<PAGE> 1
[MFS LOGO]
INVESTMENT MANAGEMENT
WE INVENTED THE MUTUAL FUND[SERVICE TRADEMARK]
ANNUAL REPORT
FOR YEAR ENDED
AUGUST 31, 1996
MFS[REGISTERED TRADEMARK] WORLD ASSET ALLOCATION FUND[SERVICE TRADEMARK]
[GRAPHIC OMITTED: AIRPLANE]
<PAGE> 2
TABLE OF CONTENTS
Letter from the Chairman.............................................. 1
U.S. Stock Market..................................................... 3
International Stock Markets........................................... 3
U.S. Government Bond Market........................................... 4
International Bond Markets............................................ 5
Fund Managers' Profiles............................................... 6
Performance Summary................................................... 7
Portfolio of Investments.............................................. 10
Financial Statements.................................................. 18
Notes to Financial Statements......................................... 23
Independent Auditors' Report.......................................... 33
It's Easy to Contact Us............................................... 34
A Word About MFS Products and Services................................ 35
The MFS Family of Funds[Registered Trademark]......................... 36
Trustees and Officers................................................. 37
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HIGHLIGHTS
* CLASS A SHARES OF THE FUND PROVIDED A TOTAL RETURN OF 14.23%, CLASS B
SHARES 13.58%, AND CLASS C SHARES 13.62% FOR THE 12 MONTHS ENDED AUGUST
31, 1996. ALL OF THESE RETURNS ARE AT NET ASSET VALUE.
* BOND AND STOCK MARKETS AROUND THE WORLD POSTED GAINS OVER THE PAST YEAR
DESPITE VERY DISSIMILAR ECONOMIC CONDITIONS IN KEY REGIONS. JAPAN BEGAN TO
EMERGE FROM ECONOMIC RECESSION, EUROPE REMAINED MIRED IN RECESSION-LIKE
CONDITIONS, AND THE UNITED STATES CONTINUED ON ITS PATH OF GRADUAL
EXPANSION.
* THE FUND HAS FOLLOWED A DISTINCT POLICY OF FAVORING MARKETS OUTSIDE THE
UNITED STATES, WITH MOST OF OUR RECENT PURCHASES AND ADDITIONS IN
COMPANIES WHICH WE BELIEVE WILL SHOW STEADY EARNINGS GROWTH REGARDLESS
OF THE STATE OF THE GLOBAL ECONOMY.
* IN CONTRAST TO THE ROBUST GROWTH AND FEARS OF INFLATION IN THE UNITED
STATES, THE RALLY IN THE MAJOR FOREIGN MARKETS HAS BEEN SUSTAINED BY
SLOWER GROWTH, BENIGN INFLATION, FISCAL AUSTERITY PROGRAMS, AND EASING
MONETARY POLICY.
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<PAGE> 3
LETTER FROM THE CHAIRMAN
Dear Shareholders:
[Photo of A. In an environment of ever-changing market conditions
Keith Brokin] and changes among relative value rankings in
different asset types, Class A shares of the Fund
provided a total return of 14.23%, Class B shares
13.58%, and Class C shares 13.62% for the 12 months
ended August 31, 1996. All of these returns assume
the reinvestment of distributions but exclude the
effects of any sales charges, and they compare to the
one-year returns for the following unmanaged indices: 18.72% for the Standard &
Poor's 500 Composite Index, a popular index of common stock performance; 8.19%
for the Morgan Stanley Capital International EAFE (Europe, Australia, Far East)
Index, an index of international stocks; 4.11% for the Lehman Brothers Aggregate
Bond Index, an index of government and corporate bonds including U.S. Treasury,
government agency, corporate bond, and mortgage-backed securities; and 8.67% for
the J.P. Morgan Non-Dollar Government Bond Index, an international bond index.
We believe the Fund's relative favorable performance has been achieved with less
risk (lower volatility) than would have been achieved by investing exclusively
in any one class and stems from the combined effect of deliberate changes in
asset mix and issue selection, as well as from a bias toward the U.S. dollar
compared to local foreign currencies.
During the past 12 months, bond and stock markets around the world posted
gains despite very dissimilar economic conditions in key regions. Japan began to
emerge from economic recession, Europe remained mired in recession-like
conditions, and the United States continued on its path of gradual expansion.
During this period, the Fund followed a distinct policy of favoring markets
(both bond and stock) outside the United States. Within that basic stance, we
made several changes in asset mix which could be described as both tactical
(shorter term) and strategic (longer term). A key example of these changes was a
selling off of U.S. bonds which anticipated the downturn in U.S. fixed-income
markets during 1996's first quarter. In the equity markets, we likewise changed
the Fund's positions among asset classes. For example, when U.S. small-company
stocks went into a corrective phase in June and July, we were extremely
underweighted in U.S. stocks (only 15% of the portfolio). We have recently begun
to add to this position in anticipation of a price recovery. During the past 12
months, we have also held positions in high-yield corporate bonds and in
emerging market bonds
1
<PAGE> 4
LETTER FROM THE CHAIRMAN - continued
(mostly Brady bonds). At present, however, both the high-yield corporate and
Brady bond positions have been reduced to zero after achieving gains.
Some of the Fund's key investments represent consistently held positions
for us and have not involved major changes. These would include stock holdings
in Asia, notably in Malaysia and Hong Kong. Other consistent areas of interest
have been the United Kingdom and Sweden, particularly in the latter's
pharmaceutical industry.
We continue to manage this Fund not as a market-timing vehicle or a
balanced fund, but rather as the expression of the best relative value choices
available to MFS experts that can be reasonably researched and managed. The
reports of the managers of each portfolio who have helped the Fund achieve good
performance over the past year 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 17, 1996
2
<PAGE> 5
PORTFOLIO ALLOCATION
[PIE CHART]
U.S. STOCK MARKET - 16.6%
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 Alco Standard (paper and office products distribution); Cabletron
Systems (telecommunications equipment); and St. Jude Medical (medical-device
technology). Currently, our top three sectors are leisure (15.1%), technology
(13.8%), and financial services (12.0%). Our current outlook remains cautious.
Corporate profits have so far exceeded our expectations; however, we believe
that the rise in long-term interest rates is likely to have a dampening effect
on stock market performance.
-- John F. Brennan, Jr.
FIVE LARGEST HOLDINGS AS OF 8/31/96
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Alco Standard Corp. (Business Services) 0.9%
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Harrah's Entertainment, Inc. (Entertainment) 0.7%
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Federal Home Loan Mortgage Corp. (Financial Institutions) 0.6%
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Tyco International Ltd. (Consumer Goods and Services) 0.5%
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Cabletron Systems (Computer Network Company) 0.6%
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INTERNATIONAL STOCK MARKETS - 43.2%
Internationally, we emphasize stock selection 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.
3
<PAGE> 6
INTERNATIONAL STOCK MARKETS - continued
As of August 31, 1996, approximately 43% of the Fund's assets were invested in
international stocks. Over the past quarter, there has been little change to the
broad regional exposures, which are 50% for Europe, 46% for Asia/Pacific, and 4%
for the Americas. The largest individual country exposures are Japan (20%), the
United Kingdom (15%), and Sweden (11%). Roughly 20% of our international
holdings are in emerging markets, 18% of which are in Southeast Asia.
We continue to find few opportunities in cyclical stocks due to our view on
valuations at this point in the economic cycle. As a result, most of our recent
purchases and additions have been in companies which we believe will show steady
earnings growth regardless of the state of the global economy. Examples include
Canadian National Railway, Rhone Poulenc Rorer (a French pharmaceuticals
company), Nitto Denko (a Japanese industrial materials conglomerate), and Enator
(a Swedish information technology company).
-- David Mannheim
FIVE LARGEST HOLDINGS AS OF 8/31/96
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PowerGen PLC (Utilities - Electric - United Kingdom) 1.7%
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DDI Corp. (Telecommunications - Japan) 1.5%
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ABB AB (Electrical Equipment - Sweden) 1.3%
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Lion Nathan Ltd. (Beverages - New Zealand) 1.3%
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Telecom Italia Mobile (Telecommunications - Italy) 1.2%
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U.S. GOVERNMENT BOND MARKET
The U.S. government bond market retreated during the past 12 months as the U.S.
economic outlook brightened significantly. Rates on 10-year Treasury bonds
increased from 6.25% at the beginning of the year to around 7% at the end of
August. After being concerned about slow growth at the end of 1995, the market
is currently concerned that faster growth could lead the Federal Reserve Board
to raise interest rates during the next few months. U.S. payrolls continue to
grow at a brisk rate of approximately 250,000 per month and hourly earnings have
begun to increase, albeit gradually. Despite the backup in rates, new home sales
and auto sales continue to increase. Looking forward, we suspect that the brisk
pace of economic activity could lead to higher interest rates over the balance
of 1996. Given our cautious view for this sector, the Fund continues to maintain
no exposure at this time.
-- Geoffrey L. Kurinsky
4
<PAGE> 7
INTERNATIONAL BOND MARKETS - 13.9%
While the U.S. bond market barely kept pace with short-term money market
instruments over the past 12 months, most foreign markets generated double-digit
returns. Signs of robust growth and fears of rising inflation ended the U.S.
rally in early 1996. In contrast, the rally in the major foreign markets has
been sustained by moderate to slow growth, benign inflation, fiscal austerity
programs, and/or easing monetary policy. As we anticipated, this environment
brought about substantial tightening of yield spreads. Thus, the higher-yielding
markets, such as Italy, Spain, Sweden, and Australia, provided the best
performance. The portfolio benefited from our emphasis on these markets as well
as from our investments in some of the less-developed markets.
We recently adopted a more cautious stance with regard to prospects for further
spread tightening within Europe, since the markets there are once again focused
on the risk that the European Monetary Union planned for 1999 will shake itself
apart. A clearer picture should emerge this fall during the 1997 budget
negotiations and as evidence accumulates regarding convergence or divergence of
growth and inflation within Europe. Australia and Canada remain attractive based
upon what we regard as improving fundamentals. In Japan, we believe the fragile
nature of the recovery could support the bond market over the near term, but it
may also hamper plans to reduce fiscal stimulus. Over time, we expect improved
growth and/or fiscal pressure to push yields higher.
-- Leslie Nanberg
FIVE LARGEST HOLDINGS AS OF 8/31/96
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Republic of Germany 3.0%
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United Kingdom 2.1%
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Kingdom of Spain 1.9%
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Government of Canada 1.4%
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Republic of Ireland 1.3%
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5
<PAGE> 8
FUND MANAGERS' PROFILES
The Asset Allocation Committee consists of Messrs. Swanson and Nanberg as well
as A. Keith Brodkin and Jeffrey Shames, Chairman and President of MFS,
respectively, and John Ballen, Senior Vice President and Director of Equity
Portfolio Management at MFS. The individuals responsible for managing the assets
in the asset classes are as follows:
James Swanson supervises quantitative support and provides oversight of the
Fund's investments. A graduate of Colgate University and the Harvard University
Graduate School of Business Administration, he began his career at MFS in 1985
as Vice President - Investments and was named Senior Vice President in 1989.
Joan Batchelder manages the Fund's U.S. high-yield fixed-income securities. She
rejoined MFS in October of 1983 after three years with a leading investment
counsel firm. She first joined MFS in 1978 and that year was named an Investment
Officer in the Fixed Income Department. A graduate of Colorado College and
recipient of a Master's Degree from the Maxwell School of Syracuse University,
she was appointed Assistant Vice President - Investments in 1979, Vice
President - Investments in 1980 and Senior Vice President in 1983.
John Brennan, along with Mr. Ballen, manages the Fund's U.S. equity securities.
A graduate of the University of Rhode Island and the Stanford University
Graduate School of Business Administration, he began his career at MFS in 1985
as an industry specialist and was promoted to Assistant Vice
President - Investments in 1987. In 1988, he was named Vice President -
Investments and in 1995 he became Senior Vice President.
Geoff Kurinsky manages the Fund's U.S. investment-grade fixed-income securities.
He began his career at MFS in 1987 in the Fixed Income Department. A graduate of
the University of Massachusetts and Boston University's Graduate School of
Management, he was named Assistant Vice President in 1988, Vice President in
1989 and Senior Vice President in 1993.
David Mannheim manages the Fund's foreign equity securities. He began his career
at MFS in 1988 as a research specialist and was promoted to Assistant Vice
President - Investments in 1991. In 1992, he was named Vice
President - Investments. Mr. Mannheim is a graduate of Amherst College and of
Massachusetts Institute of Technology's Sloan School of Management.
6
<PAGE> 9
FUND MANAGERS' PROFILES - CONTINUED
Leslie Nanberg, who manages the Fund's foreign fixed-income securities, joined
the MFS Fixed Income Department in 1980. A graduate of the University of
Illinois with graduate degrees from Northwestern University and the Northwestern
University Graduate School of Management, he was named Assistant Vice
President - Investments in 1981, Vice President - Investments in 1983 and Senior
Vice President in 1986. In addition to serving as head of the MFS International
Fixed Income Department, he has senior responsibility for all fixed-income
assets under MFS management.
- -------------------------------------------------------------------------------
FUND FACTS
STRATEGY: THE FUND'S INVESTMENT OBJECTIVE IS TO SEEK
TOTAL RETURN OVER THE LONG TERM THROUGH
INVESTMENTS IN EQUITY AND FIXED-INCOME
SECURITIES.
COMMENCEMENT OF
INVESTMENT OPERATIONS: JULY 22, 1994
SIZE: $244.1 MILLION AS OF AUGUST 31, 1996
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PERFORMANCE SUMMARY
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
applicable contingent deferred sales charge (CDSC) which declines over six years
as follows: 4%, 4%, 3%, 3%, 2%, 1%, 0%. Class C shares have no initial sales
charge but, along with Class B shares, have higher annual fees and expenses than
Class A shares. Class C share purchases made on or after April 1, 1996 will be
subject to a 1% CDSC if redeemed within 12 months of purchase. 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.
7
<PAGE> 10
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from August 1, 1994 to August 31, 1996)
[LINE CHART]
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<CAPTION>
Life of Class*
through
1 Year 8/31/96
<S> <C> <C>
- -----------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class A) including 4.75%
sales charge +8.8% +10.73%
- -----------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class A) at net asset
value +14.23% +13.28%
- -----------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class B) with CDSC+ +9.58% +11.26%
- -----------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class B) without CDSC +13.58% +12.51%
- -----------------------------------------------------------------------------------
MFS World Asset Allocation Fund (Class C) +12.62% +12.57%
- -----------------------------------------------------------------------------------
Average global flexible portfolio fund +10.28% +9.78%
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Standard & Poor's 500 Composite Index +18.72% +21.38%
- -----------------------------------------------------------------------------------
Morgan Stanley Capital International EAFE Index +8.19% +5.44%
- -----------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index +4.11% +7.39%
- -----------------------------------------------------------------------------------
J.P. Morgan Non-Dollar Government Bond Index +8.67% +11.97%
- -----------------------------------------------------------------------------------
Consumer Price Index[Section Symbol] +2.86% +2.83%
- -----------------------------------------------------------------------------------
- ------------
<FN>
* Fund results (all classes) cover the period from the commencement of investment
operations, July 22, 1994 to August 31, 1996. All benchmark results begin on
August 1, 1994.
+ These returns reflect the maximum contingent deferred sales charge (CDSC) of 4%.
[Section Symbol] The Consumer Price Index is a popular measure of change in prices.
</TABLE>
8
<PAGE> 11
AVERAGE ANNUAL TOTAL RETURNS - continued
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, 1996, and for the period from August 1,
1994 through August 31, 1996, 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. Performance results reflect any
applicable expense subsidies and waivers, without which the performance results
would have been less favorable. The subsidy may be rescinded by MFS at any time.
- --------------------------------------------------------------------------------
TAX FORM SUMMARY
In January 1997, shareholders will be mailed a Tax Form Summary reporting the
federal tax status of all distributions paid during the calendar year 1996.
FEDERAL INCOME TAX INFORMATION ON DISTRIBUTIONS
MFS World Asset Allocation Fund has designated $2,458,766 as a long-term capital
gain distribution.
FOREIGN TAX CREDIT
The Fund is estimated to have derived approximately 24.82% of its ordinary
income from dividends paid by foreign companies, and to have paid foreign taxes
equivalent to approximately 3.39% of its ordinary income.
DIVIDENDS RECEIVED DEDUCTION
For the year ended August 31, 1996, the amount of distributions from ordinary
income eligible for the 70% dividends-received deduction for corporations came
to 2.21%.
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9
<PAGE> 12
PORTFOLIO OF INVESTMENTS - August 31, 1996
<TABLE>
Stocks and Warrants - 59.8%
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks and Warrants - 43.2%
Australia - 1.8%
Q.B.E. Insurance Group (Insurance) 383,617 $2,302,354
Seven Network Ltd. (Media) 678,900 2,080,150
----------
$4,382,504
- --------------------------------------------------------------------------------------
Canada - 0.9%
Canadian National Railway Co. (Railroads) 115,000 $2,199,375
- --------------------------------------------------------------------------------------
Chile - 0.5%
Chilectra S.A., ADR (Utilities - Electric) 22,700 $1,229,940
- --------------------------------------------------------------------------------------
Finland - 0.8%
Aamulehti Yhtymae OY II (Publishing) 38,200 $ 973,726
Huhtamaki OY (Food Products) 26,300 1,011,469
TT Tieto OY (Computer Software) 1,000 55,005
----------
$2,040,200
- --------------------------------------------------------------------------------------
France - 2.6%
Michelin (C.G.D.E.) (Tire and Rubber) 25,290 $1,181,248
Rhone Poulenc Rorer, Inc. (Pharmaceuticals) 28,300 1,991,612
TOTAL S.A., "B" (Oils) 15,667 1,152,098
Union des Assurances Federales S.A. (Insurance) 18,900 2,167,781
----------
$6,492,739
- --------------------------------------------------------------------------------------
Germany - 1.4%
Adidas AG (Apparel and Textiles) 25,600 $2,196,015
Volkswagen AG (Automotive) 3,100 1,151,638
----------
$3,347,653
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Greece - 0.4%
Hellenic Tellecommunication Organization
S.A. (Telecommunications) 51,400 $ 879,906
- --------------------------------------------------------------------------------------
Hong Kong - 2.3%
Asia Satellite Telecommunications Holdings
Ltd., ADR (Telecommunications)* 16,000 $ 420,000
Giordano International Ltd. (Retail) 1,363,000 1,128,155
Hong Kong Land Holdings Ltd. (Real Estate) 377,000 855,790
Liu Chong Hing Bank Ltd. (Banks) 795,000 1,120,712
Peregrine Investment Holdings (Finance) 488,000 687,934
Peregrine Investment Holdings, WarrantS (Finance)* 46,800 7,626
Wing Hang Bank Ltd. (Banks) 339,500 1,312,846
----------
$5,533,063
- --------------------------------------------------------------------------------------
Indonesia - 0.4%
PT Semen Gresik (Building Materials) 364,000 $1,014,350
- --------------------------------------------------------------------------------------
Italy - 1.2%
Telecom Italia Mobile S.p.A., di Risp
(Telecommunications) 2,010,000 $2,449,185
Telecom Italia Mobile S.p.A. (Telecommunications) 227,000 467,529
----------
$2,916,714
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</TABLE>
10
<PAGE> 13
PORTFOLIO OF INVESTMENTS - continued
<TABLE>
Stocks and Warrants - continued
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks and Warrants - continued
Japan - 8.7%
Bridgestone Corp. (Tire and Rubber) 88,000 $ 1,438,642
Canon, Inc. (Consumer Goods) 94,000 1,743,935
DDI Corp. (Telecommunications) 473 3,757,761
Daiwa House Industry Co. (Home Construction) 55,000 782,969
East Japan Railway Co. (Railroads) 260 1,213,079
Kinki Coca-Cola Bottling (Beverages) 56,000 781,777
Kirin Beverage Corp. (Beverages) 91,000 1,270,387
Matsushita Electric Industrial Co.
(Electrical Equipment) 69,000 1,159,711
Murata Manufacturing Co. Ltd. (Electrical Equipment) 37,000 1,311,717
Nitto Denko Corp. (Industrial Goods and Services) 100,000 1,524,610
Omron Corp. (Electronics) 97,000 1,772,869
Osaka Sanso Kogyo Ltd. (Chemicals) 287,000 1,033,257
Takeda Chemical Industries (Chemicals) 135,000 2,331,004
Ushio, Inc. (Electronics) 113,000 1,203,891
-----------
$21,325,609
- ---------------------------------------------------------------------------------------
Malaysia - 0.6%
New Straits Time Press Berhad (Publishing) 251,000 $ 1,409,240
- --------------------------------------------------------------------------------------
Netherlands - 1.2%
IHC Caland NV (Transportation Equipment) 23,200 $ 1,257,830
Royal Dutch Petroleum Co. (Oils) 11,000 1,643,372
-----------
$ 2,901,202
- --------------------------------------------------------------------------------------
New Zealand - 2.1%
Lion Nathan Ltd. (Beverages) 1,209,000 $ 3,194,057
Sky City Ltd. (Entertainment)* 430,000 2,040,704
-----------
$ 5,234,761
- --------------------------------------------------------------------------------------
Peru - 0.4%
Telefonica del Peru, "B", ADR
(Telecommunications) 37,500 $ 876,562
- --------------------------------------------------------------------------------------
Philippines - 0.8%
Alsons Cement Corp. (Building Materials)*## 2,057,000 $ 805,973
Pilipino Telephone (Telecommunications)* 905,000 1,193,514
-----------
$ 1,999,487
- --------------------------------------------------------------------------------------
Singapore - 1.3%
Hong Leong Finance (Finance)+ 464,000 $ 1,563,448
Mandarin Oriental International Ltd.
(Lodging) 532,000 739,480
Singapore Press Holdings (Publishing) 52,000 901,966
-----------
$ 3,204,894
- --------------------------------------------------------------------------------------
South Korea - 1.6%
Hanil Cement Manufacturing Co. (Building
Materials) 13,000 $ 674,437
Korea Electric Power Corp.
(Utilities - Electric) 43,920 1,554,785
Korea Mobile Telecommunications Corp.
(Telecommunications) 1,511 1,673,314
-----------
$ 3,902,536
- --------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
PORTFOLIO OF INVESTMENTS - continued
<TABLE>
Stocks and Warrants - continued
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Stocks and Warrants - continued
Spain - 2.3%
Acerinox S.A. (Iron and Steel) 20,600 $ 2,304,065
Cubiertas y Mzov S.A. (Engineering and Construction) 25,000 1,643,762
Repsol S.A. (Oils) 51,500 1,672,504
------------
$ 5,620,331
- --------------------------------------------------------------------------------------
Sweden - 4.9%
ABB AB, "B" (Electrical Equipment) 30,500 $ 3,260,700
ASTRA AB, Free Shares, "B" (Pharmaceuticals) 68,000 2,813,439
Enator AB (Computer Software)* 60,600 1,313,111
Nobel Biocare AB (Medical and Health
Products) 60,000 1,141,560
Sparbanken Svergie AB, "A" (Banks) 156,000 1,943,370
Volvo AB, "B" (Automotive) 66,000 1,405,206
------------
$ 11,877,386
- --------------------------------------------------------------------------------------
Thailand - 0.4%
Total Access Communication Public Co. Ltd.
(Telecommunications) 143,000 $ 1,086,800
- --------------------------------------------------------------------------------------
United Kingdom - 6.6%
ASDA Group PLC (Stores) 1,225,000 $ 2,142,035
British Petroleum Co. PLC (Oils) 177,000 1,716,104
British Petroleum Co. PLC, ADR (Oils) 4,800 565,200
Capital Radio PLC (Broadcasting) 90,600 940,654
Dalgety PLC (Food Products) 249,000 1,286,782
Jarvis Hotels Ltd. PLC (Lodging)*+ 368,800 932,769
Kwik-Fit Holdings PLC (Retail) 433,000 1,710,350
Lloyds TSB Group PLC (Banks) 232,000 1,356,481
PowerGen PLC (Utilities - Electric) 726,600 4,106,598
Storehouse PLC (Retail) 266,000 1,322,712
------------
$ 16,079,685
- --------------------------------------------------------------------------------------
Total Foreign Stocks and Warrants $105,554,937
- --------------------------------------------------------------------------------------
U.S. Stocks - 16.6%
Aerospace - 0.4%
Raytheon Co. 11,700 $ 602,550
Rockwell International Corp. 6,600 343,200
------------
$ 945,750
- --------------------------------------------------------------------------------------
Agricultural Products - 0.2%
Case Corp. 12,300 $ 559,650
- --------------------------------------------------------------------------------------
Airlines - 0.1%
Midwest Express Holdings, Inc.* 3,900 $ 117,975
- --------------------------------------------------------------------------------------
Automotive
General Motors Corp. 1,400 $ 69,650
- --------------------------------------------------------------------------------------
Banks and Credit Companies - 0.4%
Wells Fargo & Co. 3,466 $ 862,168
- --------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
PORTFOLIO OF INVESTMENTS - continued
<TABLE>
Stocks and Warrants - continued
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Business Services - 1.1%
ADT Ltd.* 28,100 $ 551,463
Alco Standard Corp. 49,600 2,163,800
----------
$2,715,263
- ---------------------------------------------------------------------------------------
Cellular Telephones - 0.3%
Telephone & Data Systems, Inc. 15,600 $ 664,950
- --------------------------------------------------------------------------------------
Computer Software - Systems - 1.0%
Adobe Systems, Inc. 23,500 $ 819,563
Oracle Systems Corp.* 21,800 768,450
Sybase, Inc.* 59,800 963,336
----------
$2,551,349
- --------------------------------------------------------------------------------------
Consumer Goods and Services - 1.2%
Colgate-Palmolive Co. 3,700 $ 300,625
Philip Morris Cos., Inc. 7,600 682,100
Tyco International Ltd. 31,700 1,339,325
UST, Inc. 21,700 651,000
----------
$2,973,050
- --------------------------------------------------------------------------------------
Defense Electronics - 0.1%
Loral Space & Communications Corp.* 20,400 $ 285,600
- --------------------------------------------------------------------------------------
Electrical Equipment - 0.2%
Honeywell, Inc. 8,800 $ 511,500
- --------------------------------------------------------------------------------------
Electronics - 0.5%
Analog Devices, Inc.* 8,900 $ 214,713
Atmel Corp.* 19,000 491,625
Intel Corp. 7,100 566,669
----------
$1,273,007
- --------------------------------------------------------------------------------------
Entertainment - 1.5%
Argosy Gaming Corp.* 10,500 $ 68,250
Casino America, Inc.* 17,793 115,654
Chancellor Broadcasting Co., "A"* 500 18,750
Harrah's Entertainment, Inc.* 93,900 1,784,100
LIN Television Corp.* 24,400 872,300
Showboat, Inc. 15,800 314,025
Viacom, Inc.* 11,900 374,850
----------
$3,547,929
- --------------------------------------------------------------------------------------
Financial Institutions - 1.0%
Beneficial Corp. 9,600 $ 541,200
Federal Home Loan Mortgage Corp. 15,600 1,378,650
Union Planters Corp. 19,100 627,912
----------
$2,547,762
- --------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
PORTFOLIO OF INVESTMENTS - continued
<TABLE>
Stocks and Warrants - continued
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - continued
Food and Beverage Products - 0.8%
Interstate Bakeries Corp. 34,600 $1,046,650
PepsiCo, Inc. 27,700 796,375
----------
$1,843,025
- --------------------------------------------------------------------------------------
Forest and Paper Products - 0.4%
Kimberly Clark Corp. 12,500 $ 979,688
- --------------------------------------------------------------------------------------
Insurance - 0.2%
Highlands Insurance Group* 990 $ 18,810
Penncorp Financial Group, Inc. 19,100 582,550
----------
$ 601,360
- ---------------------------------------------------------------------------------------
Machinery
Ingersoll Rand Co. 1,400 $ 59,850
- ---------------------------------------------------------------------------------------
Medical and Health Products - 0.7%
Lilly (Eli) & Co. 6,300 $ 360,675
Pharmacia & Upjohn 30,100 1,264,200
----------
$1,624,875
- ---------------------------------------------------------------------------------------
Medical and Health Technology and Services - 1.1%
Beverly Enterprises, Inc.* 61,300 $ 628,325
PacifiCare Health Systems, Inc., "B"* 4,100 330,050
Regency Health Services, Inc.* 19,200 211,200
St. Jude Medical, Inc. 33,900 1,216,162
United Healthcare Corp. 5,290 203,396
----------
$2,589,133
- --------------------------------------------------------------------------------------
Oil Services - 0.5%
Halliburton Co. 9,100 $ 478,888
Pennzoil Co. 8,000 427,000
Tidewater, Inc. 9,600 368,400
----------
$1,274,288
- --------------------------------------------------------------------------------------
Oils - 0.6%
Mobil Corp. 4,000 $ 451,000
SEACOR Holdings, Inc.* 12,700 577,850
Union Pacific Resources Group, Inc. 16,100 438,725
----------
$1,467,575
- --------------------------------------------------------------------------------------
Photographic Products - 0.2%
Eastman Kodak Co. 8,000 $ 580,000
- --------------------------------------------------------------------------------------
Printing and Publishing - 0.4%
Scripps (E.W.) Co., "A" 17,900 $ 796,550
Tribune Co., Inc. 2,200 158,125
----------
$ 954,675
- --------------------------------------------------------------------------------------
Railroads - 0.7%
Burlington Northern Santa Fe 6,600 $ 528,000
Wisconsin Central Transportation Corp.* 30,400 1,071,600
----------
$1,599,600
- --------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
PORTFOLIO OF INVESTMENTS - continued
<TABLE>
Stocks and Warrants - continued
<CAPTION>
- --------------------------------------------------------------------------------------
Issuer Shares Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Stocks - continued
Restaurants and Lodging - 0.7%
FelCor Suite Hotels, Inc. 25,000 $ 762,500
Promus Hotel Corp.* 31,800 957,975
------------
$ 1,720,475
- --------------------------------------------------------------------------------------
Special Products and Services - 0.2%
Stanley Works 21,200 $ 583,000
- --------------------------------------------------------------------------------------
Stores - 0.6%
Office Depot, Inc.* 26,700 $ 423,862
Penney (J.C.), Inc. 6,800 359,550
Sears, Roebuck & Co. 13,100 576,400
------------
$ 1,359,812
- ---------------------------------------------------------------------------------------
Telecommunications - 0.8%
Cabletron Systems, Inc.* 20,600 $ 1,256,600
Cellular Communications International, Inc.* 5,000 155,000
U.S. Robotics Corp.* 8,100 425,250
------------
$ 1,836,850
- ---------------------------------------------------------------------------------------
Utilities - Electric - 0.7%
CMS Energy Corp. 19,700 $ 588,538
Cinergy Corp. 18,600 558,000
Illinova Corp. 23,700 619,162
------------
$ 1,765,700
- --------------------------------------------------------------------------------------
Total U.S. Stocks $ 40,465,509
- --------------------------------------------------------------------------------------
Total Stocks and Warrants (Identified Cost, $138,236,582) $146,020,446
- --------------------------------------------------------------------------------------
BONDS - 13.9%
- --------------------------------------------------------------------------------------
Principal Amount
(000 Omitted)
- --------------------------------------------------------------------------------------
Foreign Denominated - 13.5%
Belgium - 0.9%
Kingdom of Belgium, 9s, 1998 BEF 20,000 $ 716,033
Kingdom of Belgium, 8.75s, 2002 15,000 563,096
Kingdom of Belgium, 7.25s, 2004 15,000 520,103
Kingdom of Belgium, 8.5s, 2007 10,000 371,430
------------
$ 2,170,662
- ---------------------------------------------------------------------------------------
Canada - 1.4%
Government of Canada, 7.5s, 2003 CAD 3,440 $ 2,560,322
Government of Canada, 8.75s, 2005 75 59,791
Government of Canada, 7s, 2006 1,000 706,558
-----------
$ 3,326,671
- --------------------------------------------------------------------------------------
Denmark - 1.1%
Kingdom of Denmark, 9s, 2000 DKK 2,968 $ 576,427
Kingdom of Denmark, 8s, 2001 11,305 2,120,490
-----------
$ 2,696,917
- --------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
<TABLE>
PORTFOLIO OF INVESTMENTS - continued
Bonds - continued
<CAPTION>
- -------------------------------------------------------------------------------------
Principal Amount
Issuer (000 Omitted) Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign Denominated - continued
Germany - 3.0%
Republic of Germany, 6.5s, 2005 DEM 5,429 $ 3,692,673
Republic of Germany, 7.375s, 2005 5,185 3,738,593
-----------
$ 7,431,266
- -------------------------------------------------------------------------------------
Ireland - 1.3%
Republic of Ireland, 8s, 2000 IEP 1,875 $ 3,142,479
- -------------------------------------------------------------------------------------
Italy - 0.8%
Republic of Italy, 8.5s, 1999 ITL 2,345,000 $ 1,557,483
Republic of Italy, 9.5s, 1999 785,000 532,085
-----------
$ 2,089,568
- -------------------------------------------------------------------------------------
Netherlands - 0.4%
Government of Netherlands, 6s, 2006 NLG 1,660 $ 979,500
- -------------------------------------------------------------------------------------
Spain - 1.9%
Kingdom of Spain, 8.3s, 1998 ESP 148,700 $ 1,205,448
Kingdom of Spain, 8.4s, 2001 187,590 1,514,118
Kingdom of Spain, 10.1s, 2001 214,600 1,838,767
-----------
$ 4,558,333
- -------------------------------------------------------------------------------------
Sweden - 0.6%
Kingdom of Sweden, 11s, 1999 SEK 5,000 $ 830,276
Kingdom of Sweden, 10.25s, 2000 3,300 550,822
-----------
$ 1,381,098
- -------------------------------------------------------------------------------------
United Kingdom - 2.1%
U.K. Treasury Gilts, 7s, 2001 GBP 3,265 $ 5,044,765
- --------------------------------------------------------------------------------------
Total Foreign Denominated $32,821,259
- --------------------------------------------------------------------------------------
U.S. Dollar Denominated - 0.4%
United Mexican States, Floating Rate, 2001+ $ 1,000 $ 1,001,700
- --------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $33,434,428) $33,822,959
- -------------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 25.1%
- -------------------------------------------------------------------------------------
Foreign Denominated - 0.8%
EuroLira Deposit, 9.225s, due 10/21/96 ITL 2,850,000 $ 1,880,038
- --------------------------------------------------------------------------------------
U.S. Dollar Denominated - 24.3%
Federal Home Loan Mortgage Corp.,
due 9/03/96 - 9/20/96 $ 37,185 $37,124,482
Federal National Mortgage Assn.,
due 9/06/96 - 9/23/96 11,800 11,782,946
Pfizer, Inc., due 9/24/96 5,000 4,983,261
Raytheon Co., due 9/04/96 5,580 5,577,549
-----------
$59,468,238
- -------------------------------------------------------------------------------------
Total Short-Term Obligations, at Amortized Cost $61,348,276
- -------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 19
<TABLE>
PORTFOLIO OF INVESTMENTS - continued
Call Options Purchased - 0.1%
<CAPTION>
- --------------------------------------------------------------------------------------
Principal Amount
of Contracts
Description/Expiration Month/Strike Price (000 Omitted) Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Japanese Government Bonds
September/107.254 JPY 385,000 $ 52,360
September/108.659 207,000 51,750
September/109.431 414,000 8,756
October/105.676 175,000 43,400
November/114.355 299,000 41,860
- --------------------------------------------------------------------------------------
Total Call Options Purchased (Premiums Paid, $70,422) $ 198,126
- --------------------------------------------------------------------------------------
Total Investments (Identified Cost,
$233,089,708) $241,389,807
- ---------------------------------------------------------------------------------------
PUT OPTIONS WRITTEN
- ---------------------------------------------------------------------------------------
Japanese Government Bonds
September/108.659 JPY 207,000 $ (207)
October/105.676 175,000 (1,050)
November/114.355 299,000 (7,475)
- --------------------------------------------------------------------------------------
Total Put Options Written (Premiums Received, $55,463) $ (8,732)
- --------------------------------------------------------------------------------------
OTHER ASSETS, LESS LIABILITIES - 1.1% $ 2,757,504
- --------------------------------------------------------------------------------------
Net Assets - 100.0% $244,138,579
- --------------------------------------------------------------------------------------
<FN>
* Non-income producing security.
## SEC Rule 144A restriction.
+ Restricted security.
</TABLE>
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.
BEF = Belgian Francs
CAD = Canadian Dollars
CZK = Czech Republic Korunas
DEM = Deutsche Marks
DKK = Danish Kroner
ESP = Spanish Pesetas
GBP = British Pounds
HKD = Hong Kong Dollars
IEP = Irish Punts
ITL = Italian Lire
JPY = Japanese Yen
NLG = Dutch Guilders
SEK = Swedish Kronor
SGD = Singapore Dollars
See notes to financial statements
17
<PAGE> 20
FINANCIAL STATEMENTS
<TABLE>
Statement of Assets and Liabilities
<CAPTION>
=================================================================================
August 31, 1996
- ---------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at value (identified cost, $233,089,708) $241,389,807
Net receivable for forward foreign currency contracts purchased 678,805
Receivable for Fund shares sold 984,866
Receivable for investments sold 5,242,400
Interest and dividends receivable 1,448,476
Deferred organization expenses 24,001
------------
Total assets $249,768,355
============
Liabilities:
Cash overdraft $ 70,284
Payable for Fund shares reacquired 62,443
Payable for investments purchased 3,255,946
Written options outstanding, at value (premiums received, $55,463) 8,732
Net payable for forward foreign currency exchange contracts sold 629,201
Net payable for forward foreign currency exchange contracts 1,251,943
Payable to affiliates -
Management fee 8,023
Shareholder servicing agent fee 2,484
Distribution fee 182,846
Accrued expenses and other liabilities 157,874
------------
Total liabilities $ 5,629,776
============
Net assets $244,138,579
============
Net assets consist of:
Paid-in capital $218,720,179
Unrealized appreciation on investments and translation
of assets and liabilities in foreign currencies 7,154,666
Accumulated undistributed net realized gain
on investments and foreign currency transactions 16,650,527
Accumulated undistributed net investment income 1,613,207
------------
Total $244,138,579
============
Shares of beneficial interest outstanding 13,832,999
============
Class A shares:
Net asset value per share
(net assets of $86,456,942 / 4,889,664 shares of beneficial
interest outstanding) $ 17.68
============
Offering price per share (100/95.25 of net asset value per share) $ 18.56
============
Class B shares:
Net asset value and offering price per share
(net assets of $124,399,076 / 7,054,256 shares of beneficial
interest outstanding) $ 17.63
============
Class C shares:
Net asset value and offering price per share
(net assets of $33,282,561 / 1,889,079 shares of beneficial
interest outstanding) $ 17.62
============
</TABLE>
On sales of $100,000 or more, the offering price of Class A shares is reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class
B and Class C shares.
See notes to financial statements
18
<PAGE> 21
FINANCIAL STATEMENTS - continued
<TABLE>
Statement of Operations
<CAPTION>
=================================================================================
Year Ended August 31, 1996
- ---------------------------------------------------------------------------------
<S> <C>
Net investment income:
Income -
Interest $ 5,758,640
Dividends 2,462,680
Foreign taxes withheld (279,039)
-----------
Total investment income $ 7,942,281
-----------
Expenses -
Management fee $ 1,218,613
Trustees' compensation 38,681
Shareholder servicing agent fee (Class A) 109,411
Shareholder servicing agent fee (Class B) 230,227
Shareholder servicing agent fee (Class C) 38,271
Distribution and service fee (Class A) 364,822
Distribution and service fee (Class B) 1,046,481
Distribution and service fee (Class C) 255,138
Custodian fee 193,118
Auditing fees 48,763
Postage 47,837
Printing 46,926
Amortization of organization expenses 6,943
Legal fees 3,521
Miscellaneous 175,425
-----------
Total expenses $ 3,824,177
Fees paid indirectly (9,956)
Reduction of expenses by distributor (Class A) (36,351)
-----------
Net expenses $ 3,777,870
-----------
Net investment income $ 4,164,411
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions and swap agreements $19,776,975
Written option transactions 76,606
Foreign currency transactions 1,576,243
Futures contracts 69,649
-----------
Net realized gain on investments and foreign currency
transactions $21,499,473
-----------
Change in unrealized appreciation (depreciation) -
Investments $ 255,744
Written options 57,873
Translation of assets and liabilities in foreign currencies (1,915,556)
Futures contracts (118,652)
-----------
Net unrealized loss on investments $(1,720,591)
-----------
Net realized and unrealized gain on investments and foreign
currency $19,778,882
-----------
Increase in net assets from operations $23,943,293
===========
</TABLE>
See notes to financial statements
19
<PAGE> 22
<TABLE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
<CAPTION>
===================================================================================
Year Ended August 31, 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets:
From operations -
Net investment income $ 4,164,411 $ 3,797,951
Net realized gain on investments and
foreign currency transactions 21,499,473 4,195,488
Net unrealized gain (loss) on investments and
foreign currency translation (1,720,591) 7,977,967
------------ ------------
Increase in net assets from operations $ 23,943,293 $ 15,971,406
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,008,957) $ (1,026,466)
From net investment income (Class B) (2,218,582) (1,012,521)
From net investment income (Class C) (565,751) (239,932)
From net realized gain on investments and
foreign currency transactions (Class A) (2,800,463) (258,501)
From net realized gain on investments and
foreign currency transactions (Class B) (4,012,442) (350,041)
From net realized gain on investments and
foreign currency transactions (Class C) (929,505) (82,468)
------------ ------------
Total distributions declared to shareholders $(12,535,700) $ (2,969,929)
------------ ------------
Fund share (principal) transactions -
Net proceeds from sale of shares $ 91,720,629 $118,013,307
Net asset value of shares issued to shareholders
in reinvestment of distributions 10,664,692 2,475,151
Cost of shares reacquired (31,243,387) (27,084,609)
------------ ------------
Increase in net assets from
Fund share transactions $ 71,141,934 $ 93,403,849
------------ ------------
Total increase in net assets $ 82,549,527 $106,405,326
Net assets:
At beginning of period 161,589,052 55,183,726
------------ ------------
At end of period (including accumulated
undistributed (distributions in excess of) net
investment income of $1,613,207 and $(823,582),
respectively) $244,138,579 $161,589,052
============ ============
</TABLE>
See notes to financial statements
20
<PAGE> 23
FINANCIAL STATEMENTS - continued
<TABLE>
Financial Highlights
<CAPTION>
========================================================================================
Year Ended August 31,
---------------------------------------------------------
1996 1995 1994* 1996 1995 1994*
- ----------------------------------------------------------------------------------------
Class A Class B
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout each
period):
Net asset value - beginning
of period $ 16.63 $ 15.33 $ 15.00 $ 16.58 $ 15.31 $ 15.00
------- ------- ------- -------- ------- -------
Income from investment
operations# -
Net investment
income[section] $ 0.43 $ 0.55 $ 0.04 $ 0.32 $ 0.43 $ 0.02
Net realized and unrealized
gain on investments and
foreign currency
transactions 1.85 1.17 0.29 1.85 1.17 0.29
------- ------- ------- -------- ------- -------
Total from investment
operations $ 2.28 $ 1.72 $ 0.33 $ 2.17 $ 1.60 $ 0.31
------- ------- ------- -------- ------- -------
Less distributions declared
to shareholders -
From net investment income $ (0.49) $ (0.37) $ -- $ (0.38) $ (0.28) $ --
From net realized gain on
investments and foreign
currency transactions (0.74) (0.05) -- (0.74) (0.05) --
------- ------- ------- -------- ------- -------
Total distributions
declared to
shareholders $ (1.23) $ (0.42) $ -- $ (1.12) $ (0.33) $ --
------- ------- ------- -------- ------- -------
Net asset value - end of
period $ 17.68 $ 16.63 $ 15.33 $ 17.63 $ 16.58 $ 15.31
------- ------- ------- -------- ------- -------
Total return++ 14.23% 11.48% 2.20%++ 13.58% 10.65% 2.07%++
Ratios (to average net assets)/Supplemental data[Section Symbol]:
Expenses## 1.48% 1.47% 1.50%+ 2.10% 2.24% 2.57%+
Net investment income 2.45% 3.49% 2.43%+ 1.83% 2.75% 1.39%+
Portfolio turnover 202% 118% 1% 202% 118% 1%
Average commission rate### $0.0219 -- -- $ 0.0219 -- --
Net assets at end of period
(000 omitted) $86,457 $58,663 $25,254 $124,399 $83,601 $26,495
- --------------
<FN>
* For the period from the commencement of investment operations, July 22,
1994 to August 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years beginning
on or after September 1, 1995.
++ 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.
[Section Symbol] The investment adviser and/or the distributor voluntarily waived a portion
of their management fee and/or distribution fee, respectively, for certain
of the periods indicated. If these fees had been incurred by the Fund, the
net investment income per share and the ratios would have been:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $0.42 $0.52 $0.02 -- -- $0.01
Ratios (to average net assets):
Expenses## 1.53% 1.67% 2.62%+ -- -- 3.21%+
Net investment income 2.40% 3.29% 1.31%+ -- -- 0.75%+
</TABLE>
See notes to financial statements
21
<PAGE> 24
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights - continued
<CAPTION>
===================================================================================
Year Ended August 31, 1996 1995 1994*
- -----------------------------------------------------------------------------------
Class C
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of period $ 16.58 $ 15.31 $15.00
------- ------- ------
Income from investment operations# -
Net investment income[Section Symbol] $ 0.33 $ 0.46 $ 0.03
Net realized and unrealized gain on investments and
foreign currency transactions 1.85 1.16 0.28
------- ------- ------
Total from investment operations $ 2.18 $ 1.62 $ 0.31
------- ------- ------
Less distributions declared to shareholders -
From net investment income $ (0.40) $ (0.30) $ --
From net realized gain on investments and
foreign currency transactions (0.74) (0.05) --
------- ------- ------
Total distributions declared to shareholders $ (1.14) $ (0.35) $ --
------- ------- ------
Net asset value - end of period $ 17.62 $ 16.58 $15.31
------- ------- ------
Total return 13.62% 10.72% 2.07%++
Ratios (to average net assets)/Supplemental data[Section Symbol]:
Expenses## 2.03% 2.18% 2.50%+
Net investment income 1.89% 2.91% 1.68%+
Portfolio turnover 202% 118% 1%
Average commission rate### $0.0219 -- --
Net assets at end of period (000 omitted) $33,283 $19,325 $3,435
- ----------
<FN>
* For the period from the commencement of investment operations, July 22,
1994 to August 31, 1994.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## For fiscal years ending after September 1, 1995, the Fund's expenses
are calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years
beginning on or after September 1, 1995.
[Section Symbol] The investment adviser and the distributor voluntarily waived a portion
of their management fee and distribution fee, respectively, for certain
of the periods indicated. If these fees had been incurred by the Fund,
the net investment income per share and the ratios would have been:
Net investment income -- -- $0.02
Ratios (to average net assets):
Expenses -- -- 3.18%+
Net investment income -- -- 1.00%+
</TABLE>
See notes to financial statements
22
<PAGE> 25
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
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to effects of changes in
each country's legal, political and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are 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. 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.
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
23
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS - continued
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. 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
24
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS - continued
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.
Swap Agreements - The Fund may enter into swap agreements. A swap is an exchange
of cash payments between the Fund and another party which is based on a specific
financial index. Cash payments are exchanged at specified intervals and the
expected income or expense is recorded on the accrual basis. The value of the
swap is adjusted daily and change in value is recorded as unrealized
appreciation and depreciation. Risks may arise upon entering into these
agreements from the potential inability of counterparties to meet the terms of
their contract and from unanticipated changes in the value of the financial
index on which the swap agreement is based. The Fund uses swaps for both hedging
and non-hedging purposes. For hedging purposes, the Fund may use swaps to reduce
its exposure to interest and foreign exchange rate fluctuations. For non-hedging
purposes, the Fund may use swaps to take a position on anticipated changes in
the underlying financial index.
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
25
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS - continued
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 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.
Fees Paid Indirectly - The Fund's custodian bank calculates its fee based on the
Fund's average daily net assets. This fee is reduced according to an expense
offset arrangement with Investors Bank & Trust Co., the dividend disbursing
agent, which provides for partial reimbursement of custody fees based on a
formula developed to measure the value of cash deposited by the Fund with the
custodian and with the dividend disbursing agent. This amount is shown as a
reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its 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 requires that only distributions in excess of tax basis
earnings and profits are reported in the financial statements as a tax return of
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or accumulated net realized
gains. During the year ended August 31, 1996, $3,065,668 was reclassified from
accumulated net realized gain on investments to accumulated undistributed net
investment income due to differences between book
26
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS - continued
and tax accounting for mortgage-backed securities and currency transactions.
This change had no effect on the net assets or net asset value per share. At
August 31, 1996, accumulated undistributed net investment income under book
accounting was different from tax accounting due to temporary differences in
accounting for foreign currency transactions.
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 effective 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 $6,406 for the year ended
August 31, 1996.
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, received
$114,694 for the year ended August 31, 1996, 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
27
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS - continued
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 $7,610 for the year ended August 31, 1996. MFD waived a
portion of its fee, which is reflected as a reduction of expenses on the
Statement of Operations. Fees, net of waiver, incurred under the distribution
plan during the year ended August 31, 1996 were 0.45% 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 $5,617 and $2,269 for Class B and Class C
shares, respectively, for the year ended August 31, 1996. Fees incurred under
the distribution plans during the year ended August 31, 1996 were 1.00% of
average daily net assets attributable to Class B and Class C shares on an
annualized basis.
Purchases over $1 million of Class A shares and certain purchases into
retirement plans are subject to a contingent deferred sales charge in the event
of a shareholder redemption within twelve months following such purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of Class
B shares in the event of a shareholder redemption within six years of purchase.
A contingent deferred sales charge is imposed on shareholder redemptions of
Class C shares in the event of a shareholder redemption within twelve months of
purchases made on or after April 1, 1996. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the year ended
August 31, 1996 were $40, $142,038 and $887 for Class A, Class B and Class C
shares, respectively.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the 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.
28
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS - continued
(4) PORTFOLIO SECURITIES
<TABLE>
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
<CAPTION>
Purchases Sales
- ---------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 36,233,891 $ 44,008,579
------------ ------------
Investments (non-U.S. government securities) $315,007,638 $305,133,013
------------ ------------
</TABLE>
<TABLE>
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:
<S> <C>
Aggregate cost $233,659,097
------------
Gross unrealized appreciation $ 13,753,070
Gross unrealized depreciation (6,022,360)
------------
Net unrealized appreciation $ 7,730,710
------------
</TABLE>
(5) SHARES OF BENEFICIAL INTEREST
<TABLE>
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
<CAPTION>
YEAR ENDED AUGUST 3 1996 1995
------------------------ -------------------------
Shares Amount Shares Amount
======================================================================================
<S> <C> <C> <C> <C>
Shares sold 1,942,820 $ 34,004,181 2,594,208 $ 39,819,615
Shares issued to shareholders in
reinvestment of distributions 250,334 4,239,097 72,285 1,112,578
Shares reacquired (830,481) (14,577,459) (787,357) (12,300,613)
--------- ------------ --------- ------------
Net increase 1,362,673 $ 23,665,819 1,879,136 $ 28,631,580
========= ============ ========= ============
</TABLE>
<TABLE>
Class B Shares
<CAPTION>
YEAR ENDED AUGUST 31, 1996 1995
------------------------ -------------------------
Shares Amount Shares Amount
=======================================================================================
<S> <C> <C> <C> <C>
Shares sold 2,433,897 $ 42,393,057 3,914,029 $ 59,970,108
Shares issued to shareholders in
reinvestment of distributions 308,270 5,200,860 72,092 1,107,833
Shares reacquired (728,702) (12,706,594) (675,931) (10,554,603)
--------- ------------ --------- ------------
Net increase 2,013,465 $ 34,887,323 3,310,190 $ 50,523,338
========= ============ ========= ============
</TABLE>
Class C Shares
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1996 1995
--------------------- -----------------------
Shares Amount Shares Amount
=====================================================================================
<S> <C> <C> <C> <C>
Shares sold 877,452 $15,323,391 1,198,363 $18,223,584
Shares issued to shareholders in
reinvestment of distributions 72,545 1,224,735 16,620 254,740
Shares reacquired (226,844) (3,959,334) (273,394) (4,229,393)
-------- ----------- --------- -----------
Net increase 723,153 $12,588,792 941,589 $14,248,931
======== =========== ========= ===========
</TABLE>
29
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS - continued
(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,
1996 was $2,362.
(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 and forward foreign currency exchange
contracts. The notional or contractual amounts of these instruments represent
the investment the Fund has in particular classes of financial instruments and
do 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, 1996, is as follows:
<TABLE>
Written Option Transactions
<CAPTION>
1996 Calls 1996 Puts
-----------------------------------------------------------
Principal Amounts Principal Amounts
of Contracts of Contracts
(000 Omitted) Premiums (000 Omitted) Premiums
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of
period -
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
Options written -
Deutsche Marks -- -- 2,171 5,799
Japanese Yen -- -- 3,170,000 293,719
Options terminated in closing
transactions -
Deutsche Marks -- -- (4,490) (23,846)
Japanese Yen (92,111) (21,847) (2,847,824) (285,894)
Options expired -
British Pounds -- -- (785) (14,524)
Deutsche Marks -- -- (1,238) (3,372)
Italian Lire/Deutsche Marks -- -- (337,563) (2,711)
------- ------- ---------- ---------
Outstanding, end of period -- $ -- 681,000 $ 55,463
======= ======= ========== =========
Options outstanding at end of
period consist of -
Japanese Yen -- $ -- 681,000 $ 55,463
======= ======= ========== =========
</TABLE>
30
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS - continued
At August 31, 1996, the Fund had sufficient cash and/or securities at least
equal to the value of the written options.
<TABLE>
Forward Foreign Currency Exchange Contracts
<CAPTION>
Contracts Net Unrealized
Settlement to Deliver/ In Exchange Contracts Appreciation
Date Receive For at Value (Depreciation)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales
2/24/97 BEF 69,064,477 $ 2,273,353 $ 2,295,045 $ (21,692)
11/01/96 CAD 2,409,374 1,761,098 1,765,827 (4,729)
11/04/96 -
11/25/96 DEM 22,650,932 15,065,451 15,370,085 (304,634)
9/09/96 DKK 16,183,560 2,740,190 2,830,399 (90,209)
9/04/96 -
9/09/96 GBP 10,666,750 16,451,588 16,651,344 (199,756)
12/04/96 HKD 13,267,240 1,708,595 1,715,630 (7,035)
2/24/97 IEP 1,089,556 1,751,515 1,762,361 (10,846)
11/06/96 ITL 10,691,383,742 6,982,534 7,039,208 (56,674)
11/06/96 JPY 669,611,927 6,246,555 6,210,953 35,602
2/03/97 NLG 1,650,980 1,008,294 1,007,069 1,225
2/03/97 SEK 92,401,842 14,023,060 13,993,320 29,740
9/05/96 SGD 269,036 191,117 191,310 (193)
----------- ----------- ---------
$70,203,350 $70,832,551 $(629,201)
=========== =========== =========
Purchases
9/19/96 CZK 56,521,909 $ 1,999,784 $ 2,169,053 $ 169,269
11/04/96 -
2/03/97 DEM 82,839,396 55,739,028 56,248,528 509,500
9/05/96 GBP 14,518 22,629 22,665 36
----------- ----------- ---------
$57,761,441 $58,440,246 $ 678,805
=========== =========== =========
</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 $37,278 with Bankers Trust and a net payable of $995,988
with C.S. First Boston, $182,612 with Chase Manhattan, $4,771 with J.P. Morgan,
$79,791 with Merrill Lynch and $26,059 with Swiss Bank at August 31, 1996.
At August 31, 1996, the Fund had sufficient cash and/or securities to cover any
commitments under these 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, 1996, the
Fund owned the following restricted securities (constituting 1.43% of net
assets) which
31
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS - continued
<TABLE>
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 supplied by a pricing
service or broker.
<CAPTION>
Date of Share/
Description Acquisition Par Amount Cost Value
=====================================================================================
<S> <C> <C> <C> <C>
Hong Leong Finance 6/12/95 - 8/02/96 464,000 $1,612,549 $1,563,448
Jarvis Hotels Ltd. PLC 7/02/96 - 8/02/96 368,800 951,426 932,769
United Mexican States,
Floating Rate, 2001 7/28/96 1,000,000 995,000 1,001,700
----------
$3,497,917
==========
</TABLE>
32
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
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 (the Fund) (one of the portfolios constituting MFS
Series Trust I), including the schedule of portfolio investments, as of August
31, 1996, the related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the two years in the period then
ended, and for the period from July 22, 1994 (commencement of 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, 1996, 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, 1996, the results of its operations
for the year then ended, and the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the two
years in the period then ended, and for the period from July 22, 1994
(commencement of operations) to August 31, 1994, in conformity with generally
accepted accounting principles.
[Ernst & Young Logo]
Boston, Massachusetts
October 4, 1996
---------------------------------------------------------------------
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.
33
<PAGE> 36
IT'S EASY TO CONTACT US
[GRAPHIC] MFS AUTOMATED INFORMATION
ACCOUNT INFORMATION:
Call 1-800-MFS-TALK (1-800-637-8255)
anytime.
MARKET OUTLOOK:
Call 1-800-637-4458 anytime for the MFS outlook
on the bond and stock markets.
[GRAPHIC] MFS PERSONAL SERVICE
ACCOUNT SERVICE/LITERATURE:
Call 1-800-637-2929 any business day
from 8 a.m. to 8 p.m. Eastern time.
PRODUCT INFORMATION:
Call 1-800-637-2929 any business day
from 9 a.m. to 5 p.m. Eastern time.
SERVICE FOR THE HEARING - IMPAIRED:
Call 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time (TDD required).
[GRAPHIC] MFS MAILING ADDRESS
MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
WEB SITE
http://www.mfs.com
34
<PAGE> 37
A WORD ABOUT MFS PRODUCTS AND SERVICES
MAKING ADDITIONAL INVESTMENTS AT YOUR CONVENIENCE
There are several easy ways to make additional single investments of at least
$50:
- send a check with the lower portion of your account statement
- contact your financial adviser to purchase shares on your behalf
- wire additional investments through your bank; call us first for
instructions
MAKING ADDITIONAL INVESTMENTS AUTOMATICALLY
By investing a set amount at regular intervals, over time you will buy more
shares when prices are low, and fewer shares when prices are high. Because
dollar-cost averaging involves periodic purchases regardless of fluctuating
share prices, you should consider your financial ability to continue investing
in periods of low prices. MFS offers two dollar-cost averaging programs. See
the prospectus for further details. Dollar-cost averaging does not assure a
profit or avoid a loss.
THE AUTOMATIC INVESTMENT PLAN offers a simple way to make regular investments
of at least $50 through automatic withdrawals from your checking account.
THE AUTOMATIC EXCHANGE PLAN automatically exchanges shares from any MFS fund
with $5,000 or more into the same class of shares in up to four other MFS
funds. You choose the amounts of the exchanges (as little as $50) and their
frequency.
<TABLE>
A HYPOTHETICAL EXAMPLE OF AN AUTOMATIC MONTHLY INVESTING COMPOUNDING AT 8% A YEAR
<CAPTION>
Amount 5 Years 10 15 20 25
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 50 3,671 9,064 16,989 28,633 45,742
$ 75 5,506 13,596 25,483 42,950 68,613
$100 7,341 18,128 33,978 57,266 91,484
$200 14,683 38,257 67,956 114,532 182,968
<FN>
For illustration only. Not indicative of future performance of any MFS fund.
</TABLE>
For applications or further information call 1-800-225-2606 any business day
from 8 a.m. to 8 p.m. Eastern time.
If you are a participant in a retirement plan, check with your plan sponsor
regarding the availability of these options.
35
<PAGE> 38
THE MFS FAMILY OF FUNDS*
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
anytime). This material should be read carefully before investing or sending
money.
STOCK
- ----------------------------------------------------------------
Massachusetts Investors Trust
Massachusetts Investors Growth Stock Fund
MFS[Registered Trademark] Capital Growth Fund
MFS[Registered Trademark] Emerging Growth Fund
MFS[Registered Trademark] Gold & Natural Resources Fund
MFS[Registered Trademark] Growth Opportunities Fund
MFS[Registered Trademark] Managed Sectors Fund
MFS[Registered Trademark] OTC Fund
MFS[Registered Trademark] Research Fund
MFS[Registered Trademark] Value Fund
STOCK AND BOND
- ----------------------------------------------------------------
MFS[Registered Trademark] Total Return Fund
MFS[Registered Trademark] Utilities Fund
BOND
- ----------------------------------------------------------------
MFS[Registered Trademark] Bond Fund
MFS[Registered Trademark] Government Mortgage Fund
MFS[Registered Trademark] Government Securities Fund
MFS[Registered Trademark] High Income Fund
MFS[Registered Trademark] Intermediate Income Fund
MFS[Registered Trademark] Strategic Income Fund
LIMITED MATURITY BOND
- ----------------------------------------------------------------
MFS[Registered Trademark] Government Limited Maturity Fund
MFS[Registered Trademark] Limited Maturity Fund
MFS[Registered Trademark] Municipal Limited Maturity Fund
WORLD
- ----------------------------------------------------------------
MFS[Registered Trademark]/Foreign & Colonial Emerging Markets
Equity Fund
MFS[Registered Trademark]/Foreign & Colonial International
Growth Fund
MFS[Registered Trademark]/Foreign & Colonial International
Growth and Income Fund
MFS[Registered Trademark] World Asset Allocation Fund[Trademark]
MFS[Registered Trademark] World Equity Fund
MFS[Registered Trademark] World Governments Fund
MFS[Registered Trademark] World Growth Fund
MFS[Registered Trademark] World Total Return Fund
NATIONAL TAX-FREE BOND
- ----------------------------------------------------------------
MFS[Registered Trademark] Municipal Bond Fund
MFS[Registered Trademark] Municipal High Income Fund
MFS[Registered Trademark] Municipal Income Fund
STATE TAX-FREE BOND
- ----------------------------------------------------------------
Alabama, Arkansas, California, Florida
Georgia, Maryland, Massachusetts,
Mississippi, New York, North Carolina,
Pennsylvania, South Carolina, Tennessee,
Virginia, West Virginia
MONEY MARKET
- ----------------------------------------------------------------
MFS[Registered Trademark] Cash Reserve Fund
MFS[Registered Trademark] Government Money Market Fund
MFS[Registered Trademark] Money Market Fund
36
<PAGE> 39
<TABLE>
MFS[Registered Trademark] WORLD ASSET ALLOCATION FUND[Trademark]
<S> <C>
TRUSTEES ASSISTANT TREASURER
A. Keith Brodkin* - Chairman and President James O. Yost*
Richard B. Bailey* - Private Investor; SECRETARY
Former Chairman and Director (until 1991), Stephen E. Cavan*
Massachusetts Financial Services Company;
Director, Cambridge Bancorp; Director, ASSISTANT SECRETARY
Cambridge Trust Company James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor CUSTODIAN
Investors Bank & Trust Company
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; AUDITOR
Professor of Surgery, Harvard Medical School Ernst & Young LLP
The Hon. Sir J. David Gibbons, KBE - Chief INVESTOR INFORMATION
Executive Officer, Edmund Gibbons, Ltd.; For MFS stock and bond market outlooks, call
Chairman, Bank of N.T. Butterfield & Son ltd. toll free: 1-800-637-4458 anytime from a
touch-tone telephone.
Abby M. O'Neill - Private Investor;
Director, Rockefeller Financial Services, Inc. For information on MFS mutual funds,
(investment advisers) call your financial adviser or, for an
information kit, call toll free:
Walter E. Robb, III - President and Treasurer, 1-800-637-2929 any business day from
Benchmark Advisers, Inc. (corporate financial 9 a.m. to 5 p.m. Eastern time (or leave
consultants); President, Benchmark Consulting a message anytime).
Group, Inc. (office services); Trustee, Landmark
Funds (mutual funds) INVESTOR SERVICE
MFS Service Center, inc.
Arnold D. Scott* - Senior Executive Vice P.O. Box 2281
President, Director and Secretary, Boston, MA 02107-9906
Massachusetts Financial Services Company
For general information, call toll free:
Jeffrey L. Shames* - President and Director, 1-800-225-2606 any business day from
Massachusetts 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, call
Inc. (acquisition planning specialists) toll free: 1-800-637-6576 any business day
from 9 a.m. to 5 p.m. Eastern time. To use
Ward Smith - Former Chairman (until 1994), NACCO this service, your phone must be equipped with
Industries; Director, Sundstrand a Telecommunications Device for the Deaf.
Corporation
For share prices, account balances and
INVESTMENT ADVISER exchanges, call toll free: 1-800-MFS-TALK
Massachusetts Financial Services Company (1-800-637-8255) anytime from a touch-tone
500 Boylston Street telephone.
Boston, MA 02116-3741
WEB SITE
DISTRIBUTOR http://www.mfs.com
MFS Fund Distributors, Inc.
500 Boylston Street [GRAPHIC] For the second year in a row, MFS earned a #1
Boston, MA 02116-3741 ranking in DALBAR, Inc.'s Broker/Dealer Survey, Main Office
Operations Service Quality category. The firm achieved a 3.49
ASSET ALLOCATION COMMITTEE* overall score - on a scale of 1 to 4 - in the 1995 survey. A total
A. Keith Brodkin of 71 firms responded, offering input on the quality of service
Jeffery L. Shames they receive from 36 mutual fund companies nationwide. The survey
John W. Ballen contained questions about service quality in 17 categories,
Leslie J. Nanberg including knowledge of phone service contacts, accuracy of
James T. Swanson transaction processing, and overall ease of doing business with
the firm. The 1996 survey results were not available at the time
TREASURER of this printing.
W. Thomas London*
<FN>
* Affiliated with the Investment Adviser
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
MFS[REGISTERED TRADEMARK] WORLD [LOGO]
ASSET ALLOCATION ----------------------
FUND[SERVICEMARK] BULK RATE
500 Boylston Street U.S. POSTAGE
Boston, MA 02116 PAID
[LOGO] PERMIT #55638
----------------------
</TABLE>
(C)1996 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116
MAA-2 10/96 28.5M 88/288/388
