treasury Note 4.9%
- ------------------------------------------------------------------------------
Federal National Mortgage Association 3.7%
- ------------------------------------------------------------------------------
HIGH-YIELD CORPORATE BOND MARKET -- 9.9%
The high-yield portfolio reflects our expectation that future growth will be
modest. We have begun to trim our exposure to economically sensitive
industries like commodity chemicals. We believe that some cyclical names such
as Wolverine Tube (a manufacturer of copper tubing) offer good investment
value, and that they will continue to generate substantial free cash flow and
be able to repay debt ahead of schedule. We think the outlook is favorable for
bonds in such defensive industries as supermarkets, paging, and health care.
Therefore, we have added to these positions accordingly. Our strategy will
continue to focus on the upper-credit-quality tier of the high-yield market.
-- Joan Batchelder
FIVE LARGEST HOLDINGS AS OF 8/31/95
- ------------------------------------------------------------------------------
Wolverine Tube, Inc. (special products and services) 0.7%
- ------------------------------------------------------------------------------
K-III Communications Corp. (telecommunications) 0.5%
- ------------------------------------------------------------------------------
IMO Industries, Inc. (special products and services) 0.5%
- ------------------------------------------------------------------------------
American Standard, Inc. (building) 0.5%
- ------------------------------------------------------------------------------
Eagle Industries, Inc. (special products and services) 0.5%
- ------------------------------------------------------------------------------
<PAGE>
INTERNATIONAL BOND MARKETS -- 19.5%
Responding to evidence of slowing growth and lower inflation, every major
international bond market generated double-digit local currency returns over
the last 12 months. A weak U.S. dollar resulted in even better performance in
dollar terms. Recently, however, the dollar has surged as coordinated
intervention by major central banks has reinforced the impact of higher U.S.
interest rates relative to Europe and progressed in narrowing the U.S.-Japan
trade imbalance.
The portfolio retains its emphasis on the "hard currency core" bond markets
within Europe, such as Germany. Some of this exposure has been hedged into the
higher-yielding currencies as we seek to capture the improving environment in
those markets. We have also added to our positions in Australia and Canada
because we believe these markets could benefit from slower global growth and a
firmer U.S. dollar. Dollar-denominated Latin American debt has recovered from
the oversold conditions prevailing last spring. Hence, our allocation to this
sector is likely to be trimmed. -- Leslie Nanberg
FIVE LARGEST HOLDINGS AS OF 8/31/95
- ------------------------------------------------------------------------------
United Mexican States (Mexico) 3.8%
- ------------------------------------------------------------------------------
Republic of Poland (Poland) 2.8%
- ------------------------------------------------------------------------------
Federative Republic of Brazil (Brazil) 2.8%
- ------------------------------------------------------------------------------
Republic of Argentina (Argentina) 2.5%
- ------------------------------------------------------------------------------
Republic of Germany (Germany) 1.5%
- ------------------------------------------------------------------------------
PERFORMANCE
The information on the following page illustrates the historical performance
of MFS World Asset Allocation Fund in comparison to various market indicators.
In the graph Class A share results reflect the deduction of the 4.75% maximum
sales charge on the initial investment, while Class B share results reflect
the maximum contingent deferred sales charge (CDSC) of 4%. Class C shares have
no initial sales charge or CDSC but, along with Class B shares, have higher
annual fees and expenses than Class A shares. Benchmark comparisons are
unmanaged and do not reflect the deduction of any fees or expenses. You cannot
invest in an index. All results reflect the reinvestment of all dividends and
capital gains.
<PAGE>
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Line graph representing the growth of a $10,000 investment for the period from
August 1, 1994 to August 31, 1995. The graph is scaled from $9,000 to $13,000 in
$1,000 segments. The years are marked in 3-month segments from 1994 to 1995.
There are eight lines drawn to scale. One is a solid dark blue line representing
MFS World Asset Allocation Fund (Class A), a second solid light blue line
represents MFS World Asset Allocation Fund (Class B), a third solid line of very
light blue represent MFS World Asset Allocation Fund (Class C), a fourth solid
black line represents the S&P 500, a fifth solid gray line represents the J.P.
Morgan Non-U.S. Global Bond Index, a sixth line of short dark dashes represents
the Lehman Brothers Aggregate Bond Index, a seventh line of short gray dashes
represents the Morgan Stanley Capital International EAFE Index, and an eighth
line of long dashes represents the Consumer Price Index.
MFS World Asset (Class A) $10,843
MFS World Asset (Class B) $10,886
MFS World Asset (Class C) $11,293
S&P 500 $12,638
J.P. Morgan Global Bond $11,646
Lehman Aggregate Bond $11,144
Morgan Stanley $10,320
Consumer Price Index $10,303
AVERAGE ANNUAL TOTAL RETURNS
Life of Class*
through
1 Year 8/31/95
- ------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class A) including
4.75% sales charge + 6.22% + 7.64%
- ------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class A) at net
asset value +11.48% +12.48%
- ------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class B) with
CDSC+ + 6.65% + 8.02%
- ------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class B) without
CDSC +10.65% +11.59%
- ------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class C)# +10.72% +11.65%
- ------------------------------------------------------------------------------
Average global flexible portfolio fund + 8.05% + 9.30%
- ------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index +21.42% +24.13%
- ------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index + 0.79% + 2.95%
- ------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index +11.30% +10.51%
- ------------------------------------------------------------------------------
J.P. Morgan Non-Dollar Government Bond Index +17.11% +15.11%
- ------------------------------------------------------------------------------
Consumer Price Index(S) + 2.62% + 2.80%
- ------------------------------------------------------------------------------
*Fund results (all classes) cover the period from the commencement of
investment operations, July 22, 1994 to August 31, 1995. All benchmark
results begin on August 1, 1994.
+These returns reflect the maximum contingent deferred sales charge (CDSC)
of 4%.
#Class C shares have no initial sales charge or CDSC but, along with Class B
shares, have higher annual fees and expenses than Class A shares.
(S)The Consumer Price Index is a popular measure of change in prices.
<PAGE>
In the previous table, we have included the average annual total returns of
all global flexible portfolio funds (including the Fund) tracked by Lipper
Analytical Services, Inc. for the applicable time periods (42 and 40 funds for
the one-year period ended August 31, 1995, and for the period from August 1,
1994 through August 31, 1995, respectively). Because these returns do not
reflect any applicable sales charges, we have also included the Fund's results
at net asset value (no sales charge) for comparison.
All results are historical and, therefore, are not an indication of future
results. The principal value and income return of an investment in a mutual
fund will vary with changes in market conditions, and shares, when redeemed,
may be worth more or less than their original cost. All Class A share results
reflect the applicable expense subsidy which is explained in the Notes to
Financial Statements. Had the subsidy not been in effect, the results would
have been less favorable. The subsidy may be rescinded by MFS at any time.
TAX FORM SUMMARY
In January 1996, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1995.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
For the year ended August 31, 1995, distributions from long-term capital gains
are $373,343.
For the year ended August 31, 1995, the amount of distributions from income
eligible for the 70% dividends-received deduction for corporations came to
2.58%.
<PAGE>
PORTFOLIO OF INVESTMENTS - August 31, 1995
Stocks and Warrants - 59.8%
- -----------------------------------------------------------------------------
Issuer Shares Value
- -----------------------------------------------------------------------------
Foreign Stocks - 44.0%
Australia - 3.1%
Australia & New Zealand Bank Group Ltd.
(Finance) 495,823 $ 2,010,761
Seven Network Ltd. (Media) 635,900 1,623,707
Woolworth Ltd. (Stores) 583,955 1,333,169
------------
$ 4,967,637
- -----------------------------------------------------------------------------
Canada - 1.4%
Avenor, Inc. (Forest and Paper Products) 48,500 $ 1,079,203
Rogers Communications, Inc., "B"
(Telecommunications)* 109,900 1,125,519
------------
$ 2,204,722
- -----------------------------------------------------------------------------
Chile - 0.2%
Santa Isabel S.A., ADR (Supermarkets)*+ 18,000 $ 389,250
- -----------------------------------------------------------------------------
Finland - 0.3%
Aamulehti Yhtymae Oy II (Publishing) 30,000 $ 560,298
- -----------------------------------------------------------------------------
France - 3.2%
Essilor International (Medical and Health
Products) 11,700 $ 1,978,215
Essilor International, ADP (Medical and
Health Products) 5,725 703,568
LVMH Moet-Hennessy (Beverages) 4,000 719,920
Michelin (C.G.D.E.) (Tire and Rubber) 24,600 1,067,869
TOTAL S.A., "B" (Oils) 11,488 674,934
------------
$ 5,144,506
- -----------------------------------------------------------------------------
Germany - 2.8%
BASF AG (Chemicals) 6,700 $ 1,498,372
Hornbach Baumarkt AG (Retail)## 2,060 1,206,812
Schering AG (Pharmaceuticals) 10,000 728,882
Volkswagen AG (Automotive) 3,500 1,070,981
------------
$ 4,505,047
- -----------------------------------------------------------------------------
Hong Kong - 2.1%
Consolidated Electric Power Asia
(Utilities - Electric) 539,000 $ 1,110,610
Giordano International Ltd. (Retail) 1,248,000 1,023,734
Peregrine Investment Holdings (Finance) 433,000 618,108
Varitronix International Ltd.
(Manufacturing) 340,000 630,292
------------
$ 3,382,744
- -----------------------------------------------------------------------------
Italy - 1.2%
Telecom Italia Mobile
(Telecommunications)* 1,023,000 $ 1,023,409
Telecom Italia Mobile S.p.A.
(Telecommunications)* 633,000 932,219
------------
$ 1,955,628
- -----------------------------------------------------------------------------
Japan - 7.8%
Bridgestone Corp. (Tire and Rubber) 74,000 $ 1,091,241
DDI Corp. (Telecommunications) 255 2,156,989
Daiwa House Industrial Co. (Home
Construction) 51,000 788,628
East Japan Railway Co. (Transportation) 230 1,095,238
Kinki Coca-Cola Bottling (Beverages) 93,000 1,123,803
Kirin Beverage Corp. (Beverages) 53,000 749,001
MOS Food Services (Restaurants and
Lodging) 24,000 614,438
Matsushita Electric Industrial Co.
(Electrical Equipment) 73,000 1,143,779
Murata Manufacturing Co. Ltd. (Electrical
Equipment) 22,000 878,647
Nissen Corp. (Retail) 32,800 $ 957,294
Omron Corp. (Electronics) 57,000 1,254,992
Osaka Sanso Kogyo Ltd. (Chemicals) 201,000 710,133
------------
$ 12,564,183
- -----------------------------------------------------------------------------
Malaysia - 0.8%
Maruichi Malaysia Steel Tube (Metals) 99,000 $ 361,221
New Straits Times Press Berhad
(Publishing) 262,000 814,139
Petronas Gas Berhad (Gas)(S)(S)##* 35,400 113,549
------------
$ 1,288,909
- -----------------------------------------------------------------------------
Netherlands - 3.2%
Getronics NV (Computer Software and
Services) 46,579 $ 1,996,725
IHC Caland NV (Transportation - Marine) 28,500 830,080
Nedlloyd Groep NV (Transportation) 26,000 904,290
Royal Dutch Petroleum Co. (Oils) 12,600 1,497,044
------------
$ 5,228,139
- -----------------------------------------------------------------------------
New Zealand - 1.2%
Lion Nathan Ltd. (Beverages) 963,000 $ 1,997,647
- -----------------------------------------------------------------------------
Norway - 0.4%
Tomra Systems (Environmental) 131,800 $ 616,125
- -----------------------------------------------------------------------------
Singapore - 0.6%
Hong Leong Finance (Finance) 329,000 $ 1,000,884
- -----------------------------------------------------------------------------
South Korea - 1.1%
Korea Electric Power Corp., ADR
(Utilities - Electric) 54,000 $ 1,235,250
Korea Mobile Telecom, GDR
(Telecommunications)*## 18,200 574,392
------------
$ 1,809,642
- -----------------------------------------------------------------------------
Spain - 3.8%
Acerinox S.A. (Iron and Steel) 16,400 $ 2,088,579
Acerinox S.A. (Iron and Steel)(S)(S)* 1,640 205,327
Cubiertas y Mzov S.A. (Engineering and
Construction) 20,000 1,240,828
Iberdrola (Utilities - Electric) 154,000 1,182,628
Repsol S.A. (Oils) 43,000 1,349,318
------------
$ 6,066,680
- -----------------------------------------------------------------------------
Sweden - 6.0%
ASEA AB, "B", Free Shares (Electrical
Equipment) 22,600 $ 2,000,464
Astra AB, "B", Free Shares
(Pharmaceuticals) 88,000 2,857,730
Hennes & Mauritz AB, "B" (Retail) 13,200 783,163
Marieberg Tidnings, "A" (Publishing) 40,500 832,405
Skandinaviska Enskilda Banken, "A" (Banks
and Credit Companies) 82,300 426,265
Sparbanken Sverige AB, "A" (Banks and
Credit Companies) 155,200 1,307,839
TV 4 AB (Telecommunications) 74,500 1,439,340
------------
$ 9,647,206
- -----------------------------------------------------------------------------
United Kingdom - 4.8%
ASDA Group PLC (Supermarkets) 929,000 $ 1,565,365
British Steel PLC (Steel) 348,000 973,286
Capital Radio PLC (Broadcasting) 88,000 623,146
Invesco Fund Managers (Finance) 269,100 913,164
MAI PLC (Investment Company) 224,000 971,846
PowerGen PLC (Utilities - Electric) 359,000 1,535,299
Storehouse PLC (Retail) 252,000 1,206,551
------------
$ 7,788,657
- -----------------------------------------------------------------------------
Total Foreign Stocks $ 71,117,904
- -----------------------------------------------------------------------------
U.S. Stocks and Warrants - 15.8%
Agricultural Products - 0.6%
AGCO Corp. 15,000 $ 729,375
Case Corp. 7,200 271,800
------------
$ 1,001,175
- -----------------------------------------------------------------------------
Airlines - 0.2%
Southwest Airlines Co. 11,500 $ 297,562
- -----------------------------------------------------------------------------
Apparel and Textiles - 0.2%
Nike, Inc., "B" 2,600 $ 240,825
- -----------------------------------------------------------------------------
Automotive - 0.5%
General Motors Corp. 16,800 $ 789,600
- -----------------------------------------------------------------------------
Banks and Credit Companies - 0.3%
First Interstate Bancorporation 5,000 $ 477,500
- -----------------------------------------------------------------------------
Business Services - 0.3%
ADT Ltd.* 21,800 $ 283,400
Technology Solutions Co.* 15,000 234,375
------------
$ 517,775
- -----------------------------------------------------------------------------
Cellular Telephones - 0.5%
AirTouch Communications, Inc.* 25,000 $ 812,500
- -----------------------------------------------------------------------------
Chemicals
OSI Specialties, Inc., Warrants* 1,000 $ 2,000
- -----------------------------------------------------------------------------
Computer Software - Personal Computers - 0.3%
Microsoft Corp.* 4,500 $ 416,250
- -----------------------------------------------------------------------------
Computer Software - Systems - 0.9%
BMC Software, Inc.* 7,000 $ 298,375
Compuware Corp.* 21,200 479,650
Sybase, Inc.* 21,400 687,475
------------
$ 1,465,500
- -----------------------------------------------------------------------------
Consumer Goods and Services - 1.6%
Philip Morris Cos., Inc. 11,000 $ 820,875
RJR Nabisco Holdings Corp. 22,000 627,000
Tyco International Ltd. 19,000 1,123,375
------------
$ 2,571,250
- -----------------------------------------------------------------------------
Defense Electronics - 0.3%
Loral Corp. 10,000 $ 547,500
- -----------------------------------------------------------------------------
Electrical Equipment - 0.4%
Honeywell, Inc. 15,000 $ 656,250
- -----------------------------------------------------------------------------
Electronics - 0.9%
Advanced Circuits, Inc.* 4,200 $ 88,725
Cypress Semiconductor Corp.* 5,000 228,125
Intel Corp. 19,000 1,166,125
------------
$ 1,482,975
- -----------------------------------------------------------------------------
Entertainment - 2.3%
American Radio Systems* 400 $ 11,400
Argosy Gaming Co.* 21,900 312,075
Casino America, Inc.* 24,100 349,450
Harrah's Entertainment, Inc.* 42,100 1,341,938
Heritage Media Corp., "A"* 8,900 251,425
Rio Hotel & Casino, Inc.* 14,000 182,000
Showboat, Inc. 55,000 1,265,000
------------
$ 3,713,288
- -----------------------------------------------------------------------------
Financial Institutions - 1.0%
Federal Home Loan Mortgage Corp. 13,000 $ 835,250
Student Loan Marketing Assn. 15,000 811,875
------------
$ 1,647,125
- -----------------------------------------------------------------------------
Food and Beverage Products - 0.6%
Hershey Foods Corp. 6,000 $ 359,250
PepsiCo, Inc. 15,000 678,750
------------
$ 1,038,000
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.5%
Boise Cascade Corp. 6,000 $ 257,250
Consolidated Papers, Inc. 4,000 242,000
Kimberly Clark Corp. 3,800 242,725
------------
$ 741,975
- -----------------------------------------------------------------------------
Machinery - 0.3%
York International Corp. 10,300 $ 458,350
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 1.2%
Beverly Enterprises* 35,800 $ 474,350
Genesis Health Ventures, Inc.* 7,200 227,700
Living Centers of America, Inc.* 11,300 344,650
Pacificare Health Systems, Inc., "A"* 2,000 109,500
Pacificare Health Systems, Inc., "B"* 9,100 520,975
Regency Health Services, Inc.* 19,500 224,250
------------
$ 1,901,425
- -----------------------------------------------------------------------------
Photographic Products - 0.3%
Eastman Kodak Co. 8,000 $ 461,000
- -----------------------------------------------------------------------------
Railroads - 0.4%
Wisconsin Central Transportation Corp.* 10,000 $ 595,000
- -----------------------------------------------------------------------------
Restaurants and Lodging - 1.1%
Apple South, Inc. 12,500 $ 306,250
Brinker International, Inc.* 40,000 670,000
HomeTown Buffet, Inc.* 2,300 27,312
Promus Hotel Corp.* 39,000 804,375
------------
$ 1,807,937
- -----------------------------------------------------------------------------
Special Products and Services - 0.2%
Stanley Works 9,000 $ 398,250
- -----------------------------------------------------------------------------
Stores - 0.4%
Federated Department Stores, Inc.* 20,000 $ 540,000
Finlay Enterprises* 1,466 26,388
------------
$ 566,388
- -----------------------------------------------------------------------------
Telecommunications - 0.4%
Cabletron Systems, Inc.* 2,000 $ 105,750
Chipcom Corp.* 15,300 613,913
------------
$ 719,663
- -----------------------------------------------------------------------------
Utilities - Telephone - 0.1%
MCI Communications Corp. 4,200 $ 101,062
- -----------------------------------------------------------------------------
Total U.S. Stocks and Warrants $ 25,428,125
- -----------------------------------------------------------------------------
Total Stocks and Warrants (Identified Cost, $90,215,544) $ 96,546,029
- -----------------------------------------------------------------------------
Bonds - 38.0%
- -----------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- -----------------------------------------------------------------------------
Foreign Denominated - 7.6%
Australia - 0.9%
Government of Australia, 8.75s, 2001 AUD 1,300 $ 984,110
Government of Australia, 12s, 2001 125 108,660
Government of Australia, 10s, 2002 500 398,406
------------
$ 1,491,176
- -----------------------------------------------------------------------------
Canada - 0.9%
Government of Canada, 8.5s, 2000 CAD 700 $ 540,146
Government of Canada, 8.5s, 2002 1,100 850,079
------------
$ 1,390,225
- -----------------------------------------------------------------------------
Denmark - 1.0%
Kingdom of Denmark, 9s, 1998 DKK 4,300 $ 801,811
Kingdom of Denmark, 9s, 2000 4,000 752,751
------------
$ 1,554,562
- -----------------------------------------------------------------------------
France - 0.8%
Government of France, 8s, 1998 FRF 1,390 $ 287,781
Government of France, 7s, 1999 1,300 262,319
Government of France, 7.75s, 2000 3,190 660,447
------------
$ 1,210,547
- -----------------------------------------------------------------------------
Germany - 2.0%
German Unity Fund, 8.5s, 2001 DEM 1,267 $ 954,565
Republic of Germany, 8.5s, 2000 930 700,668
Republic of Germany, 6.5s, 2003 1,832 1,238,597
Republic of Germany, 6.875s, 2005 600 413,011
------------
$ 3,306,841
- -----------------------------------------------------------------------------
Italy - 0.5%
Republic of Italy, 8.5s, 1999 ITL 840,000 $ 479,749
Republic of Italy, 9.5s, 1999 480,000 277,832
------------
$ 757,581
- -----------------------------------------------------------------------------
Netherlands - 1.0%
Government of Netherlands, 6.25s, 1998NLG 230 $ 143,600
Government of Netherlands, 7.75s, 2005 1,120 729,369
Government of Netherlands, 8.25s, 2007 1,190 801,003
------------
$ 1,673,972
- -----------------------------------------------------------------------------
Spain - 0.4%
Kingdom of Spain, 12.25s, 2000 ESP 76,000 $ 634,848
- -----------------------------------------------------------------------------
United Kingdom - 0.1%
United Kingdom Gilts, 7s, 2001 GBP 150 $ 223,128
- -----------------------------------------------------------------------------
Total Foreign Denominated $ 12,242,880
- -----------------------------------------------------------------------------
Foreign - U.S. Dollar Denominated - 11.9%
Argentina - 2.5%
Republic of Argentina, 0s, 2005 $ 6,250 $ 3,812,500
Republic of Argentina, 0s, 2023 500 283,750
------------
$ 4,096,250
- -----------------------------------------------------------------------------
Brazil - 2.8%
Federative Republic of Brazil, 0s, 2006 $ 1,000 $ 617,500
Federative Republic of Brazil, 0s, 2009 4,000 2,175,000
Federative Republic of Brazil, 0s, 2014 1,040 514,998
Federative Republic of Brazil, 0s, 2024 2,000 1,145,000
------------
$ 4,452,498
- -----------------------------------------------------------------------------
Mexico - 3.8%
United Mexican States, "B", 0s, 2019 $ 5,250 $ 3,727,500
United Mexican States, "D", 0s, 2019 3,500 2,485,000
United Mexican States, Value Recovery
Rights 13,460 0
------------
$ 6,212,500
- -----------------------------------------------------------------------------
Poland - 2.8%
Republic of Poland, 2.75s, 2024 $ 9,000 $ 3,735,000
Republic of Poland, 6.813s, 2024 1,000 758,750
------------
$ 4,493,750
- -----------------------------------------------------------------------------
Total Foreign - U.S. Dollar Denominated $ 19,254,998
- -----------------------------------------------------------------------------
U.S. Dollar Denominated - 18.5%
Financial Institutions - 0.3%
American Annuity Group, Inc., 11.125s,
2003 $ 500 $ 523,750
- -----------------------------------------------------------------------------
Industrials - 9.3%
Building - 0.8%
American Standard, Inc., 10.5s, 2005 $ 1,000 $ 772,500
USG Corp., 9.25s, 2001 500 523,750
------------
$ 1,296,250
- -----------------------------------------------------------------------------
Chemicals - 0.9%
Arcadian Partners L.P., 10.75s, 2005## $ 295 $ 305,325
OSI Specialties Holding Co., 0s, 2004 1,000 720,000
UCC Investors Holdings, Inc., 10.5s,
2002 500 507,500
------------
$ 1,532,825
- -----------------------------------------------------------------------------
Consumer Goods and Services - 0.6%
Fieldcrest Cannon, Inc., 11.25s, 2004 $ 500 $ 521,250
Westpoint Stevens, Inc., 9.375s, 2005 500 482,500
------------
$ 1,003,750
- -----------------------------------------------------------------------------
Entertainment - 0.3%
SCI Television, Inc., 11s, 2005 $ 500 $ 525,000
- -----------------------------------------------------------------------------
Forest and Paper Products - 0.8%
Gaylord Container Co., 0s, 2005 $ 200 $ 199,000
Repap New Brunswick, 10.625s, 2005 100 100,500
Riverwood International Corp., 11.25s,
2002 500 542,500
Stone Container Corp., 9.875s, 2001 500 495,625
------------
$ 1,337,625
- -----------------------------------------------------------------------------
Medical and Health Products - 0.1%
Tenet Healthcare Corp., 10.125s, 2005 $ 100 $ 105,000
- -----------------------------------------------------------------------------
Medical and Health Technology and Services - 0.7%
Community Health Systems, 10.25s, 2003 $ 500 $ 527,500
Integrated Health Services, Inc.,
10.75s, 2004 500 532,500
------------
$ 1,060,000
- -----------------------------------------------------------------------------
Oil Services - 0.3%
Amerigas Partners L.P., 10.125s, 2007 $ 100 $ 106,000
Global Marine, Inc., 12.75s, 1999 300 330,750
------------
$ 436,750
- -----------------------------------------------------------------------------
Oils - 0.3%
Gulf Canada Resources Ltd., 9.25s, 2004 $ 500 $ 493,750
- -----------------------------------------------------------------------------
Special Products and Services - 2.1%
Eagle Industries, Inc., 0s, 2003 $ 1,000 $ 765,000
IMO Industries, Inc., 12s, 2001 750 776,250
Mark IV Industries, Inc., 8.75s, 2003 250 258,125
Polymer Group, Inc., 12.75s, 2002## 500 510,000
Wolverine Tube, Inc., 10.125s, 2002 1,000 1,055,000
------------
$ 3,364,375
- -----------------------------------------------------------------------------
Steel - 0.3%
AK Steel Holdings Corp., 10.75s, 2004 $ 500 $ 530,000
- -----------------------------------------------------------------------------
Supermarkets - 0.4%
Dominick's Finer Foods, 10.875s, 2005## $ 250 $ 251,250
Ralph's Grocery Co., 11s, 2005 500 470,000
------------
$ 721,250
- -----------------------------------------------------------------------------
Telecommunications - 1.7%
Cablevision Industries Corp., 10.75s,
2002 $ 500 $ 542,500
K-III Communications Corp., 10.625s,
2002 750 791,250
MFS Communications, Inc., 0s, 2004 1,000 745,000
Paging Network, Inc., 8.875s, 2006 750 697,500
------------
$ 2,776,250
- -----------------------------------------------------------------------------
Total Industrials $ 15,182,825
- -----------------------------------------------------------------------------
U.S. Federal Agency - 3.7%
Federal National Mortgage Assn., 8.5s, 2025 $ 5,722 $ 5,904,813
- -----------------------------------------------------------------------------
U.S. Treasury Obligations - 4.9%
U.S. Treasury Notes, 6.75s, 2000 $ 5,000 $ 5,128,900
U.S. Treasury Notes, 7.5s, 2005 2,550 2,756,397
------------
$ 7,885,297
- -----------------------------------------------------------------------------
Utilities - Electric - 0.3%
Kenetech Corp., 12.75s, 2002 $ 500 $ 470,000
- -----------------------------------------------------------------------------
Total U.S. Dollar Denominated $ 29,966,685
- -----------------------------------------------------------------------------
Total Bonds (Identified Cost, $59,668,924) $ 61,464,563
- -----------------------------------------------------------------------------
Call Options Purchased
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
Italian Lire/Deutsche Marks
September/1143.9 ITL 314,573 $ 5,895
Japanese Government Bonds
September/110.818 JPY 150,000 1,350
September/114.918 228,000 0
October/115.27 230,000 460
November/114.165 120,000 1,320
December/109.69 129,000 14,448
- -----------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $101,461) $ 23,473
- -----------------------------------------------------------------------------
Put Option Purchased
- -----------------------------------------------------------------------------
British Pounds
September/1.5305 (Premium Paid, $5,184) GBP 785,487 $ 1,403
- -----------------------------------------------------------------------------
Short-Term Obligation - 2.0%
- -----------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -----------------------------------------------------------------------------
Ford Motor Credit Corp., due 9/01/95, at
Amortized Cost $ 3,280 $ 3,279,472
- -----------------------------------------------------------------------------
Total Investments (Identified Cost, $153,270,585) $161,314,940
- -----------------------------------------------------------------------------
Call Option Written
- -----------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted)
- -----------------------------------------------------------------------------
Japanese Yen $ (2,505)
March/78 (Premium Received, $21,847) JPY 92,111
- -----------------------------------------------------------------------------
Put Options Written - (0.1)%
- -----------------------------------------------------------------------------
British Pounds $ (1,351)
September/1.53 GBP 785
Deutsche Marks (12,739)
September/1.465 DEM 2,319
September/1.49 (1,647)
1,238
Italian Lire/Deutsche Marks
September/1227.5 ITL 337,563 0
Japanese Government Bonds (19,800)
November/111.75 JPY 120,000
December/108.97 (15,609)
129,000
Japanese Yen (65,630)
March/93 109,824
- -----------------------------------------------------------------------------
Total Put Options Written
(Premiums Received, $86,292) $ (116,776)
- -----------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.3% $ 393,393
- -----------------------------------------------------------------------------
Net Assets - 100.0% $161,589,052
- -----------------------------------------------------------------------------
*Non-income producing security.
+Restricted security.
##SEC Rule 144A restriction.
(S)(S)When-issued security. At August 31, 1995, the Fund had sufficient cash
and/or securities at least equal to the value of the when-issued
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.
AUD = Australian Dollars IEP = Irish Punts
CAD = Canadian Dollars ITL = Italian Lire
DEM = Deutsche Marks JPY = Japanese Yen
DKK = Danish Kroner NLG = Dutch Guilders
ESP = Spanish Pesetas NZD = New Zealand Dollars
FRF = French Francs SEK = Swedish Kronor
GBP = British Pounds
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
August 31, 1995
- ------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $153,270,585) $161,314,940
Cash 7,627
Net receivable for forward foreign currency exchange
contracts sold 2,386,524
Net receivable for forward foreign currency contracts 161,273
Receivable for Fund shares sold 385,594
Receivable for investments sold 61,868
Interest and dividends receivable 1,747,050
Deferred organization expenses 27,445
------------
Total assets $166,092,321
------------
Liabilities:
Payable for Fund shares reacquired $ 189,855
Payable for investments purchased 2,169,330
Written options outstanding, at value (premiums received,
$108,139) 119,281
Payable for daily variation margin on open futures
contracts 25,313
Net payable for forward currency exchange contracts
purchased 1,819,433
Payable to affiliates -
Management fee 2,650
Shareholder servicing agent fee 822
Distribution fee 68,195
Accrued expenses and other liabilities 108,390
------------
Total liabilities $ 4,503,269
------------
Net assets $161,589,052
============
Net assets consist of:
Paid-in capital $147,578,245
Unrealized appreciation on investments and translation of
asset and liabilities in foreign currencies 8,875,257
Accumulated undistributed net realized gain on investments
and foreign currency transactions 5,959,132
Accumulated distributions in excess of net investment
income (823,582)
------------
Total $161,589,052
============
Shares of beneficial interest outstanding 9,733,708
============
Class A shares:
Net asset value and redemption price per share
(net assets of $58,662,968 / 3,526,991 shares of
beneficial interest outstanding) $16.63
======
Offering price per share (100/95.25) $17.46
======
Class B shares:
Net asset value and offering price per share
(net assets of $83,600,786 / 5,040,791 shares of
beneficial interest outstanding) $16.58
======
Class C shares:
Net asset value, offering price, and redemption price per
share (net assets of $19,325,298 / 1,165,926 shares of
beneficial interest outstanding) $16.58
======
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
and Class B shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations
- ------------------------------------------------------------------------------
Year Ended August 31, 1995
- ------------------------------------------------------------------------------
Net investment income:
Income -
Interest $ 4,911,152
Dividends 1,463,988
Foreign taxes withheld (162,691)
-----------
Total investment income $ 6,212,449
-----------
Expenses -
Management fee $ 748,715
Trustees' compensation 32,823
Shareholder servicing agent fee (Class A) 71,288
Shareholder servicing agent fee (Class B) 139,960
Shareholder servicing agent fee (Class C) 20,463
Distribution and service fee (Class A) 237,651
Distribution and service fee (Class B) 636,183
Distribution and service fee (Class C) 136,422
Custodian fee 107,978
Printing 82,281
Postage 53,334
Auditing fees 52,350
Legal fees 11,927
Amortization of organization expenses 6,849
Miscellaneous 171,142
-----------
Total expenses $ 2,509,366
Reduction of expenses by distributor (Class A) (94,868)
-----------
Net expenses $ 2,414,498
-----------
Net investment income $ 3,797,951
-----------
Realized and unrealized gain on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $ 3,657,531
Written option transactions 250,514
Foreign currency transactions 779,553
Futures contracts (492,110)
-----------
Net realized gain on investments and foreign currency
transactions $ 4,195,488
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 7,154,479
Written options (11,142)
Translation of assets and liabilities in foreign currencies 715,978
Futures contracts 118,652
-----------
Net unrealized gain on investments $ 7,977,967
-----------
Net realized and unrealized gain on investments and
foreign currency $12,173,455
-----------
Increase in net assets from operations $15,971,406
===========
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
Year Ended August 31, 1995 1994*
- ------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 3,797,951 $ 89,142
Net realized gain on investments and foreign
currency transactions 4,195,488 22,898
Net unrealized gain on investments and
foreign currency translation 7,977,967 897,290
------------ ------------
Increase in net assets from operations $ 15,971,406 $ 1,009,330
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (1,026,466) $ --
From net investment income (Class B) (1,012,521) --
From net investment income (Class C) (239,932) --
From net realized gain on investments and
foreign currency transactions (Class A) (258,501) --
From net realized gain on investments and
foreign currency transactions (Class B) (350,041) --
From net realized gain on investments and
foreign currency transactions (Class C) (82,468) --
------------ ------------
Total distributions declared to
shareholders $ (2,969,929) $ --
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $118,013,307 $ 54,876,622
Net asset value of shares issued to
shareholders in reinvestment
of distributions 2,475,151 --
Cost of shares reacquired (27,084,609) (702,226)
------------ ------------
Increase in net assets from Fund share
transactions $ 93,403,849 $ 54,174,396
------------ ------------
Total increase in net assets $106,405,326 $ 55,183,726
Net assets:
At beginning of period 55,183,726 --
------------ ------------
At end of period (including accumulated
undistributed (distributions in excess of)
net investment income of $(823,582) and
$111,814, respectively) $161,589,052 $ 55,183,726
============ ============
*The Fund commenced investment operations on July 22, 1994.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended August 31, 1995 1994<F1> 1995 1994<F1> 1995 1994<F1>
- ----------------------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $15.33 $15.00 $15.31 $15.00 $15.31 $15.00
------ ------ ------ ------ ------ ------
Income from investment operations <F4> -
Net investment income $ 0.55<F6> $ 0.04<F6> $ 0.43 $ 0.02<F6> $ 0.46 $ 0.03<F6>
Net realized and unrealized gain on investments
and foreign currency transactions 1.17 0.29 1.17 0.29 1.16 0.28
------ ------ ------- ------ ------- ------
Total from investment operations $ 1.72 $ 0.33 $ 1.60 $ 0.31 $ 1.62 $ 0.31
------ ------ ------ ------ ------ ------
Less distributions declared to share holders -
From net investment income $(0.37) $ -- $(0.28) $ -- $(0.30) $ --
From net realized gain on investments and foreign
currency transactions (0.05) -- (0.05) -- (0.05) --
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders $(0.42) $ -- $(0.33) $ -- $(0.35) $ --
------ ------ ------ ------ ------ ------
Net asset value-end of period $16.63 $15.33 $16.58 $15.31 $16.58 $15.31
====== ====== ====== ====== ====== ======
Total return<F5> 11.48% 2.20%<F3> 10.65% 2.07%<F3> 10.72% 2.07%<F3>
Ratios (to average net assets)/Supplemental data:
Expenses 1.47%<F6> 1.50%<F2><F6> 2.24% 2.57%<F2><F6> 2.18% 2.50%<F2><F6>
Net investment income 3.49%<F6> 2.43%<F6>) 2.75% 1.39%<F2><F6> 2.91% 1.68%<F2><F6>
Portfolio turnover 118% 1% 118% 1% 118% 1%
Net assets at end of period (000 omitted) $58,663 $25,254 $83,601 $26,495 $19,325 $3,435
<FN>
<F1> For the period from the commencement of investment operations, July 22, 1994 to August 31, 1994.
<F2> Annualized.
<F3> Not annualized.
<F4> Per share data is based on the average shares outstanding.
<F5> 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.
<F6> The investment adviser and/or the distributor did not impose a portion of their management fee and/or distribution fee,
respectively, for the periods indicated. If these fees had been incurred by the Fund, the net investment income per share and
the ratios would have been:
</FN>
Net investment income $ 0.52 $ 0.02 -- $ 0.01 -- $ 0.02
Ratios (to average net assets):
Expenses 1.67% 2.62%<F2> -- 3.21%<F2> -- 3.18%<F2>
Net investment income 3.29% 1.31%<F2> -- 0.75%<F2> -- 1.00%<F2>
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS World Asset Allocation Fund (the Fund) is a non-diversified series of MFS
Series Trust I (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
Investment Valuations - 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 base currency
and translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options
are valued by brokers through the use of a pricing model which takes into
account closing bond valuations, implied volatility and short-term repurchase
rates. Equity securities listed on securities exchanges or reported through
the NASDAQ system are valued at last sale prices. Unlisted equity securities
or listed equity securities for which last sale prices are not available are
valued at last quoted bid prices. 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.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund requires
that the securities purchased in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the Fund to obtain those
securities in the event of a default under the repurchase agreement. The Fund
monitors, on a daily basis, the value of the securities transferred to ensure
that the value, including accrued interest, of the securities under each
repurchase agreement is greater than amounts owed to the Fund under each such
repurchase agreement.
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, including 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
investment operations of the Fund.
Written Options - The Fund may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities purchased by the Fund. The Fund, as writer of an option, may have
no control over whether the underlying securities may be sold (call) or
purchased (put) and, as a result, bears the market risk of an unfavorable
change in the price of the securities underlying the written option. In
general, written call options may serve as a partial hedge against decreases
in value in the underlying securities to the extent of the premium received.
Written options may also be used as a part of an income producing strategy
reflecting the view of the Fund's management on the direction of interest
rates.
Futures Contracts - The Fund may enter into futures contracts for the delayed
delivery of securities, 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 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
underlying security, 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
or exchange rates or securities prices. Investments in interest rate futures
for purposes other than hedging may be made to modify the duration of the
portfolio without incurring the additional transaction costs involved in
buying and selling the underlying securities. Investments in currency futures
for purposes other than hedging may be made to change the Fund's relative
position in one or more currencies without buying and selling portfolio
assets. Investments in equity-index contracts, or contracts on related
options, for purposes other than hedging may be made when the Fund has cash on
hand and wishes to participate in anticipated market appreciation while cash
is being invested. Should interest or exchange 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 - 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 these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The Fund will enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the Fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. It 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 for financial statement purposes as unrealized until
the contract settlement date.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for both financial
statement and tax reporting purposes as required by federal income tax
regulations. Dividend income is recorded on the ex-dividend date for dividends
received in cash. 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, whereby interest income on PIK bonds is recorded
ratably by the Fund at a constant yield to maturity. Legal fees and other
related expenses incurred to preserve and protect the value of a security
owned are added to the cost of the security; other legal fees are expensed.
Capital infusions, which are generally non-recurring, incurred to protect or
enhance the value of high-yield debt securities, are reported as an addition
to the cost basis of the security. Costs that are incurred to negotiate the
terms or conditions of capital infusions or that are expected to result in a
plan of reorganization are considered workout expenses and are reported as
realized losses. Ongoing costs incurred to protect or enhance an investment,
or costs incurred to pursue other claims or legal actions, are reported as
operating expenses.
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 net 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. Foreign taxes have been provided
for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. 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 only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended August 31, 1995, $2,454,428 was reclassified from
accumulated undistributed net investment income to accumulated net realized
gain on investments due to differences between book and tax accounting for
foreign currency transactions. This change had no effect on the net assets or
net asset value per share.
Multiple Classes of Shares of Beneficial Interest - The Fund offers Class A,
Class B and Class C shares. The three classes of shares differ in their
respective shareholder servicing agent, distribution and service fees. All
shareholders bear the common expenses of the Fund pro rata based on the
average daily net assets of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.60%
of average daily net assets.
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 of the 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 its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of $3,248
for the year ended August 31, 1995.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$111,898 for the year ended August 31, 1995, as its portion of the sales
charge on sales of Class A shares of the Fund. The Trustees have adopted
separate distribution plans for Class A, Class B and Class C shares pursuant
to Rule 12b-1 of the Investment Company Act of 1940 as follows:
The Class A 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
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, 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, commissions to dealers and payments to MFD
wholesalers for sales at or above a certain dollar level, and other such
distribution-related expenses that are approved by the Fund. MFD retains the
service fee for accounts not attributable to a securities dealer which
amounted to $934 for the year ended August 31, 1995. Fees, net of waiver,
incurred under the distribution plan during the year ended August 31, 1995
were 0.30% of average daily net assets attributable to Class A shares on an
annualized basis.
The Class B and Class C distribution plans provide 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 additional 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 $91 and
$2,377 for Class B and Class C shares, respectively, for the year ended August
31, 1995. Fees incurred under the distribution plans during the year ended
August 31, 1995 were 1.00% of average daily net assets attributable to Class B
and Class C shares on an annualized basis.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class A shares, on purchases of $1 million or more, in the event of a
shareholder redemption within twelve months following the share 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 August 31, 1995 were
$1,592 and $108,698 for Class A and Class B shares, respectively.
Currently, MFD is bearing the Fund's Class A distribution/service fee equal to
0.20% of the Fund's average daily net assets attributable to Class A shares on
an annualized basis.
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 average daily net assets of each class of shares at an
effective annual rate of up to 0.15%, up to 0.22% and up to 0.15% attributable
to Class A, Class B and Class C shares, respectively.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
Purchases Sales
- ------------------------------------------------------------------------------
U.S. government securities $ 20,041,094 $ 12,470,196
============ ============
Investments (non-U.S. government securities) $220,974,944 $119,144,627
============ ============
The cost and unrealized appreciation or depreciation in value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $153,575,536
============
Gross unrealized appreciation $ 10,906,594
Gross unrealized depreciation (3,167,190)
------------
Net unrealized appreciation $ 7,739,404
============
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
Class A Shares
1995 1994*
-------------------------- -------------------------
Year Ended August 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,594,208 $ 39,819,615 1,676,623 $25,208,761
Shares issued to
shareholders in
reinvestment of
distributions 72,285 1,112,578 -- --
Shares reacquired (787,357) (12,300,613) (28,768) (434,304)
--------- ------------- --------- -----------
Net increase 1,879,136 $ 28,631,580 1,647,855 $24,774,457
========= ============= ========= ===========
Class B Shares
1995 1994*
-------------------------- -------------------------
Year Ended August 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,914,029 $ 59,970,108 1,745,709 $26,248,238
Shares issued to
shareholders in
reinvestment of
distributions 72,092 1,107,833 -- --
Shares reacquired (675,931) (10,554,603) (15,108) (228,061)
--------- ------------- ---------- -----------
Net increase 3,310,190 $ 50,523,338 1,730,601 $26,020,177
========= ============= ========= ===========
*For the period July 22, 1994 to August 31, 1994.
Class C Shares
1995 1994*
-------------------------- -------------------------
Year Ended August 31, Shares Amount Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,198,363 $18,223,584 226,975 $3,419,623
Shares issued to
shareholders in
reinvestment of
distributions 16,620 254,740 -- --
Shares reacquired (273,394) (4,229,393) (2,638) (39,861)
--------- ------------- ---------- -----------
Net increase 941,589 $14,248,931 224,337 $3,379,762
========= ============= ========= ===========
*For the period July 22, 1994 to August 31, 1994.
(6) Line of Credit
The Fund entered into an agreement which enables it to participate with other
funds managed by MFS in an unsecured line of credit with a bank which permits
borrowings up to $350 million, collectively. 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 August
31, 1995 was $2,051.
(7) Financial Instruments
The Fund trades financial instruments with off-balance sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts 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. A summary of obligations under these financial
instruments at August 31, 1995, is as follows:
<TABLE>
Written Option Transactions
<CAPTION>
1995 Calls 1995 Puts
------------------------ -----------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options written -
Australian Dollars 796 $ 6,074 2,759 $ 32,936
British Pounds 842 14,524 785 14,524
Canadian Dollars -- -- 2,663 11,168
Deutsche Marks 9,861 38,768 28,826 203,558
Deutsche Marks/British Pounds 1,550 10,069 3,778 13,292
Italian Lire/Deutsche Marks 2,662,580 18,331 1,153,304 4,094
Japanese Yen 939,255 275,397 2,052,422 215,890
Spanish Pesetas/Deutsche Marks -- -- 75,925 4,976
Swedish Kronor/Deutsche Marks 3,006 2,270 3,210 2,010
Swiss Francs/Deutsche Marks 1,258 5,298 -- --
Options terminated in closing transactions -
Australian Dollars (796) (6,074) (2,759) (32,936)
British Pounds (842) (14,524) -- --
Canadian Dollars -- -- (2,663) (11,168)
Deutsche Marks (2,964) (14,712) (21,998) (176,652)
Deutsche Marks/British Pounds (1,550) (10,069) (3,778) (13,292)
Japanese Yen (847,144) (253,550) (1,693,598) (168,252)
Spanish Pesetas/Deutsche Marks -- -- (75,925) (4,976)
Swedish Kronor/Deutsche Marks (3,006) (2,270) -- --
Options exercised -
Deutsche Marks (1,760) (5,626) -- --
Italian Lire/Deutsche Marks -- -- (815,741) (1,383)
Swiss Francs/Deutsche Marks (1,258) (5,298) -- --
Options expired -
Deutsche Marks (5,137) (18,430) (3,271) (5,487)
Italian Lire/Deutsche Marks (2,662,580) (18,331) -- --
Swedish Kronor/Deutsche Marks -- -- (3,210) (2,010)
--------- -------- ------- --------
OUTSTANDING, END OF PERIOD 92,111 $ 21,847 700,729 $ 86,292
========= ======== ======= ========
OPTIONS OUTSTANDING AT END OF PERIOD CONSIST OF -
British Pounds -- $ -- 785 $ 14,524
Deutsche Marks -- -- 3,557 21,419
Italian Lire/Deutsche Marks -- -- 337,563 2,711
Japanese Yen 92,111 21,847 358,824 47,638
--------- -------- ------- --------
OUTSTANDING, END OF PERIOD 92,111 $ 21,847 700,729 $ 86,292
========= ======== ======= ========
</TABLE>
At August 31, 1995, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
Net Unrealized
Contracts to Contracts Appreciation
Settlement Date Deliver/Receive In Exchange for at Value (Depreciation)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 9/01/95 - 9/27/95 AUD 7,419,452 $ 5,345,748 $ 5,566,481 $ (220,733)
9/01/95 - 9/01/95 CAD 3,711,281 2,748,130 2,762,724 (14,594)
9/05/95 - 12/07/95 DEM 31,590,420 22,458,561 21,571,766 886,795
9/08/95 - 10/06/95 DKK 9,768,680 1,784,604 1,714,716 69,888
12/07/95 - 12/07/95 ESP 389,763,438 3,084,358 3,077,917 6,441
9/18/95 - 9/28/95 FRF 84,362,310 17,257,725 16,722,803 534,922
10/10/95 - 10/10/95 GBP 2,069,713 3,298,792 3,204,005 94,787
9/11/95 - 10/02/95 ITL 2,836,968,549 1,718,336 1,740,943 (22,607)
9/25/95 - 12/07/95 JPY 626,974,598 7,232,468 6,463,647 768,821
9/26/95 - 9/26/95 NLG 6,051,695 3,909,411 3,684,785 224,626
9/08/95 - 11/15/95 NZD 6,204,494 4,062,092 4,021,526 40,566
10/12/95 - 10/12/95 SEK 41,832,450 5,728,511 5,710,899 17,612
----------- ----------- -----------
$78,628,736 $76,242,212 $ 2,386,524
=========== =========== ===========
Purchases 11/27/95 - 11/27/95 AUD 129,456 $ 95,021 $ 96,829 $ 1,808
9/01/95 - 9/06/95 CAD 2,445,237 1,819,321 1,821,201 1,880
9/05/95 - 12/07/95 DEM 36,547,404 26,417,704 24,941,818 (1,475,886)
9/08/95 - 10/06/95 DKK 5,573,832 1,006,183 978,367 (27,816)
9/29/95 - 9/29/95 FRF 41,117,428 8,389,956 8,150,603 (239,353)
10/10/95 - 10/10/95 GBP 193,937 298,663 300,223 1,560
10/10/95 - 10/10/95 IEP 1,381,673 2,269,260 2,189,675 (79,585)
9/11/95 - 12/07/95 ITL 2,268,686,690 1,376,644 1,388,371 11,727
9/01/95 - 9/01/95 NLG 283,076 171,188 172,134 946
9/08/95 - 9/15/95 NZD 3,939,295 2,573,721 2,559,007 (14,714)
---------- ----------- ---------
$44,417,661 $42,598,228 $(1,819,433)
=========== =========== ===========
</TABLE>
Forward foreign currency purchases and sales under master netting arrangements
and closed forward foreign currency exchange contracts excluded above amounted
to a net receivable of $161,273 at August 31, 1995.
At August 31, 1995, the Fund had sufficient cash and/or securities to cover
any commitments under these contracts.
Futures Contracts
Unrealized
Expiration Contracts Position Appreciation
- --------------------------------------------------------------------------------
September 1995 45 U.S. Treasury Notes (10 yr.) Short $ 42,103
September 1995 90 U.S. Treasury Notes (5 yr.) Short 76,549
--------
$118,652
========
At August 31, 1995, the Fund had sufficient cash and/or securities to cover
margin requirements on open futures contracts.
(8) 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 August 31,
1995, the Fund owned the following restricted securities (constituting 2.1% of
net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). The Fund does not have the right to
demand that such securities be registered. The value of these securities is
determined by valuations supplied by a pricing service or brokers or, if not
available, in good faith by or at the direction of the Trustees. Certain of
these securities may be offered and sold to "qualified institutional buyers"
under Rule 144A of the 1933 Act.
Shares/
Description Date of Acquisition Par Amount Cost Value
- --------------------------------------------------------------------------------
Arcadian Partners
L.P., 10.75s, 2005 10/31/94 295,000 $ 289,837 $ 305,325
Dominick's Finer
Foods, 10.875s, 2005 6/21/95 250,000 248,750 251,250
Hornbach Baumarkt AG 8/31/94 - 5/17/95 2,060 1,164,598 1,206,812
Korea Mobile
Telecom, GDR 3/24/95 - 3/31/95 18,200 474,953 574,392
Petronas Gas Berhad 7/31/95 35,400 115,639 113,549
Polymer Group, Inc.,
12.75s, 2002 9/07/94 500,000 507,500 510,000
Santa Isabel S.A.,
ADR 7/26/95 - 8/15/95 18,000 311,560 389,250
----------
$3,350,578
==========
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust I and Shareholders of MFS World Asset
Allocation Fund:
We have audited the accompanying statement of assets and liabilities of MFS
World Asset Allocation Fund, including the schedule of portfolio investments,
as of August 31, 1995, the related statement of operations for the year then
ended and the statement of changes in net assets and the financial highlights
for the year then ended and for the period from July 22, 1994 (commencement
of investment operations) to August 31, 1994. 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. Our procedures included confirmation of
securities owned as of August 31, 1995, by correspondence with the custodian
and brokers, or 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
World Asset Allocation Fund at August 31, 1995, the results of its operations
for the year then ended, and the changes in its net assets and the financial
highlights for the year then ended and for the period from July 22, 1994 to
August 31, 1994, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
October 4, 1995
---------------------------------------------
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>
MFS INVESTMENT OPPORTUNITIES
MUTUAL FUNDS
The MFS Family of Funds(R), shown on the facing page, falls into the eight
general categories below. All offer full-time professional management, a
diversified portfolio, and a wide array of shareholder services.
STOCK FUNDS seek growth of capital rather than income through investments in
stocks.
STOCK AND BOND FUNDS seek current income and growth of capital through
investments in both stocks and bonds.
BOND FUNDS seek current income through investments in debt securities.
WORLD FUNDS seek stock, balanced, and bond fund objectives through
investments in U.S. and foreign stocks and bonds.
LIMITED-MATURITY FUNDS seek current income and preservation of capital
through investments in debt securities with remaining maturities of five years
or less.
NATIONAL TAX-FREE BOND FUNDS seek current income exempt from federal income
tax through investments in debt securities issued by states and
municipalities.(1)
STATE TAX-FREE BOND FUNDS seek current income exempt from federal and state
income taxes through investments in debt securities issued by a single state
and its municipalities.(1)
MONEY MARKET FUNDS seek preservation of capital and current income through
investments in short-term debt securities.(2)
To determine which MFS fund may be appropriate for you, please contact your
financial adviser, who can help you relate these investment opportunities to
your financial goals. If you prefer, you may call MFS Investor Information for
literature(3) on MFS products and services: 1-800-637-2929, from 9 a.m. to 5
p.m. Eastern time any business day (leave a message any time).
(1) A small portion of the income may be subject to federal, state and/or
alternative minimum tax.
(2) Investments in money market funds are not issued or guaranteed by the U.S.
government and there is no assurance that the Fund will be able to maintain
a stable net asset value.
(3) Including a prospectus containing more complete information including
charges and expenses. Read the prospectus carefully before investing.
<PAGE>
THE MFS FAMILY OF FUNDS(R)
America's Oldest Mutual Fund Group
The members of the MFS Family of Funds are grouped below according to the types
of securities in their portfolios. For free prospectuses containing more
complete information, including the exchange privilege and all charges and
expenses, please contact your financial adviser or call MFS at 1-800-637-2929
any business day from 9 a.m. to 5 p.m. Eastern time (or, leave a message any
time). This material should be read carefully before investing or sending money.
<TABLE>
<S> <C>
STOCK LIMITED MATURITY BOND
- ---------------------------------------------------- ----------------------------------------------------
Massachusetts Investors Trust MFS(R) Government Limited Maturity Fund
- ---------------------------------------------------- ----------------------------------------------------
Massachusetts Investors Growth Stock Fund MFS(R) Limited Maturity Fund
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Capital Growth Fund MFS(R) Municipal Limited Maturity Fund
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Emerging Growth Fund
- ---------------------------------------------------- WORLD
MFS(R) Gold & Natural Resources Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Asset Allocation Fund
MFS(R) Growth Opportunities Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Equity Fund
MFS(R) Managed Sectors Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Governments Fund
MFS(R) OTC Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Growth Fund
MFS(R) Research Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) World Total Return Fund
MFS(R) Value Fund ----------------------------------------------------
- ----------------------------------------------------
NATIONAL TAX-FREE BOND
STOCK AND BOND ----------------------------------------------------
- ---------------------------------------------------- MFS(R) Municipal Bond Fund
MFS(R) Total Return Fund ----------------------------------------------------
- ---------------------------------------------------- MFS(R) Municipal High Income Fund
MFS(R) Utilities Fund (closed to new investors)
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Municipal Income Fund
BOND ----------------------------------------------------
- ----------------------------------------------------
MFS(R) Bond Fund STATE TAX-FREE BOND
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Government Mortgage Fund Alabama, Arkansas, California, Florida,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Government Securities Fund Georgia, Louisiana, Maryland, Massachusetts,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) High Income Fund Mississippi, New York, North Carolina,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Intermediate Income Fund Pennsylvania, South Carolina, Tennessee,
- ---------------------------------------------------- ----------------------------------------------------
MFS(R) Strategic Income Fund Texas, Virginia, Washington, West Virginia
(formerly MFS(R) Income & Opportunity Fund) ----------------------------------------------------
- ----------------------------------------------------
MONEY MARKET
----------------------------------------------------
MFS(R) Cash Reserve Fund
----------------------------------------------------
MFS(R) Government Money Market Fund
----------------------------------------------------
MFS(R) Money Market Fund
----------------------------------------------------
</TABLE>
<PAGE>
MFS(R) WORLD -----------------
ASSET ALLOCATION
FUND BULK RATE
U.S. POSTAGE
500 Boylston Street P A I D
Boston, MA 02116 PERMIT #55638
BOSTON, MA
-----------------
[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MAA-3 10/95 18M 88/288/388
